-----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, WVUnZM1Y7CQipido8OiqZjfYfM2qrfEr3EWvx8ZfklhAzwjK0gMPGDIcZ+8pE21G 2aECXxfKJlxghP5kzzzjnA== 0000950109-95-004760.txt : 19951121 0000950109-95-004760.hdr.sgml : 19951121 ACCESSION NUMBER: 0000950109-95-004760 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 DATE AS OF CHANGE: 19951117 SROS: CSX SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCO STANDARD CORP CENTRAL INDEX KEY: 0000003370 STANDARD INDUSTRIAL CLASSIFICATION: 5110 IRS NUMBER: 230334400 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05964 FILM NUMBER: 95593541 BUSINESS ADDRESS: STREET 1: P O BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 2152968000 MAIL ADDRESS: STREET 1: BOX 834 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: ALCO CHEMICAL CORP DATE OF NAME CHANGE: 19680218 10-K 1 FORM 10-K Alco Standard Corporation SEC FORM 10-K SEPTEMBER 30, 1995 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1995 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934) COMMISSION FILE NUMBER 1-5964 ALCO STANDARD CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 23-0334400 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) BOX 834, VALLEY FORGE, PENNSYLVANIA 19482 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) Registrant's telephone number, including area code: (610) 296-8000 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON WHICH TITLE OF CLASS REGISTERED -------------- ----------------- Common Stock, no par value New York Stock Exchange (with Preferred Share Purchase Rights) Philadelphia Stock Exchange Chicago Stock Exchange Series AA Convertible Preferred Stock New York Stock Exchange (Depositary Shares) Series BB Conversion Preferred Stock New York Stock Exchange (Depositary Shares) Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF NOVEMBER 10, 1995 WAS APPROXIMATELY $5,208,831,084 BASED UPON THE CLOSING SALES PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE OF $46.75 PER COMMON SHARE (ON NOVEMBER 10, 1995), $104.75 PER DEPOSITARY SHARE OF SERIES AA CONVERTIBLE PREFERRED STOCK (ON NOVEMBER 10, 1995), AND $86.75 PER DEPOSITARY SHARE OF SERIES BB CONVERSION PREFERRED STOCK (ON NOVEMBER 10, 1995). FOR PURPOSES OF THE FOREGOING SENTENCE ONLY, ALL DIRECTORS AND OFFICERS OF THE REGISTRANT AND THE TRUSTEES OF THE REGISTRANT'S PENSION PLAN AND STOCK PURCHASE PLANS WERE ASSUMED TO BE AFFILIATES. THE NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OF THE REGISTRANT OUTSTANDING AS OF NOVEMBER 10, 1995 WAS 112,375,514. DOCUMENTS INCORPORATED BY REFERENCE PARTS I AND II--REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995 PART III--REGISTRANT'S PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. Alco Standard Corporation ("Alco" or the "Company") was incorporated in Ohio in 1952 and is the successor to a business incorporated under a similar name in 1928. The term "Alco" generally includes Alco Standard Corporation and its subsidiaries and divisions. The address of Alco's principal executive offices is P.O. Box 834, Valley Forge, Pennsylvania 19482 (telephone number: (610) 296-8000). Alco markets and distributes office equipment, paper and supply systems. In fiscal 1995, Alco had annual revenues of approximately $9.9 billion. The information concerning revenues, income before taxes and assets attributable to each of Alco's business segments for each of the three years in the period ended September 30, 1995 set forth under "Segment Data" in the consolidated financial statements included on page 46 of Alco's Annual Report to Shareholders for the fiscal year ended September 30, 1995 ("1995 Annual Report") is incorporated herein by reference. Alco was founded and continues to operate as "The Corporate Partnership." Under this entrepreneurial principle, Alco field executives maintain a high degree of operating autonomy, which enhances the Company's ability to serve and support its customers. The following describes Alco's two business segments. ALCO OFFICE PRODUCTS Alco Office Products ("AOP") sells, rents and leases photocopiers, fax machines and other automated office equipment for use in both traditional and integrated office environments. AOP also provides equipment service and supplies, equipment financing and reprographic facilities management and specialized document copying services. AOP has locations throughout the United States and Canada, and in Europe (primarily in the United Kingdom). These companies comprise the largest network of independent copier and office equipment dealers in North America and in the United Kingdom, and represent the only independent distribution network with national scope. AOP competes against numerous competitors over a wide range of markets, competing on the basis of quality customer service, price and product performance. AOP distributes the products of numerous manufacturers, including Canon, Oce, Ricoh and Sharp, throughout forty-eight states, six Canadian provinces and in Europe. Customers include large and small businesses, professional firms and government agencies. During fiscal 1993, 1994 and 1995, AOP accounted for approximately 25%, 28% and 29%, respectively, of Alco's consolidated revenues, and 50%, 55% and 53%, respectively, of Alco's operating income (excluding Unisource restructuring costs in 1993). During fiscal 1995, AOP acquired 102 office products companies in the United States, Canada, and Europe, with an aggregate of over $578 million in annualized revenues. In May 1995, AOP acquired CopyAmerica, the largest copy center in the country, which specializes in on-demand manuals and other short- run documents. AOP's European expansion during fiscal 1995 included the acquisition of seven companies in the United Kingdom, the largest of which was Southern Business Group (renamed A: Copy (UK) PLC), with annualized revenues of approximately $86 million. UNISOURCE Unisource Worldwide, Inc. ("Unisource") markets and distributes quality printing and imaging products for office and reprographic use. Through its supply systems segment, Unisource also distributes disposable paper and plastic products, packaging systems and maintenance supplies. During fiscal 1993, 1994 and 1995 Unisource accounted for approximately 75%, 72%, and 71%, respectively, of Alco's consolidated revenues from continuing operations, and 50%, 45% and 47%, respectively, of Alco's operating income (excluding Unisource restructuring costs in 1993). Unisource focuses on five market segments: printing and publishing, corporate imaging, general manufacturing, food processing and retail grocery. Unisource combines its broad array of products with specialized customer services and is implementing sophisticated information technology to tailor solutions which lower the total cost of customers' procurement and improve the efficiency of their operations. Unisource offers its customers coordinated delivery of products, customized reporting and consolidated billing. Unisource's national distribution capabilities allow it to respond quickly to the customer's needs. Unisource has locations in forty-five states, every province of Canada and in Mexico. Unisource's operations constitute the largest independent network of paper distributors in the United States and Canada. Although substantial in the aggregate, these operations compete separately in many different markets against numerous competitors, including both independent distributors and those owned by major paper manufacturers. Although its business is highly competitive and its competitors numerous, Unisource believes that its competitive position is strong. Unisource competes principally on the basis of quality customer service, price and the range of products maintained in inventory. In fiscal 1995, Unisource acquired twelve companies, primarily in supply systems target markets, with $152 million in annualized revenues, including four companies in Mexico. INFORMATION CONCERNING ALCO'S BUSINESS IN GENERAL STOCK SPLIT On November 9, 1995, the Company effected a two-for-one split of its common stock in the form of a stock dividend to shareholders of record on October 27, 1995. All common share and per share amounts reported by Alco in its consolidated financial statements have been adjusted to give retroactive effect to the stock split. UNISOURCE RESTRUCTURING PLAN In September 1993, the Company adopted a plan to restructure Unisource's distribution network, which included the following: installation of a customer-focused information system, redesigning of warehouse and transportation management functions, regionalization of management and administrative support functions and consolidation of service center locations. As a result of the restructuring, the Company recorded a pretax charge of $175 million in the fourth quarter of fiscal 1993. At September 30, 1995, the remaining restructuring reserve was approximately $39 million, which management believes is adequate to complete the restructuring plan in fiscal 1997. BOARD AND MANAGEMENT CHANGES In November 1995, John E. Stuart, who was appointed President and Chief Executive Officer of Alco in August 1993, was named Chairman of the Board of Directors, succeeding Ray B. Mundt. Mr. Mundt retired as an active employee of Alco effective December 31, 1994 and will continue to serve as a member of the Board. In August 1995, Kurt E. Dinkelacker (who had been serving as Executive Vice President and Chief Financial Officer of Alco) was named President of the Alco Office Products Group. Mr. Dinkelacker will continue as an Executive Vice President of Alco. In January 1995, William T. Leith was named President of Unisource, and a Vice President of Alco. Mr. Leith, who had been serving as Executive Vice President for Unisource's U.S. Operations, now directs all of Unisource's operations throughout the United States, Canada and Mexico. 2 Among other executive changes during fiscal 1995, Yves Montmarquette was named President of Unisource Canada, succeeding Raymond (Pike) Peterson, Donald R. Smallwood was appointed President of Unisource Distribuidora, and William M. Laughlin was named Vice President, Acquisitions of Unisource. In August 1995, Elisabeth H. Barrett was appointed Vice President-- Administrative Services of Alco. In August 1995, Barbara Barnes Haupfuhrer, a member of the Board since 1988, was named Chairman of the Independent Directors. J. Mahlon Buck, Jr., who has been a director since 1984, retires from the Board in January 1996. EQUITY OFFERINGS In July 1995, Alco completed a public offering of 3,877,200 depositary shares, each representing 1/100 of a share of Series BB conversion preferred stock, and used the net proceeds of approximately $290 million to reduce outstanding debt. DIVESTITURES In September, 1995, the Company sold its Central Products Company to Spinnaker Industries, Inc. Central Products, which manufactures paper-based carton sealing tapes, has annualized revenues of approximately $120 million. SUPPLIERS AND CUSTOMERS Products distributed by Alco are purchased from numerous domestic and overseas suppliers. There has been no significant difficulty in obtaining products from these suppliers. Supplier relationships are good and are expected to continue. Neither AOP nor Unisource is dependent upon a single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on Alco's business taken as a whole. Many of Alco's operations are required to carry significant amounts of inventory to meet rapid delivery requirements of customers. At September 30, 1995, inventories accounted for approximately 35% of Alco's total current assets. PROPRIETARY MATTERS Alco has a number of patents, licenses and trademarks. Alco does not believe, however, that any one patent, license or trademark is material to its operations as a whole. ENVIRONMENTAL REGULATION Environmental laws and liabilities relating to Alco's current businesses (which are primarily distribution operations) have not had and are not expected to have a material adverse effect upon Alco's capital expenditures, earnings or competitive position. Certain environmental claims, however, are now pending against Alco for manufacturing or landfill sites relating to predivestiture activities of discontinued operations. As a result of several recent environmental remediation claims, and increased estimated costs associated with existing environmental remediation sites (primarily related to discontinued manufacturing operations divested by the Company in 1991 and prior), the Company took a fourth quarter charge in fiscal 1995 to increase its liabilities for environmental remediation. The discontinued operations charge was approximately $24 million (approximately $17 million net of tax) or $.14 per share. The adjustment reflects management's best estimate, based on information currently available, of costs to be incurred for existing and probable claims relating to discontinued operations. While it is not possible to estimate what expenditures may be required in order for Alco to comply with environmental laws or discharge environmental liabilities in the future, Alco does not believe that such expenditures will have a material adverse effect on it or its operations as a whole. 3 EMPLOYEES At September 30, 1995, Alco had approximately 36,500 employees. FOREIGN OPERATIONS Alco's operations in Canada distribute paper, industrial supplies and packaging products, and distribute and service office equipment. Alco's European operations distribute and service office equipment. In June 1995, Erskine Limited, a U.K. subsidiary of Alco, purchased all of the outstanding shares of Southern Business Group PLC (SBG) and changed SBG's name to A:Copy (UK) PLC ("A:Copy"). A:Copy has annualized revenues of approximately $86 million, and sells, leases, services and remanufactures copiers and other office equipment in Southern England. In September 1995, AOP further expanded its presence in the United Kingdom by acquiring Copymore PLC, an office equipment distributor with approximately $52 million in annualized revenues. Unisource expanded into Mexico during fiscal 1995, acquiring four new companies with 18 locations. Information concerning revenues, income before taxes and identifiable assets of Alco's foreign operations for each of the three years in the period ended September 30, 1995 set forth in note 9 to the consolidated financial statements included on page 36 of Alco's 1995 Annual Report is incorporated herein by reference. Revenues from exports during the last three fiscal years were not significant. There are additional risks attendant to foreign operations, such as possible currency fluctuations and unsettled political conditions. ITEM 2. PROPERTIES. At September 30, 1995, Alco owned or leased facilities in fifty states, nine Canadian provinces, in Europe and in Mexico. These properties occupy a total of approximately 23 million square feet of which approximately 7 million square feet are owned and the balance are leased under lease agreements with various expiration dates. Alco believes that none of its properties is materially important to its operations as a whole, and believes that its facilities are suitable and adequate for the purposes for which they are used. ITEM 3. LEGAL PROCEEDINGS. During 1995, Alco agreed to pay $10 million to settle a claim by a former subsidiary which had asserted that Alco was liable to it for certain employee liabilities. This amount was primarily charged against existing reserves for discontinued operations. The Company paid $5 million during 1995 with the remaining $5 million to be paid over the next four years. Alco does not believe that the outcome of lawsuits or other legal proceedings to which it is a party will materially affect Alco or its operations as a whole. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (No response to this item is required.) ---------------- 4 EXECUTIVE OFFICERS OF ALCO The following is a list of Alco's executive officers, their ages and their positions with Alco or its subsidiaries for the last five years. ----------------
NAME AGE POSITION (AND YEAR ELECTED OR YEARS SERVED) ---- --- ------------------------------------------- John E. Stuart................... 51 Chairman (1995), Chief Executive Officer and President (1993); Vice President (1989-1993) and Group President (1985-1993) William F. Drake, Jr. ........... 63 Vice Chairman (1984) Kurt E. Dinkelacker.............. 42 Group President--Alco Office Products (1995) and Executive Vice President (1993); Chief Financial Officer (1993-1995); Executive Vice President-- Finance, Alco Office Products (1989-1991); Group Controller, Alco Office Products (1987-1989) Hugh G. Moulton.................. 62 Executive Vice President (1992); General Counsel (1979-1994); Senior Vice President-- Administration (1983-1992) Elisabeth H. Barrett............. 50 Vice President--Administrative Services (1995); Director--Administrative Services (1994-1995); Director--Corporate MIS/HR (1992-1993) O. Gordon Brewer, Jr. ........... 58 Vice President--Finance (1986) Kathleen M. Burns................ 43 Vice President (1994) and Treasurer (1989); Assistant Treasurer (1987-1989) J. Kenneth Croney................ 53 Vice President (1983), General Counsel (1994) and Secretary (1983) Stephen K. Deay.................. 48 Vice President--Tax (1993); Director--Taxes (1989-1993) Michael J. Dillon................ 42 Vice President (1994) and Controller (1993); Group Controller, Alco Office Products (1991- 1993); Associate Audit Director (1991); Senior Audit Manager (1987-1991) William T. Leith................. 48 Group President--Unisource and Vice President (1995); Executive Vice President--Unisource, U.S. Operations (1994-1995); President--PCA Central (1991-1994); President--Distribix (an Alco Standard company) (1988-1991) Charles R. Tilden................ 42 Vice President--Corporate Affairs (1994); Vice President--Communications, Gencorp (1988-1994)
5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The New York Stock Exchange is the principal market on which Alco's common stock is traded (ticker symbol ASN). Alco's common stock is also traded on the Philadelphia and Chicago Stock Exchanges. As of November 10, 1995, there were approximately 14,561 holders of record of Alco's common stock. The information regarding the quarterly market price ranges of Alco's common stock and dividend payments under "Quarterly Data" on page 48 of the 1995 Annual Report is incorporated herein by reference. Alco currently expects to continue its policy of paying regular cash dividends, although there can be no assurance as to future dividends because they are dependent upon future operating results, capital requirements and financial condition and may be limited by covenants in certain loan agreements. ITEM 6. SELECTED FINANCIAL DATA. Information appearing under "Corporate Financial Summary" for fiscal 1991 through 1995 regarding revenues, income from continuing operations, income from continuing operations per common share, total assets, total debt, serial preferred stock and cash dividends per common share on pages 44 and 45 of the 1995 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information appearing under "Financial Review" on pages 40 through 43 of the 1995 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Auditors and Consolidated Financial Statements of Alco and its subsidiaries on pages 24 through 39 and the information appearing under "Quarterly Data" for fiscal 1995 and 1994 on page 48 of the 1995 Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. (No response to this item is required) ---------------- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding directors appearing in Alco's Notice of Annual Meeting of Shareholders and Proxy Statement for the January 25, 1996 annual meeting of shareholders (the "1996 Proxy Statement") is incorporated herein by reference. Information regarding executive officers is set forth in Part I of this report and additional information regarding executive officers appearing under "Executive Compensation" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information appearing under "Executive Compensation" in the 1996 Proxy Statement is incorporated herein by reference. 6 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding security ownership of certain beneficial owners and management appearing under "Security Ownership" in the 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information appearing under "Certain Transactions" in the 1996 Proxy Statement is incorporated herein by reference. ---------------- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (2) List of Financial Statements and Financial Statement Schedules. The response to this portion of Item 14 is submitted on page F-1 hereof as a separate section of this report. (a) (3) List of Exhibits.* The following exhibits are filed as a part of this report (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K): 3.1 Amended and Restated Articles of Incorporation of Alco Standard Corporation ("Alco"). 3.2 Code of Regulations of Alco, as amended February 9, 1982, filed as Exhibit 3(b) to Alco's 1982 Form 10-K, is incorporated herein by reference. 4.1 1993 Credit Agreement, dated as of September 30, 1993, among Alco, Alco Office Products (U.K.) and various institutional lenders, filed as Exhibit 4.1 to Alco's 1993 Form 10-K, is incorporated herein by reference. 4.2 Revolving Credit and Acceptance Agreement, dated as of April 21, 1993, among Alco, Unisource Canada Inc. and The Toronto Dominion Bank, filed as Exhibit 4.2 to Alco's 1993 Form 10-K, is incorporated herein by reference. Amendment No. 1 to Revolving Credit and Acceptance Agreement, filed as Exhibit 4.2 to Alco's 1994 10-K, is incorporated herein by reference. 4.3 Credit Agreement, dated December 1, 1994, among Alco and various institutional lenders, filed as Exhibit 4.8 to Alco's Registration Statement No. 33-56437, is incorporated herein by reference. Amendment No. 1 dated February 1, 1995. 4.4 Receivables Purchase Agreement and Guarantee between PCA Paper Acquisition Inc., Stars Trust, Alco and Bank of Montreal, filed as Exhibit 4.4 to Alco's 1992 10-K, is incorporated herein by reference. Amendment dated September 30, 1994 to Receivables Purchase Agreement, filed as Exhibit 4.4 to Alco's 1994 10-K, is incorporated herein by reference. 4.5 Credit Agreement dated as of October 13, 1995 among Alco Office Systems Canada, Inc., Deutsche Bank Canada, Chemical Bank of Canada and Royal Bank of Canada. 4.6 Participation Agreement dated as of November 8, 1994 among Unisource Worldwide, Inc. and AOP, Inc. as Lessees, Alco, as Guarantor, PPI SPV, L.P., as Lessor, Pitcairn SPV Inc., as General Partner of Lessor and Trust Company Bank, as Lender and Agent. 4.7 Rights Agreement dated as of February 10, 1988 between Alco and National City Bank, filed on February 11, 1988 as Exhibit 1 to Alco's Registration Statement on Form 8-A, is incorporated herein by reference.
7 4.8 Assumption Agreement and Amended and Restated Note Agreement dated as of May 13, 1994 between Alco and the Prudential Insurance Company of America, filed as Exhibit 4.5 to Alco's 1994 10-K, is incorporated herein by reference. Amendment No. 1 dated September 30, 1995. 4.9 Note Purchase Agreement between Alco and various purchasers dated July 15, 1995 for $55 million in 7.15% Notes due November 15, 2005. 4.10 Pursuant to Regulation S-K item 601(b)(iii), Alco agrees to furnish to the Commission, upon request, a copy of other instruments defining the rights of holders of long-term debt of Alco and its subsidiaries. 10.1 Note Purchase Agreement, dated as of June 15, 1986 between Alco and certain institutional investors, filed as Exhibit 4.2 to Alco's Current Report, dated July 1, 1988, on Form 8-K, is incorporated herein by reference. 10.2 Alco Standard Corporation Amended and Restated Long Term Incentive Compensation Plan.** 10.3 Alco Standard Corporation Annual Bonus Plan, filed as Exhibit 10.3 to Alco's 1994 10-K, is incorporated herein by reference.** 10.4 Alco Standard Corporation Partners' Stock Purchase Plan, filed as Exhibit 10.4 to Alco's 1994 10-K, is incorporated herein by reference.** 10.5 Alco Standard Corporation 1981 Stock Option Plan, filed as Exhibit 10.5 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.6 Alco Standard Corporation Amended and Restated 1986 Stock Option Plan.** 10.7 Alco Standard Corporation 1989 Directors' Stock Option Plan, filed as Exhibit 10.3 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.8 Alco Standard Corporation 1993 Directors' Stock Option Plan, filed as Exhibit 10.7 to Alco's 1993 Form 10-K, is incorporated herein by reference.** 10.9 Alco Standard Corporation 1995 Stock Option Plan, filed as Exhibit 94 to Alco's Registration Statement No. 33-56469 on Form S-8, is incorporated herein by reference.** 10.10 Alco Standard Corporation 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.11 Alco Standard Corporation 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.12 Alco Standard Corporation 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.13 Alco Standard Corporation Retirement Plan for Non-Employee Directors, filed as Exhibit 10.10 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.14 Alco Standard Corporation Amended and Restated 1994 Deferred Compensation Plan.** 10.15 Indenture, dated as of April 1, 1986 between Alco and the Chase Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to Alco's Registration Statement No. 30-4829, is incorporated herein by reference. 10.16 Support Agreement dated as of June 1, 1994 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.4 to Alco Capital Resource's Amended Registration Statement in Form 10-12G/A dated May 27, 1994, is incorporated herein by reference. 10.17 Maintenance Agreement, dated as of August 15, 1991 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.2 to Alco Capital Resource's Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference.
8 10.18 Operating Agreement, dated as of August 15, 1991 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.3 to Alco Capital Resource's Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. 10.19 Agreement effective January 1, 1994 between Unisource Worldwide, Inc. and Integrated Systems Solution Corporation, a subsidiary of IBM, portions of which contain confidential material, filed as Exhibit 10.20 to Alco's 1994 Form 10-K/A filed on March 17, 1995, is incorporated herein by reference. 10.20 Receivables Transfer Agreement dated as of September 23, 1994 Among Alco Capital Resource, Inc., Twin Towers, Inc. and Deutsche Bank AG, New York Branch, portions of which contain confidential material, filed as Exhibit 10.21 to Alco's 1994 10-K/A filed on March 17, 1995, is incorporated herein by reference. 10.21 Distribution Agreement dated as of June 30, 1995 between Alco Capital Resource, Inc. and various distribution agents. 10.22 Indenture dated as of July 1, 1994 between Alco Capital Resource, Inc. and Nations Bank, N.A., as Trustee, filed as Exhibit 4 to Alco Capital Resource's Registration Statement No. 33-53779, is incorporated herein by reference. 10.23 Indenture dated as of July 1, 1995 between Alco Capital Resource, Inc. and Chemical Bank, N.A., as Trustee. 11 Statement re: Computation of earnings per share. 12.1 Ratio of Earnings to Fixed Charges. 12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance Subsidiaries. 12.3 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 12.4 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends Excluding Captive Finance Subsidiaries. 13 Financial Section of Alco's Annual Report to Shareholders for the fiscal year ended September 30, 1995 (which, except for those portions thereof expressly incorporated herein by reference, is furnished for the information of the Commission and is not "filed" as part of this report). 21 Subsidiaries of Alco. 23 Auditors' Consent. 24 Powers of Attorney; certified resolution re: Powers of Attorney. 27 Financial Data Schedule.
- - -------- * Copies of the exhibits will be furnished to any security holder of Alco upon payment of the reasonable cost of reproduction. **Management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. On July 21, 1995, Alco filed a Current Report on Form 8-K to report under Item 5 that its Articles of Incorporation had been amended to add a series of preferred stock (Series BB). On October 12, 1995, Alco filed a Current Report on Form 8-K to report under Item 5 a pretax charge to discontinued operations for environmental liabilities of approximately $24 million (approximately $17 million net of tax) in the fourth quarter of fiscal 1995. On October 18, 1995, Alco filed a Current Report on Form 8-K to report under Item 5 certain information included in its October 17, 1995 press release, including its fourth quarter earnings, a two-for-one common stock split and an increase in its quarterly common stock dividend. (c) The response to this portion of Item 14 is submitted in response to Item 14(a)(3) above. (d) The response to this portion of Item 14 is contained on page S-1 of this report. 9 ALCO STANDARD CORPORATION AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K ITEMS 14(A)(1) AND (2) AND 14(D) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS: The following consolidated financial statements of Alco Standard Corporation and its subsidiaries included in the 1995 Annual Report to Shareholders are incorporated by reference in Item 8 of Part II of this report: Consolidated Statements of Income --Fiscal years ended September 30, 1995, September 30, 1994 and September 30, 1993 Consolidated Balance Sheets --September 30, 1995 and September 30, 1994 Consolidated Statements of Cash Flows --Fiscal years ended September 30, 1995, September 30, 1994 and September 30, 1993 Consolidated Statements of Changes in Shareholders' Equity --Fiscal years ended September 30, 1995, September 30, 1994 and September 30, 1993 Notes to Consolidated Financial Statements FINANCIAL STATEMENT SCHEDULES: The following consolidated financial statement schedules of Alco Standard Corporation and its subsidiaries are submitted in response to Item 14(d): Schedule II--Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. F-1 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Alco Standard Corporation Date: November 14, 1995 /s/ Michael J. Dillon By___________________________________ (MICHAEL J. DILLON) VICE PRESIDENT AND CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS AMENDMENT ON FORM 10-K/A HAS BEEN SIGNED BELOW ON NOVEMBER 14, 1995 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED. SIGNATURES TITLE *John E. Stuart Chairman, President, and Chief - - ------------------------------------- Executive Officer (Principal (JOHN E. STUART) Executive Officer) /s/ Kurt E. Dinkelacker Executive Vice President and Chief - - ------------------------------------- Financial Officer (Principal (KURT E. DINKELACKER) Financial Officer) /s/ Michael J. Dillon Vice President and Controller - - ------------------------------------- (Principal Accounting Officer) (MICHAEL J. DILLON) *Ray B. Mundt Director - - ------------------------------------- (RAY B. MUNDT) *J. Mahlon Buck, Jr. Director - - ------------------------------------- (J. MAHLON BUCK, JR.) *Paul J. Darling Director - - ------------------------------------- (PAUL J. DARLING) *William F. Drake, Jr. Director - - ------------------------------------- (WILLIAM F. DRAKE, JR.) *James J. Forese Director - - ------------------------------------- (JAMES J. FORESE) *Frederick S. Hammer Director - - ------------------------------------- (FREDERICK S. HAMMER) *Barbara Barnes Hauptfuhrer Director - - ------------------------------------- (BARBARA BARNES HAUPTFUHRER) *Dana G. Mead Director - - ------------------------------------- (DANA G. MEAD) *Paul C. O'Neill Director - - ------------------------------------- (PAUL C. O'NEILL) *Rogelio G. Sada Director - - ------------------------------------- (ROGELIO G. SADA) *James W. Stratton Director - - ------------------------------------- (JAMES W. STRATTON) *By his signature set forth below, Hugh G. Moulton, pursuant to duly executed Powers of Attorney duly filed with the Securities and Exchange Commission, has signed this Form 10-K on behalf of the persons whose signatures are printed above, in the capacities set forth opposite their respective names. /s/ Hugh G. Moulton November 14, 1995 - - ------------------------------------- (HUGH G. MOULTON) ALCO STANDARD CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E ------ ------ ------ ------------ ----------- ADDITIONS ----------------------- CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD ----------- ----------- ----------- ----------- ------------ ----------- YEAR ENDED SEPTEMBER 30, 1995 - - ------------------------ Allowance for doubtful accounts............... $29,428,000 $21,900,000 $17,249,000(1) $19,949,000(2) $48,628,000 YEAR ENDED SEPTEMBER 30, 1994 - - ------------------------ Allowance for doubtful accounts............... $27,528,000 $19,668,000 $ 836,000(1) $18,604,000(2) $29,428,000 YEAR ENDED SEPTEMBER 30, 1993 - - ------------------------ Allowance for doubtful accounts............... $23,947,000 $19,702,000 $ 4,768,000(1) $20,889,000(2) $27,528,000
- - -------- (1) Represents beginning balances of acquired companies. (2) Accounts written off during year, net of recoveries. S-1 ALCO STANDARD CORPORATION VALLEY FORGE, PENNSYLVANIA 19482-0834 (610) 296-8000 EXHIBIT INDEX
EXHIBIT PAGE NO. EXHIBIT NO. ------- ------- ---- 3.1 Amended and Restated Articles of Incorporation of Alco Standard Corporation ("Alco"). 3.2 Code of Regulations of Alco, as amended February 9, 1982, filed as Exhibit 3(b) to Alco's 1982 Form 10-K, is incorporated herein by reference. 4.1 1993 Credit Agreement, dated as of September 30, 1993, among Alco, Alco Office Products (U.K.) and various institutional lenders, filed as Exhibit 4.1 to Alco's 1993 Form 10-K, is incorporated herein by reference. 4.2 Revolving Credit and Acceptance Agreement, dated as of April 21, 1993, among Alco, Unisource Canada Inc. and The Toronto Dominion Bank, filed as Exhibit 4.2 to Alco's 1993 Form 10-K, is incorporated herein by reference. Amendment No. 1 to Revolving Credit and Acceptance Agreement, filed as Exhibit 4.2 to Alco's 1994 10-K, is incorporated herein by reference. 4.3 Credit Agreement, dated December 1, 1994, among Alco and various institutional lenders, filed as Exhibit 4.8 to Alco's Registration Statement No. 33-56437, is incorporated herein by reference. Amendment No. 1 dated February 1, 1995. 4.4 Receivables Purchase Agreement and Guarantee between PCA Paper Acquisition Inc., Stars Trust, Alco and Bank of Montreal, filed as Exhibit 4.4 to Alco's 1992 10-K, is incorporated herein by reference. Amendment dated September 30, 1994 to Receivables Purchase Agreement, filed as Exhibit 4.4 to Alco's 1994 10-K, is incorporated herein by reference. 4.5 Credit Agreement dated as of October 13, 1995 among Alco Office Systems Canada, Inc., Deutsche Bank Canada, Chemical Bank of Canada and Royal Bank of Canada. 4.6 Participation Agreement dated as of November 8, 1994 among Unisource Worldwide, Inc. and AOP, Inc. as Lessees, Alco, as Guarantor, PPI SPV, L.P., as Lessor, Pitcairn SPV Inc., as General Partner of Lessor and Trust Company Bank, as Lender and Agent. 4.7 Rights Agreement dated as of February 10, 1988 between Alco and National City Bank, filed on February 11, 1988 as Exhibit 1 to Alco's Registration Statement on Form 8-A, is incorporated herein by reference. 4.8 Assumption Agreement and Amended and Restated Note Agreement dated as of May 13, 1994 between Alco and the Prudential Insurance Company of America, filed as Exhibit 4.5 to Alco's 1994 10-K, is incorporated herein by reference. Amendment No. 1 dated September 30, 1995. 4.9 Note Purchase Agreement between Alco and various purchasers dated July 15, 1995 for $55 million in 7.15% Notes due November 15, 2005. 4.10 Pursuant to Regulation S-K item 601(b)(iii), Alco agrees to furnish to the Commission, upon request, a copy of other instruments defining the rights of holders of long-term debt of Alco and its subsidiaries. 10.1 Note Purchase Agreement, dated as of June 15, 1986 between Alco and certain institutional investors, filed as Exhibit 4.2 to Alco's Current Report, dated July 1, 1988, on Form 8-K, is incorporated herein by reference. 10.2 Alco Standard Corporation Amended and Restated Long Term Incentive Compensation Plan.** 10.3 Alco Standard Corporation Annual Bonus Plan, filed as Exhibit 10.3 to Alco's 1994 10-K, is incorporated herein by reference.** 10.4 Alco Standard Corporation Partners' Stock Purchase Plan, filed as Exhibit 10.4 to Alco's 1994 10-K, is incorporated herein by reference.** 10.5 Alco Standard Corporation 1981 Stock Option Plan, filed as Exhibit 10.5 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.6 Alco Standard Corporation Amended and Restated 1986 Stock Option Plan.**
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EXHIBIT PAGE NO. EXHIBIT NO. ------- ------- ---- 10.7 Alco Standard Corporation 1989 Directors' Stock Option Plan, filed as Exhibit 10.3 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.8 Alco Standard Corporation 1993 Directors' Stock Option Plan, filed as Exhibit 10.7 to Alco's 1993 Form 10-K, is incorporated herein by reference.** 10.9 Alco Standard Corporation 1995 Stock Option Plan, filed as Exhibit 94 to Alco's Registration Statement No. 33-56469 on Form S-8, is incorporated herein by reference.** 10.10 Alco Standard Corporation 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.11 Alco Standard Corporation 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.12 Alco Standard Corporation 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.13 Alco Standard Corporation Retirement Plan for Non-Employee Directors, filed as Exhibit 10.10 to Alco's 1992 Form 10-K, is incorporated herein by reference.** 10.14 Alco Standard Corporation Amended and Restated 1994 Deferred Compensation Plan.** 10.15 Indenture, dated as of April 1, 1986 between Alco and the Chase Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to Alco's Registration Statement No. 30-4829, is incorporated herein by reference. 10.16 Support Agreement dated as of June 1, 1994 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.4 to Alco Capital Resource's Amended Registration Statement in Form 10-12G/A dated May 27, 1994, is incorporated herein by reference. 10.17 Maintenance Agreement, dated as of August 15, 1991 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.2 to Alco Capital Resource's Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. 10.18 Operating Agreement, dated as of August 15, 1991 between Alco and Alco Capital Resource, Inc. (Alco's leasing subsidiary), filed as Exhibit 10.3 to Alco Capital Resource's Registration Statement on Form 10 dated May 4, 1994, is incorporated herein by reference. 10.19 Agreement effective January 1, 1994 between Unisource Worldwide, Inc. and Integrated Systems Solution Corporation, a subsidiary of IBM, portions of which contain confidential material, filed as Exhibit 10.20 to Alco's 1994 Form 10-K/A filed on March 17, 1995, is incorporated herein by reference. 10.20 Receivables Transfer Agreement dated as of September 23, 1994 Among Alco Capital Resource, Inc., Twin Towers, Inc. and Deutsche Bank AG, New York Branch, portions of which contain confidential material, filed as Exhibit 10.21 to Alco's 1994 10-K/A filed on March 17, 1995, is incorporated herein by reference. 10.21 Distribution Agreement dated as of July 1, 1995 between Alco Capital Resource, Inc. and various distribution agents. 10.22 Indenture dated as of July 1, 1994 between Alco Capital Resource, Inc. and Nations Bank, N.A., as Trustee, filed as Exhibit 4 to Alco Capital Resource's Registration Statement No. 33-53779, is incorporated herein by reference. 10.23 Indenture dated as of July 1, 1995 between Alco Capital Resource, Inc. and Chemical Bank, N.A., as Trustee. 11 Statement re: Computation of earnings per share. 12.1 Ratio of Earnings to Fixed Charges. 12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance Subsidiaries.
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EXHIBIT PAGE NO. EXHIBIT NO. ------- ------- ---- 12.3 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. 12.4 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends Excluding Captive Finance Subsidiaries. 13 Financial Section of Alco's Annual Report to Shareholders for the fiscal year ended September 30, 1995 (which, except for those portions thereof expressly incorporated herein by reference, is furnished for the information of the Commission and is not "filed" as part of this report). 21 Subsidiaries of Alco. 23 Auditors' Consent. 24 Powers of Attorney; certified resolution re: Powers of Attorney. 27 Financial Data Schedule.
- - -------- **Management contract or compensatory plan or arrangement. 3 EX-3.1 2 ARTICLES OF INCORPORATION Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ALCO STANDARD CORPORATION FIRST: The name of the Corporation shall be ALCO STANDARD CORPORATION. SECOND: The principal office of the Corporation in the State of Ohio is to be located at Cleveland in Cuyahoga County. THIRD: The purposes for which, and for any of which, the Corporation is formed are as follows: 1. To develop, manufacture, service, repair, treat, finish, buy, sell and generally deal in, in every manner, articles, materials and products of every kind and description, to own, hold and deal in, in every manner, all real and personal property, and to do all things necessary or incidental to the foregoing purposes. 2. In general to carry on any other lawful business whatsoever which is calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the value of its properties; and to have and exercise all rights, powers and privileges which are now or may hereafter be conferred upon corporations by the laws of Ohio; provided, however, that nothing contained in this Article Third shall be construed as authorizing the Corporation to carry on the business of a public utility or railroad as defined by the public utility laws of the State of Ohio. The Corporation reserves the right at any time and from time to time to substantially change its purposes in any manner now or hereafter permitted by statute. Any change of the purposes of the Corporation authorized or approved by the holders of shares entitled to exercise the proportion of the voting power of the Corporation now or hereafter required by statute for such authorization or approval shall be binding and conclusive upon every shareholder of the Corporation as fully as if such shareholder had voted therefor; and no shareholder, notwithstanding that he may have voted against such change of purposes or may have objected in writing thereto, shall be entitled to payment of the fair cash value of his shares. FOURTH: The number of shares which the Corporation is authorized to have outstanding is 152,135,878 consisting of 2,135,878 shares of Serial Preferred Stock of no par value (hereinafter called "Serial Preferred Stock"), and 150,000,000 shares of Common Stock of no par value (hereinafter called "Common Stock"). The shares of such classes shall have the following express terms: Division A EXPRESS TERMS OF THE SERIAL PREFERRED STOCK 1. Series and Rank. The Serial Preferred Stock may be issued from time --------------- to time in one or more series. All shares of Serial Preferred Stock shall be of equal - 2 - rank and shall be identical, except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of Sections 2 to 7, both inclusive, of this Division, which provisions shall apply to all Serial Preferred Stock, the Board of Directors hereby is authorized to cause such shares to be issued in one or more series and with respect to each such series prior to the issuance thereof to fix: (a) The designation of the series, which may be by distinguishing number, letter or title. (b) The number of shares of the series, which number the Board of Directors may (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The annual dividend rate of the series. (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative. (e) The redemption rights and price or prices, if any, for shares of the series. (f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series. (g) The amounts payable on shares of the series in the event of any liquidation, dissolution or winding up of the affairs of the Corporation, which amount may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary. (h) Whether the shares of the series shall be convertible into Common Stock, and, if so, the conversion price or prices, any adjustments thereof, and all other terms and conditions upon which such conversion may be made. (i) Restrictions on the issuance of shares of the same series or of any other class or series. The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation fixing, with respect to each such series, the matters described in clauses (a) to (i), both inclusive, of this Section 1. 2. Dividends. The holders of the Serial Preferred Stock of each series --------- shall be entitled to receive, when and as declared by the Board of Directors, out of funds of the Corporation legally available for dividends, dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Division, and no more, payable quarterly on the dates fixed for such series. Such dividends on each share of Serial Preferred Stock shall accrue and be cumulative, whether or - 3 - not earned or declared, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared or set apart for any of the Serial Preferred Stock for any quarterly dividend period unless at the same time a like proportionate dividend for the same quarterly dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid upon or declared or set apart for all Serial Preferred Stock of all series then issued and outstanding and entitled to receive such dividend. 3. Dividends on or Distributions to Holders of Junior Stock. -------------------------------------------------------- So long as any shares of Serial Preferred Stock are outstanding, the Corporation shall not (a) declare or pay any dividends (other than dividends payable in Common Stock or other shares of the Corporation ranking junior to the Serial Preferred Stock) to holders of Common Stock or shares of the Corporation of any other class ranking on a parity with or junior to the Serial Preferred Stock, or (b) make any distributions of assets (directly or indirectly, by purchase; redemption or otherwise) to the holders of Common Stock or shares of the Corporation of any other class ranking on a parity with or junior to the Serial Preferred Stock (except in the case of shares purchased in compromise of claims or to prevent loss on doubtful debts and except in the case of shares purchased out of the proceeds of the sale of Common Stock or other shares ranking junior to the Serial Preferred Stock received by the Corporation, subsequent to January 1, 1968): (a) Unless all accrued and unpaid dividends on shares of Serial Preferred Stock, including the full dividends for the then quarterly dividend period, shall have been paid or declared and funds sufficient for payment thereof set apart; and (b) Unless there shall be no arrearages with respect to redemption of shares of Serial Preferred Stock from any sinking fund provided for shares of such series in accordance with provisions of Section 1 of this Division. 4. Voting Rights. The holders of Serial Preferred Stock shall be ------------- entitled at all times to one vote for each share, and except as otherwise required by law, the holders of the Serial Preferred Stock and Common Stock of the Corporation shall vote together as one class on all matters, subject, however, to the special voting rights conferred upon the holders of the Serial Preferred Stock as hereinafter provided. If and when the Corporation shall be in default in the payment, in whole or in part, of each of six quarterly dividends (whether or not consecutive) accrued on any series of Serial Preferred Stock whether or not earned or declared, the holders of the Serial Preferred Stock of all series, voting separately as a single class, shall be entitled to elect two Directors of the Corporation, to serve in addition to the Directors otherwise elected. Such rights to elect additional Directors may be exercised at any annual meeting of shareholders or, within the limitation hereinafter provided, at a special meeting of shareholders held for such purpose. If such default shall occur more than 90 days preceding the date of the next annual meeting of shareholders as fixed by - 4 - the Regulations of the Corporation, then a special meeting of the holders of the Serial Preferred Stock shall be called by the Secretary of the Corporation upon the written request of the holders of not less than 10% of the Serial Preferred Stock then outstanding, such meeting to be held within 60 days after the delivery to the Secretary of such request or such later time as may be reasonably required to obtain clearance from the Securities and Exchange Commission. Such additional Directors, whether elected at an annual meeting or at a special meeting, shall serve until the next annual meeting and until their successors shall be duly elected and qualified, unless their terms shall sooner terminate pursuant to the provisions of this Section 4. At any meeting for the purpose of electing such additional Directors, the holders of 35% of the Serial Preferred Stock then outstanding shall constitute a quorum, and any such meeting shall be valid, notwithstanding that a quorum of the outstanding shares of any other class or classes shall not be present or represented thereat. At the time of any such meeting at which a quorum shall be present, the number of Directors constituting the whole Board of Directors shall be deemed to be increased by two. If and when all dividends in default on the Serial Preferred Stock shall be paid or declared and funds sufficient for the payment thereof irrevocably set aside for payment, the right of the holders of the Serial Preferred Stock as a class to elect two Directors shall then cease and if any Directors were elected by the holders of the Serial Preferred Stock, as a class, the term of such Directors shall terminate, and the number of Directors constituting the whole Board of Directors shall be accordingly reduced. The above provisions for the vesting of such voting rights in the holders of the Serial Preferred Stock, as a class, shall apply, however, in case of any subsequent default or failure under this Section 4. The rights of the holders of Serial Preferred Stock to elect two Directors provided by this Section 4 shall, when in effect, be in lieu of, and not in addition to, all other rights otherwise held by the holders of Serial Preferred Stock to vote as a class with the Common Stock for the election of Directors. 5. Action Requiring Serial Preferred Stock Consent. ----------------------------------------------- (a) So long as any shares of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders of at least two-thirds of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy, either at a special meeting called for the purpose, or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of Serial Preferred Stock shall vote separately as a single class, or (ii) the written consent of the holders of at least two-thirds of the shares of Serial Preferred Stock at the time outstanding: A) Amend or repeal any of the provisions of the Articles or Regulations of the Corporation so as to affect adversely the preferences, rights, powers or privileges of the Serial Preferred Stock or the holders thereof. - 5 - B) Authorize or issue any class or series of any class of the stock of the Corporation ranking prior to the Serial Preferred Stock, or authorize or issue any obligations or securities convertible into any such class. C) Purchase or redeem (for sinking fund purposes or otherwise) less than all of the Serial Preferred Stock then outstanding except in accordance with a stock purchase offer made to all holders of record of Serial Preferred Stock, unless all accrued and unpaid dividends on the Serial Preferred Stock, including all dividends for the then quarterly dividend period, shall have been paid or declared and funds sufficient for the payment thereof set apart, and unless all accrued sinking fund obligations applicable thereto shall have been complied with. D) Sell, lease or convey all or substantially all of the property or business of the Corporation, or voluntarily liquidate or dissolve the Corporation, or consolidate or merge the Corporation with or into any other corporation; provided, however, that no such class vote or consent of the holders of the Serial Preferred Stock shall be required for consolidation or merger of the Corporation if (i) each holder of shares of Serial Preferred Stock immediately prior to such consolidation or merger shall, upon the occurrence thereof, possess the same or an equivalent number of shares of the resulting corporation (which may be the Corporation or another corporation) having substantially the same or equivalent terms and provisions as the shares of Serial Preferred Stock, and (ii) the resulting corporation will have, immediately after such consolidation or merger, no stock either authorized or outstanding ranking prior to or on a parity with such shares, other than stock of the Corporation theretofore authorized ranking prior to or on a parity with the Serial Preferred Stock (or stock of the resulting corporation into which such stock of the Corporation is changed pursuant to the merger or consolidation). (b) So long as any shares of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders of at least a majority of the shares of Serial Preferred Stock at the time outstanding, given in person or by proxy, either at a special meeting called for the purpose, or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of Serial Preferred Stock shall vote separately as a single class, or (ii) the written consent of the holders of at least a majority of the shares of Serial Preferred Stock at the time outstanding: A) authorize or issue any class of the stock of the Corporation ranking on a parity with the Serial Preferred Stock, with respect to the payment of dividends or upon liquidation, dissolution and winding up of the Corporation, or authorize or issue any obligations or securities convertible into any such class, or B) increase the authorized number of shares of the Serial Preferred Stock or increase the authorized number of shares of any class ranking on a parity with the Serial Preferred Stock, with respect to the payment of dividends or upon liquidation, dissolution and winding up of the Corporation, or authorize or issue any obligations or securities convertible into any such class. (c) So long as any shares of a series of Serial Preferred Stock shall be outstanding, the Corporation shall not, without (i) the affirmative vote of the holders - 6 - of at least two-thirds of the shares of such series at the time outstanding, given in person or by proxy, either at a special meeting or at any annual meeting of shareholders if appropriate notice of such proposed action is given, at which all of the shares of such series shall vote separately as a single class, or (ii) the written consent of the holders of at least two-thirds of the shares of such series at the time outstanding, amend or repeal any of the provisions of the Articles or Regulations of the Corporation so as to affect adversely and particularly the preferences, rights, powers or privileges of such series of Serial Preferred Stock or the holders thereof. (d) Notwithstanding the foregoing, (i) no such vote or consent of the holders of the Serial Preferred Stock shall be required if, prior to or contemporaneously with the happening of any of the events listed in subparagraphs (a) or (b) above, provision has been made in accordance with the provisions fixed by the Directors for the redemption of all of the Serial Preferred Stock at the time outstanding and (ii) no such vote or consent of the holders of any series of Serial Preferred Stock shall be required if, prior to or contemporaneously with the happening of any of the events listed in subparagraph (c) above, provision has been made in accordance with the provisions fixed by the Directors for the redemption of all shares of such series of Serial Preferred Stock at the time outstanding. 6. Liquidation Rights. In the event of the liquidation, dissolution or ------------------ winding up of the Corporation, whether voluntary or involuntary, the holders of Serial Preferred Stock shall be entitled to receive out of the assets of the Corporation, before any payment or distribution shall be made to the holders of Common Stock or any other class of stock junior to the Serial Preferred Stock as to rights upon liquidation, payment of the amount per share provided for in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares, plus an amount equal to all dividends accrued to the date of such payment and unpaid, whether or not earned or declared but without interest, and no more. If, upon any liquidation, dissolution or winding up of the Corporation, the assets available for distribution shall be insufficient to pay the holders of all outstanding shares of Serial Preferred Stock the amounts to which they shall respectively be entitled, the holders of Serial Preferred Stock of all series shall share ratably in any distribution of assets according to the respective amounts which would be payable in respect of the shares held by them upon such distribution if all amounts payable in respect of the Serial Preferred Stock of all series were paid in full. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this Section 6. 7. Definitions. For the purpose of this Division: ------------ Whenever reference is made to shares "ranking prior to the Serial Preferred Stock" or "on a parity with the Serial Preferred Stock" such reference shall mean and - 7 - include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of any involuntary liquidation, dissolution or winding up of the Corporation are given preference over, or rank on an equality with, (as the case may be) the rights of the holders of the Serial Preferred Stock; and whenever reference is made to shares "ranking junior to the Serial Preferred Stock" such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders as to the payment of dividends and as to distributions in the event of an involuntary liquidation, dissolution or winding up of the Corporation are junior and subordinate to the rights of the holders of the Serial Preferred Stock. 8. Express Terms of the Series 12 Preferred Stock ---------------------------------------------- There is hereby established a series of the Serial Preferred Stock to be known as Series 12 Preferred Stock to which all of the Express Terms of the Serial Preferred Stock set forth in 1 through 7 above as well as the following provisions shall be applicable: (a) The designation of the series is Series 12 Preferred Stock; (b) The number of shares of the series, which number the Board of Directors may increase or decrease (but not below the number of shares then outstanding) is 480,000 shares; (c) The annual dividend rate of the series shall be in an amount per share (rounded to the nearest cent) equal to, but no more than, the greater of (x) $6.80 or (y) subject to the provision for adjustment thereinafter set forth, one hundred times the aggregate per share amount of all cash dividends, and one hundred times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock of the Corporation since the immediately preceding Quarterly Dividend Payment Date (as defined in subparagraph (d) below), or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of a share or fraction of a share of Series 12 Preferred Stock (the "Original Issue Date"). In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on the shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series 12 Preferred Stock are entitled (without giving effect to such event) under clause (y) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. - 8 - The Corporation shall declare a dividend or distribution on the Series 12 Preferred Stock as provided in the paragraph above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $6.80 per share on the Series 12 Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. The record date for any such dividend or distribution shall be the tenth Trading Day prior to the Quarterly Dividend Payment Date. (d) The dividends provided above shall be payable quarterly on January 1, April 1, July 1, and October 1 in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"); (e) The Corporation, at the option of the Board of Directors, may at any time redeem all and may from time to time redeem any part of the outstanding shares of Series 12 Preferred Stock on any date fixed by the Board of Directors, upon notice given as hereinafter provided, by paying in cash for each share thereof to be redeemed an amount equal to the Market Price (as hereinafter defined) of the Common Stock on the Trading Day (as hereinafter defined) immediately prior to the date fixed for redemption, multiplied by one hundred (the "Multiplier"), plus, in each case, an amount equal to all dividends thereon accrued to the date fixed for redemption and unpaid whether or not earned or declared but without interest (such amounts being in this subparagraph (e) sometimes referred to as the "redemption price"). In case of the redemption of a part only of the outstanding shares of Series 12 Preferred, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall determine. Not less than thirty (30) nor more than ninety (90) days prior written notice shall be given by mail, first class postage prepaid, to the holders of record of the shares of Series 12 Preferred to be redeemed. On or after the date fixed for redemption and stated in such notice, the holder of each share of Series 12 Preferred Stock called for redemption shall surrender the certificate therefor at the place designated in such notice and shall thereupon be entitled to receive payment of the redemption price. If such notice of redemption shall have been duly given as provided above and if on the date fixed for redemption funds sufficient to redeem the shares called for redemption shall be irrevocably set aside for the payment thereof, then, notwithstanding that the certificate for any share of Series 12 Preferred Stock so called for redemption shall not have been surrendered, from and after such date the shares so called for redemption shall no longer be deemed to be outstanding and dividends thereon shall cease to accrue and all rights with respect to the shares so called for redemption, including rights, if any, to receive notices and to vote, shall forthwith on such date cease and determine, except only the right of the holders thereof to receive the redemption price without interest upon surrender of the certificates therefor; provided, however, that if such notice of redemption shall have - 9 - been duly given as provided above and if on or prior to the date fixed for redemption there shall have been deposited with a bank or trust company having a capital and surplus of more than $5,000,000 named in such notice of redemption, in trust for the account of the holders of the shares so called for redemption, funds sufficient to redeem, on the date fixed for redemption, the shares called for redemption, then upon the making of such deposit in trust (although made prior to the date fixed for redemption), the shares so called and with respect to which such deposit shall have been made shall no longer be deemed to be outstanding and all rights with respect to such shares, including rights, if any, to receive notices and to vote, shall forthwith cease and determine, except only the right of the holders thereof to receive, out of the funds so deposited in trust, forthwith and without awaiting the date fixed for redemption, the redemption price thereof, without interest, upon surrender of the certificates therefor, upon to but not after the close of business on the second business day prior to the date fixed for redemption of such shares. Any interest accrued on such funds shall belong to the Corporation and shall be paid to it from time to time. In case any shares called for redemption shall be converted after deposit of the redemption price thereof, the redemption price of the shares so converted shall be returned to the Corporation. Any other funds so deposited and unclaimed at the end of two years after the date fixed for redemption shall be repaid to the Corporation upon its request, and thereafter the holders of the shares so called for redemption shall be entitled to receive payment of the redemption price, but without interest only from the Corporation. In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on the shares of Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of Series 12 Preferred Stock were entitled (without giving effect to such event), shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. As used herein the term "Market Price" per share of the Common Stock on any date of determination shall mean the average of the daily closing prices per share of the Common Stock (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if the Company shall at any time -------- ------- (i) declare a dividend on the Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares in a reclassification of the Common Stock, and such event or an event of a type analogous to any such event shall have caused the closing prices used to determine the Market Price on any Trading Days not to be fully comparable with the closing price on such date of determination, each such closing price so used shall be - 10 - appropriately adjusted in order to make it fully comparable with the closing price on such date of determination. The closing price per share of the Common Stock on any date shall be the last sale price, regular way, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for each share of the Common Stock, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the high bid and low asked prices for each share of Common Stock in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities elected by the Board of Directors of the Corporation; provided, however, that if -------- ------- on any such date the Common Stock is not listed or admitted for trading on a national securities exchange or traded in the over-the-counter market, the closing price per share of the Common Stock on such date shall mean the fair value per share of Common Stock on such date as determined in good faith by the Board of Directors of the Corporation, after consultation with a nationally recognized investment banking firm with respect to the fair value per share of such securities, and set forth in a certificate delivered to the Corporation. As used herein, the term "Trading Day," when used with respect to the Common Stock, shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a Business Day (defined to mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are generally authorized or obligated by law or executive order to close.) (f) Except as otherwise provided herein, the holders of shares of this Series 12 Preferred Stock shall not have any rights herein to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of capital stock of the Corporation. (g) In case the Corporation shall enter into any consolidation, merger combination, reclassification or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series 12 Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one hundred times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is - 11 - changed or exchanged. In the event the Corporation shall at any time on or after the Original Issue Date declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series 12 Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (h) Upon the liquidation, dissolution or winding up of the Corporation, the holders of the shares of this Series shall be entitled to receive and amount equal to the greater of (x) $7,500 or (y) 100 times the aggregate per share amount received by the holders of Common Stock upon such liquidation, dissolution or winding up. (i) Series 12 Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series 12 Preferred Stock. 9. Express Terms of the Series AA Preferred Stock ---------------------------------------------- There is hereby established a series of the Serial Preferred Stock to be known as Series AA Convertible Preferred Stock to which all of the Express Terms of the Serial Preferred Stock set forth in 1 through 7 above as well as the following provisions shall be applicable: (a) The designation of the series is Series AA Convertible Preferred Stock; (b) The number of shares of the series, which number the Board of Directors may increase or decrease (but not below the number of shares then outstanding) is 40,250 shares; (c) The annual dividend rate of the series shall be in an amount per share equal to, but no more than, $237.50 through January 2, 1996 and $325.00 thereafter. (d) The dividends provided above shall accrue from the date of original issue of the Series AA Preferred Stock and be payable quarterly on January 2, April 1, July 1 and October 1 of each year, commencing April 1, 1993 (each such date being referred to herein as a "Dividend Payment Date"), to holders of record as they appear on the stock records of the Corporation at the close of business on such record dates, not exceeding 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends payable - 12 - on the Series AA Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series AA Preferred Stock for each full dividend period will be computed by dividing the annual dividend rate by four. (e)(i) The Series AA Preferred Stock shall not be redeemable by the Corporation prior to January 9, 1996. On and after that date, the Corporation, at its option, may redeem the shares of Series AA Preferred Stock, in whole or in part, as set forth herein, subject to the provisions described below. (ii)(A) The Series AA Preferred Stock may be redeemed for Common Stock, in whole or in part, at the option of the Corporation, at any time on or after January 9, 1996, until January 9, 2000 only if for 20 Trading Days, within any period of 30 consecutive Trading Days, including the last Trading Day of such period, the Current Market Price of the Common Stock on each of such 20 Trading Days exceeds 130% of the Conversion Price in effect on such Trading Day. In order to exercise this redemption option, the Corporation must issue a press release announcing the redemption (the "Press Release") prior to the opening of business on the second Trading Day after the condition in the preceding sentence has been met. The Press Release shall announce the redemption and set forth the number of shares of Series AA Preferred Stock which the Corporation intends to redeem. (B) Upon redemption of Series AA Preferred Stock by the Corporation on the date specified in the notice to holders required under paragraph (C) of this clause (ii) (the "Stock Call Date"), each share of Series AA Preferred Stock so redeemed shall be converted into a number of shares of Common Stock equal to the liquidation preference of the shares of Series AA Preferred Stock being redeemed divided by the Conversion Price as of the opening of business on the Stock Call Date. The Stock Call Date shall be selected by the Corporation, shall be specified in the notice of redemption and shall be not less than 30 days or more than 60 days after the date on which the Corporation issues the Press Release. Upon any redemption of Series AA Preferred Stock for Common Stock, the Corporation shall pay any accrued and unpaid dividends in arrears for any Dividend Period ending on or prior to the Stock Call Date. If a Stock Call Date falls after a dividend payment record date and prior to the corresponding dividend payment date, then each holder of Series AA Preferred Stock at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. In the case of any Stock Call Date occurring prior to the record date for the April 1, 1996 Dividend Payment Date, the holders of the Series AA Preferred Stock to be redeemed on such Stock Call Date shall be entitled to any accrued and unpaid dividends through January 2, 1996 but not thereafter. Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of Series AA Preferred Stock called for redemption for Common Stock or on the shares of Common Stock issued upon such redemption. - 13 - (C) If the Corporation elects to redeem shares of Series AA Preferred Stock pursuant to paragraph (A) of this clause (ii), notice of such redemption shall be given not more than four Business Days after the date on which the Corporation issues the Press Release, to each holder of record of the shares to be redeemed. Such notice shall be provided by first class mail, postage prepaid, at such holder's address as the same appears on the stock records of the Corporation, and shall state, as appropriate: (1) the Stock Call Date; (2) the number of shares of Series AA Preferred Stock (expressed in 1/100 of a share of Series AA Preferred Stock) to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares (expressed in 1/100 of a share of Series AA Preferred Stock) to be redeemed from such holder; (3) the number of shares of Common Stock to be issued with respect to each 1/100 of a share of Series AA Preferred Stock; (4) the place or places at which certificates for such shares are to be surrendered for certificates representing shares of Common Stock; (5) the then-current Conversion Price; and (6) that dividends on the shares to be redeemed shall cease to accrue on such Stock Call Date, except as otherwise provided herein. At the close of business on the Stock Call Date, each holder of Series AA Preferred Stock to be redeemed (unless the Company defaults in the delivery of the shares of Common Stock or cash payable on such Stock Call Date) shall be deemed to be the record holder of the number of shares of Common Stock into which such Series AA Preferred Stock is to be redeemed, regardless of whether such holder has surrendered the certificates representing the Series AA Preferred Stock. As promptly as practicable after the surrender in accordance with said notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Corporation shall so require and the notice shall so state), such shares shall be exchanged for certificates of shares of Common Stock and any cash (without interest thereon) for which such shares have been redeemed. (D) No fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon redemption of the Series AA Preferred Stock. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the redemption of a share of Series AA Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash (computed to the nearest cent) based upon the Current Market Price of Common Stock on the Trading Day immediately preceding the Stock Call Date. If more than one share shall be surrendered for redemption at one time by the same holder, the number of full shares of Common Stock issuable upon redemption thereof shall be computed on the basis of the aggregate number of shares of Series AA Preferred Stock so surrendered. (E) The Corporation covenants that any shares of Common Stock issued upon redemption of the Series AA Preferred Stock shall be validly issued, fully paid and non-assessable. The Corporation shall endeavor to list the shares of Common Stock required to be delivered upon redemption of the Series AA Preferred Stock, prior to such redemption, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. - 14 - The Corporation shall endeavor to take any action necessary to ensure that any shares of Common Stock issued upon the redemption of Series AA Preferred Stock are freely transferable and not subject to any resale restrictions under the Securities Act of 1933, as amended (the "Act"), or any applicable state securities or blue sky laws. (iii)(A) The Series AA Preferred Stock may be redeemed for cash, in whole or in part, at the option of the Corporation, at any time on or after January 9, 2000 at the Redemption Price. (B) At least 30 days but not more than 60 days prior to the date fixed for the redemption of the Series AA Preferred Stock for cash, a written notice will be mailed to each holder of record of the Series AA Preferred Stock to be redeemed, notifying such holder of the Company's election to redeem such shares stating the date fixed for redemption thereof, and calling upon such holder to surrender to the Company on the redemption date at the place designated in such notice the certificate or certificates representing the number of shares specified therein. On or after the redemption date, each holder of the Series AA Preferred Stock to be redeemed must present and surrender his certificate or certificates for such shares to the Company at the place designated in such notice and thereupon the redemption price of such shares will be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate will be cancelled. (iv)(A) If full cumulative dividends on the Series AA Preferred Stock and any other class or series of stock of the Corporation ranking, as to dividends and amounts distributable on liquidation, dissolution or winding up, on a parity with the Series AA Preferred Stock have not been paid or declared and set apart for payment, the Series AA Preferred Stock may not be redeemed in part and the Corporation may not purchase or acquire shares of Series AA Preferred Stock, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of shares of Series AA Preferred Stock. (B) If fewer than all the outstanding shares of Series AA Preferred Stock are called for redemption, shares to be redeemed shall be selected by the Corporation from outstanding shares of Series AA Preferred Stock not previously called for redemption by lot or pro rata (as nearly as may be). If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. Neither the failure to mail any notice of redemption required by this Section (e), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. - 15 - (C) Notice of any redemption pursuant to this Section (e) having been duly mailed, from and after the Stock Call Date or other redemption date (unless the Corporation shall fail to make available a number of shares of Common Stock or amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, dividends on the shares of the Series AA Preferred Stock so called for redemption shall cease to accrue, (ii) said shares shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of Series AA Preferred Stock of the Corporation shall cease (except the rights to receive the shares of Common Stock or cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Corporation's obligation to provide shares of Common Stock or cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Stock Call Date, the Corporation shall deposit with a bank or trust company that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, a capital and surplus of at least $50,000,000, any shares of Common Stock and cash necessary for such redemption, in trust, with irrevocable instructions that such shares of Common Stock and cash be applied to the redemption of the shares of Series AA Preferred Stock so called for redemption. No interest shall accrue for the benefit of the holders of Series AA Preferred Stock to be redeemed on any cash so set aside by the Corporation. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Stock Call Date or other redemption date shall revert to the general funds of the Corporation, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Corporation for the payment of such cash. (f) Holders of shares of Series AA Preferred Stock shall have the right to convert all or a portion of such shares into shares of Common Stock, as follows: (A) Subject to and upon compliance with the provisions of this Section (f), a holder of shares of Series AA Preferred Stock shall have the right, at his or her option, at any time, to convert such shares into the number of fully paid and nonassessable shares of Common Stock obtained by dividing the aggregate liquidation preference of such shares by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of paragraph (B) of this Section (f)) by surrendering such shares to be converted, such surrender to be made in the manner provided in paragraph (B) of this Section (f); provided -------- however, that the right to convert shares called for redemption pursuant to - - ------- Section (e) shall terminate at the close of business on the date fixed for such redemption, unless the Corporation shall default in making payment of any shares of Common Stock and any cash payable upon such redemption under Section (e) hereof. Any share of Series AA Preferred Stock may be converted, at the request of its holder, in part into Common Stock. If a part of a share of Series AA Preferred Stock is converted, then the Corporation will convert such share into the requested shares of Common Stock - 16 - (subject to paragraph (C) of this Section (f)) and issue a fractional share of Series AA Preferred Stock evidencing the remaining interest of such holder. (B) In order to exercise the conversion right, the holder of each share of Series AA Preferred Stock to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Corporation or in blank, at the office of the Transfer Agent in the Borough of Manhattan, City of New York, accompanied by written notice to the Corporation that the holder thereof elects to convert Series AA Preferred Stock or a specified portion thereof. Unless the shares issuable on conversion are to be issued in the same name as the name in which such share of Series AA Preferred Stock is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). Holders of shares of Series AA Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion thereof following such dividend payment record date and prior to such dividend payment date. However, shares of Series AA Preferred Stock surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding dividend payment date (except shares converted after the issuance of a notice of redemption with respect to a Stock Call Date or other redemption date during such period, which shall be entitled to such dividend on the dividend payment date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series AA Preferred Stock on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into shares of Common Stock on such dividend payment date will receive the dividend payable by the Corporation on such shares of Series AA Preferred Stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series AA Preferred Stock for conversion. Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon such conversion. As promptly as practicable after the surrender of certificates for shares of Series AA Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such shares in accordance with provisions of this Section (f), and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in paragraph (C) of this Section (f). - 17 - Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series AA Preferred Stock shall have been surrendered and such notice (and if applicable, payment of an amount equal to the dividend payable on such shares) received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares presented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. (C) No fractional shares or scrip representing fractions of shares of Common Stock shall be issued upon conversion of the Series AA Preferred Stock. Instead of any fractional interest in a share of Common Stock that would otherwise be deliverable upon the conversion of a share of Series AA Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash based upon the Current Market Price of Common Stock on the Trading Day immediately preceding the date of conversion. If more than one share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series AA Preferred Stock so surrendered. (D) The Conversion Price shall be adjusted from time to time as follows: (i) If the Corporation shall after the Issue Date (A) pay a dividend or make a distribution on its capital stock in shares of its Common Stock, (B) subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price in effect at the opening of business on the day next following the date fixed for the determination of stockholders entitled to receive such dividend or distribution or at the opening of business on the day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any share of Series AA Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or have been entitled to receive after the happening of any of the events described above had such share been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (i) shall become effective immediately after the opening of - 18 - business on the day next following the record date (except as provided in paragraph (H) below) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the day next following the effective date in the case of a subdivision, combination or reclassification. (ii) If the Corporation shall issue after the Issue Date rights or warrants (in each case, other than the Rights) to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the Fair Market Value per share of Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, then the Conversion Price in effect at the opening of business on the day next following such record date shall be adjusted to equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the opening of business on the day next following the date fixed for such determination by (II) a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination and (B) the number of shares that the aggregate proceeds to the Corporation from the exercise of such rights or warrants for Common Stock would purchase at such Fair Market Value, and the denominator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the close of business on the date fixed for such determination and (B) the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in paragraph (H) below). In determining whether any rights or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Fair Market Value, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (iii) If the Corporation shall distribute to all holders of its Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidences of its indebtedness or assets (excluding cash dividends or distributions paid from profits or surplus of the Corporation) or rights or warrants (in each case, other than the Rights) to subscribe for or purchase any of its securities (excluding those rights and warrants issued to all holders of Common Stock entitling them for a period expiring within 45 days after the record date referred to in subparagraph (ii) above to subscribe for or purchase Common Stock, which rights and warrants are referred to in and treated under subparagraph (ii) above) (any of the foregoing being hereinafter in this subparagraph (iii) called the "Securities"), then in each such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior - 19 - to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by (II) a fraction, the numerator of which shall be the Fair Market Value per share of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator of which shall be the Fair Market Value per share of the Common Stock on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in paragraph (H) below) the record date for the determination of shareholders entitled to receive such distribution. For the purpose of this clause (iii), the distribution of a Security, which is distributed not only to the holders of the Common Stock on the date fixed for the determination of stockholders entitled to such distribution of such Security, but also is distributed with each share of Common Stock delivered to a person converting a share of Series AA Preferred Stock after such determination date or is distributed prior to conversion to persons holding shares of Series AA Preferred Stock (as though they had converted their Series AA Preferred Stock into Common Stock immediately prior to close of business on the date fixed for the determination of stockholders entitled to receive such distribution), shall not require an adjustment of the Conversion Price pursuant to this clause (iii); provided that on the date, if any, on which -------- a Person converting a share of Series AA Preferred Stock would no longer be entitled to receive such Security with a share of Common Stock (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this clause (iii) (and such day shall be deemed to be "the date fixed for the determination of the stockholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (iv) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason of -------- ------- this subparagraph (iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in -------- ------- accordance with the provisions of this Section (f) (other than this subparagraph (iv)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of shares of Common Stock. Notwithstanding any other provisions of this Section (f), the Corporation shall not be required to make any adjustment of the Conversion Price for the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under - 20 - such plan. All calculations under this Section (f) shall be made to the nearest 1/100 of a cent (with $.00005 being rounded upward) or to the nearest 1/10,000 of a share (with .00005 of a share being rounded upward), as the case may be. Anything in this paragraph (D) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (D), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Corporation to its stockholders shall not be taxable. (E) If the Corporation shall be a party to any transaction (including without limitation a merger, consolidation, sale of all or substantially all of the Corporation's assets or recapitalization of the Common Stock and excluding any transaction as to which subparagraph (D) (i) of this Section (f) applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), receivable upon the consummation of such Transaction by a holder of that number of shares or fraction thereof of Common Stock into which one share of Series AA Preferred Stock was convertible immediately prior to such Transaction, assuming such holder of Common Stock (i) is not a Person with which the Corporation consolidated or into which the Corporation merged or which merged into the Corporation or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock securities and other property (including cash) receivable upon such Transaction is not the same for each share of Common Stock of the Corporation held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("non- electing share"), then for the purpose of this paragraph (E) the kind and amount of stock, securities and other property (including cash) receivable upon such Transaction by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this paragraph (E) and it shall not consent or agree to the occurrence of any Transaction until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series AA Preferred Stock that will contain provisions enabling the holders of the Series AA Preferred Stock that remains outstanding after such Transaction to convert into the consideration received by holders of Common Stock at the Conversion Price in effect immediately prior to such Transaction. The provisions of this paragraph (E) shall similarly apply to successive Transactions. - 21 - (F) If: (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock (other than in cash out of profits or surplus and other than the Rights); or (ii) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants (other than the Rights) to subscribe for or purchase any shares of any class or any other rights or warrants (other than the Rights); or (iii) there shall be any reclassification of the Common Stock (other than an event to which subparagraph (D) (i) of this Section (f) applies) or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation as an entirety; or (iv) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, then the Corporation shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of shares of the Series AA Preferred Stock at their addresses as shown on the stock records of the Corporation, as promptly as possible, but at least 15 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reclassification, consolidation merger, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section (f). (G) Whenever the Conversion Price is adjusted as herein provided, the Corporation shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be prima facie evidence of the correctness of such adjustment. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of Series AA Preferred Stock at such holder's last address as shown on the stock records of the Corporation. - 22 - (H) In any case in which paragraph (D) of this Section (f) provides that an adjustment shall become effective on the day next following a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the holder of any share of Series AA Preferred Stock converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to paragraph (C) of this Section (f). (I) For purposes of this Section (f), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation. The Corporation shall not pay a dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation. (J) There shall be no adjustment of the Conversion Price in case of the issuance of any stock of the Corporation in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (K) If the Corporation shall take any action affecting the Common Stock, other than action described in this Section (f), that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of Series AA Preferred Stock, the Conversion Price for the Series AA Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. (L) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, for the purpose of effecting conversion of the Series AA Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Series AA Preferred Stock not theretofore converted. For purposes of this paragraph (L), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series AA Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Corporation covenants that any shares of Common Stock issued upon conversion of the Series AA Preferred Stock shall be validly issued, fully paid and non-assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the shares of Common Stock deliverable upon conversion of the Series AA Preferred Stock, the Corporation will - 23 - take any corporate action that, in the opinion of its counsel, may be necessary in order that the Corporation may validly and legally issue fully-paid and nonassessable shares of Common Stock at such adjusted Conversion Price. The Corporation shall endeavor to list the shares of Common Stock required to be delivered upon conversion of the Series AA Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series AA Preferred Stock, the Corporation shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (M) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of the Series AA Preferred Stock pursuant hereto; provided, however, that the Corporation shall -------- ------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other securities or property in a name other than that of the holder of the Series AA Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or established, to the reasonable satisfaction of the Corporation, that such tax has been paid. (g) For purposes of the Series AA Preferred Stock, the following terms shall have the meanings indicated: "Business Day" shall mean any day other than a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York are not required to be open. "Conversion Price" shall mean the conversion price per share of Common Stock for which the Series AA Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to Section (f). The initial conversion price will be $44.64. "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange or, if such security is not listed or admitted for trading on the New York Stock Exchange ("NYSE"), on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") - 24 - or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board of Directors. "Fair Market Value" shall mean the average of the daily Current Market Prices of a share of Common Stock during the five (5) consecutive Trading Days selected by the Corporation commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. The term "'ex' date", when used with respect to any issuance or distribution, means the first day on which the Common Stock trades regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Redemption Price" shall mean the redemption price per share of Series AA Preferred Stock, which shall be subject to reduction from time to time in an amount equal to the per share fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of any Securities distributed to holders of Series AA Preferred Stock as described in Section (f)(D)(iii). The initial Redemption Price shall be $5,000. "Rights" shall mean the rights of the Corporation which are issuable under the Corporation's Stockholder Rights Plan adopted on February 10, 1988 and as amended from time to time, or rights to purchase any capital stock of the Corporation under any successor shareholder rights plan or plan adopted in replacement of the Corporation's Stockholder Rights Plan. "set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Corporation in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board of Directors, the allocation of funds to be so paid on any series or class of capital stock of the Corporation; provided, however, that if any funds for any class of Common Stock -------- ------- or Series Preferred Stock or any class or series of stock ranking on a parity with the Series AA Preferred Stock as to the payment of dividends are placed in a separate account of the Corporation or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series AA Preferred Stock shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Trading Day" shall mean any day on which the securities in question are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities - 25 - exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of the NASDAQ, or if such securities are not quoted on such National Market System, in the applicable securities market in which the securities are traded. "Transfer Agent" means National City Bank or such other agent or agents of the Corporation as may be designated by the Board of Directors as the transfer agent for the Series AA Preferred Stock. (h) Upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of this Series AA Preferred Stock shall be entitled to receive an amount equal to $5,000 per share, plus accrued and unpaid dividends thereon (whether or not earned or declared) at the date of final distribution to such holders. (i) Series AA Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series AA Preferred Stock. 10. Express Terms of the Series BB Preferred Stock ---------------------------------------------- There is hereby established a series of the Serial Preferred Stock to be known as Series BB Conversion Preferred Stock to which all of the Express Terms of the Serial Preferred Stock set forth in 1 through 7 above as well as the following provisions shall be applicable: I. Designation and Number. The designation of the series is Series BB ---------------------- Conversion Preferred Stock. The number of shares of the series, which number the Board of Directors may increase or decrease (but not below the number of shares then outstanding) is 38,772 shares. II. Dividend Rate and Dividend Payment Dates. The annual dividend rate of ---------------------------------------- the series shall be in an amount per share equal to, but no more than, $504.00. The dividends provided above shall accrue from the date of original issue of the Series BB Preferred Stock and be payable quarterly on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 1995 (each such date being referred to herein as a "Dividend Payment Date"), to holders of record as they appear on the stock records of the Corporation at the close of business on such record dates, not exceeding 60 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Dividends payable on the Series BB Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series BB Preferred Stock for each full dividend period will be computed by dividing the annual dividend rate by four. - 26 - III. Conversion. ---------- (a) Mandatory Conversion. Unless earlier converted at the option of the -------------------- holder in accordance with the provisions of paragraph (b), on October 1, 1998 (the "Mandatory Conversion Date"), each outstanding share of the Series BB Preferred Stock shall convert automatically (the "Automatic Conversion") into (i) shares of authorized Common Stock (the "Common Stock") at the Exchange Rate (as hereinafter defined) in effect on the Mandatory Conversion Date and (ii) the right to receive an amount in cash equal to all accrued and unpaid dividends on such share to the Mandatory Conversion Date, whether or not earned or declared, out of funds legally available therefor. The Exchange Rate is equal to (a) if the Current Market Price is greater than or equal to $94.40 per share (the "Threshold Price"), 81.965 shares of Common Stock (the "Upper Exchange Rate"), (b) if the Current Market Price is less than the Threshold Price but greater than the Initial Price, the number of shares of Common Stock having a value (determined at the Current Market Price) equal to 100 times the Initial Price (the "Middle Exchange Rate"), and (c) if the Current Market Price is less than or equal to the Initial Price, 100 shares of Common Stock (the "Lower Exchange Rate") per share of Series BB Preferred Stock, and is subject to adjustment as set forth in paragraph (c) below. Dividends on the shares of Series BB Preferred Stock shall cease to accrue and such shares of Series BB Preferred Stock shall cease to be outstanding on the Mandatory Conversion Date. The Corporation shall make such arrangements as it deems appropriate for the issuance of certificates representing shares of Common Stock and for the payment of cash in respect of such accrued and unpaid dividends, if any, or cash in lieu of fractional shares, if any, in exchange for and contingent upon surrender of certificates representing the shares of Series BB Preferred Stock, and the Corporation may defer the payment of dividends on such shares of Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of such certificates representing the shares of Series BB Preferred Stock, provided that the Corporation shall give the holders of the shares of Series BB Preferred Stock such notice of any such actions as the Corporation deems appropriate or is legally required and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to the Mandatory Conversion Date. Amounts payable in cash in respect of the shares of Series BB Preferred Stock or in respect of such shares of Common Stock shall not bear interest. (b) Optional Conversion. Shares of Series BB Preferred Stock are ------------------- convertible, in whole or in part, at the option of the holders thereof ("Optional Conversion"), at any time after September 25, 1995 and prior to the Mandatory Conversion Date, into shares of Common Stock at a rate of 81.965 shares of Common Stock for each share of Series BB Preferred Stock (the "Optional Conversion Rate"), subject to adjustment as set forth below. Optional Conversion of shares of Series BB Preferred Stock may be effected by delivering certificates evidencing such shares, together with written notice of conversion and a proper assignment of such certificates to the Corporation or in - 27 - blank (and, if applicable, payment of an amount equal to the dividend payable on such shares), to the office of any transfer agent for the Series BB Preferred Stock or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the Optional Conversion Rate in effect at such time and on such date. Holders of shares of Series BB Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the Optional Conversion of such shares following such record date and prior to such Dividend Payment Date. However, shares of Series BB Preferred Stock surrendered for Optional Conversion after the close of business on a dividend payment record date and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the dividend payable on such shares on such Dividend Payment Date. Except as provided above, upon any Optional Conversion of shares of Series BB Preferred Stock, the Corporation shall make no payment or allowance for unpaid Preferred Dividends, whether or not in arrears, on such shares of Series BB Preferred Stock as to which Optional Conversion has been effected or for dividends or distributions on the shares of Common Stock issued upon such Optional Conversion. (c) Adjustments to the Exchange Rate and the Optional Conversion Rate. ----------------------------------------------------------------- The Exchange Rate and the Optional Conversion Rate shall each be subject to adjustment from time to time as provided below in this paragraph (c). (i) If the Corporation shall pay or make a dividend or other distribution with respect to its Common Stock in shares of Common Stock (including by way of reclassification of any shares of its Common Stock), the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall each be increased by multiplying such Exchange Rate and Optional Conversion Rate by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the total number of shares of Common Stock constituting such dividend or other distribution, and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. - 28 - (ii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall each be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exchange Rate and the Optional Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall each be proportionately reduced, such increases or reductions, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iii) If the Corporation shall, after the date hereof, issue rights or warrants, in each case other than the Rights, to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Fair Market Value of the Common Stock on the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Exchange Rate and the Optional Conversion Rate shall each be adjusted by multiplying the Exchange Rate and the Optional Conversion Rate in effect on such record date, by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such Fair Market Value (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Fair Market Value). Shares of Common Stock owned by the Corporation or by another company of which a majority of the shares entitled to vote in the election of directors are held, directly or indirectly, by the Corporation shall not be deemed to be outstanding for purposes of such computation. Such adjustment shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Exchange Rate and the Optional Conversion Rate shall each be readjusted to - 29 - the Exchange Rate and the Optional Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of the issuance of rights or warrants in respect of only the number of shares of Common Stock actually delivered. (iv) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock consisting of evidences of its indebtedness or other assets (including shares of capital stock of the Corporation other than Common Stock but excluding any cash dividends or any dividends or other distributions referred to in clauses (i) and (ii) above), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in clause (iii) above), then in each such case the Exchange Rate and the Optional Conversion Rate shall each be adjusted by multiplying the Exchange Rate and the Optional Conversion Rate in effect on the record date for such dividend or distribution or for the determination of stockholders entitled to receive such rights or warrants, as the case may be, by a fraction of which the numerator shall be the Fair Market Value per share of the Common Stock on such record date), and of which the denominator shall be such Fair Market Price per share of Common Stock less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) as of such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock. Such adjustment shall become effective on the opening of business on the business day next following the record date for such dividend or distribution or for the determination of stockholders entitled to receive such rights or warrants, as the case may be. (v) Any shares of Common Stock issuable in payment of a dividend or other distribution shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend or other distribution for purposes of calculating the number of outstanding shares of Common Stock under subparagraph (ii) above. (vi) Anything in this subsection III notwithstanding, the Corporation shall be entitled to make such upward adjustments in the Exchange Rate and the Optional Conversion Rate, in addition to those required by this subsection III as the Corporation in its sole discretion shall determine to be advisable, in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction which could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal - 30 - Revenue Code of 1986, as amended) hereafter made by the Corporation to its stockholders shall not be taxable. (vii) In any case in which this paragraph (c) shall require that an adjustment as a result of any event become effective at the opening of business on the business day next following a record date and the date fixed for conversion pursuant to paragraph (a) occurs after such record date, but before the occurrence of such event, the Corporation may in its sole discretion elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any shares of Series BB Preferred Stock surrendered for conversion the additional shares of Common Stock issuable upon such conversion over the shares of Common Stock issuable before giving effect to such adjustment; and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (g). (viii) For purposes hereof, an "adjustment in the Exchange Rate" means, and shall be implemented by, an adjustment of the nature and amount specified, effected in the manner specified, in each of the Upper Exchange Rate, the Middle Exchange Rate and the Lower Exchange Rate. If an adjustment is made to the Exchange Rate pursuant to this paragraph (c), an adjustment shall also be made to the Current Market Price solely to determine which of clauses (a), (b) or (c) of the definition of Exchange Rate in paragraph (a) will apply on the Mandatory Conversion Date. Such adjustment shall be made by multiplying the Current Market Price by a fraction of which the numerator shall be the Exchange Rate immediately after such adjustment pursuant to paragraph (c) and the denominator shall be the Exchange Rate immediately before such adjustment. All adjustments to the Exchange Rate and the Optional Conversion Rate shall be calculated to the nearest 1/10,000th of a share of Common Stock. No adjustment in the Exchange Rate or in the Optional Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent in the Lower Exchange Rate; provided, however, any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All adjustments to the Exchange Rate and the Optional Conversion Rate shall be made successively. (ix) Before taking any action that would cause an adjustment increasing the Exchange Rate or the Optional Conversion Rate such that the conversion price (for purposes of this paragraph (c), an amount equal to the liquidation value per share of Series BB Preferred Stock divided by the Optional Conversion Rate, respectively, as in effect from time to time) would be below the then par value of the Common Stock, the Corporation will take any corporate action which - 31 - may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at the Optional Conversion Rate as so adjusted. (d) Adjustment for Certain Consolidations or Mergers. In case of any ------------------------------------------------ consolidation or merger to which the Corporation is a party (other than a merger or consolidation in which the Corporation is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation remains unchanged), or in case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), proper provision shall be made so that each share of the Series BB Preferred Stock shall, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of the Series BB Preferred Stock might have been converted immediately prior to consummation of such transaction, and (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of the Series BB Preferred Stock would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately prior to the date of consummation of such transaction; assuming in each case that such holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consummation of such transaction (provided that if the kind or amount of securities, cash or other property receivable upon consummation of such transaction is not the same for each nonelecting share, then the kind and amount of securities, cash or other property receivable upon consummation of such transaction for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). The kind and amount of securities into which the shares of the Series BB Preferred Stock shall be convertible after consummation of such transaction shall be subject to adjustment as described in paragraph (c) following the date of consummation of such transaction. The Corporation may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (e) Notice of Adjustments. Whenever the Exchange Rate and Optional --------------------- Conversion Rate are adjusted as provided in paragraph (c), the Corporation shall: (i) Forthwith compute the adjusted Exchange Rate and Optional Conversion Rate and prepare a certificate signed by the Chief Financial Officer, any Vice President, the Treasurer or the Controller of the Corporation setting forth the adjusted Exchange Rate and Optional Conversion Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such - 32 - adjustment is based, which certificate shall be prima facie evidence of the correctness of the adjustment, and file such certificate forthwith with the Transfer Agent; (ii) Make a prompt public announcement stating that the Exchange Rate and Optional Conversion Rate have been adjusted and setting forth the adjusted Exchange Rate and Optional Conversion Rate; and (iii) Promptly mail a notice stating that the Exchange Rate and Optional Conversion Rate have been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Exchange Rate and Optional Conversion Rate, to the holders of record of the outstanding shares of the Series BB Preferred Stock at or prior to the time the Corporation mails an interim statement to its stockholders covering the fiscal quarter period during which the facts requiring such adjustment occurred but in any event within 45 days of the end of such fiscal quarter period. (f) Notices of Proposed Actions. In case, at any time while any of the --------------------------- shares of Series BB Preferred Stock are outstanding, (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock, (other than in cash out of profits or surplus and other than the Rights), or (ii) the Corporation shall authorize the issuance to all holders of the Common Stock of rights or warrants (other than the Rights) to subscribe for or purchase shares of the Common Stock or of any other subscription rights or warrants, or (iii) of any reclassification of the Common Stock (other than a Subdivision or combination thereof) or of any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required (except for a merger of the Corporation into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Corporation to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Corporation other than changes resulting from differences in the corporate statutes of the then existing and the new state of domicile), or of the sale or transfer of all or substantially all of the assets of the Corporation, then the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of Series BB Preferred Stock, and shall cause to be mailed to the holders of shares of Series BB Preferred Stock at their last addresses as they shall appear on the stock register, as promptly as possible, but at least 15 days before the date hereinafter specified (or the earlier - 33 - of the dates hereinafter specified, in the event that more than one date is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. The failure to give or receive the notice required by this paragraph (f) or any defect therein shall not affect the legality or validity of any such dividend, distribution, right or warrant or other action. (g) No Fractional Shares. No fractional shares of Common Stock shall be -------------------- issued upon the conversion of any shares of the Series BB Preferred Stock. In lieu of any fraction of a share of Common Stock which would otherwise be issuable in respect of the aggregate number of shares of the Series BB Preferred Stock surrendered by the same holder upon Automatic Conversion or Optional Conversion, such holder shall have the right to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined (A) as of the fifth Trading Day immediately preceding the Mandatory Conversion Date, in the case of Automatic Conversion or (B) as of the second Trading immediately preceding the effective date of conversion, in the case of an Optional Conversion by a holder. If more than one share of Series BB Preferred Stock shall be surrendered for conversion at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series BB Preferred Stock so surrendered. (h) Treasury Shares. For the purposes of this subsection III, the number --------------- of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Corporation will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Corporation. (i) Other Action. If the Corporation shall take any action affecting the ------------ Common Stock, other than action described in this subsection III, that in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of Series BB Preferred stock, the Exchange Rate and/or the Optional Conversion Rate for the Series BB Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. (j) Conversion. The Corporation covenants that it will at all times ---------- reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but - 34 - unissued shares of Common Stock for the purpose of effecting conversion of the Series BB Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Series BB Preferred Stock not theretofore converted. For purposes of this paragraph (j), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series BB Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Corporation covenants that any shares of Common Stock issued upon conversion of the Series BB Preferred Stock shall be validly issued, fully paid and non-assessable. The Corporation shall endeavor to list the shares of Common Stock required to be delivered upon conversion of the Series BB Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series BB Preferred stock, the Corporation shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (k) Taxes. The Corporation will pay any and all documentary stamp or ----- similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock or other securities or property on conversion of the Series BB Preferred Stock pursuant thereto; provided, however, that the -------- ------- Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other securities or property in a name other than that of the holder of the Series BB Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any of such tax or established, to the reasonable satisfaction of the Corporation, that such tax has been paid. IV. Definition. For purposes of the Series BB Preferred Stock, the ---------- following terms shall have the meanings indicated: "business day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the state of New York are authorized or obligated by law or executive order to close. "Initial Price" shall mean $77.375 per share of Common Stock. "Current Market Price" per share of the Common Stock shall mean the average Closing Price per share of the Common Stock of the Company on the 20 - 35 - Trading Days immediately prior to, but not including, the Mandatory Conversion Date. "Closing Price" of a share of Common Stock on any date of determination shall mean the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such share on the New York Stock Exchange (the "NYSE") on such date or, if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, or if it is not so listed on a United States national or regional securities exchange, as reported by The Nasdaq Stock Market, or, if it is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of a share of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company. "Fair Market Value" on any day shall mean the average of the daily Closing Prices of a share of Common Stock of the Company on the five (5) consecutive Trading Days selected by the Corporation commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. The term "'ex' date", when used with respect to any issuance or distribution, means the first day on which the Common Stock trades regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Closing Price. "Rights" shall mean the rights of the Corporation which are issuable under the Corporation's Stockholder Rights Plan adopted on February 10, 1988 and as amended from time to time, or rights to purchase any capital stock of the Corporation under any successor shareholder rights plan or plan adopted in replacement of the Corporation's Stockholder Rights Plan. "Trading Day" shall mean a day on which the Common Stock (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (b) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security. "Transfer Agent" means National City Bank or such other agent or agents of the Corporation as may be designated by the Board of Directors as the transfer agent for the Series BB Preferred Stock. V. Liquidation, etc.. Upon the liquidation, dissolution or winding up of ----------------- the Corporation, whether voluntary or involuntary, the holders of the shares of this Series BB Preferred Stock shall be entitled to receive an amount equal to $77.375 per share, plus accrued and unpaid dividends thereon (whether or not earned or declared) at the date of final distribution to such holders. - 36 - VI. Issuance of Fractional Shares. Series BB Preferred Stock may be ----------------------------- issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series BB Preferred Stock. Division B EXPRESS TERMS OF THE COMMON STOCK The Common Stock shall be subject to the express terms of the Serial Preferred Stock. Each share of Common Stock shall be equal to every other share of Common Stock. The holders of shares of Common Stock shall be entitled to one vote for each share of such stock upon all matters presented to the shareholders. FIFTH: No holders of any class of shares of the Corporation shall have any preemptive right to purchase or have offered to them for purchase any shares or other securities of the Corporation. SIXTH: The Corporation may from time to time, pursuant to authorization by the Board of Directors and without action by the shareholders, purchase or otherwise acquire shares of the Corporation of any class or classes in such manner, upon such terms and in such amounts as the Board of Directors shall determine; subject, however, to such limitation or restriction, if any, as is contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question. SEVENTH: A director or officer of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation as a vendor, purchaser, employee, agent or otherwise; nor shall any transaction, contract or other act of the Corporation be void or voidable or in any way affected or invalidated by reason of the fact that any director or officer, or any firm in which such director or officer is a member, or any corporation of which such director or officer is a member, or any corporation of which such director or officer is a shareholder, director or officer, is in any way interested in such transaction, contract or other act, provided the fact that such director, officer, firm or corporation is so interested shall be disclosed or shall be known to the Board of Directors or such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such transaction, contract or other act shall be taken; nor shall any such director or officer be accountable or responsible to the Corporation for or in respect of any such transaction, contract or other act of the Corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer is interested in such transaction, contract or other act; and any such director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize or take action in respect of any such - 37 - transaction, contract or other act, and may vote thereat to authorize, ratify or approve any such transaction, contract or other act with like force and effect as if he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer were not interested in such transaction, contract or other act. EIGHTH: Notwithstanding any provision of the Ohio Revised Code now or hereafter in force requiring for any purpose the vote, consent, waiver or release of the holders of shares entitling them to exercise two-thirds, or any other proportion, of the voting power of the Corporation or of any class or classes of shares thereof, such action, unless otherwise expressly required by statute or by these Articles, may be taken by the vote, consent, waiver or release of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes. NINTH: No shareholder of the Corporation may cumulate such shareholder's voting power in the election of directors of the Corporation. TENTH: Any and every statute of the State of Ohio hereafter enacted, whereby the rights, powers or privileges of corporations or of the shareholders of corporations organized under the laws of the State of Ohio are increased or diminished or in any way affected, or whereby effect is given to the action taken by any number, less than all, of the shareholders of any such corporation, shall apply to the Corporation and shall be binding not only upon the Corporation but upon every shareholder of the Corporation to the same extent as if such statute had been in force at the date of filing these Amended and Restated Articles of Incorporation of the Corporation in the office of the Secretary of the State of Ohio. ELEVENTH: These Amended and Restated Articles of Incorporation shall supersede and take the place of the heretofore existing Amended Articles of Incorporation as amended of the Corporation. EX-4.3 3 CREDIT AGREEMENT AMENDMENT NO. 1 EXHIBIT 4.3 FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement, dated as of February 1, 1995, is between and among ALCO STANDARD CORPORATION, an Ohio Corporation (the "Company"), those subsidiaries of the Company set forth in Exhibit A hereto (the "Subsidiary Borrowers"), the banking institutions set forth in Exhibit B hereto (the "Banks") and CORESTATES BANK, N.A., as agent for the Banks (the "Agent"). BACKGROUND The Company, the Subsidiary Borrowers, the Banks and the Agent are parties to a Credit Agreement dated December 1, 1994 (the "Agreement"). Such parties wish to amend the Agreement in the manner set forth in this First Amendment to Credit Agreement (the "First Amendment"). NOW THEREFORE, in consideration of the premises and intending to be legally bound, the parties hereto agree as follows: 1. The definition of "Finance Leasing Subsidiaries" contained in Section 1.1 of the Agreement is hereby amended in its entirety so that such definition, as so amended, shall read as follows: "Finance Leasing Subsidiaries" shall mean Alco Capital Resource, Inc., ---------------------------- a Delaware corporation, Alco Capital Resource Canada Limited, a Canadian corporation, TNL Financial, Inc., a Texas corporation, Erskine Capital Limited, an English company, and their respective successor corporations. 2. Section 5.2 of the Agreement, entitled "Funded Debt to Net Worth Ratio," shall be amended by inserting at the end of such section the following additional sentence: "For purposes of calculating such ratio, Finance Leasing Subsidiaries shall be excluded from the definition of `Consolidated Subsidiaries.'" 3. This First Amendment shall be effective once each of the Company, the Subsidiary Borrowers, the Banks and the Agent have executed and delivered this First Amendment (which may be in counterparts) to the Agent. 4. Each of the Company and the Subsidiary Borrowers represents and warrants to the Banks that the execution and delivery of this First Amendment have been duly authorized by all necessary corporate or company action on its part and this First Amendment is the legal, valid and binding obligation of such corporation or company, enforceable against such corporation or company in accordance with its terms. 5. Except as expressly amended hereby, all of the terms and conditions of the Agreement shall remain in effect, and the amendments provided for herein shall be limited precisely as set forth herein. IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed by their respective officers of the date first above written. ALCO STANDARD CORPORATION By: /s/ Signature ---------------------------- Title: [Title] ERSKINE HOUSE GROUP PLC ERSKINE LIMITED By: /s/ Signature By: /s/ Signature ----------------------------- ---------------------------- Title: [Title] Title: [Title] CORESTATES BANK, N.A., BANK ONE, COLUMBUS, NA for itself and as Agent By: /s/ Signature By: /s/ Signature ----------------------------- ---------------------------- Title: [Title] Title: [Title] FIRST BANK NATIONAL ASSOCIATION SHAWMUT BANK CONNECTICUT, N.A. By: /s/ Signature By: /s/ Signature ----------------------------- ---------------------------- Title: [Title] Title: [Title] CHEMICAL BANK NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ Signature By: /s/ Signature ----------------------------- ---------------------------- Title: [Title] Title: [Title] -2- THE CHASE MANHATTAN BANK, N.A. TRUST COMPANY BANK By: /s/ Signature By: /s/ Signature ------------------------------- ----------------------------- Title: [Title] Title: [Title] FIRST FIDELITY BANK, THE TORONTO-DOMINION BANK NATIONAL ASSOCIATION By: /s/ Signature By: /s/ Signature ------------------------------- ----------------------------- Title: [Title] Title: [Title] BANK OF AMERICA ILLINOIS SOCIETY NATIONAL BANK By: /s/ Signature By: /s/ Signature ------------------------------- ----------------------------- Title: [Title] Title: [Title] FIRST INTERSTATE BANK OF DEUTSCHE BANK AG, NEW YORK BRANCH CALIFORNIA AND/OR CAYMAN ISLANDS BRANCH By: /s/ Signature By: /s/ Signature ------------------------------- ----------------------------- Title: [Title] Title: [Title] By: /s/ Signature By: /s/ Signature ------------------------------- ----------------------------- Title:[Title] Title: [Title] -3- EXHIBIT A SUBSIDIARY BORROWERS Erskine Limited Erskine House Group PLC A-1 EXHIBIT B BANKING INSTITUTIONS CoreStates Bank, N.A. Deutsche Bank AG The Toronto-Dominion Bank Bank of America Illinois The Chase Manhattan Bank, N.A. Chemical Bank NationsBank of North Carolina, N.A. Shawmut Bank Connecticut, N.A. Trust Company Bank Bank One, Columbus, NA First Bank National Association First Fidelity Bank, National Association First Interstate Bank of California Society National Bank B-1 EX-4.5 4 CREDIT AGREEMENT OCTOBER 13, 1995 CANADA DEUTSCHE BANK CANADA, as Agent and ALCO OFFICE SYSTEMS-CANADA, INC. SYNDICATED CREDIT FACILITY ======================================== CREDIT AGREEMENT DATED OCTOBER 13, 1995 ======================================== Blake, Cassels & Graydon Box 25, Commerce Court West Toronto, Ontario M5L 1A9 TABLE OF CONTENTS ----------------- Page 1. INTERPRETATION................................................... 1 1.1 Defined Terms.................................................... 1 1.2 Accounting Terms................................................. 5 1.3 General.......................................................... 5 1.4 Currency......................................................... 5 1.5 Event of Default................................................. 5 1.6 General Provisions as to Certificates and Opinions, etc.......... 5 1.7 Law of Contract.................................................. 7 2. REPRESENTATIONS AND WARRANTIES................................... 7 2.1 Borrower......................................................... 7 3. THE CREDIT AND DRAWDOWNS......................................... 9 3.1 Establishment of Credit.......................................... 9 3.2 Utilization of the Credit........................................ 9 3.3 Drawdowns........................................................ 10 3.4 Mandatory Reduction of Credit.................................... 10 3.5 Optional Prepayment.............................................. 11 3.6 Standby Fee...................................................... 11 3.7 Cancellation of Credit........................................... 11 3.8 Intentionally deleted............................................ 11 3.9 Agency Fee....................................................... 11 3.10 Pro Rata Treatment and Payments.................................. 11 4. ACCEPTANCES...................................................... 13 4.1 Creation and Purchase of Acceptances............................. 13 4.2 Delivery by Borrower............................................. 13 4.3 Intentionally deleted............................................ 13 4.4 Discharge of Acceptances......................................... 13 4.4A Rollover......................................................... 14 4.5 Acceptances Outstanding upon Default............................. 14 4.6 Retirement of Acceptances........................................ 14 4.7 Choice of Acceptance Periods..................................... 15 5. INTEREST......................................................... 15 5.1 Computation...................................................... 15 5.2 Accrual and Payment.............................................. 15 5.3 Default Interest and Indemnity................................... 15 5.4 Agent's Certificate.............................................. 16 5.5 Limitation on Interest........................................... 16 - i - 6. CHANGE IN CIRCUMSTANCES.......................................... 16 6.1 Increased Costs.................................................. 16 6.2 Unlawful, etc.................................................... 17 7. PAYMENTS......................................................... 17 7.1 Place and Manner of Payments..................................... 17 7.2 Net Payments, etc................................................ 18 7.3 Repayment by Banks to Agent...................................... 18 8. CONDITIONS PRECEDENT............................................. 19 8.1 Closing.......................................................... 19 8.2 Conditions Precedent to Closing.................................. 19 8.3 Conditions Precedent to Each Drawdown............................ 20 9. COVENANTS........................................................ 20 9.1 General Covenants................................................ 20 9.2 Accounting, Financial Statements and Other Information........... 21 10. DEFAULT AND ENFORCEMENT.......................................... 23 10.1 Events of Default................................................ 23 10.2 Legal Proceedings................................................ 25 10.3 No Prejudice, etc................................................ 25 10.4 Appropriation of Moneys Received................................. 25 10.5 Currency Indemnity............................................... 25 10.6 Bank's Contributions............................................. 26 11. THE AGENT AND AGENCY ARRANGEMENTS................................ 27 11.1 Actions.......................................................... 27 11.2 Directions....................................................... 28 11.3 Indemnity........................................................ 28 11.4 Liability of Agent, etc.......................................... 28 11.5 Dealings by Agent................................................ 29 11.6 Exculpation...................................................... 29 11.7 Notice, Copies, etc.............................................. 29 11.8 Funding Reliance, etc............................................ 30 11.9 Payment Reliance................................................. 30 11.10 Successor........................................................ 30 11.11 Loans and Acceptances by the Agent............................... 31 11.12 Deutsche Bank Canada as the Agent................................ 31 11.13 Changes.......................................................... 31 11.14 Waivers.......................................................... 31 11.15 Termination Action by Agent...................................... 32 11.16 Notice........................................................... 32 11.17 Representations and Agreements of the Banks...................... 32 11.18 Application...................................................... 33 - ii - 12. ASSIGNMENT....................................................... 33 12.1 Benefit and Burden of this Agreement............................. 33 12.2 Assignment by Borrower........................................... 33 12.3 Assignment....................................................... 33 12.4 Limitation on Assignment......................................... 33 12.5 Borrower's Documents............................................. 34 13. MISCELLANEOUS.................................................... 34 13.1 Payment of Expenses.............................................. 34 13.2 Rights and Waivers............................................... 34 13.3 Communication.................................................... 34 13.4 Survival of Representations, Warranties and Covenants of the Borrower................................................... 34 13.5 Further Assurances............................................... 35 13.6 Severability..................................................... 35 13.7 Counterparts..................................................... 35 13.8 Determination of Materiality..................................... 35 13.9 Submissions to Jurisdiction...................................... 35 13.10 Partnership...................................................... 35 13.11 Entire Agreement................................................. 35 13.12 Evidence of Indebtedness......................................... 36 13.13 Survival of Covenants, etc....................................... 37 - iii - CREDIT AGREEMENT ---------------- THIS AGREEMENT is dated as of October 13, 1995 and is entered into between ALCO OFFICE SYSTEMS-CANADA, INC. (the "Borrower"), DEUTSCHE BANK CANADA, -------- as agent (the "Agent"), and the banks (collectively, the "Banks") listed on the ----- ----- execution pages of this Agreement. In consideration of the mutual agreements herein contained, the parties agree as follows: 1. INTERPRETATION 1.1 DEFINED TERMS. In this Agreement or any amendment hereto or supplement ------------- hereof, unless the context otherwise requires, the following words and phrases will have the meanings set forth below. "Acceptance" means a bill of exchange (i) drawn by the Borrower and ---------- accepted by a Bank, (ii) denominated in Cdn. Dollars, (iii) payable by such Bank only within Canada, and (iv) of a term of one, two or three months or of such other period as the parties agree and maturing on or before the Repayment Date. "Agent" means Deutsche Bank Canada or any successor agent of the Banks ----- under this Agreement. "Agreement" or "agreement" will mean this Credit Agreement, as amended, --------- --------- supplemented or otherwise modified from time to time. "Auditors" means (i) Ernst & Young, chartered accountants, or (ii) a -------- firm of chartered accountants who at the relevant time (a) are the duly appointed auditors of the Borrower, (b) are in fact independent of the Borrower, and (c) have been approved in writing by the Majority Banks. "Banking Day" means any day on which the Agent and each of the Banks are ----------- open for business in Toronto, Ontario. "Bank's Proportion" means, in the case of a Bank, the percentage shown ----------------- opposite the name of such Bank on Schedule A (as amended from time to time) of the aggregate amount in question for which the Banks are responsible for or entitled to, and "Banks' Proportions" means, collectively, the Bank's Proportion ------------------ of each of the Banks. "Banks" mean those banks listed on the execution page(s) of this ----- Agreement and their respective successors in title and assigns which are for the time being participating in the Credit or a Drawdown. - 2 - "Borrowing Amount" means, in the case of (i) a Prime Loan, any amount, ---------------- and (ii) an Acceptance, $100,000 or $100,000 plus any whole multiple thereof. "Borrowing Date" is defined in Section 3.10(c). -------------- "Branch of Account" means with respect to a Bank, the branch or office ----------------- of such Bank at the address set out opposite such Bank's name on the signature pages of this Agreement or such other branch in Canada as such Bank may advise the Borrower and the Agent in writing. "Cdn. Dollars", "Dollars", "$", and "$Cdn." mean lawful currency of ------------ ------- - ----- Canada. "Closing Date" means October 13, 1995 or such other date as the parties ------------ may agree upon in writing. "Commitment", as to any Bank at any time, means such Bank's obligation ---------- to make Drawdowns available to the Borrower pursuant to Section 3.1(2) in an aggregate principal amount equal to its Bank's Proportion multiplied by the principal amount of the Credit at such time. "Credit" means, at the date of determination, the principal Dollar ------ amount of the credit established by Section 3.1, as reduced or cancelled from time to time in accordance with the provisions hereof. "DBAR" means the sum of (i) the rate of discount per annum, rounded ---- upward, if necessary, to the nearest integral multiple of 1/16 of 1%, quoted by the Agent to the Borrower upon request from time to time as being the Agent's discount rate then in effect for purchasing bills of exchange accepted by the Agent in a specified amount of Canadian Dollars and for a specified term, plus (ii) 3/10ths of 1% (0.3%). "Designated Office" means the office of the Agent at Suite 1200, 222 ----------------- Bay Street, Toronto, Ontario, M5K 1H6, or such other office within Ontario as the Agent may from time to time designate. "Documents" means this Agreement, the Guarantee and all certificates --------- and other documents delivered or to be delivered to the Agent or the Banks pursuant hereto or thereto. "Drawdown" means an availment by the Borrower of the Credit, and may -------- take the form of a Prime Loan or an Acceptance. "Drawdown Notice" means a notice in the form of Schedule B. --------------- - 3 - "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Guarantee" means a guarantee in the form of Schedule C. --------- "Guarantor" means Alco Standard Corporation. --------- "Indebtedness", with respect to any Person means, at the date of ------------ determination, the aggregate, without duplication, of: (a) all indebtedness, obligations and liabilities of such Person which, in accordance with GAAP (but on an unconsolidated basis), would be included in determining total liabilities as shown in the liability section of the balance sheet of such Person, including indebtedness, obligations and liabilities for borrowed money (whether on account of principal, interest or otherwise) or in respect of any bankers' or trade acceptance credit facility; (b) all indebtedness, obligations and liabilities of such Person secured by any Lien on any property or asset owned or held by such Person, whether or not any other Person has assumed or is liable for the indebtedness, obligations or liabilities so secured and whether or not the rights and remedies of the secured party thereunder are limited to repossession or sale of property or assets covered thereby; (c) any liability under any instrument of guarantee or indemnity or arising under any guarantee, endorsement or undertaking made or issued by any Person to others for the account of such Person and at the request of such Person, including any accommodation extended with respect to applications for letters of credit or acceptances; (d) all indebtedness, obligations and liabilities of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), discounted with recourse or other obligation to pay or under agreement (contingently or otherwise) to purchase, repurchase or otherwise acquire or become liable, or in respect of which such Person has provided a comfort letter or agreed to supply or advance funds (whether by way of loan, share purchase or capital contribution, through a commitment to pay for property or services regardless of the non-delivery of such property or the non-furnishing of such services or otherwise) or in respect of which such Person has otherwise become directly or indirectly liable; and the amount of each such indebtedness, obligation or liability (each a "Guarantee Liability") will be deemed to be the amount of the ------------------- Indebtedness in - 4 - respect of which the Guarantee Liability relates, unless the Guarantee Liability is limited to a determinable amount, in which case the amount of the Guarantee Liability will be deemed to be the lesser of the amount of the Indebtedness in respect of which the Guarantee Liability relates and such determinable amount; (e) all liabilities of such Person as lessee in respect of all rentals under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which, in accordance with GAAP (but on an unconsolidated basis) applied on a consistent basis, have been or are required to be capitalized on the books of the lessee; the term "rentals" to mean all payments which the lessee is required to make ------- by the terms of such lease or other arrangement; (f) all deferred taxes of such Person; (g) all liabilities of such Person as a partner or venturer in any partnership, joint venture or other enterprise; (h) all items of indebtedness convertible into, or exchangeable for, shares in the capital of such Person; and (i) all shares in the capital of, or partnership units in, such Person which are redeemable or retractable at the option of any Person (other than the Person in respect of whom a determination of Indebtedness is being made). "Loan" means, as the context requires, (i) the principal amount of ---- each borrowing hereunder, (ii) the principal amount thereof from time to time outstanding, or (iii) the aggregate principal amount of all borrowings hereunder from time to time outstanding. "Majority Banks" means at any time Banks participating in the -------------- aggregate in excess of 66 2/3% of the amount of the Drawdowns outstanding at such time or (if no Drawdown has been made) the Credit. "Person" includes an individual, a partnership, a corporation, a ------ trust, an unincorporated organization, a government or any department or agency thereof and the heirs, executors, administrators or other legal representatives of an individual. "Prime Loan" means a Loan on which interest is calculated by reference ---------- to the Prime Rate. "Prime Rate" means the prime lending rate per annum as quoted publicly ---------- by the Agent from time to time for Cdn. Dollar loans made in Canada to prime commercial borrowers, as changed by the Agent from time to time without notice to the Borrower. - 5 - "Repayment Date" means the date that is the fifth anniversary of the -------------- Closing Date. "this Agreement", "herein", "hereof", "hereto" and similar expressions -------------- ------ ------ ------ mean and refer to this Agreement and include any instrument amending or supplementing the same, and the expressions "article", and "Section" followed by ------- ------- a number mean and refer to the specified article or Section of this Agreement. "Unutilized Portion" means, in respect of the Credit, at the date of ------------------ determination, the maximum permitted amount of the Credit minus the Utilized Portion of the Credit at such date. "U.S.$" means lawful currency of the United States of America. ----- "Utilized Portion" means, in respect of the Credit, at the date of ---------------- determination, the aggregate of all Drawdowns outstanding under the Credit at such date. 1.2 ACCOUNTING TERMS. All accounting terms not otherwise defined herein ---------------- have the meanings assigned to them in accordance with generally accepted accounting principles in Canada. Where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made, for the purpose of this Agreement or any Document, such determination or calculation will, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with generally accepted accounting principles in Canada (or, in the case of the Guarantee, the United States) applied on a basis consistent with those at the time in effect. 1.3 GENERAL. The division of this Agreement into Sections and the ------- insertion of headings are for convenience of reference only and will not affect the interpretation of this Agreement. Any reference in this Agreement to any Act or statute or Section thereof will be deemed to be a reference to such Act or statute or Section as amended or re-enacted from time to time. Words importing the singular number include the plural and vice versa. Any reference in this Agreement to a party to this Agreement will include the permitted successors and assigns of such party. 1.4 CURRENCY. Unless otherwise specified herein, all statements of or -------- references to dollar amounts (without more) in any Document will mean lawful money of Canada. 1.5 EVENT OF DEFAULT. Any reference in this Agreement to an Event of ---------------- Default means an event described in Section 10.1 and includes a reference to any event which, with the giving of notice and/or a lapse of time and/or a determination being made under the relevant provisions hereof, would constitute an event described in Section 10.1. 1.6 GENERAL PROVISIONS AS TO CERTIFICATES AND OPINIONS, ETC. Each ------------------------------------------------------- certificate of the Auditors, each officers' certificate, and each opinion of counsel furnished to the Agent or - 6 - any Bank pursuant to any provision of any Document will specify the Section or Sections under which such certificate or opinion is furnished and will include a statement that the Person making such certificate or giving such opinion has read the provisions of such Document relevant thereto. Each such certificate and opinion which evidences, attests or confirms compliance with any covenant or condition precedent provided for in any Document will, in addition, include a statement: (a) that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; (b) that, in the opinion of such Person, such covenant or condition has been complied with; and (c) that (unless the context otherwise requires) to the knowledge of such Person, no Event of Default has occurred and is continuing or, if an Event of Default has occurred and is continuing, specifying the same. Whenever the delivery of a certificate or opinion is a condition precedent to the taking of any action by the Agent or the Banks under any Document, the truth and accuracy of the facts and opinions stated in such certificate or opinion will in each case be conditions precedent to the right of the Borrower to have such action taken, and each statement of fact contained therein will be deemed to be a representation and warranty of the Borrower for the purposes of this Agreement. Any Auditors certificate or officer's certificate may be based, insofar as it relates to legal matters, upon an opinion of counsel, unless the Person or Persons giving such certificate knows, or in the exercise of reasonable care should know, that the opinion of counsel with respect to the matters upon which such certificate may be based as aforesaid is erroneous. Any opinion of counsel may be based, insofar as it relates to factual matters, information with respect to which is in possession of the Borrower, upon an officers' certificate, unless the counsel giving such opinion knows, or in the exercise of reasonable care should know, that the officers' certificate with respect to the matters upon which his opinion may be based as aforesaid is erroneous. Insofar as any opinion of counsel covers matters relating to the laws of jurisdictions other than those in which such counsel is qualified to practice, such counsel may rely upon opinions of counsel located in such other jurisdictions as to such matters. In rendering any opinion, counsel may qualify such opinion with respect to the enforceability of any agreement or obligation referred to therein by stating that enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and that specific performance may not be available as a remedy. - 7 - 1.7 LAW OF CONTRACT. Except as otherwise provided therein, all Documents --------------- will be deemed to be contracts and/or instruments made pursuant to the laws of Ontario and will be governed by and construed in accordance with such laws. 2. REPRESENTATIONS AND WARRANTIES 2.1 BORROWER. To induce the Banks to enter into this Agreement, to -------- establish the Credit and to permit Drawdowns hereunder and to induce the Banks and the Agent to enter into this Agreement, the Borrower represents and warrants to the Banks and the Agent, upon each of which representations and warranties the Banks and the Agent specifically rely, as follows: (1) Good Standing, etc. It is a corporation duly amalgamated under the ------------------ laws of Ontario, is validly subsisting under such laws and is duly authorized and licensed to own its properties and to carry on its businesses as presently owned and carried on by it in each jurisdiction in which the failure to qualify would have a material adverse effect on its business or financial condition. It has the corporate power and authority to enter into and perform its obligations under the Documents. (2) Qualification, Licences etc. It has obtained all necessary material --------------------------- licenses, material permits, material consents, material authorizations and material approvals from any and all governments, governmental commissions, boards or other agencies required as at the date hereof in respect of its present operations, and it has no reason to believe that any such necessary material licenses, material permits, material consents, material authorizations and material approvals required in the future cannot be obtained without any unduly burdensome provision or provisions inconsistent with the terms of this Agreement. (3) Due Execution, etc. Each Document to which it is a party has been duly ------------------ authorized, executed and delivered by it and constitutes a valid and binding obligation of it, enforceable in accordance with its terms, subject to the qualifications set out in the opinion delivered pursuant to Section 8.2(7). (4) Litigation. There is no litigation or governmental proceeding pending or ---------- threatened against it which could have a material adverse effect on its financial condition. (5) Burdensome Provisions, etc. It is not a party to any agreement or -------------------------- instrument, or subject to any corporate restriction or any judgment, order, writ, injunction, decree, award, rule or regulation, which materially adversely affects or in the future may materially and adversely affect, its business, operations, prospects, properties or assets, or condition, financial or otherwise, or its ability to perform its obligations under the Documents. (6) Default. It is not in default beyond any period of grace with respect ------- thereto under any instrument or instruments evidencing any Indebtedness which would in the aggregate exceed U.S.$5,000,000 or under the terms of any instrument pursuant to which an - 8 - instrument evidencing any Indebtedness which would in the aggregate exceed U.S.$5,000,000 has been issued or made and delivered, except for defaults (if any) as are being contested in good faith by appropriate proceedings of which the Agent has been notified in writing and for which a reserve satisfactory to the Banks has been provided. No event has occurred which constitutes an Event of Default nor will any such Event of Default occur by reason of the Borrower entering into any Document or performing its obligations thereunder or entitling itself to the benefits available to it thereunder. (7) Contingent Liabilities and Debt. It does not have any contingent ------------------------------- liabilities, nor has it, except as contemplated by this Agreement, incurred any Indebtedness for money borrowed or credit advanced. (8) Full Disclosure. No statements or materials furnished by or on behalf of --------------- the Borrower to the Agent or the Banks in connection with the negotiation or confirmation of the transactions contemplated hereby contained, as of the time such statements were so furnished, any untrue statement of a material fact or omitted as of such time, a material fact necessary to make the statements contained therein not misleading, and all such statements, taken as a whole, together with this Agreement, do not contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained herein or therein not misleading, and all expressions of expectation, intention, belief and opinion contained therein were honestly made on reasonable grounds after due and careful inquiry by the Borrower (and any other person who furnished such material). There is no fact which the Borrower has not disclosed to the Agent and to each of the Banks in writing which materially adversely affects, or so far as the Borrower can now reasonably foresee, will materially adversely affect its assets, liabilities, affairs, business, prospects, operations or conditions, financial or otherwise, or its ability to perform its obligations under the Documents. (9) No Default, etc. Neither the execution nor the delivery of any Document, --------------- the consummation of the transactions therein contemplated, nor compliance with the terms, conditions and provisions thereof conflicts with, or will conflict with, or results or will result in, any breach of, or constitutes a default under any of the provisions of the charter documents or by-laws of the Borrower or of any agreement or instrument to which it is a party or by which it is, or any of its property or assets are, bound or results or will result in the contravention of any law or rule or regulation to which the Borrower or its property or assets are subject. (10) Tax Returns. It (and each of its predecessors) has filed all tax returns ----------- which are required to be filed and has paid all taxes which have become due as shown on such returns or any assessments received by it and its predecessors except such taxes (if any) as are being contested in good faith by appropriate proceedings. The Borrower is not aware of any proposed additional tax assessment against it. (11) Consents. No consent, approval or authorization of, or declaration, -------- registration, filing or qualification with, or giving of notice to, or taking of any other action - 9 - in respect of, any governmental authority or agency on the part of the Borrower is required in connection with the execution and delivery and enforcement of the Documents or the consummation of any of the transactions contemplated hereby or thereby. (12) Events of Default. No event has occurred which constitutes an Event of ----------------- Default nor will any such Event of Default occur by reason of the Borrower entering into any Document or performing its obligations thereunder or entitling itself to any benefits available to it thereunder. (13) No Material Adverse Change. The business, operations, assets and -------------------------- condition (financial or otherwise) of the Borrower have not been materially adversely affected as a result of any act or event (including, without limitation, fire, accident, strike, expropriation or act of any government in Canada or elsewhere). 3. THE CREDIT AND DRAWDOWNS 3.1 ESTABLISHMENT OF CREDIT. ----------------------- (1) The Banks hereby establish in favour of the Borrower on the terms and conditions hereof a credit in the principal amount of $110,000,000. (2) Subject to the terms and conditions hereof, each Bank will participate in each Drawdown in a proportion equal to its Bank's Proportion of such Drawdown. (3) The rights and obligations of each of the Banks under this Agreement are several. The failure of a Bank to perform its obligations under this Agreement will neither: (a) result in the Agent or any other Bank incurring any liability whatsoever; nor (b) relieve the Agent or any other Bank from their respective obligations under any Document. Nothing contained herein or in any other Document nor any action taken pursuant hereto or thereto will be deemed to constitute the Banks a partnership, joint venture or any other similar such entity. 3.2 UTILIZATION OF THE CREDIT. Subject to the terms and conditions ------------------------- hereof, the Borrower may avail itself of the Credit at any time, commencing on the Closing Date and from time to time thereafter up to (but not including) the Repayment Date, by way of Drawdowns provided that: (a) the proceeds of each Drawdown (other than a Drawdown made pursuant to Section 3.8) will be used for general corporate purposes; - 10 - (b) all Drawdowns will be in a Borrowing Amount; and (c) if after giving effect thereto, the Utilized Portion of the Credit does not exceed the then principal amount of the Credit. 3.3 DRAWDOWNS. --------- (1) The Borrower will deliver a Drawdown Notice to the Agent no later than 10:00 a.m. (Toronto time) on or before the first Banking Day prior to the day on which the Borrower wishes to receive any Drawdown. (2) When the Agent receives a Drawdown Notice, the Agent will notify each of the Banks of the amount and particulars of the proposed Drawdown and the date on which it is to be made, and each Bank will, subject to the provisions of this Agreement, make available to the Agent at the Designated Office on that date its participation in that Drawdown. (3) Intentionally deleted. (4) Each Bank will open and maintain on its books accounts evidencing the Indebtedness of the Borrower to it hereunder. Each Bank will debit therein the amount of all such Indebtedness and will credit therein each payment on account of such Indebtedness by appropriate entries. The accounts kept by a Bank will constitute, in the absence of manifest error, conclusive evidence of (i) the Indebtedness of the Borrower to such Bank hereunder, (ii) the date each Drawdown was made by the Borrower, and (iii) the amounts from time to time paid by the Borrower on account of such Indebtedness. (5) A Drawdown Notice will be irrevocable and the Borrower will borrow the stated amount on the stated date in accordance with the Drawdown Notice. (6) Intentionally deleted. (7) All amounts to be advanced by the Banks to the Borrower under this Agreement in respect of Drawdowns will be remitted not later than 10.00 a.m. (Toronto time) on the relevant day to the account of the Agent at the Designated Office, and the Agent will make available to the Borrower the amounts so remitted on the same day to the account in the name of the Borrower maintained by the Agent of which the Borrower has notified to the Agent in writing. If the Agent makes available to the Borrower any amount which has not been made unconditionally available to the Agent the Borrower will forthwith on notice from the Agent repay to the Agent any such amount. (8) Intentionally deleted. 3.4 MANDATORY REDUCTION OF CREDIT. The Borrower will reduce permanently ----------------------------- the Utilized Portion of the Credit to nil on the Repayment Date, and the Borrower will pay - 11 - concurrently with such reduction all interest accrued hereunder but unpaid prior to the Repayment Date. The Credit will be permanently cancelled on the Repayment Date. 3.5 OPTIONAL PREPAYMENT. The Borrower will not be entitled to prepay all ------------------- or any part of a Drawdown except as provided below: (a) any partial prepayment is in a Borrowing Amount; (b) the Borrower pays concurrently with such prepayment all interest accrued on the amount thereof; (c) the Agent receives written notice of such prepayment 5 Banking Days prior to the intended date of prepayment; any notice of prepayment given by the Borrower pursuant hereto will be irrevocable and the Borrower will be bound to prepay in accordance with such notice; and (d) in the case of an Acceptance, the prepayment is made on the maturity date applicable to such Acceptance. 3.6 STANDBY FEE. The Borrower will pay to the Agent for the account of ----------- each Bank on the last Banking Day of each calendar quarter, commencing December 29, 1995, a standby fee of 1/10th of 1% (i.e., 0.1%) per annum calculated daily on the Unutilized Portion of the Credit and on the basis of a year of 365 or 366 days, as the case may be, such fee to be computed commencing on the date hereof. 3.7 CANCELLATION OF CREDIT. The Borrower may, upon five Banking Days ---------------------- prior written notice to the Agent, permanently cancel the Credit in whole or from time to time in part provided that the Borrower concurrently reduces, in accordance with Section 3.5, the Utilized Portion of the Credit so that such Utilized Portion does not exceed the reduced amount of the Credit. 3.8 Intentionally deleted. 3.9 AGENCY FEE. The Borrower will pay to the Agent in arrears on the last ---------- Banking Day of each calendar quarter, commencing December 29, 1995, a quarterly agency fee of $1,250. 3.10 PRO RATA TREATMENT AND PAYMENTS. ------------------------------- (a) Each borrowing by the Borrower from the Banks, each payment (including each prepayment) by the Borrower on account of principal and interest hereunder, and any reduction of the Commitments of the Banks hereunder, will be made pro rata according to the Banks' Proportions at the time of such borrowing, payment or reduction. All payments (including prepayments) to be made by the Borrower on account of principal, interest and - 12 - fees will be made without set-off or counterclaim and will be made to the Agent on behalf of the Banks at the Designated Office in lawful money of Canada and in immediately available funds. The Agent will distribute such payments to the Banks promptly upon receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment will be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon will be payable at the then applicable rate during such extension. (b) Notwithstanding Section 3.10(a) above, the parties hereto agree that the provisions of this Section 3.10(b) will apply in circumstances in which the pro rata share of any Bank or Banks in respect of a proposed Drawdown by way of Acceptances (which Drawdown complies in all respects with the terms of this Agreement) is in an amount which is not a Borrowing Amount in respect of Acceptances. In such circumstances, the excess (a "Bank's Excess Amount") of (i) -------------------- the pro rata share of a particular Bank of such proposed Drawdown, over (ii) the Borrowing Amount in respect of Acceptances which is closest to, but which does not exceed, such pro rata share, shall be added to the Bank's Excess Amount of each of the other two Banks relating to such proposed Drawdown (the aggregate of all three Bank's Excess Amounts in respect of a particular proposed Drawdown being hereinafter referred to as the "Aggregate Excess Amount"). If the ----------------------- Aggregate Excess Amount is less than $100,000, then each Bank shall advance a Prime Loan to the Borrower in an amount equal to such Bank's Excess Amount in respect of such proposed Drawdown. If the Aggregate Excess amount is equal to or exceeds $100,000, then (i) Deutsche Bank Canada will accept and purchase a bill of exchange (in the manner contemplated by Section 4.1) in a principal amount equal to the Borrowing Amount in respect of Acceptances which is closest to, but which does not exceed, the Aggregate Excess Amount, and (ii) each Bank shall advance a Prime Loan to the Borrower in an amount equal to such Bank's pro rata share of the positive difference, if any, resulting from the subtraction of the principal amount of a bill of exchange accepted and purchased by Deutsche Bank Canada pursuant to the preceding clause (i) from the Aggregate Excess Amount. Any bill of exchange accepted and purchased by Deutsche Bank Canada pursuant to this Section 3.10(b) is hereinafter referred to as a "Section 3.10(b) --------------- Acceptance". Each Bank agrees that if the Borrower does not provide the Agent - - ---------- at the Designated Office for the account of Deutsche Bank Canada with immediately available funds to discharge in full the liabilities of Deutsche Bank Canada in respect of a Section 3.10(b) Acceptance by 10:30 a.m. on the maturity date of such Section 3.10(b) Acceptance, each Bank will by 12:00 p.m. on such maturity date provide the Agent with immediately available funds to discharge in full such Bank's pro rata share of the liabilities of Deutsche Bank Canada in respect of such Section 3.10(b) Acceptance (it being agreed that (i) the amount of each such payment will be discounted to reflect the 30 basis point margin on an amount equivalent to the undiscounted amount of such payment realized by Deutsche Bank Canada at the time of Deutsche Bank Canada's acceptance and purchase of the relevant Section 3.10(d) Acceptance, and (ii) upon any such payment, the payor Bank will be subrogated, to the extent of such payment, to the rights of Deutsche Bank Canada in respect of the liabilities of the Borrower relating to such Section 3.10(b) Acceptance). - 13 - (c) The Agent may (unless notified to the contrary by a Bank prior to the date of any proposed Drawdown (in this Section 3.10(c), the "Borrowing Date")) -------------- assume that each Bank has made available to the Agent on such Borrowing Date such Bank's Proportion of the Drawdown to be made on such Borrowing Date, and the Agent may (but it will not be required to), in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is made available to the Agent on a date after such Borrowing Date, such Bank will pay to the Agent on demand an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for funds acquired by the Agent during each day included in such period, times (ii) the amount of such Bank's Proportion of such borrowing, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Bank's Proportion of such borrowing will become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to any Bank with respect to any amounts owing under this subsection 3.10(c) will be conclusive and binding in the absence of manifest error. If such Bank's Proportion of such Drawdown is not in fact made available to the Agent by such Bank within three Banking Days of such Borrowing Date, the Agent will be entitled to recover such amount with interest thereon, on demand, at the rate per annum applicable to Prime Loans hereunder. 4. ACCEPTANCES 4.1 CREATION AND PURCHASE OF ACCEPTANCES. Upon receipt of a Drawdown ------------------------------------ Notice given in accordance with Section 3.3(1) and subject to the provisions of this Agreement, each Bank will accept and purchase from time to time such bills of exchange as the Borrower will request within the scope of the Credit. The purchase price for each such accepted bill of exchange will be equal to (i) the principal amount of such bill of exchange, minus (ii) the principal amount of such bill of exchange multiplied by the DBAR. The Agent will verbally inform each of the Banks of the DBAR applicable to each Drawdown by way of Acceptances hereunder no later than 10:00 a.m. on the day on which a Drawdown is to be made by way of Acceptances hereunder, and such DBAR will not be communicated to the Borrower any earlier than 10:30 a.m. on such day. 4.2 DELIVERY BY BORROWER. Each bill of exchange to be accepted by a Bank -------------------- will be tendered by the Borrower to such Bank on or before 11.00 a.m. (Toronto time) at the Branch of Account of such Bank on the date the Borrower wishes such Bank to accept such bill. 4.3 Intentionally deleted. 4.4 DISCHARGE OF ACCEPTANCES. The Borrower agrees that prior to 10:30 a.m. ------------------------ on each date on which an Acceptance matures (in this Section, a "maturity -------- date"), it will provide the Agent at the Designated Office for the account of - - ---- each Bank with immediately available funds (in this Section, the "discharge --------- funds") to discharge in full the liabilities of a - - ----- - 14 - Bank in respect of such Acceptance. The Borrower agrees that it will take whatever steps are necessary to ensure that it is entitled to obtain a Drawdown on the maturity date pursuant to the provisions hereof in an amount at least equal to the discharge funds. If the Borrower does not in fact provide the Agent with the discharge funds, the Banks may (but will not be obliged to) make loans, according to the Banks' Proportions, to the Borrower, which loans the Borrower hereby requests the Banks to make and which, if made, will be made on a demand basis and will bear interest as Prime Loans. To the extent not inconsistent with the demand nature of such demand loans, the terms and conditions of this Agreement pertinent to Prime Loans outstanding hereunder will apply to such demand loans. 4.4A ROLLOVER. The Borrower may at any time deliver a notice to the Banks -------- requesting a Drawdown (the "Rollover Drawdown") the proceeds of which ----------------- will be used to discharge in whole or in part its obligations hereunder with respect to one or more outstanding Drawdowns (the "Outstanding Drawdown"), --------------------- provided that: (a) the notice identifies the Outstanding Drawdown or Outstanding Drawdowns to be discharged; (b) the Rollover Drawdown would otherwise be permitted hereunder and the Borrower complies with each provision hereof relative to the obtaining of a Drawdown in the form requested including, without limitation, those relative to notice; (c) the aggregate principal amount of the Rollover Drawdowns then requested is not greater than the aggregate principal amount of such Outstanding Drawdowns; (d) the entire proceeds of the Rollover Drawdowns are used in full to retire the liability of the Borrower in respect to such Outstanding Drawdowns; (e) each Rollover Drawdown is made contemporaneously with the retirement of the Outstanding Drawdowns; and (f) the Borrower will pay all costs and expenses incurred by the Bank incidental to the exercise by the Borrower of any of its rights under this Section. 4.5 ACCEPTANCES OUTSTANDING UPON DEFAULT. If any Acceptance is ------------------------------------ outstanding upon the occurrence of an Event of Default, the Borrower will forthwith upon such occurrence pay to the Agent, for the rateable benefit of the Banks, an amount equal to the principal amount of such Acceptance, such amount to be held by the Banks for set off against the Indebtedness owing by the Borrower to the Banks in respect to such Acceptance or in respect to any other amount payable under the Documents. 4.6 RETIREMENT OF ACCEPTANCES. The Borrower will not retire any ------------------------- Indebtedness with respect to the face amount of an Acceptance until the maturity date of such Acceptance. - 15 - 4.7 CHOICE OF ACCEPTANCE PERIODS. Subject to the next sentence, all ---------------------------- Drawdowns hereunder by way of Acceptances will mature one, two or three months after their issuance. The Borrower will choose Acceptances of such duration so as to ensure that the Borrower complies in all respects with its reduction obligations hereunder. 5. INTEREST 5.1 COMPUTATION. The Borrower will pay to the Agent, for the rateable ----------- benefit of the Banks, interest on each Prime Loan, which interest will be calculated daily at the rate of interest per annum equal to the Prime Rate. 5.2 ACCRUAL AND PAYMENT. Interest on each Prime Loan will accrue from day ------------------- to day, be payable monthly in arrears on the last Banking Day of each month, and be calculated on the basis of the actual number of days in the relevant calendar year. The principle of deemed reinvestment of interest will not apply to this Agreement or to any computation of interest payable hereunder. 5.3 DEFAULT INTEREST AND INDEMNITY. ------------------------------ (1) In the event that the Borrower fails to pay any amount payable under any Document to the Agent, whether for its own account or that of the Banks on its due date and irrespective of any notice to the Borrower in respect of such failure, the Borrower will pay to the Agent for the account of the appropriate party interest on such amount, which interest will be calculated daily according to the regular practice of the Agent, for the period commencing on the date of such failure and ending on the date of actual payment (both before and after demand, default and judgment) at a rate of interest per annum equal to the Prime Rate plus 3%, such interest to be compounded on the last Banking Day of each month during the period of arrears. (2) The Borrower will fully indemnify and hold the Agent and each Bank harmless from and against any loss, expense, damage or liability incurred by it with respect to any Drawdown or proposed Drawdown which the Agent or such Bank may sustain or incur as a result of (i) the failure of the Borrower to utilize the Credit in the manner specified in a Drawdown Notice (including if such failure was caused by its failure to meet all conditions precedent), (ii) the failure of the Borrower to pay any sum on its due date, (iii) any prepayment under this Agreement or otherwise in connection with this Agreement, or (iv) any Event of Default. Without prejudice to the generality of the foregoing, the foregoing indemnity will extend to any interest, fees or other sums whatsoever paid or payable on account of any funds borrowed by a Bank in order to carry any unpaid amount and to any loss (including loss of profit), premium, penalty or expense which may be incurred by such Bank in liquidating or employing deposits from third parties acquired to make, maintain or fund a drawdown or any part thereof or any amount due or to become due under this Agreement. - 16 - 5.4 AGENT'S CERTIFICATE. The Agent's certificate as to each amount or ------------------- each rate of interest payable hereunder will, in the absence of manifest error, be conclusive evidence of such amount or rate. 5.5 LIMITATION ON INTEREST. If the payment of any amount pursuant hereto ---------------------- on account of interest (the "Required Interest") would result in the ----------------- Borrower paying interest at a rate or in an amount greater than that which any Bank is entitled under any applicable law ("The Usury Law") to ------------- charge the Borrower (provided that such law is not pre-empted or superseded by any other law or provision of any Document) (the "Permitted Interest Rate"), ----------------------- then the difference (the "Surplus Amount") between the Required Interest and the -------------- Permitted Interest will be deducted automatically from the principal amount of the Drawdown to which such payment relates, or, if such payment does not relate to any particular Drawdown, to the last amount payable hereunder, with the result that the Borrower will be deemed for all purposes not to have paid interest in any amount in excess of the Permitted Interest. Notwithstanding the foregoing, if at any time when there exists a Surplus Amount, the amount of interest payable hereunder or pursuant hereto by the Borrower is less than the maximum amount that the Bank is otherwise permitted to charge the Borrower under the Usury Law, the Borrower will pay interest at the Permitted Interest Rate, without regard to the rates set out herein, until the total amount of all interest and other charges actually paid by the Borrower is equal to the amount that would have been payable were it not for such Usury Law. This provision will not be interpreted and is not intended to prevent or impair the Bank from challenging the validity or applicability of any Usury Law before any Court or government authority of any kind. 6. CHANGE IN CIRCUMSTANCES 6.1 INCREASED COSTS. If at any time a Bank determines in good faith --------------- (which determination will be conclusive) and notifies the Borrower through the Agent that any present or future law, regulation, order, treaty or official directive (whether or not having the force of law), or any change therein or in the interpretation or application thereof by any authority charged with the administration thereof or by any court or any compliance by such Bank with any request or directive of any applicable monetary, fiscal or other governmental agency or authority (whether or not having the force of law), has the effect in respect of any Drawdown of: (a) increasing the cost to such Bank of making, maintaining or funding its participation in such Drawdown; (b) reducing the amount of principal, interest or other amount received or receivable by such Bank hereunder or its effective return hereunder; or (c) causing such Bank to make any payment, or to forego any interest or other return on or calculated by reference to, any sum received or receivable by it hereunder; - 17 - then, in any such case, upon demand being made from time to time to the Borrower by such Bank through the Agent, the Borrower will forthwith pay to the Agent for the account of such Bank such amount as will compensate such Bank for such additional cost, reduction, payment, foregone interest or other return. The certificate of the relevant Bank as to any amount payable pursuant to this Section will, in the absence of manifest error, be conclusive evidence thereof. 6.2 UNLAWFUL, ETC. Notwithstanding anything herein contained, if at any ------------- time any Bank determines in good faith (which determination will be conclusive) and notifies the Borrower through the Agent that, by reason of any law, regulation, order, treaty or official directive, or any change therein or in the reasonable interpretation or reasonable application thereof, by any authority charged with the administration thereof or by any court, it is unlawful, or impracticable or contrary to the direction of any competent authority for such Bank to make, maintain or fund any Drawdown or to give effect to any of its other obligations as contemplated hereby, such Bank, by such notice, may declare that such obligations will be terminated and the Borrower, if such Drawdown is a Prime Loan, will repay such Prime Loan to the Agent for the account of such Bank forthwith or at the end of such period as such Bank will in its discretion have agreed, the whole of such Prime Loan together with all unpaid interest accrued thereon to the date of repayment and all other unpaid amounts payable to such Bank hereunder. If such Drawdown is an Acceptance, the Borrower will provide such Bank, on the maturity date of such Acceptance or such earlier date requested by such Bank, with the amount of dollars required by such Bank to discharge its obligations with respect to such Acceptance. Upon the giving of such notice by a Bank, the obligation of such Bank to participate in any further Drawdown will terminate and the Credit will be cancelled to such extent. 7. PAYMENTS 7.1 PLACE AND MANNER OF PAYMENTS. ---------------------------- (1) All payments to be made by the Borrower under the Documents will be made to the Agent in Cdn. Dollars. All such payments will be made in immediately available funds and received by the Agent not later than 10:00 a.m. (Toronto time) on the due date at the Designated Office. Whenever any payment hereunder is due on a day which is not a Banking Day, the due date thereof will be extended to the next succeeding Banking Day unless such Banking Day falls in the next calendar month in which event the due date will be the next preceding Banking Day. During any extension of the due date for the payment of any principal of any Drawdown hereunder, interest shall be payable on such principal at the rate payable on such due date in respect of such Drawdown. (2) The Agent will, before the close of business in Toronto on the date of receipt, remit to each Bank in the currency of payment, in same day funds, such Bank's portion of the payment so made by remitting such portion to any account of such Bank with any bank in Toronto which such Bank will have previously notified to the Agent in writing. In the event - 18 - that any payment hereunder is received by the Agent too late on any day for the Agent acting with due dispatch to execute such remittance, such payment will be deemed for the purposes of interest and fee computations as between the Agent and the Banks to have been received by the Agent on the next following Banking Day and the Borrower will indemnify the Agent or the Banks, as the case may be, for any loss incurred thereby. (3) Except as otherwise provided herein or in any other agreement in writing among the Banks, each and every payment of principal and interest on outstanding Prime Loans, payment on maturity of an Acceptance, the stand-by fees and all other payments hereunder will be made to the Agent for the account of each Bank pro rata according to its respective Bank's Proportion. 7.2 NET PAYMENTS, ETC. All payments by the Borrower under a Document, ----------------- whether in respect of principal, interest, fees or any other item, will be made in full without any deduction or withholding (whether in respect of set off, counterclaim, duties, taxes, charges or otherwise whatsoever) unless the Borrower is prohibited by law from doing so, in which event the Borrower will: (a) ensure that the deduction or withholding does not exceed the minimum amount legally required; (b) forthwith pay to the Agent for the account of each affected Bank such additional amount so that the net amount received by such Bank will equal the full amount which would have been received by it had no such deduction or withholding been made; (c) pay to the relevant taxation or other authorities within the period for payment permitted by applicable law the full amount of the deduction or withholding (including, but without prejudice to the generality of the foregoing, the full amount of any deduction or withholding from any additional amount paid pursuant to this subsection), and (d) furnish to the Agent for the account of such Bank, within the period for payment permitted by applicable law, an official receipt of the relevant taxation or other authorities involved for all amounts deducted or withheld as aforesaid. 7.3 REPAYMENT BY BANKS TO AGENT. Unless the Agent has been notified in --------------------------- writing by the Borrower not less than one (1) Business Day prior to the date on which any payment to be made by the Borrower hereunder is due, that the Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank on such payment date an amount equal to such Bank's proportionate share of such assumed payment. If it proves to be the case that the Borrower has not in fact remitted such payment to the Agent, each Bank will forthwith on - 19 - demand repay to the Agent the amount of such assumed payment made available to such Bank, together with interest thereon until the date of repayment thereof at a rate determined by the Agent (such rate to be conclusive and binding on such Bank) in accordance with its usual banking practice for advances in the currency in which such payment is due to banks of like standing to such Bank. 8. CONDITIONS PRECEDENT 8.1 CLOSING. The closing of the transaction contemplated herein will take ------- place on the Closing Date at the offices of Messrs. Blake, Cassels & Graydon, Commerce Court West, Toronto, Ontario. 8.2 CONDITIONS PRECEDENT TO CLOSING. The obligation of the Banks to ------------------------------- establish the Credit and to permit the first Drawdown is subject to the fulfilment of the following conditions precedent to the satisfaction of the Agent on or prior to the Closing Date (each of which conditions may be waived by the Banks in the Banks' discretion): (1) Intentionally deleted. (2) Other Documentation. The Borrower will have entered into and ------------------- delivered to the Agent and each Bank their customary documentation concerning the administration of this Agreement and the Drawdowns. (3) Alco Standard Corporation Guarantee. The Guarantor will have entered ----------------------------------- into and delivered to the Agent the Guarantee. (4) Representations and Warranties. The representations and warranties of ------------------------------ the Borrower contained in Section 2 will be true on and as of the Closing Date, and the Borrower will have delivered to the Bank a certificate to such effect, dated such date and signed on its behalf by a senior executive officer. (5) Corporate Proceedings. All proceedings to be taken in connection with --------------------- the transactions contemplated by the Documents will be satisfactory in form and substance to the Agent, and the Agent will have received certified copies of all documents which it may reasonably request in connection with such transactions and of the records of all corporate proceedings in connection therewith. (6) No Change in Applicable Law. The Agent will be satisfied that there --------------------------- will not have occurred on or before the Closing Date any change in any applicable law or regulation thereunder or interpretation thereof by any authority charged with the administration thereof or by any court which in the opinion of counsel for the Agent would make it unlawful or impossible for any Bank to advance or make any Drawdown. - 20 - (7) Opinion from Borrower's Counsel. The Agent will have received from ------------------------------- general counsel for the Borrower, an opinion, dated the Closing Date and in form and substance satisfactory to the Agent as to such matters as the Agent will reasonably require. (8) Opinions from Guarantor's Counsel. The Agent will have received from --------------------------------- external counsel to the Guarantor in each of Ohio and New York an opinion, dated the Closing Date and in form and substance satisfactory to the Agent, as to such matters as the Agent may reasonably require. (9) Opinions of Agent's Counsel. The Agent will have received from each --------------------------- of Messrs. Blake, Cassels & Graydon, Canadian counsel for the Agent, and Messrs. White & Case, U.S. counsel for the Agent, an opinion, dated the Closing Date and in form and substance satisfactory to the Agent, with respect to such matters, if any, relating to the transaction contemplated hereby as the Agent may reasonably request. (10) Agent for Service of Process. The Agent and the Banks will have ---------------------------- received evidence satisfactory to the Agent and the Banks of the acceptance by a duly-appointed agent of the Guarantor of such agent's appointment as agent for service of process in any legal action or proceeding with respect to the Guarantee in the courts of the State of New York or of the United States of America for the Southern District of New York. 8.3 CONDITIONS PRECEDENT TO EACH DRAWDOWN. The obligation of the Banks to ------------------------------------- make each Drawdown is subject to the fulfilment of the following conditions precedent on or prior to the date of such Drawdown: (1) All representations and warranties of the Borrower contained in Article 2 will be true and correct on and as of such date both before and after giving effect to the proposed Drawdown with the same effect as if those representations and warranties had been made on and as of such date. (2) The Agent will be satisfied that no Event of Default has occurred or would occur as a result of the making of the Drawdown. (3) The Agent will have received a Drawdown Notice within the time specified in Section 3.3(1) and in the form of Schedule B. 9. COVENANTS 9.1 GENERAL COVENANTS. The Borrower covenants with the Agent and the ----------------- Banks that until the Credit is cancelled and there is outstanding no Drawdown, the Borrower will: (1) Corporate Existence. Do or cause to be done all things necessary to ------------------- keep in full force and effect its corporate existence and all rights, franchises, licenses and - 21 - qualifications to carry on its business or own property in each jurisdiction in which it carries on business or owns property. (2) Insurance. Maintain insurance of such type, in such amounts and --------- against such risks as is customary in the case of companies of an established reputation engaged in a similar business and similarly situated as the Borrower with insurers and in form and substance satisfactory to the Banks. (3) Compliance with Laws etc. Comply with all applicable governmental ------------------------ restrictions and regulations and obtain and maintain in good standing all licenses, permits and approvals from any and all governments, governmental commissions, boards or agencies required in respect of its operations, if the failure to comply therewith or to obtain or maintain the same would materially adversely affect (i) its financial condition or (ii) its ability to carry on its business or a significant part thereof. (4) Payment. Duly and punctually pay or cause to be paid to the Agent for ------- the Account of each Bank all principal and interest payable hereunder and the other Documents and all other amounts payable hereunder and thereunder on the dates, at the places and in the moneys and manner set forth herein and therein. (5) Use of Credit. Use the entire proceeds of the Credit for general ------------- corporate purposes. 9.2 ACCOUNTING, FINANCIAL STATEMENTS AND OTHER INFORMATION. ------------------------------------------------------ (1) General. The Borrower will maintain a system of accounting ------- established and administered in accordance with accounting principles generally accepted in Canada, consistently applied, and will set aside on its books all such proper reserves as such accounting principles will require. The Borrower will permit persons designated by the Agent to visit and inspect at the expense of the Borrower any properties of the Borrower, to examine the books and financial records of the Borrower and to discuss its affairs, finances and accounts, all at such reasonable times and as often as may reasonably be requested by the Agent. The Persons designated by the Agent pursuant to this Section may include accountants or management consultants appointed by the Agent to examine all or any aspect of the operations of the Borrower, and the Borrower agrees to answer any inquiries which such Persons may have fully and fairly to the best of its ability. The Borrower further acknowledges that such Persons may prepare reports to the Agent concerning its financial position and business prospects and the Agent will have no obligation to disclose the content of such reports to the Borrower. Neither the Agent nor the Banks will have a duty to make any such visits, inspections or examinations or to have any such discussions and will not incur any liability or obligation nor lose any rights for not making the same. - 22 - (2) Reports. The Borrower will furnish to the Agent: ------- (a) promptly upon availability and in any event within 60 days after the end of each of its first three fiscal quarters in each fiscal year commencing with the fiscal quarter in which the Closing Date falls, unaudited financial statements of the Borrower (consisting of a balance sheet and a statement of profit and loss) for such quarterly fiscal period prepared in accordance with generally accepted accounting principles and certified by the chief accounting officer or one or more of the senior executive officers of the Borrower to be prepared on a consolidated basis in accordance with generally accepted accounting principles applied on a consistent basis, subject to audit; (b) promptly upon availability and in any event within 90 days after the end of a fiscal year of the Borrower commencing with the fiscal year in which the Closing Date falls, the annual financial statements of the Borrower (consisting of a balance sheet and a statement of profit and loss) for such fiscal year prepared in accordance with generally accepted accounting principles consistently applied and certified by the chief accounting officer or one or more of the senior executive officers of the Borrower to be prepared on a consolidated basis in accordance with generally accepted accounting principals applied on a consistent basis, subject to audit; (c) together with each delivery of financial statements pursuant to Section 9.2(2)(b), an officers' certificate, stating that the signers have reviewed the relevant terms of the Documents and have made, or caused to be made under their supervision, a review of the transactions and condition of the Borrower during the period covered by such statements and that such review has not disclosed the existence during such period, and that the signers do not have knowledge of the existence, as at the date of such certificate, of any condition or event which constitutes an Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and the action which the Borrower has taken or proposes to take with respect thereto; (d) promptly upon the Borrower obtaining knowledge of any condition or event which constitutes an Event of Default, a certificate of the Borrower specifying the nature and occurrence of an Event of Default and what action the Borrower has taken or proposes to take with respect thereto; (e) promptly upon any senior officer of the Borrower obtaining knowledge of any action, suit or proceedings pending or threatened affecting the Borrower before any court or before any governmental department, commission or agency or any arbitrator, in Canada, the United States of America or elsewhere, which could result in any material adverse change in the business operations, prospects, properties or assets, or condition, financial or otherwise, of the - 23 - Borrower, a certificate of such senior officer specifying the nature of such action, suit or proceeding and the proposed response of the Borrower thereto; and (f) promptly, such other information as the Agent or a Bank may from time to time reasonably request. The Borrower will furnish to the Agent sufficient copies of each of the above documents so that one copy may be distributed to each Bank. Each of the statements required by Section 9.2(2)(a) and (b) will set forth in comparative form the corresponding figures for the corresponding period of the preceding fiscal period (if any), all in reasonable detail. 10. DEFAULT AND ENFORCEMENT 10.1 EVENTS OF DEFAULT. Upon the occurrence of any one or more of the ----------------- following events, the Agent may and, upon the request of the Majority Banks, will, without notice to the Borrower, forthwith cancel the Credit and declare all the Indebtedness of the Borrower under the Documents to be immediately due and payable, whereupon all such Indebtedness will become immediately due and payable without any notice or demand, and the Borrower expressly waives presentation, protest or other notice of any kind: (1) If the Borrower fails to pay when due any Prime Loan or the amount due on the maturity of any Acceptance or any part thereof and such default continues for ten days or more; (2) If the Borrower fails to pay when due any other amount payable under this Agreement or under any other Document and such default continues for ten days or more; (3) If the Borrower or the Guarantor fails to duly perform or observe any other term, condition or covenant contained (i) in any Document or (ii) in any other document, agreement or instrument made between the Borrower or the Guarantor and any Bank or delivered to any Bank and, in the case of a failure capable of being remedied, the Agent does not determine, within 30 days after the Borrower or the Guarantor became aware of the failure, that such failure has been remedied to the satisfaction of the Agent; (4) If the Borrower or the Guarantor defaults in (i) the payment when due, whether by acceleration or otherwise, of any Indebtedness (other than under the Documents) in an aggregate principal amount greater than U.S.$5,000,000, or (ii) the payment, performance or observance of any obligation or condition with respect or relating to any such Indebtedness or if any other event occurs in respect of such Indebtedness and the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Indebtedness to become due and payable prior to its expressed maturity; - 24 - (5) If any representation, warranty or statement which is made or deemed to have been made or acknowledged to have been made by or on behalf of the Borrower or the Guarantor in any Document or which is contained in any certificate, statement, legal opinion or notice provided under or in connection with any Document is materially untrue or materially incorrect in any respect at any time (or if repeated at any time with reference to the facts and circumstances subsisting at such time would be materially untrue or materially incorrect in any respect at such time); (6) If a final judgment in respect of an amount exceeding U.S.$5,000,000 is rendered against the Borrower or the Guarantor and within 30 days after entry thereof such judgment will not have been discharged or execution thereof stayed pending appeal or, within 10 days after the expiration of any such stay, such judgment will not have been discharged; (7) If an encumbrancer takes possession of any property or asset of the Borrower or the Guarantor which, in the opinion of the Agent, is material or if a distress or execution or any similar process be levied or enforced thereagainst and remain unsatisfied for the shorter of a period of 10 days or such period as would permit such property or such part thereof to be sold thereunder; (8) If any obligation or other provision in any Document to which the Borrower is a party terminates or ceases to be the legally valid, binding and enforceable obligation of the Borrower or if the Borrower contests in any manner, the legality, validity, binding nature or enforceability of any Document to which the Borrower is a party; (9) If any governmental or other consent, license, or authorization required to make any Document legal, valid, binding and enforceable or required in order to enable the Borrower to perform its obligations thereunder is withdrawn or ceases to be in full force and effect; (10) If an order is made or an effective resolution passed for the winding-up, liquidation or dissolution of the Borrower or the Guarantor; (11) If the Borrower or the Guarantor institutes proceedings for its winding- up, liquidation, or dissolution or consents to the filing of any petition with respect thereto or files a petition or answer or consent seeking reorganization, readjustment, arrangements, composition or similar relief under any American, Canadian or other applicable law or consents to the filing of any such petition or to the appointment of a receiver, liquidator, trustee or similar officer of itself or any part of its property or makes an assignment for the benefit of creditors or is unable, or admits in writing its inability, to pay its debts as they become due or otherwise acknowledges its insolvency or is deemed for the purposes of any applicable law to be insolvent or voluntarily suspends transaction of its usual business or any action is taken by the Borrower or the Guarantor in furtherance of any of the aforesaid purposes or if the Borrower or the Guarantor takes any action pursuant to the Winding-Up Act (Canada) or similar Canadian or United States legislation; - 25 - (12) If a court having jurisdiction in the premises enters a decree or order for the winding-up, liquidation or dissolution of the Borrower or the Guarantor or adjudging the Borrower or the Guarantor to be insolvent or enters a decree or order which remains in force undischarged or unstayed for a period of 60 days or more approving, as properly filed, a petition seeking reorganization, readjustment, arrangement, composition or similar relief for the Borrower or the Guarantor under any American or Canadian or other applicable law, or the appointment of any receiver, liquidator, trustee or similar officer of the Borrower or the Guarantor of all or any part of the Borrower's or the Guarantor's property; (13) If any application is made with respect to the Borrower or the Guarantor under the Companies' Creditors Arrangement Act (Canada) or similar legislation or if a proceeding is instituted for the winding up of the Borrower or the Guarantor or a petition in bankruptcy is presented against the Borrower or the Guarantor under a bankruptcy or similar statute and if in any such case such application, proceeding or petition is not dismissed, stayed or withdrawn within 60 days after the Borrower or the Guarantor has notice or knowledge of the institution thereof; (14) If there occurs any change in the ownership of the Borrower such that the Guarantor ceases to be the direct or indirect holder of all of the issued and outstanding share capital of the Borrower; or (15) If the Guarantee or any provision thereof shall cease to be in full force or effect, or if the Guarantor or any Person acting by or on behalf of the Guarantor shall deny or disaffirm the Guarantor's obligations under the Guarantee, or if the Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Guarantee. 10.2 LEGAL PROCEEDINGS. After an Event of Default has occurred, the Agent ----------------- and the Banks may commence such legal action or other proceedings as they in their sole discretion deem expedient in respect of the Indebtedness of the Borrower hereunder, all without any additional notice, presentation, demand, or protest, all of which the Borrower hereby expressly waives. 10.3 NO PREJUDICE, ETC. Nothing contained in any Document, nor any act or ----------------- omission of any Bank with respect to such Document will in any way prejudice or affect the rights, remedies and powers of the Banks with respect to any other Document. 10.4 APPROPRIATION OF MONEYS RECEIVED. The Agent and each Bank may from -------------------------------- time to time, when an Event of Default has occurred, appropriate any moneys received by it from the Borrower or from the proceeds of any security given in or towards payment of such portion of the Indebtedness of the Borrower to the Agent or such Bank as in its discretion it may see fit, and the Borrower will have no right to require any inconsistent appropriation. 10.5 CURRENCY INDEMNITY. Any payment on account of an amount payable under ------------------ any Document made to or for the account of the Agent or any Bank by the Borrower in a - 26 - currency (an "Other Currency") other than Canadian Dollars pursuant to a -------------- judgment or order of a court or tribunal of any jurisdiction will constitute a discharge of the obligation of the Borrower under such Document only to the extent of the amount of Canadian Dollars which the Agent or such Bank, as the case may be, is able, on the date of its receipt of such payment, to purchase in accordance with its normal practice at the Designated Office with the amount of the Other Currency so received by it. If the amount of Canadian Dollars which the Agent or such Bank, as the case may be, is so able to purchase is less than the amount of Canadian Dollars originally due to it, the Borrower will indemnify and save the Agent or such Bank, as the case may be, harmless from and against all loss or damage arising as a result of such deficiency. This indemnity will constitute an obligation separate and independent from the other obligations contained in this Agreement, will give rise to a separate and independent cause of action, will apply irrespective of any indulgence granted by the Agent or such Bank from time to time and will continue in full force and effect notwithstanding any judgment or orders for a liquidated sum in respect of an amount due hereunder or under any judgment or order. 10.6 BANK'S CONTRIBUTIONS. -------------------- (1) If a Bank receives or recovers any amount (other than from the Agent) in respect of sums due from the Borrower under this Agreement (whether by set off or otherwise) it will promptly notify the Agent of such amount and the manner of its receipt or recovery. (2) Following receipt of notice under Section 10.6(1) the Agent will, as soon as practicable, having regard to the circumstances, consult with the Banks to establish the aggregate amount of sums received or recovered by the Banks and what payments are necessary amongst the Banks for such aggregate amount to be divided amongst the Banks in proportion to their participations. (3) The Banks will promptly make such payments to each other, through the Agent, as the Agent will direct to effect the proportionate division referred to in Section 10.6(2). (4) If a Bank makes a payment or payments pursuant to Section 10.6(3), any payment previously received by that Bank as described in Section 10.6(1) will, subject to Section 10.6(5), be deemed to have been made by the Borrower on the understanding that the procedure described above would be followed and the liabilities of the Borrower to each of the Banks will accordingly be determined on the basis that such payment or payments pursuant to Section 10.6(3) would be made as a distribution on behalf of the Borrower. (5) Section 10.6(4) will not apply to any amount received or recovered by a Bank if, as a result, the Indebtedness of the Borrower to the Bank has been extinguished, discharged or satisfied by the amount received or recovered (for example because of set off); in this event, if the Bank is required to make a payment or payments pursuant to Section 10.6(3), then for the purpose only of determining the liabilities of the Borrower to the Banks - 27 - (other than the Bank making the said payment or payments) and the liabilities of the Banks to each other, the said payment or payments by the Bank will be deemed to have been made on behalf of the Borrower in respect of its obligations under this Agreement and to the extent Indebtedness of the Borrower is thereby discharged the Borrower will fully indemnify the Bank for such payment or payments. (6) Any moneys payable by the Borrower under Section 10.6(5) will be payable from the date the Bank makes the payment or payments under Section 10.6(3), will carry interest from such date and for such purpose and all other purposes of this Agreement be treated in the same way as other amounts payable under this Agreement as though such moneys were payable in respect of the participation of the Bank which has the benefit of the indemnity contained in Section 10.6(3) (whether or not the Indebtedness attributable to such participation has been distinguished, discharged or satisfied in whole or in part). (7) The parties will make such payments and take such steps as may be just and equitable to re-adjust the position of the parties if a Bank, having followed the procedures required above, is required to return any sum to the Borrower as referred to in Section 10.6(1). (8) If any Bank (a "benefitted Bank") will at any time receive any payment of --------------- all or any part of its Prime Loans or Acceptances, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise) in a greater proportion than any such payment to and collateral received by any other Bank, if any, in respect of such other Bank's Prime Loans or Acceptances, or interest thereon, such benefitted Bank will purchase for cash from the other Banks such portion of each such other Bank's Prime Loans or Acceptances, or will provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as will be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase will be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Bank so purchasing a portion of another Bank's Prime Loans or Acceptances may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. 11. THE AGENT AND AGENCY ARRANGEMENTS 11.1 ACTIONS. Subject to this Agreement, each Bank authorizes the Agent to ------- act on behalf of such Bank under this Agreement and the other Documents and, in the absence of other written instructions from the Majority Banks received from time to time by the Agent, to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto, provided that (i) any action to be taken by "the Banks" may - 28 - only be taken by the Agent with the approval of the Majority Banks, (ii) any requirement that any matter must be satisfactory to "the Banks" must be approved by the Majority Banks, and (iii) any reference to "each Bank" or "each of the Banks" or "all of the Banks" will require the approval of all Banks. In each case such approval will be written, will be specific to the matter addressed therein, and may not be relied upon by the Borrower unless it is expressly addressed to the Borrower. The Borrower will be entitled to assume that any action taken by the Agent has the required approval unless the Borrower has knowledge to the contrary. In the event that the Agent receives express notice of the occurrence of any Event of Default, the Agent will give notice thereof to the Banks and will consult with the Banks with respect to the action to be taken. The Agent will take such action with respect to such Event of Default as will be reasonably directed by the Majority Banks, provided that unless and until the Agent will have received such directions, the Agent may (but will not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it will deem advisable in the best interests of the Banks. 11.2 DIRECTIONS. The Agent agrees that, subject to Section 11.3, it will ---------- comply in good faith with all written instructions received from the Majority Banks, or, where required, all of the Banks, and it will not take any action which requires the approval of the Banks or the Majority Banks without first receiving such approval. 11.3 INDEMNITY. Each Bank agrees (which agreement will survive any --------- termination of this Agreement) to indemnify the Agent, pro rata according to such Bank's Proportion, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of any Document or the enforcement of any of the Documents, including, without limitation, the reimbursement of the Agent for all reasonable out-of- pocket expenses (including reasonable solicitor's fees, inclusive of disbursements and taxes) incurred by the Agent under or in respect of the Documents or in enforcing payment of the Indebtedness of the Borrower under any of the Documents, in all cases as to which the Agent is not reimbursed by the Borrower (collectively, the "Liabilities"); provided, however, that no Bank will ----------- -------- ------- be liable for the payment of any portion of the Liabilities determined by a court of competent jurisdiction in a final proceeding to have resulted from the Agent's gross negligence or wilful misconduct. The Agent will not be required to take any action under any Document, or to prosecute or defend any suit in respect of any Document, unless it is indemnified to its satisfaction by the Banks against all Liabilities. If any indemnity in favour of the Agent will become impaired or will be insufficient, the Agent may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. 11.4 LIABILITY OF AGENT, ETC. Neither the Agent nor any of its directors, ----------------------- officers, employees or agents will be liable: (a) for the execution, validity, enforceability or effectiveness of any Document; - 29 - (b) for any failure of the Borrower or any Bank to duly and punctually observe and perform any of their respective obligations under any Document; (c) for any statements, representations or warranties made or referred to in any Document or in any certificate, report, statement, other document or information given to any of the Banks in connection with any Document; (d) for any action taken or omitted by any of them under or in connection with any Document unless such action is directly due to their own gross negligence or wilful misconduct; (e) for the consequences of relying on any communication or document believed by any of them to be genuine and correct and to have been communicated or signed by the person by whom it purports to be communicated or signed; or (f) for the consequences of relying on the advice of any professional advisers selected by any of them in connection with this Agreement. 11.5 DEALINGS BY AGENT. With respect to its own participation in the ----------------- Credit and the Drawdowns, Deutsche Bank Canada will have the same rights and powers under any Document as any other Bank and may exercise them as though it were not also acting as agent for the Banks. The Agent and its associates and affiliates may, without liability to disclose or account, engage in any kind of financial, trust or commercial business with, or acquire or dispose of any kind of security of, the Borrower or any of the Borrower's associates or affiliates as if the Agent were not the agent for the Banks and neither the Agent nor any of its associates nor affiliates will have any obligation to disclose or account for any dealings which it may have had with the Borrower or any of its associates or affiliates prior to the date of this Agreement. 11.6 EXCULPATION. Neither the Agent nor any of its directors, officers' ----------- employees or agents will be liable to any Bank for any action taken or omitted to be taken by it under this Agreement or any other Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any representations or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Document, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or thereunder. The Agent will be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement, or writing which it believes to be genuine and to have been presented by a proper Person. 11.7 NOTICE, COPIES, ETC. The Agent will give prompt notice to each Bank ------------------- of each notice or request received by the Agent which is required or permitted to be given to the Agent by the Borrower pursuant to the terms of any Document. The Agent will promptly distribute to each Bank copies of all communications received by the Agent from the Borrower for distribution to the Banks by the Agent. If the Agent is notified under this - 30 - Agreement of the occurrence of an Event of Default it will inform each of the Banks of such notice. 11.8 FUNDING RELIANCE, ETC. Unless the Agent will have been notified by --------------------- telephone, confirmed in writing, by any Bank by 5:00 p.m., Toronto time, on the day prior to a Drawdown under the Credit that such Bank will not make available the amount which would constitute its Bank's Proportion of the Drawdown on the date specified therefor, the Agent may assume that such Bank has made such amount available to the Agent on such date and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is made available by such Bank to the Agent on a date after the date of the relevant Drawdown, such Bank will pay to the Agent on demand interest on such amount at the rate of interest applicable to the Drawdown. A statement of the Agent submitted to any Bank with respect to any amounts owing under this Section will in the absence of manifest error, be conclusive evidence of the requirement for the payment of such amount by the relevant Bank to the Agent. If such amount is not in fact made available to the Agent by such Bank within three Banking Days after the date of the relevant Drawdown, the Agent will be entitled to recover such amount, with interest thereon at the rate per annum applicable to the Drawdown, forthwith upon demand from the Borrower. 11.9 PAYMENT RELIANCE. Unless the Agent will have been notified by ---------------- telephone, confirmed in writing, by the Borrower prior to the time fixed for payment by the Borrower of any amount under the Documents, that the Borrower will not make the required payment on the date specified therefor, the Agent may, but will not be obligated to, assume that the Borrower has made such payment on such date and, in reliance on such assumption, make available to the Banks their respective Bank's Proportions of such amount. If such payment is not made by the Borrower forthwith upon request by the Agent each Bank will return the amount received by it in respect thereof, with interest at the usual rate of interest for inter-bank settlements. 11.10 SUCCESSOR. The Agent may resign as such at any time upon at least 30 --------- days' prior notice to the Borrower and all the Banks. If the Agent at any time will resign, the Majority Banks may appoint another Bank as a successor Agent which will thereupon become the Agent hereunder. If no successor Agent will have been so appointed by the Majority Banks, and will have accepted such appointment, within 30 days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which will be one of the Banks. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent will be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and will thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent will be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as the Agent, the provisions of this Article 11 will inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement. - 31 - 11.11 LOANS AND ACCEPTANCES BY THE AGENT. The Agent will have the same ---------------------------------- rights and powers with respect to the Prime Loans and Acceptances made by it as any Bank and may exercise the same as if it were not the Agent. 11.12 DEUTSCHE BANK CANADA AS THE AGENT. In acting as Agent for the Banks, --------------------------------- the credit and treasury divisions of Deutsche Bank Canada will be treated as entities separate from any of Deutsche Bank Canada's other divisions or subsidiaries. Without detracting from the generality of the foregoing, in the event that any of the other divisions or subsidiaries of the Agent should act for the Borrower or any of its affiliates in an advisory capacity in relation to any other matter, any information given by the Borrower or any of its affiliates to such divisions or subsidiaries for the purpose of obtaining advice will be treated as confidential and will not be available to the Banks without the consent of the Borrower. 11.13 CHANGES. Any provision of any Document may from time to time be ------- amended, restated, modified or waived (a "Change"), if such Change is in ------ writing and consented to by the Borrower and the Majority Banks; provided that each of the following Changes will require the prior written consent of each Bank and will not be effective until each such consent is received by the Agent: (a) any Change to any requirement of this Agreement or any other Document that any particular action be taken by each of the Banks or by each Bank or by all of the Banks or by the Majority Banks; (b) any Change to this Section 11.13 or to the definition of "Majority Bank" or "Bank's Proportion"; (c) any increase in the aggregate amount of the Commitments or the amount of the Commitment of any Bank; (d) any reduction in the amount of any payment or prepayment of principal, interest, fees or other amounts provided for in this Agreement or any other Document; (e) any reduction in the outstanding principal amount of or rate of interest or fees payable in respect of any Prime Loan or Acceptance under the Credit; (f) any extension in the due date for any payment or prepayment of principal, interest or fees payable in respect of the Credit; and (g) any waiver of an Event of Default. 11.14 WAIVERS. No waiver or approval by a Bank or under any Document will, ------- except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions, nor will any such waiver or approval require any similar or dissimilar waiver or approval by such Bank to be granted thereafter. - 32 - 11.15 TERMINATION ACTION BY AGENT. Subject to receipt of any indemnity --------------------------- required by the Agent in accordance with this Agreement, the Agent will take or refrain from taking any action in respect of demanding or terminating the Credit as the Majority Banks may direct in writing from time to time. 11.16 NOTICE. Each Bank, in its capacity as a lender of the Credit, agrees ------ to provide each other Bank with at least one Banking Day's prior written notice of its intention to direct the Agent to take any action in respect of demanding or terminating the Credit, provided that such notice may be waived in writing by the Banks. 11.17 REPRESENTATIONS AND AGREEMENTS OF THE BANKS. Each Bank represents, ------------------------------------------- warrants to and in favour of, and agrees with, the Agent as follows: (1) It has independently of the Agent and each other Bank, and based on the financial and other information provided by the Borrower and such other documents, information and investigations as it has deemed appropriate, made its own credit decision to extend its Commitment. Each Bank also acknowledges that it will, independently of the Agent and each other Bank, and based on such other documents, information and investigations as it will deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under any Document. (2) It has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, affairs, status and nature of the Borrower and its business and the Documents. (3) It has not relied, and will not hereafter rely, on the Agent, its directors, officers, employees, agents, auditors or legal counsel (collectively "the Agent and its representatives"), to appraise or keep under review on its --------------------------------- behalf, or inform the Bank of the financial condition, creditworthiness, affairs, status or nature of the Borrower or its business or any Default or Event of Default except in respect of which the Agent has received notice from the Borrower. (4) The Commitment of such Bank is at the entire risk of such Bank. (5) The Agent and its representatives have not made any representation or warranty or assumed (nor will the Agent assume) any responsibility with respect to the due execution, legality, validity, adequacy, enforceability, collectability, priority, perfection or any other matter relating to any Document, the financial condition of the Borrower, the performance by the Borrower of its obligations under any Document or the accuracy of any information supplied to the Bank. (6) The Agent and its representatives may consult with legal counsel, independent public accountants and other experts selected by them or the Borrower in connection with the - 33 - Documents, including this Agreement, and will not be liable for any action taken or omitted to be taken in good faith by any of them in accordance with the advice of such Persons. (7) The Agent and its representatives will incur no liability under or in respect of this Agreement or any other Document by acting upon any notice, consent, advice, writing (whether by letter, telephone, telegram, cable, telex, facsimile or otherwise) believed by them to be genuine or signed by the proper party or by acting upon any representation or warranty made by the Borrower or any other such Person in connection with the Borrower. 11.18 APPLICATION. The Borrower expressly consents to the arrangements ----------- among the Banks provided for in this Article 11 and agrees that each Bank may exercise the rights provided herein with respect to any and all obligations of the Borrower to such Bank under the Documents. 12. ASSIGNMENT 12.1 BENEFIT AND BURDEN OF THIS AGREEMENT. This Agreement will enure to ------------------------------------ the benefit of and be binding on the parties hereto, their respective successors and any permitted assignees or transferees of some or all of the parties' rights or obligations hereunder. 12.2 ASSIGNMENT BY BORROWER. This Agreement will be binding upon and enure ---------------------- to the benefit of the Borrower and its successors and assigns, provided that neither this Agreement, nor the benefit hereof, may be assigned by the Borrower without the prior written consent of each of the Banks. 12.3 ASSIGNMENT BY BANKS. From time to time a Bank may, with the prior ------------------- written consent of the Borrower, assign all or any part of its rights to, and may have its obligations in respect of, the Credit assumed by any other Person. An assignment will become effective when the Borrower has been notified of it by the Bank and has received from the assignee an instrument of adhesion in the form of Schedule D (addressed to all the parties to this Agreement), pursuant to which such assignee shall have agreed to be bound by this Agreement and to perform the obligations assigned to it. Any assignee will be and be treated as if it were a Bank for all purposes of this Agreement, will be entitled to the full benefit hereof and will be subject to the obligations of the assigning Bank to the same extent as if it were an original party in respect of the rights or obligations assigned to it and the assigning Bank will be released and discharged accordingly and to the same extent. For the purposes of any such assignment the Bank may disclose on a confidential basis to a potential assignee such information about the Borrower as the Bank may see fit. 12.4 LIMITATION ON ASSIGNMENT. A Bank will not be entitled, without the ------------------------ prior written consent of all the Banks and the Borrower, to grant an assignment pursuant to Section 12.3 if this would, immediately following such assignment, increase the cost of this credit facility to the Borrower. - 34 - 12.5 BORROWER'S DOCUMENTS. The Borrower agrees to execute and deliver, at -------------------- the Banks' request and expense, such further documentation as the Banks consider necessary or advisable to put into effect any syndication, sale or assignment permitted by this Article 12. 13. MISCELLANEOUS 13.1 PAYMENT OF EXPENSES. Whether or not the transactions contemplated by ------------------- this Agreement will be consummated, the Borrower will on demand by the Agent pay to the Agent for its own account or for the account of the Banks, as the case may be, all reasonable out-of-pocket expenses of the Agent and the Banks including the fees and disbursements of any experts or advisers (including, without limitation, lawyers and independent consultants) retained by the Agent and the Banks in connection with the preparation and enforcement of the Documents, any syndication of the Credit, any amendment, modification or waiver of any of the provisions thereof and also in connection with the protection and enforcement of the rights of the Agent and the Banks provided for in the Documents. 13.2 RIGHTS AND WAIVERS. The respective rights and remedies of the Agent ------------------ and each Bank under the Documents and in connection therewith (i) are cumulative, (ii) may be exercised as often as they consider appropriate, (iii) are in addition to their rights and remedies under the general law and (iv) will not be capable of being waived or varied except by virtue of an express waiver or variation in writing signed by an officer; and in particular any failure to exercise or any delay in exercising any of such rights and remedies will not operate as a waiver or variation of that or any other such right or remedy; any defective or partial exercise of any of such rights will not preclude any other or future exercise of that or any other such right or remedy; and no act or course of conduct or negotiation on the part of the Agent or a Bank or on its behalf will in any way preclude it from exercising any such right or remedy or constitute a suspension or variation of any such right or remedy. 13.3 COMMUNICATION. Subject to the express provisions of this Agreement, ------------- all communications provided for or permitted hereunder will be in writing, personally delivered to an officer or other responsible employee of the addressee or sent by registered mail, charges prepaid, or by telex or telegram or other similar means of recorded communication, charges prepaid, to the applicable address set forth on the signature pages of this Agreement or to such other address as the recipient hereto may from time to time designate to the other in such manner. Any communication so personally delivered will be deemed to have been validly and effectively given on the date of such delivery. A communication so sent by mail, telex, telegram or other means mentioned above will be deemed to have been validly and effectively given on the Banking Day next following the day on which it is sent. 13.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. --------------------------------------------------------------------- All agreements, representations, warranties and covenants made by or on behalf of the Borrower in any Document or otherwise with respect thereto or any transactions - 35 - contemplated thereby are material, will be considered to have been relied upon by the Agent and each Bank and will survive the execution and delivery of the Documents or any investigation made at any time by or on behalf of the Agent and each Bank and any reduction of the Utilized Portion of a Credit until repayment in full of the Drawdowns and of all other amounts owing under the Documents and cancellation of the Credit. All statements contained in any certificate or other instrument delivered by or on behalf of the Borrower pursuant to the Documents or in connection with the transactions contemplated hereby will be deemed representations and warranties made by the Borrower pursuant hereto. 13.5 FURTHER ASSURANCES. The Borrower will do, execute and deliver, or ------------------ will cause to be done, executed and delivered, all such further acts, documents (including certificates, declarations, affidavits, reports and opinions) and things as the Agent or any Bank may reasonably request for the purpose of giving effect to this Agreement or for the purpose of establishing compliance with the representations, warranties and conditions of any Document. 13.6 SEVERABILITY. Any provision in any Document which is prohibited or ------------ unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 13.7 COUNTERPARTS. This Agreement may be simultaneously executed in any ------------ number of counterparts, each of which will be deemed to be an original, and it will not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 13.8 DETERMINATION OF MATERIALITY. In any Document, except where ---------------------------- specifically stated otherwise, whether any act, occurrence, conduct, event or state of affairs or other similar event is "material", "adverse" or "materially adverse" or any grammatical variation of such words, will be determined by the Banks in their sole discretion. 13.9 SUBMISSIONS TO JURISDICTION. This Agreement will be construed in --------------------------- accordance with the laws of the Province of Ontario and the federal laws of Canada applicable in Ontario and the Borrower irrevocably submits to the non- exclusive jurisdiction of the courts of Ontario, waives any objections on the ground of venue or forum non conveniens or any similar grounds, and consents to service of process by mail or in any other manner permitted by relevant law. 13.10 PARTNERSHIP. Nothing contained or in any Document nor any action ----------- taken pursuant hereto or thereto will be deemed to constitute the Banks a partnership, joint venture or any other similar such entity. 13.11 ENTIRE AGREEMENT. This Agreement, including the Schedules hereto, ---------------- constitute the entire agreement between the parties and except as stated herein or in the - 36 - Documents or the instruments and documents to be executed and delivered pursuant hereto, contains all the representations and warranties of the respective parties. 13.12 EVIDENCE OF INDEBTEDNESS. In any proceedings relating to any ------------------------ Document, any statement as to any amount due to the Banks thereunder which is certified as being correct by an officer of the Agent and any statement as to any amount due to a Bank under any Document which is certified as being correct by an officer of such Bank will, unless otherwise provided herein, be conclusive evidence that such amount is in fact due and payable. - 37 - 13.13 SURVIVAL OF COVENANTS, ETC. All covenants, agreements, -------------------------- representations and warranties made pursuant hereto or to any Documents, will survive the execution and delivery of each Document and continue in full force and effect until the full payment of all Indebtedness of the Borrower to the Bank as provided in the Documents. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date and year first above written. Alco Office Systems-Canada, Inc. ALCO OFFICE SYSTEMS-CANADA, Suite 6600 INC. 100 King Street West 1 First Canadian Place By: /s/ Signature Toronto, Ontario --------------------------------- M5X 1B8 Name: [Name] Title: [Title] By: /s/ Signature --------------------------------- Name: [Name] Title: [Title] Deutsche Bank Canada DEUTSCHE BANK CANADA, as Agent Suite 1200 and as Bank 222 Bay Street Toronto, Ontario M5K 1H6 By: /s/ Signature --------------------------------- Name: [Name] Title: [Title] By: /s/ Signature --------------------------------- Name: [Name] Title: [Title] - 38 - Chemical Bank of Canada CHEMICAL BANK OF CANADA, as Suite 900 Bank 100 Yonge Street Toronto, Ontario By: /s/ Signature M5C 2W1 --------------------------------- Name: [Name] Title: [Title] Branch of Account Address ROYAL BANK OF CANADA, as Bank Royal Bank of Canada 14th Floor South Tower By: /s/ Signature Royal Bank Plaza --------------------------------- Toronto, Ontario Name: [Name] M5J 2J5 Title: [Title] Communications Address By: /s/ Signature --------------------------------- Royal Bank of Canada Name: [Name] One Financial Square Title: [Title] 24th Floor New York, New York U.S.A. 10005-3531 SCHEDULES - - ------------ Schedule A - Banks' Proportions Schedule B - Form of Drawdown Notice Schedule C - Form of Guarantee Schedule D - Instrument of Adhesion SCHEDULE A BANKS' PROPORTIONS ------------------
================================================================================ BANK PERCENTAGE - - -------------------------------------------------------------------------------- Deutsche Bank Canada 50% - - -------------------------------------------------------------------------------- Chemical Bank of Canada 20% - - -------------------------------------------------------------------------------- Royal Bank of Canada 30% - - -------------------------------------------------------------------------------- TOTAL 100% ================================================================================
SCHEDULE B DRAWDOWN NOTICE --------------- TO: Deutsche Bank Canada (the "Agent") ----- Attention: ___ [Date] RE: Credit agreement (the "Credit Agreement") dated as of October _, 1995 ---------------- made between the undersigned (the "Borrower"), the Agent and the Banks -------- Drawing Number: ___ - - -------------------------------------------------------------------------------- We refer to the facility constituted by the Credit Agreement and we hereby: (1) Give you notice that on _____, 199_, we wish to obtain the following Drawdown: (a) Prime Loan in the amount of $_______________ (b) Canadian Dollar denominated Bankers Acceptance to be drawn under the Credit in the principal amount of $_______________ and having a term (subject to the Credit Agreement) of ___ months; and $_______________ (2) Confirm that each of the representations referred to and warranties contained in Section 2 of the Credit Agreement remains accurate as if given on the date hereof by reference to the facts and circumstances now existing. All terms defined in the Credit Agreement and used herein will have the meanings ascribed thereto in the Credit Agreement. ALCO OFFICE SYSTEMS-CANADA, INC. By: ------------------------------- Name: Title: SCHEDULE C FORM OF GUARANTEE ----------------- ATTACHED SCHEDULE D INSTRUMENT OF ADHESION ---------------------- THIS INSTRUMENT OF ADHESION is made as of the ____ day of _, 199_ between _____ (the "Assignee") and each of the parties (the "Parties") to the -------- ------- credit agreement (as amended, restated, supplemented or otherwise modified the "Credit Agreement") dated as of October 13, 1995 between Alco Office Systems- ---------------- Canada, Inc., as Borrower, Deutsche Bank Canada, as Agent, and the Banks listed in Schedule A to the Credit Agreement. BACKGROUND - - ---------- A. The Assignee is the assignee of a portion of the Bank's Proportion of [SPECIFY ASSIGNOR] under the Credit Agreement such that, after giving effect to such assignment, the Banks' Proportions under the Credit Agreement are as set forth on the attached Schedule A. B. As contemplated by Section 12.3 of the Credit Agreement, the Assignee wishes to enter into this Agreement in favour and for the benefit of each of the Parties. C. The Assignee and the Parties wish to confirm the amendment and supplement of the Credit Agreement to reflect the Assignee's status as a party to the Credit Agreement. AGREEMENT - - --------- NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: 1. The Assignee agrees, as of the date hereof, to be bound by each of the terms and conditions of the Credit Agreement, all as if the Assignee was an original party thereto. 2. The parties hereto other than the Assignee agree, as of the date hereof, to recognize the Assignee as a party to the Credit Agreement as if the Assignee was an original party thereto. 3. All parties hereto agree that the Credit Agreement is hereby amended and supplemented to give full effect to the arrangements contemplated hereby, and that Schedule A to the Credit Agreement is hereby amended to reflect the Banks' Proportions specified on Schedule A hereto. 4. This Instrument of Adhesion is made pursuant to the laws of Ontario and the federal laws of Canda applicable therein, and shall be governed by and construed in accordance with such laws. - 2 - Capitalized terms used but not defined in this Instrument of Adhesion (included in the "Background" portion hereof) have the meanings given to them by the Credit Agreement. IN WITNESS WHEREOF the parties hereto have executed this Instrument of Adhesion as of the date and year first written above. [SIGNATURE LINES TO BE ADDED FOR BORROWER, AGENT, BANKS AND ASSIGNEE] EX-4.6 5 PARTICIPATION AGREEMENT =============================================================================== PARTICIPATION AGREEMENT Dated as of November 8, 1994 among UNISOURCE WORLDWIDE, INC. and AOP INC., as Lessees, ALCO STANDARD CORPORATION, as Guarantor PPI SPV, L.P., as Lessor, PITCAIRN SPV, INC., as General Partner of Lessor, and TRUST COMPANY BANK, as Lender and Agent ______________________________________________ Distribution Centers ================================================================================
TABLE OF CONTENTS Page ---- SECTION 1 DEFINITIONS; INTERPRETATION............................ 2 SECTION 2 ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS; NATURE OF TRANSACTION........................ 2 SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease................................................ 2 SECTION 2.2 Fundings of Purchase Price, Development Costs and Construction Costs......................... 3 SECTION 2.3 Funded Amounts and Interest and Yield Thereon................................................ 5 SECTION 2.4 Lessee Owner for Tax Purposes.......................... 5 SECTION 2.5 Amounts Due Under Lease................................ 6 SECTION 3 CONDITIONS PRECEDENT; DOCUMENTS........................ 6 SECTION 3.1 Conditions to the Obligations of the Participants on each Closing Date.................... 6 SECTION 3.2 Additional Conditions for the Initial Closing Date......................................... 11 SECTION 3.3 Conditions to the Obligations of Lessee................ 13 SECTION 3.4 Conditions to the Obligations of the Participants on each Funding Date.................... 13 SECTION 3.5 Completion Date Conditions............................. 14 SECTION 4 REPRESENTATIONS........................................ 16 SECTION 4.1 Representations of each Lessee......................... 16 SECTION 4.2 Representations of the Lessor.......................... 19 SECTION 4.3 Representations of each Lender......................... 21 SECTION 5 COVENANTS OF THE LESSEES, THE GUARANTOR AND THE LESSOR............................................. 21 SECTION 5.1 Qualification to do Business........................... 21 SECTION 5.2 Further Assurances..................................... 21
SECTION 5.3 Financial Statements and Information................... 21 SECTION 5.4 Additional Required Appraisals......................... 23 SECTION 5.5 Lessor's and General Partner's Covenants............... 23 SECTION 6 TRANSFERS BY LESSOR AND LENDER......................... 23 SECTION 6.1 Lessor Transfers....................................... 23 SECTION 6.2 Lender Transfers....................................... 23 SECTION 7 INDEMNIFICATION........................................ 23 SECTION 7.1 General Indemnification................................ 23 SECTION 7.2 Environmental Indemnity................................ 25 SECTION 7.3 Proceedings in Respect of Claims....................... 27 SECTION 7.4 General Tax Indemnity.................................. 28 SECTION 7.5 Increased Costs, etc................................... 35 SECTION 7.6 End of Term Indemnity.................................. 38 SECTION 8 MISCELLANEOUS.......................................... 39 SECTION 8.1 Survival of Agreements................................. 39 SECTION 8.2 Notices................................................ 39 SECTION 8.3 Counterparts........................................... 40 SECTION 8.4 Amendments............................................. 40 SECTION 8.5 Headings, etc.......................................... 41 SECTION 8.6 Parties in Interest.................................... 41 SECTION 8.7 GOVERNING LAW.......................................... 41 SECTION 8.8 Expenses............................................... 41 SECTION 8.9 Severability........................................... 42 SECTION 8.10 Liabilities of the Participants........................ 42 SECTION 8.11 Submission to Jurisdiction; Waivers.................... 42
-ii- SECTION 8.12 Liabilities of the Agent............................... 43
-iii- APPENDIX A Definitions and Interpretation SCHEDULES SCHEDULE 1 Initial Land Interests SCHEDULE 2.2 Commitments SCHEDULE 8.2 Notice Information EXHIBITS EXHIBIT A Form of Funding Request EXHIBIT B Form of Deed EXHIBIT C Form of Security Agreement and Assignment EXHIBIT D Mortgage EXHIBIT E Form of Officer's Certificate Accompanying Financial Reports EXHIBIT F Form of Environmental Audit Reliance Letter EXHIBIT G Forms of Opinions of Counsel EXHIBIT H Form of Lessee Certification of Construction Completion iv PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT, dated as of November 8, 1994 (as it may be amended or modified from time to time in accordance with the provisions hereof, this "Participation Agreement"), is among UNISOURCE WORLDWIDE, INC., a Delaware ----------------------- corporation ("Unisource"), as Lessee, AOP INC., a Delaware corporation ("AOP"), --------- --- as Lessee, ALCO STANDARD CORPORATION, an Ohio corporation ("Alco"), as ---- Guarantor, PPI SPV, L.P., a Pennsylvania limited partnership, as Lessor, PITCAIRN SPV, INC., a Pennsylvania corporation, as General Partner of Lessor (the "General Partner"), and TRUST COMPANY BANK, a Georgia banking corporation, --------------- as the sole initial Lender and as Agent. PRELIMINARY STATEMENT In accordance with the terms and provisions of this Participation Agreement, the Leases, the Loan Agreement and the other Operative Documents, (i) the Lessor contemplates acquiring the three Land Interests described in Schedule -------- 1 (namely, the Pleasanton Land Interest, the Houston Land Interest and the St. - - - Louis Land Interest) and leasing such Land to Unisource (in the case of the Pleasanton Land Interest, the Houston Land Interest and the St. Louis Land Interest), (ii) with respect to the Pleasanton Land Interest and the St. Louis Land Interest, Unisource wishes to construct a Building on such Land for the Lessor and, when completed, to lease such Building from the Lessor as part of the Leased Property under the related Lease, (iii) with respect to the Houston Land Interest, the Lessor contemplates acquiring the Building which already exists on such Land together with such Land Interest and Unisource wishes to lease such Building on such Land from the Lessor as part of the Leased Property under the related Lease, (iv) the Lessor may from time to time acquire additional Land Interests and Buildings at the request of a Lessee to lease to such Lessee pursuant to the related Lease, (v) each Lessee wishes to obtain, and the Lessor is willing to provide, funding for the acquisition of Land Interest(s) and Building(s) and in the case of certain Land Interests, the construction of Buildings, (vi) the Lessor wishes to obtain, and the Lender is willing to provide, financing of a portion of the funding of the acquisition of the Land Interests and Buildings and the construction of the Buildings, and (vii) the Guarantor is willing to provide its Guaranty to the Lender and the Lessor. In consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for ---------- all purposes hereof; and the rules of interpretation set forth in Appendix A ---------- hereto shall apply to this Participation Agreement. 2 ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS; NATURE OF TRANSACTION 2.1 Agreement to Acquire, Construct, Fund and Lease. ----------------------------------------------- (a) Land. Subject to the terms and conditions of this Participation ---- Agreement, with respect to each Land Interest, on the related Closing Date (i) the Lessor agrees to acquire such interest in the related Land from the applicable Seller as is transferred, sold, assigned and conveyed to the Lessor pursuant to the applicable Purchase Agreement, (ii) the Lessor hereby agrees to lease such Land to the related Lessee pursuant to the related Lease, and (iii) such Lessee hereby agrees to lease such Land from the Lessor pursuant to such Lease. (b) Building. With respect to the Pleasanton Land Interest, the -------- St. Louis Land Interest and any other Land Interest accepted by the Participants and identified by the related Lessee in the request for such acceptance as requiring construction funding (a "Construction Land Interest") subject to the -------------------------- terms and conditions of this Participation Agreement, from and after the Closing Date relating to such Land Interest (i) the related Lessee agrees, pursuant to the terms of the related Lease, to construct and install the Building on such Land Interest for the Lessor prior to the Scheduled Construction Termination Date, (ii) the Lessor and the Lender agree to fund all or a portion of the costs of such construction and installment (and interest and yield thereon), such fundings not to exceed in the aggregate the related Construction Funding Limit during the period from such Closing Date to the Scheduled Construction Termination Date, (iii) the Lessor hereby agrees to lease such Building as part of such Leased Property to such Lessee pursuant to such Lease, and (iv) such Lessee hereby agrees to lease such Building from the Lessor pursuant to such Lease. 2 2.2 Fundings of Purchase Price, Development Costs and Construction Costs. -------------------------------------------------------------------- (a) Initial Funding and Payment of Purchase Price for Land and ---------------------------------------------------------- Development Costs on Closing Date. Subject to the terms and conditions of this - - --------------------------------- Participation Agreement, on the Closing Date for any Land Interest, Lender shall make available to the Lessor its initial Loan with respect to such Land Interest in an amount equal to the product of such Lender's Commitment Percentage times purchase price for the Land and the development costs incurred by the related Lessee through such Closing Date, which funds the Lessor shall use, together with its own funds (which shall be the initial Lessor's Invested Amount with respect to such Land Interest) in an amount equal to the product of the Lessor's Commitment Percentage times the purchase price for the related Land and the development costs incurred by such Lessee through such Closing Date, to purchase the Land Interest from the applicable Seller pursuant to the applicable Purchase Agreement and to pay to such Lessee the amount of such development costs, and the Lessor shall lease such Land Interest to such Lessee pursuant to the Lease. (b) Subsequent Fundings and Payments of Construction Costs during ------------------------------------------------------------- Construction Term. Subject to the terms and conditions of this Participation - - ----------------- Agreement, on each Funding Date following the Closing Date for each Construction Land Interest until the related Construction Term Expiration Date, (i) each Lender shall make available to the Lessor a Loan in an amount equal to the product of such Lender's Commitment Percentage times the amount of Funding requested by the related Lessee for such Funding Date, which funds the Lessor hereby directs such Lender to pay over to the related Lessee as set forth in paragraph (d), and (ii) Lessor shall pay over to such Lessee, its own funds - - ------------- (which shall constitute a part of and an increase in the Lessor's Invested Amount) in an amount equal to the product of the Lessor's Commitment Percentage times the amount of Funding requested by such Lessee for such Funding Date. (c) Aggregate Limits on Funded Amounts. The aggregate amount that ---------------------------------- the Participants shall be committed to provide as Funded Amounts under this Participation Agreement shall not exceed (x) with respect to each Leased Property the lesser of (i) the costs of purchase and construction of such Leased Property and the related closing and financing costs, and (ii) the estimated Fair Market Sales Value of such Leased Property on the related Completion Date as set forth in the related Appraisal (determined by excluding from such value the amount of assessments on such Leased Property not being funded by Funded Amounts hereunder), or (y) $16,000,000 in the aggregate for the 3 three initial Leased Properties or $25,000,000 in the aggregate for all Leased Properties. The aggregate amount that any Participant shall be committed to fund under this Participation Agreement shall not exceed the lesser of (i) such Participant's Commitment and (ii) such Participant's Commitment Percentage of the aggregate Fundings requested under this Participation Agreement. (d) Notice, Time and Place of Fundings. With respect to each ---------------------------------- Funding, the applicable Lessee shall give the Lessor and the Agent an irrevocable prior written notice not later than 12:00 noon, Atlanta, Georgia, three Business Days prior to the proposed Closing Date or Funding Date, as the case may be, pursuant, in each case, to a Funding Request in the form of Exhibit ------- A (a "Funding Request"), specifying the Closing Date or subsequent Funding Date, - - - --------------- as the case may be, and the amount of Funding requested. All documents and instruments required to be delivered on such Closing Date pursuant to this Participation Agreement shall be delivered at the offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603, or at such other location as may be determined by the Lessor, such Lessee and the Agent. Each Funding shall occur on a Closing Date or a Payment Date and shall be in an amount equal to $500,000 or an integral multiple of $25,000 in excess thereof. All remittances made by any Lender and the Lessor for any Funding shall be made in immediately available funds by wire transfer to or, as is directed by, such Lessee with receipt by such Lessee not later than 1:00 p.m., Atlanta, Georgia time, on the applicable Funding Date, upon satisfaction or waiver of the conditions precedent to such Funding set forth in Section 3; such funds shall --------- (1) in the case of the initial Funding on a Closing Date, be used to pay the purchase price to the applicable Seller for the related Land Interest and pay such Lessee such development costs, and (2) in the case of each subsequent Funding in respect of a Construction Land Interest be used to pay to the related Lessee for payment or reimbursement of Construction costs. (e) Lessee's Deemed Representation for Each Funding. Each Funding ----------------------------------------------- Request by a Lessee shall be deemed a representation by such Lessee to the Lessor, the Agent and the Lenders that on the proposed Closing Date or Funding Date, as the case may be, (i) the amount of Funding requested represents amounts owing in respect of the purchase price of the related Land Interest and development costs in respect of the Leased Property (in the case of the initial Funding on a Closing Date) or amounts that such Lessee reasonably believes will be due in the 60 days following such Funding from such Lessee to third parties in respect of the Construction, or amounts paid by such Lessee to third parties in respect of the Construction for which such Lessee has not 4 previously been reimbursed by a Funding (in the case of any Funding), (ii) no Event of Default or Potential Event of Default exists, and (iii) the representations of such Lessee set forth in Section 4.1 are true and correct in ----------- all material respects as though made on and as of such Funding Date except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. 2.3 Funded Amounts and Interest and Yield Thereon. --------------------------------------------- (a) During the period from and including the Closing Date for any Land Interest to but excluding the date on which Lessor's Invested Amount in respect of such land Interest is paid in full, Lessor's Invested Amount in respect of such Land Interest shall accrue yield ("Yield") at a rate per annum ----- --- ----- equal to 12% per annum, computed using the actual number of days elapsed and a 365- (or, if applicable, 366-) day year. (b) Lender's Funded Amount for any Land Interest outstanding from time to time shall accrue interest as provided in the Loan Agreement. (c) During the Construction Term, in lieu of paying accrued interest, on each Payment Date, the Lender's Funded Amount in respect of each Construction Land Interest shall automatically be increased by the amount of interest accrued on the related Loans pursuant to the Loan Agreement during the quarter ending immediately prior to such Payment Date (except to the extent that at any time such increase would cause the Lender's Funded Amount to exceed Lender's Commitment, in which event the related Lessee shall pay such excess amount to the Lender). Similarly, during the Construction Term, in lieu of paying accrued Yield, on each Payment Date, the Lessor's Funded Amount in respect of each Construction Land Interest shall automatically be increased by the amount of Yield accrued on the Lessor's Funded Amount in respect of such Land Interest during the quarter ending immediately prior to such Payment Date (except to the extent that at any time such increase would cause the Funded Amount of the Lessor to exceed the Lessor's Commitment, in which event such Lessee shall pay such excess amount to the Lessor). Such increases in Funded Amounts shall occur without any disbursement of funds by the Participants. 2.4 Lessee Owner for Tax Purposes. With respect to each Leased Property, ----------------------------- it is the intent of the related Lessee and the Participants that for federal, state and local tax purposes (A) such Lessee owns such Leased Property and will be entitled to all tax benefits ordinarily available to an owner of property 5 similar to such Leased Property, (B) the related Lease will be treated as a financing arrangement, and (C) the Lessor will be treated as a lender making loans to such Lessee. Nevertheless, each Lessee acknowledges and agrees that no Participant or any other Person has made any representations or warranties concerning the tax, financial, accounting or legal characteristics or treatment of the Operative Documents and that such Lessee has obtained and relied solely upon the advice of its own tax, accounting and legal advisors concerning the Operative Documents and the accounting, tax, financial and legal consequences of the transactions contemplated therein. 2.5 Amounts Due Under Lease. With respect to each Leased Property, ----------------------- anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the related Lessee and the Participants that: (i) the amount and timing of such of Basic Rent due and payable from time to time from the related Lessee under the related Lease shall be equal to the aggregate payments due and payable with respect to interest on, and principal of, the Loans in respect of such Leased Property and Yield on the Lessor's Invested Amount in respect of such Leased Property on each Payment Date; (ii) if such Lessee elects the Purchase Option or becomes obligated to purchase such Leased Property under such Lease, the Funded Amounts in respect of such Leased Property, all interest and Yield thereon and all other obligations of such Lessee owing to the Participants in respect of such Funded Property shall be paid in full by such Lessee, (iii) if such Lessee properly elects the Remarketing Option or the Surrender Option, the principal amount of, and accrued interest on, the A Loans in respect of such Leased Property will be paid out of the Recourse Deficiency Amount, and such Lessee shall only be required to pay to the Lenders in respect of the principal amount of the B Loans in respect of such Leased Property and to the Lessor in respect of the Lessor's Invested Amount in respect of such Leased Property the proceeds of the sale of such Leased Property; and (iv) upon an Event of Default resulting in an acceleration of such Lessee's obligation to purchase such Leased Property under such Lease, the amounts then due and payable by such Lessee under the Lease shall include all amounts necessary to pay in full the Loans in respect of such Leased Property and accrued interest thereon, the Lessor's Invested Amount in respect of such Leased Property and accrued Yield thereon and all other obligations of such Lessee owing to the Participants in respect of such Leased Property. 6 3 CONDITIONS PRECEDENT; DOCUMENTS 3.1 Conditions to the Obligations of the Participants on each Closing ----------------------------------------------------------------- Date. The obligations of the Lessor and each Lender to carry out their ---- respective obligations under Section 2 of this Participation Agreement to be --------- performed on the Closing Date with respect to any Leased Property shall be subject to the fulfillment to the satisfaction of, or waiver by, each such party hereto (acting directly or through its counsel) on or prior to such Closing Date of the following conditions precedent, provided that the obligations of any -------- Participant shall not be subject to any conditions contained in this Section 3.1 ----------- which are required to be performed by such Participant: (a) Documents. The following documents shall have been executed and --------- delivered by the respective parties thereto: (i) Deed and Purchase Agreement. The related Deed duly --------------------------- executed by the applicable Seller and in recordable form, and the related Purchase Agreement, duly executed by such Seller and the related Lessee, shall each have been delivered to each Participant. (ii) Lease Supplement. The original of the related Lease ---------------- Supplement, duly executed by such Lessee and the Lessor and in recordable form, shall have been delivered to the Agent. (iii) Mortgage and Assignment of Lease and Rents. Counterparts ------------------------------------------ of the Mortgage in the form of Exhibit D attached hereto, duly --------- executed by the Lessor and in recordable form, shall have been delivered to the Agent; and the Assignment of Lease and Rents in recordable form, duly executed by the Lessor, shall have been delivered to the Agent. (iv) Security Agreement and Assignment. In the case of a --------------------------------- Construction Land Interest, counterparts of the Security Agreement and Assignment (substantially in the form of Exhibit C), duly executed by --------- such Lessee, with an acknowledgement and consent thereto satisfactory to the Lessor and the Agent duly executed by the related General Contractor and the related Architect, as applicable, and complete copies of the related Construction Contract and the related Architect's Agreement certified by such Lessee, shall have been delivered to the Lessor and the Agent (it being understood and agreed that if no related 7 Construction Contract or Architect's Agreement exists on such Closing Date such Lessee shall deliver such Security Agreement and Assignment and consents concurrently with such Lessee's entering into such contracts). (v) Survey. Such Lessee shall have delivered, or shall have ------ caused to be delivered, to the Lessor and the Agent, at such Lessee's expense, an accurate survey certified to the Lessor and the Agent in a form satisfactory to the Lessor and the Agent and showing no state of facts unsatisfactory to the Lessor or the Agent and prepared within ninety (90) days of the Closing Date by a Person reasonably satisfactory to the Lessor and the Lender. Such survey shall (1) be acceptable to the Title Insurance Company, (2) show no encroachments on such Land by structures owned by others, and no encroachments from any part of such Leased Property onto any land owned by others, and (3) disclose no state of facts objectionable to the Lessor, the Agent or the Title Insurance Company, and be acceptable to each such Person. (vi) Title and Title Insurance. On such Closing Date, the ------------------------- Lessor shall receive from a title insurance company acceptable to the Lessor and the Agent an ALTA Form B-1970 Owner's Policy of Title Insurance issued by such title insurance company and the Lender shall receive from such title insurance company an ALTA Form B-1970 Mortgagee's Policy of Title Insurance issued by such title insurance company, in each case, in the amount of the projected cost of acquisition (and, if applicable, construction) of such Leased Property, acceptable in form and substance to the Lessor and the Agent, respectively (collectively, the "Title Policy"). The Title ------------ Policy shall be dated as of the Closing Date, and, to the extent permitted under Applicable Law, shall include coverage over the general exceptions to such policy and shall contain such affirmative endorsements as to mechanic's liens, easements and rights-of-way, encroachments, the non-violation of covenants and restrictions, survey matters and other matters as the Lessor or the Agent shall reasonably request. (vii) Appraisal. Each Participant shall have received a report --------- of the Appraiser (an "Appraisal"), paid for by such Lessee, which --------- shall meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, shall be 8 satisfactory to such Participant and shall state in a manner satisfactory to such Participant the following: (A) the Fair Market Sales Value of such Land as of a date no earlier than six months prior to such Closing Date; (B) the estimated Fair Market Sales Value of such Land and such Building on the Completion Date; and (C) the estimated Fair Market Sales Value of such Leased Property at the end of the related Lease Term. Such Appraisal must show that (1) the estimated Fair Market Sales Value of the Leased Property (determined as if the Building had already been completed in accordance with the related Plans and Specifications and by excluding from such value the amount of assessments on such Leased Property) at the commencement of the Lease Term with respect thereto is equal to the projected cost of acquisition (and, if applicable, construction) of such Leased Property, and (2) the estimated Fair Market Sales Value of such Leased Property at the end of the related Lease Term (determined by excluding from such value the amount of assessments on such Leased Property) is at least 50% of the projected cost of acquisition (and, if applicable, construction) of such Leased Property. If the Participants waive delivery on such Closing Date of an Appraisal, then no subsequent Funding shall occur until such Appraisal has been delivered. If the related Building is not completed within 12 months after such Closing Date, such Lessee agrees to pay in full all Funded Amounts and accrued interest and Yield thereon with respect to such Leased Property on such 12-month anniversary of such Closing Date and purchase such Leased Property pursuant to Section 15.5 of the Lease. (viii) Reliance Letter regarding Environmental Audit. The firm --------------------------------------------- that prepared the Environmental Audit for such Leased Property shall have delivered to the Lessor and the Agent a letter (substantially in the form of Exhibit F) stating that the Lessor, the Agent and the --------- Lenders may rely upon such firm's Environmental Audit of such Land, a copy of which has previously been delivered to the Lessor and the Agent. 9 (ix) Evidence of Insurance. The Lessor and the Agent shall have --------------------- received from such Lessee certificates of insurance evidencing compliance with the provisions of Article IX of such Lease (including the naming of the Lessor, the Agent and the Lenders as additional insured or loss payee with respect to such insurance), in form and substance satisfactory to the Lessor and the Agent. (x) Officer's Certificate. Each of the Agent and the Lessor --------------------- shall have received an Officer's Certificate of such Lessee stating that, to the best of such officer's knowledge, (A) each and every representation and warranty of such Lessee contained in the Operative Documents is true and correct in all material respects on and as of such Closing Date as though made on and as of such Closing Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (B) no Event of Default, Potential Event of Default or Force Majeure Event has occurred and is continuing; (C) each Operative Document to which such Lessee is a party is in full force and effect with respect to it; and (D) no event that could have a Material Adverse Effect has occurred since June 30, 1994. (xi) UCC Financing Statement; Recording Fees; Transfer Taxes. ------------------------------------------------------- Each Participant shall have received satisfactory evidence of (i) the filing of such Uniform Commercial Code financing statements as any Participant deems necessary or desirable in order to protect such Participant's interests and (ii) the payment of all recording and filing fees and taxes with respect to any recordings or filings made of the related Deed, the related Lease, the related Mortgage and the related Assignment of Lease and Rents. (xii) Opinions. The opinion of local counsel for such Lessee -------- qualified in the jurisdiction in which such Leased Property is located, substantially in the form set forth in Exhibit G-2, and ----------- containing such other matters as the parties to who they are addressed shall reasonably request, shall have been delivered and addressed to each of the Lessor, the Agent and the Lenders, and to the extent requested by the Agent, opinions supplemental to those delivered under Section 3.2(vii) and satisfactory to the Agent shall have been ---------------- 10 delivered and addressed to each of the Lessor, the Agent and the Lenders. (b) Litigation. No action or proceeding shall have been instituted ---------- or threatened nor shall any governmental action, suit, proceeding or investigation be instituted or threatened before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority, to set aside, restrain, enjoin or prevent the performance of this Participation Agreement or any transaction contemplated hereby or by any other Operative Document or which is reasonably likely to materially adversely affect the Leased Property or any transaction contemplated by the Operative Documents or which could reasonably be expected to result in a Material Adverse Effect. (c) Legality. In the opinion of such Participant or its counsel, the -------- transactions contemplated by the Operative Documents shall not violate any Applicable Law, and no change shall have occurred or been proposed in Applicable Law that would make it illegal for such Participant to participate in any of the transactions contemplated by the Operative Documents. (d) No Events. (i) No Event of Default, Potential Event of Default, --------- Event of Loss or Event of Taking shall have occurred and be continuing, (ii) no action shall be pending or threatened by a Governmental Authority to initiate a Condemnation or an Event of Taking, and (iii) there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect since June 30, 1994. (e) Representations. Each representation and warranty of the parties --------------- hereto or to any other Operative Document contained herein or in any other Operative Document shall be true and correct in all material respects as though made on and as of the Closing Date. (f) Cutoff Date. The initial Closing Date shall occur on or prior to ----------- November 30, 1994. (g) Transaction Expenses. The Lessees shall have paid the -------------------- Transaction Costs then accrued and invoiced which the Lessees agree to pay pursuant to Section 8.8. ----------- 3.2 Additional Conditions for the Initial Closing Date. The obligations -------------------------------------------------- of the Lessor and each Lender to carry out their respective obligations under Section 2 of this Participation Agreement to be performed on the initial Closing - - --------- Date shall be subject to the satisfaction of, or waiver by, each such party hereto (acting directly or through its counsel) on or prior to 11 the initial Closing Date of the following conditions precedent in addition to those set forth in Section 3.1, provided that the obligations of any Participant ----------- -------- shall not be subject to any conditions contained in this Section 3.2 which are ----------- required to be performed by such Participant: (i) Leases. The original of each Lease, duly executed by the ------ related Lessee and the Lessor shall have been delivered to the Agent. (ii) Guaranty. Counterparts of the Guaranty, duly executed by -------- the Guarantor, shall have been delivered to each Participant. (iii) Loan Agreement. Counterparts of the Loan Agreement, duly -------------- executed by the Lessor, the Agent and the Lender, shall have been delivered to each of the Lessor and Lender. (iv) Notes. The A Note and the B Note, each payable to the ----- order of each Lender, duly executed by the Lessor, shall have been delivered to the Agent. and (v) Participation Agreement. Counterparts of this Participation ----------------------- Agreement, duly executed by the parties hereto, shall have been delivered to each of the parties hereto. (vi) Lessees' and Guarantor's Resolutions and Incumbency --------------------------------------------------- Certificate, etc. Each of the Agent and the Lessor shall have ---------------- received (x) a certificate of the Secretary or an Assistant Secretary of each of each Lessee and the Guarantor, respectively, attaching and certifying as to (i) the Board of Directors' resolution duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (ii) the incumbency and signatures of persons authorized to execute and deliver such documents on its behalf, (iii) its certificate of incorporation, certified as of a recent date by the Secretary of State of the state of its incorporation and (iv) its by-laws, and (y) good standing certificates from the appropriate offices of the States of Delaware, California, Missouri, Ohio and Texas and good standing certificates for each Lessee and good standing certificates for the Guarantor from the appropriate offices of the States of such Person's incorporation and principal place of business. (vii) Opinions of Counsel. The following opinions, each dated ------------------- the initial Closing Date, 12 substantially in the form set forth in the Exhibit noted below, and containing such other matters as the parties to whom they are addressed shall reasonably request, shall have been delivered and addressed to each of the Lessor, the Agent and the Lenders: (1) the opinion of J. Kenneth Croney, General Counsel of the Lessees and the Guarantor (Exhibit G-1); and ----------- (2) the opinion of special counsel for the Lessor (Exhibit G- --------- 3). (viii) Lessor's Incumbency Certificate. The Agent shall have ------------------------------- received a certificate of secretary of the Lessor attaching and certifying as to (A) the Board of Directors' resolution authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, and (B) the incumbency and signatures of persons authorized to execute and deliver such documents on its behalf. 3.3 Conditions to the Obligations of Lessee. The obligations of each --------------------------------------- Lessee to lease from the Lessor and construct its related Leased Property are subject to the fulfillment on the related Closing Date to the satisfaction of, or waiver by, such Lessee, of the following conditions precedent: (a) General Conditions. The conditions set forth in Section 3.1 that ------------------ ----------- require fulfillment by the Lessor or the Lenders shall have been satisfied. (b) Legality. In the opinion of such Lessee or its counsel, the -------- transactions contemplated by the Operative Documents shall not violate any Applicable Law, and no change shall have occurred or been proposed in Applicable Law that would make it illegal for such Lessee to participate in any of the transactions contemplated by the Operative Documents. 3.4 Conditions to the Obligations of the Participants on each Funding ----------------------------------------------------------------- Date. The obligations of the Lessor and each Lender to carry out their ---- respective obligations under Section 2 of this Participation Agreement to be --------- performed on each Funding Date shall be subject to the fulfillment to the satisfaction of, or waiver by, each such party hereto (acting directly or through their respective counsel) or prior to each such Funding Date of the following conditions precedent, provided that the obligations of any Participant -------- shall not be subject to any conditions contained in this Section 3.4 which are ----------- required to be performed by such Participant: 13 (a) Funding Request. The Lessor and the Agent shall have received --------------- from such Lessee the Funding Request therefor pursuant to Section 2.2. ----------- (b) Condition Fulfilled. As of such Funding Date, the condition set ------------------- forth in Section 3.1(d)(i) shall have been satisfied. ----------------- (c) Representations. As of such Funding Date, both before and after --------------- giving effect to the Funding requested by such Lessee on such date, the representations and warranties that such Lessee is deemed to make pursuant to Section 2.2(e) shall be true and correct in all material respects on and as of - - -------------- such Funding Date as though made on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (d) No Bonded Stop Notice or Filed Mechanics Lien. As of each --------------------------------------------- Funding Date, and as to any Loan funds requested for any Land Interest on each such Funding Date, (i) neither the Agent nor any Lender has received (with respect to such Land Interest) a bonded notice to withhold Loan funds which has not been discharged by the Lessee, and (ii) no mechanic's liens or materialman's liens have been filed against such Land Interest that have not been discharged by the Lessee. 3.5 Completion Date Conditions. The occurrence of the Completion Date -------------------------- with respect to any Leased Property shall be subject to the fulfillment to the satisfaction of, or waiver by, each party hereto (acting directly or through its counsel) of the following conditions precedent: (a) Title Policy Endorsements; Architect's Certificate. The related -------------------------------------------------- Lessee shall have furnished to each Participant (1) the following endorsements to the related Title Policy (each of which shall be subject to no exceptions other than those acceptable to the Agent): a date-down endorsement (redating and confirming the coverage provided under the Title Policy and each endorsement thereto) and a "Form 9" endorsement, in each case, effective as of a date not earlier than the date of completion of the Construction, and (2) a certificate of the Architect dated at or about the Completion Date and stating that (i) the Building has been completed substantially in accordance with the Plans and Specifications, and the Leased Property is ready for occupancy, (ii) the Plans and Specifications comply in all material respects with all Applicable Laws in effect at such time, and (iii) to the best of the Architect's knowledge, the 14 Leased Property, as so completed, complies in all material respects with all Applicable Laws in effect at such time, and certifying that attached thereto are true and complete copies of: (A) an "as built" or "record" set of the Plans and Specifications, and a plat of survey of the Leased Property "as built" showing all paving, driveways, fences and exterior improvements, and (B) copies of all licenses and permits required by any Governmental Authority having jurisdiction over the use and occupancy of the Leased Property and for the operation thereof, including copies of a certificate or certificates of occupancy for the Leased Property or other legally equivalent permission to occupy the Leased Property. (b) Construction Completion. The Construction shall have been ----------------------- completed substantially in accordance with the Plans and Specifications, the related Deed and all Applicable Laws, and the Leased Property shall be ready for occupancy and operation. All fixtures, furniture, furnishings, equipment and other property contemplated under the Plans and Specifications to be incorporated into or installed in the Leased Property shall have been incorporated or installed, free and clear of all Liens except for Permitted Liens. (c) Lessee Certification. Such Lessee shall have furnished the -------------------- Lessor, the Agent and each Lender with both (1) a certification of such Lessee (substantially in the form of Exhibit H) that: --------- (i) all amounts owing to third parties for the Construction have been paid in full (other than contingent obligations for which such Lessee has made adequate reserves), and no litigation or proceedings are pending, or to the best of such Lessee's knowledge, are threatened, against the Leased Property or such Lessee which could reasonably be expected to materially adversely affect (A) the enforceability or priority of this Participation Agreement or the other Operative Documents and (B) the ability of such Lessee to fully perform its obligations pursuant to and as contemplated by the terms and provisions of this Participation Agreement and the other Operative Documents; (ii) all consents, licenses and permits and other governmental authorizations or approvals required for the Construction and operation of the Leased Property have been obtained and are in full force and effect; (iii) the Leased Property has available all services of public facilities and other utilities necessary for use and operation of the Leased Property for its 15 intended purposes including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between the Building and public highways for pedestrians and motor vehicles; (iv) all material agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of the Leased Property as such Lessee intends to use the Leased Property under the related Lease and which are necessary to permit the lawful intended use and operation of all then intended utilities, driveways, roads and other means of egress and ingress to and from the same have been obtained and are in full force and effect and such Lessee has no knowledge of any pending modification or cancellation of any of the same; and the use of the Leased Property does not depend on any variance, special exception or other municipal approval, permit or consent that has not been obtained and is in full force and effect for its continuing legal use; (v) all of the requirements and conditions set forth in Section ------- 3.5(b) hereof have been completed and fulfilled; ------ (vi) the Leased Property is in compliance with all applicable zoning laws and regulations; and (2) copies of all final lien waivers regarding the Construction, together with sworn statements from contractors, subcontractors and material suppliers. (d) Completion Date Appraisal. Within 90 days after the issuance of ------------------------- the certificate of occupancy for the Building, the Lessor and the Agent shall have received a report of the Appraiser (the "Completion Date Appraisal"), which ------------------------- shall meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and shall state the Fair Market Sales Value of the Leased Property as of the Completion Date. The cost of such appraisal shall be paid by the related Lessee. 4 REPRESENTATIONS 4.1 Representations of each Lessee. Effective as of the date of ------------------------------ execution hereof, as of each Closing Date and as of each Funding Date, each Lessee represents and warrants to each of the other parties hereto as follows: 16 (a) Organization; Corporate Powers. Such Lessee (i) is a corporation ------------------------------ duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified as a foreign corporation and in good standing (A) in each jurisdiction where its Leased Property is located and (B) under the laws of each jurisdiction where such qualification is required and where the failure to be duly qualified and in good standing would have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own, operate and encumber its property and assets and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Operative Documents. (b) Authority. (i) Such Lessee has the requisite corporate power --------- and authority to execute, deliver and perform the Operative Documents executed by it, or to be executed by it. (i) The execution, delivery and performance (or recording or filing, as the case may be) of the Operative Documents, and the consummation of the transactions contemplated thereby, have been duly approved by the Board of Directors of such Lessee and no other corporate proceedings on the part of such Lessee are necessary to consummate the transactions so contemplated. (c) The Operative Documents executed by such Lessee, have been duly executed and delivered (or recorded or filed, as the case may be) by such Lessee, and constitute its legal, valid and binding obligation, enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or limiting creditors' rights generally or by equitable principles generally. (d) No Conflict. The execution, delivery and performance by such ----------- Lessee of each Operative Document to which it is a party and each of the transactions contemplated thereby do not and will not (i) violate any Applicable Law or Contractual Obligation of any Person the consequences of which violation, singly or in the aggregate, would have a Material Adverse Effect, (ii) result in or require the creation or imposition of any Lien whatsoever on such Leased Property or upon any of the properties or assets of its Lessee or any of its Subsidiaries (other than Permitted Liens), or (iii) require any approval of stockholders which has not been obtained. (e) Governmental Consents. Except as have been made, obtained or --------------------- given, and are in full force and effect, no filing or registration with, consent or approval of, notice to, with or by 17 any Governmental Authority, is required to authorize, or is required in connection with, the execution, delivery and performance by such Lessee of the Operative Documents, the use of the proceeds of the Fundings made to effect the purchase of the Land and the Construction, or the legality, validity, binding effect or enforceability of any Operative Document. (f) Governmental Regulation. Neither such Lessee nor any Subsidiary ----------------------- of such Lessee is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (g) Requirements of Law. Such Lessee and each Subsidiary of such ------------------- Lessee and each Person acting on behalf of any of them is in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply would have a Material Adverse Effect, either individually or together with other such cases. (h) Rights in Respect of the Leased Property. Such Lessee is not a ---------------------------------------- party to any contract or agreement to sell any interest in such Leased Property or any part thereof, other than pursuant to this Participation Agreement and such Lease. (i) Hazardous Materials. (i) To the best knowledge of such Lessee, ------------------- on the Closing Date for its Leased Property, there are no Hazardous Materials present at, upon, under or within such Leased Property or released or transported (except in full compliance with all Applicable Law) to or from such Leased Property. (i) On the related Closing Date, no Governmental Actions have been taken or are in process or have been threatened, which could reasonably be expected to subject such Leased Property, the Lender or such Lessor with respect to such Leased Property to any Claims or Liens under any Environmental Law which would have a materially adverse effect on the Lessor, the Lender or such Leased Property. (ii) Such Lessee has all Environmental Permits necessary to operate such Leased Property in accordance with Environmental Laws and is complying with and has at all times complied with all such Environmental Permits, except to the extent the failure to so comply would not have a Material Adverse Effect. (iii) No notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to such Lessee, no penalty has been assessed on such Lessee and no investigation or review is 18 pending or, to its best knowledge, threatened by any Governmental Authority or other Person in each case relating to the Leased Property with respect to any alleged violation or liability of such Lessee under any Environmental Law. No material notice, notification, demand, request for information, citations, summons, complaint or order has been issued or filed to or with respect to any other Person, no material penalty has been assessed on any other Person and no investigation or review is pending or, to its best knowledge, threatened by any Governmental Authority or other Person relating to such Leased Property with respect to any alleged material violation or liability under any Environmental Law by any other Person. (iv) To such Lessee's best knowledge, such Leased Property and each portion thereof are presently in compliance in all material respects with all Environmental Laws, and there are no present or past facts, circumstances, activities, events, conditions or occurrences regarding such Leased Property (including without limitation the release or presence of Hazardous Materials) that could reasonably be anticipated to (A) form the basis of a material Claim against such Leased Property, any Participant or such Lessee, (B) cause such Leased Property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law, (C) require the filing or recording of any notice or restriction relating to the presence of Hazardous Materials in the real estate records in the county or other appropriate municipality in which such Leased Property is located, or (D) prevent or interfere with the continued operation and maintenance of such Leased Property as contemplated by the Operative Documents. (j) Leased Property. The present condition and use of such Leased --------------- Property conforms in all material respects with all conditions or requirements of all existing permits and approvals issued with respect to such Leased Property, and the present use of such Leased Property and such Lessee's future intended use of such Leased Property under such Lease does not, in any material respect, violate any Applicable Law. No material notices, complaints of orders or violation or non-compliance have been issued or, to such Lessee's best knowledge, threatened or contemplated by any Governmental Authority with respect to such Leased Property or any present or intended future use thereof. All agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of such Leased Property as such Lessee intends to use such Leased Property under the related Lease and which are necessary to permit the lawful intended use and operation of all presently intended utilities, driveways, roads and other means of egress and ingress to and from the same have been, or to such Lessee's best knowledge will be, obtained and are in full force and 19 effect, and such Lessee has no knowledge of any pending modification or cancellation of any of the same. 4.2 Representations of the Lessor. Effective as of the date of execution ----------------------------- hereof, as of each Closing Date and as of each Funding Date, the Lessor and the General Partner represent and warrant to the Agent and the Lenders and, as to paragraph (f) below, also to the Lessees as follows: - - ------------- (a) Due Organization, etc. The General Partner is a corporation and --------------------- the Lessor is a limited partnership, each duly organized and validly existing in good standing under the laws of Pennsylvania and has full corporate power, authority and legal right to execute, deliver and perform its obligations under each Lease, this Participation Agreement and each other Operative Document to which it is or will be a party. (b) Due Authorization; Enforceability, etc. This Participation -------------------------------------- Agreement and each other Operative Document to which the Lessor or the General Partner is or will be a party have been or will be duly authorized, executed and delivered by or on behalf of the Lessor or the General partner, as the case may be, and are, or upon execution and delivery will be, legal, valid and binding obligations of the Lessor or the General Partner, as the case may be, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general equitable principles. (c) No Conflict. The execution and delivery by the Lessor and the ----------- General Partner of each Lease, this Participation Agreement and each other Operative Document to which the Lessor or the General Partner is or will be a party, are not or will not be, and the performance by the Lessor of its obligations under each will not be, inconsistent with their constituent documents, do not and will not contravene any Applicable Law and do not and will not contravene any provision of, or constitute a default under, any Contractual Obligation of Lessor or the General Partner, and the Lessor and the General Partner possesses all requisite regulatory authority to undertake and perform their obligations under the Operative Documents. (d) Litigation. There are no pending or, to the knowledge of the ---------- Lessor or the General Partner, threatened actions or proceedings against the Lessor or the General Partner before any court, arbitrator or administrative agency that would have a material adverse effect upon the ability of the Lessor or the General Partner to perform its obligations under this 20 Participation Agreement or any other Operative Documents to which it is or will be a party. (e) Lessor Liens. No Lessor Liens (other than those created by the ------------ Operative Documents) exist on any Closing Date on any Leased Property, or any portion thereof, and the execution, delivery and performance by the Lessor of this Participation Agreement or any other Operative Document to which it is or will be a party will not subject such Leased Property, or any portion thereof, to any Lessor Liens (other than those created by the Operative Documents). (f) Securities Act. The interest being acquired or to be acquired by -------------- the Lessor in the Lessor's Invested Amount and such Leased Property is being acquired for its own account, without any view to the distribution thereof or any interest therein, provided that the Lessor shall be entitled to assign, -------- convey or transfer its interest in accordance with Section 6.1. ----------- (g) Employee Benefit Plans. The Lessor is not and will not be making ---------------------- its investment hereunder, and is performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1)) of the Code. 4.3 Representations of each Lender. Effective as of the date of execution ------------------------------ hereof and as of each Closing Date, each Lender represents and warrants to the Lessor and to the Lessees as follows: (a) Securities Act. The interest being acquired or to be acquired by -------------- such Lender in the Funded Amounts is being acquired for its own account, without any view to the distribution thereof or any interest therein, provided that such -------- Lender shall be entitled to assign, convey or transfer its interest in accordance with Section 6.2. Such Lender is an accredited investor as that term ----------- is defined in Rule 501(a) under the Securities Act. (b) Employee Benefit Plans. Such Lender is not and will not be ---------------------- making its investment hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1)) of the Code. 21 5 COVENANTS OF THE LESSEES, THE GUARANTOR AND THE LESSOR 5.1 Qualification to do Business. Each Lessee shall remain qualified ---------------------------- to do business in the state where its Leased Property is located. 5.2 Further Assurances. Upon the written request of the Lessor or the ------------------ Agent, each Lessee, at its own cost and expense, will cause all financing statements (including precautionary financing statements), fixture filings and other similar documents, to be recorded or filed at such places and times in such manner, as may be necessary to preserve, protect and perfect the interest of the Lessor, the Agent and the Lenders in the related Leased Property as contemplated by the Operative Documents. 5.3 Financial Statements and Information. The Guarantor will furnish ------------------------------------ to each Lender: (a) as soon as available and in any event within 60 days after the end of the first, second and third quarterly accounting periods in each fiscal year of the Guarantor, copies of a consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of the end of such accounting period and of the related consolidated income and retained earnings statements of the Guarantor and its Consolidated Subsidiaries for the elapsed portion of the fiscal year ended with the last day of such accounting period, all in reasonable detail and stating in comparative form the amounts for the corresponding date and period in the previous fiscal year, and all prepared and certified by an authorized financial officer of the Guarantor, subject to year end audit adjustments; (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, copies of consolidated balance sheets of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and consolidated statements of income and retained earnings of the Guarantor and its Consolidated Subsidiaries for such fiscal year, in reasonable detail and stating in comparative form the figures as of the end of and for the previous fiscal year and certified by independent public accountants of recognized standing as may be selected by the Guarantor and satisfactory to the Agent; (c) concurrently with each of the financial statements furnished pursuant to the foregoing subsections (a) and (b), 22 a certificate of the Chairman of the Board, President, a Vice President of the Guarantor, or the Treasurer of the Guarantor, stating that in the opinion of the signer, based upon a review made under their supervision, the Guarantor has performed and observed all of, and the Guarantor is not in default in the performance or observance of any of, the terms and of the Operative Documents or, if the Guarantor shall be in default, specifying all such defaults, and the nature thereof, of which the signer of such certificate may have knowledge; (d) concurrently with their being filed, mailed or delivered, as applicable, copies of all proxy statements, financial statements and reports which the Guarantor shall send or make available generally to its shareholders, and copies of all reports which the Guarantor or any Subsidiary may be required to file with the Securities and Exchange Commission or any similar or corresponding governmental commission, department or an agency substituted therefor or with any securities exchange located in the United States of America; and (e) such other information relating to the business, affairs and financial condition of the Guarantor and its Subsidiaries as the Agent (when requested so to do by any Lender) may from time to time reasonably request. 5.4 Additional Required Appraisals. If, as a result of any change in ------------------------------ Applicable Law after the date hereof, an appraisal of all or any of any Leased Property is required during the Lease Term under Applicable Law with respect to any Participant's interest therein, in such Participant's Funded Amount or in the Operative Documents, then the related Lessee shall pay the cost of such appraisal. 5.5 Lessor's and General Partner's Covenants. The Lessor and the General ---------------------------------------- Partner covenant and agree that without the prior written consent of the Agent, the Lenders and the Guarantor, (i) they shall not amend their constituent documents and (ii) they shall not incur any indebtedness or other obligation or liability, or engage in any business or activity, other than the Transactions. 23 6 TRANSFERS BY LESSOR AND LENDERS 6.1 Lessor Transfers. The Lessor shall not assign, convey or otherwise ---------------- transfer all or any portion of its right, title or interest in, to or under any Leased Property (except pursuant to Article VI of the related Lease) or any of ---------- the Operative Documents without the prior written consent of the Lenders and the related Lessee. Any proposed transferee of the Lessor shall make the representation set forth in Section 4.2(g) to the other parties hereto. -------------- 6.2 Lender Transfers. Any Lender may grant participations in its ---------------- Commitment and sell Loans or participations in their Loan and Commitments, provided that the participation buyer shall not receive voting or waiver rights - - -------- except with respect to postponing maturities, decreasing interest rates, or increasing principal amounts. Assignments will be permitted only with the prior written consent of the Guarantor obtained 14 days prior to any proposed assignment. 7 INDEMNIFICATION 7.1 General Indemnification. The Lessees jointly and severally agree, ----------------------- whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee, on an After-Tax Basis, from and against, any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to any Closing Date or after the Lease Termination Date, in any way relating to or arising out of: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; or (b) any Land, any Building or any part thereof or interest therein; (c) the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, 24 maintenance, repair, alteration, modification, addition, substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to any Lease), return or other disposition of all or any part of any interest in any Leased Property or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to any Leased Property or any part thereof, (4) the making of any Alterations in violation of any standards imposed by any insurance policies required to be maintained by any Lessee pursuant to the Lease which are in effect at any time with respect to any Leased Property or any part thereof, (5) any Claim for patent, trademark or copyright infringement, and (6) Claims arising from any public improvements with respect to any Leased Property resulting in any change or special assessments being levied against any Leased Property or any Claim for utility "tap-in" fees; (d) the offer, issuance, sale or delivery of the Notes; (e) the breach or alleged breach by any Lessee of any representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (f) the retaining or employment of any broker, finder or financial advisor by any Lessee to act on its behalf in connection with this Participation Agreement, or the authorization of any broker or financial adviser retained or employed by any other Person so to act, or the incurring of any fees or commissions to which the Lessor, the Agent or any Lender might be subjected by virtue of their entering into the transactions contemplated by this Participation Agreement; (g) the existence of any Lien on or with respect to any Leased Property, the Construction, any Basic Rent or Supplemental Rent, title thereto, or any interest therein, including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any Leased Property or by reason of labor or materials furnished or claimed to have been furnished to any Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by any Lessee or 25 Alterations constructed by any Lessee, except in all cases the liens listed as items (a) and (b) in the definition of Permitted Liens; (h) the transactions contemplated by any Lessee hereby or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; or (i) any act or omission by any Lessee under any Purchase Agreement, and any breach of any requirement, condition, restriction or limitation in any Deed; provided, however, no Lessee shall be required to indemnify any Indemnitee under - - -------- ------- this Section 7.1 for any of the following: (1) any Claim to the extent that ----------- such claim results from the willful misconduct or gross negligence of such Indemnitee, (2) any Claim resulting from Lessor Liens which the Lessor Indemnitee Group is responsible for discharging under the Operative Documents, and (3) any Claim related to any Leased Property to the extent attributable to acts or events occurring after the expiration of the Lease Term so long as the Lessor, the Agent and the Participants are not exercising remedies against the Lessee in respect of the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under any Lease or any other Operative Document. 7.2 Environmental Indemnity. Without limitation of Section 7.1, the ----------------------- ----------- Lessees jointly and severally agree to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to any loss of value of any Leased Property), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable costs and expenses incurred in connection therewith (including, but not limited to, reasonable attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising directly or indirectly, in whole or in part, out of 26 (i) the presence on or under any Land of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under, from or onto any Land, (ii) any activity, including, without limitation, construction, carried on or undertaken on or off any Land, and whether by any Lessee, or any predecessor in title or any employees, agents, contractors or subcontractors of any Lessee, or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under any Land, (iii) loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, (iv) any claim concerning lack of compliance with Environmental Laws, or any act or omission causing an environmental condition that requires remediation or would allow any governmental agency to record a lien or encumbrance on the land records, or (v) any residual contamination on or under any Land, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; in any case with respect to the matters described in the foregoing clauses (i) ----------- through (v) that arise or occur --- (w) prior to or during the Lease Term, (x) at any time during which any Lessee or any Affiliate thereof owns any interest in or otherwise occupies or possesses any Leased Property or any portion thereof, 27 (y) during any period after and during the continuance of any Event of Default or (z) during any period of three years following the date an Indemnitee takes possession of any Leased Property, provided, however, no Lessee shall be required to indemnify any Indemnitee under - - -------- ------- this Section 7.2 for any Claim to the extent a court of competent jurisdiction ----------- shall have determined that such Claim results from the willful misconduct or gross negligence of such Indemnitee. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under any Lease or any other Operative Document. 7.3 Proceedings in Respect of Claims. With respect to any amount that any -------------------------------- Lessee is requested by an Indemnitee to pay by reason of Section 7.1 or 7.2, ----------- --- such Indemnitee shall, if so requested by such Lessee and prior to any payment, submit such additional information to such Lessee as such Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify such Lessee of the commencement thereof, and such Lessee shall be entitled, at its expense, to participate in, and, to the extent that such Lessee desires to, assume and control the defense thereof; provided, however, that such Lessee shall have -------- ------- acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and, such Lessee shall keep such Indemnitee fully apprised of the status of such action suit or proceeding and shall provide such Indemnitee with all information with respect to such action suit or proceeding as such Indemnitee shall reasonably request, and, provided -------- further, that such Lessee shall not be entitled to assume and control the - - ------- defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any possibility of imposition of criminal liability or any material risk of material civil liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Property or any part thereof unless such Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by such Lessee which such Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) an Event of Default has occurred and is continuing. The Indemnitee may participate 28 in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by such Lessee in accordance with the foregoing. Such Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 7.1 or 7.2 without ---------- ----------- the prior written consent of the related Indemnitee, which consent shall not be unreasonably withheld. Unless an Event of Default shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 7.1 or 7.2 without ----------- --- the prior written consent of the Lessees, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 7.1 or 7.2 with respect to such Claim. ----------- --- Upon payment in full of any Claim by the Lessees pursuant to Section 7.1 or ----------- 7.2 to or on behalf of an Indemnitee, the Lessees, without any further action, - - --- shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be reasonably necessary to preserve any such claims and otherwise cooperate with the Lessees and give such further assurances as are reasonably necessary or advisable to enable the Lessees vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 7.1 or 7.2 shall be ----------- --- paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. 7.4 General Tax Indemnity. (a) Tax Indemnity. Except as otherwise --------------------- ------------- provided in this Section 7.4, each Lessee shall pay on an After-Tax Basis, ----------- and on written demand shall indemnify and hold each Tax Indemnitee harmless from and against, any and all fees (including, without limitation, documentation, recording, license and registration fees), taxes (including, without limitation, income, gross receipts, sales, rental, use, turnover, value-added, property, excise and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions thereto (any of the foregoing being referred to herein as "Taxes" and individually as a "Tax" (for the purposes of this Section ----- --- ------- 7.4, the definition of "Taxes" includes amounts imposed on, incurred by, or - - --- asserted against each Tax Indemnitee as the result of any prohibited transaction, within 29 the meaning of Section 406 or 407 of ERISA or Section 4975(c) of the Code, arising out of the transactions contemplated hereby or by any other Operative Document)) imposed on or with respect to any Tax Indemnitee, any Lessee, any Leased Property or any portion thereof or any Land, or any sublessee or user thereof, by the United States or by any state or local government or other taxing authority in the United States in connection with or in any way relating to (i) the acquisition, financing, mortgaging, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, maintenance, repair, storage, transfer of title, redelivery, use, operation, condition, sale, return or other application or disposition of all or any part of any Leased Property or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon, (ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from or received with respect to any Leased Property or any part thereof, or any interest therein or any applications or dispositions thereof, (iii) any other amount paid or payable pursuant to the Notes or any other Operative Documents, (iv) any Leased Property, any Land or any part thereof or any interest therein (including, without limitation, all assessments payable in respect thereof, including, without limitation, all assessments noted on the related Title Policy), (v) all or any of the Operative Documents, any other documents contemplated thereby, any amendments and supplements thereto, and (vi) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents. (a) Exclusions from General Tax Indemnity. Section 7.4(a) shall not ------------------------------------- -------------- apply to: (i) Taxes on, based on, or measured by or with respect to net income of the Lessor and the Lenders (including, without limitation, minimum Taxes, capital gains Taxes, Taxes on or measured by items of tax preference or alternative minimum Taxes) other than (A) any such Taxes that are, or are in the nature of, sales, use, license, rental or property Taxes, and (B) withholding Taxes imposed by the United States or any state in which Leased Property is located (i) on payments with respect to the Notes, to the extent imposed by reason of a change in Applicable Law occurring after the date on which the holder of such Note became the holder of such Note or (ii) on Rent, to the extent the net payment of Rent after deduction of such withholding Taxes would be less than amounts currently payable with respect to the Notes; 30 (ii) Taxes on, based on, or in the nature of or measured by Taxes on doing business, business privilege, capital, capital stock, net worth, or mercantile license or similar taxes other than (A) any increase in such Taxes imposed on such Tax Indemnitee by any state in which Leased Property is located, net of any decrease in such taxes realized by such Tax Indemnitee, to the extent that such tax increase would not have occurred if on each Funding Date the Lessor and the Lenders had advanced funds to such Lessee in the form of loans secured by the Leased Property in an amount equal to the Funded Amounts funded on such Funding Date, with debt service for such loans equal to the Basic Rent payable on each Payment Date and a principal balance at the maturity of such loans in a total amount equal to the Funded Amounts at the end of the Lease Term, or (B) any Taxes that are or are in the nature of sales, use, rental, license or property Taxes; (iii) Taxes that are based on, or measured by, the fees or other compensation received by a Person acting as Agent (in its individual capacities) or any Affiliate of any thereof for acting as trustee under the Loan Agreement; (iv) Taxes that result from any act, event or omission, or are attributable to any period of time, that occurs after the earliest of (A) the expiration of the Lease Term with respect to any Leased Property and, if such Leased Property is required to be returned to the Lessor in accordance with related Lease, such return and (B) the discharge in full of such Lessee's obligations to pay the Lease Balance, or any amount determined by reference thereto, with respect to any Leased Property and all other amounts due under the related Lease, unless such Taxes relate to acts, events or matters occurring prior to the earliest of such times or are imposed on or with respect to any payments due under the Operative Documents after such expiration or discharge; (v) Taxes imposed on a Tax Indemnitee that result from any voluntary sale, assignment, transfer or other disposition by such Tax Indemnitee or any related Tax Indemnitee of any interest in any Leased Property or any part thereof, or any interest therein or any interest or obligation arising under the Operative Documents or any Note, or from any sale, assignment, transfer or other disposition of any interest in such Tax Indemnitee or any related Tax Indemnitee, it being understood that each of the following shall not be considered a voluntary sale: (A) any substitution, replacement or removal of any of the property by any Lessee, (B) any sale or transfer resulting from the 31 exercise by any Lessee of any termination option, any purchase option or sale option, (C) any sale or transfer while an Event of Default shall have occurred and be continuing under any Lease, and (D) any sale or transfer resulting from the Lessor's exercise of remedies under any Lease; (vi) any Tax which is being contested in accordance with the provisions of Section 7.4(c), during the pendency of such contest; -------------- (vii) any Tax that is imposed on a Tax Indemnitee as a result of such Tax Indemnitee's gross negligence or willful misconduct (other than gross negligence or willful misconduct imputed to such Tax Indemnitee solely by reason of its interest in any Leased Property); (viii) any Tax that results from a Tax Indemnitee engaging, with respect to any Leased Property, in transactions other than those permitted by the Operative Documents; and (ix) to the extent any interest, penalties or additions to tax result in whole or in part from the failure of a Tax Indemnitee to file a return that it is required to file in a proper and timely manner, unless such failure (A) results from the transactions contemplated by the Operative Documents in circumstances where any Lessee did not give timely notice to such Tax Indemnitee (and such Tax Indemnitee otherwise had no actual knowledge) of such filing requirement that would have permitted a proper and timely filing of such return, or (B) results from the failure of any Lessee to supply information necessary for the proper and timely filing of such return that was not in the possession of such Tax Indemnitee. (b) Contests. If any claim shall be made against any Tax Indemnitee -------- or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Taxes as to which any Lessee may have an indemnity obligation pursuant to Section 7.4, or if any Tax Indemnitee shall ----------- determine that any Taxes as to which any Lessee may have an indemnity obligation pursuant to Section 7.4 may be payable, such Tax Indemnitee shall promptly ----------- notify such Lessee. Such Lessee shall be entitled, at its expense, to participate in, and, to the extent that such Lessee desires to, assume and control the defense thereof; provided, however, that such Lessee shall have -------- ------- acknowledged in writing its obligation to fully indemnify such Tax Indemnitee in respect of such action, suit or proceeding if the contest is unsuccessful; and, provided further, - - -------- ------- 32 that such Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding (but the Tax Indemnitee shall then contest, at the sole cost and expense of such Lessee, on behalf of such Lessee) if and to the extent that, (A) in the reasonable opinion of such Tax Indemnitee, such action, suit or proceeding involves any meaningful risk of imposition of criminal liability or any material risk of material civil liability on such Tax Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Leased Property or any part thereof unless such Lessee shall have posted a bond or other security satisfactory to the relevant Tax Indemnitees in respect to such risk, (B) such proceeding involves Claims not fully indemnified by such Lessee which such Lessee and the Tax Indemnitee have been unable to sever from the indemnified claim(s), (C) an Event of Default has occurred and is continuing, (D) such action, suit or proceeding involves matters which extend beyond or are unrelated to the Transaction and if determined adversely could be materially detrimental to the interests of such Tax Indemnitee notwithstanding indemnification by such Lessee or (E) such action, suit or proceeding involves the federal or any state income tax liability of the Tax Indemnitee. With respect to any contests controlled by a Tax Indemnitee, (i) if such contest relates to the federal or any state income tax liability of such Tax Indemnitee, such Tax Indemnitee shall be required to conduct such contest only if such Lessee shall have provided to such Tax Indemnitee an opinion of independent tax counsel selected by the Tax Indemnitee and reasonably satisfactory to such Lessee stating that a reasonable basis exists to contest such claim or (ii) in the case of an appeal of an adverse determination of any contest relating to any Taxes, an opinion of such counsel to the effect that such appeal is more likely than not to be successful, provided, however, such Tax Indemnitee shall in no -------- ------- event be required to appeal an adverse determination to the United States Supreme Court. The Tax Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by such Lessee in accordance with the foregoing. Each Tax Indemnitee shall at such Lessee's expense supply such Lessee with such information and documents reasonably requested by such Lessee as are necessary or advisable for such Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 7.4. Unless an Event of ----------- Default shall have occurred and be continuing, no Tax Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under this Section 7.4 without the prior written ----------- consent of such Lessee, which consent shall not be unreasonably withheld, unless such Tax Indemnitee 33 waives its right to be indemnified under this Section 7.4 with respect to such ----------- Claim. Notwithstanding anything contained herein to the contrary, (a) a Tax Indemnitee will not be required to contest (and such Lessee shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Tax Indemnitee shall waive its right to indemnification under this Section 7.4 ----------- with respect to such claim (and any related claim with respect to other taxable years the contest of which is precluded as a result of such waiver) and (b) no Tax Indemnitee shall be required to contest any claim if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely, unless there has been a change in law which in the opinion of Tax Indemnitee's counsel creates substantial authority for the success of such contest. Each Tax Indemnitee and each Lessee shall consult in good faith with each other regarding the conduct of such contest controlled by either. (c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee shall ----------------------------- obtain a credit or refund of any Taxes paid by a Lessee pursuant to this Section ------- 7.4 or (y) by reason of the incurrence or imposition of any Tax for which a Tax - - --- Indemnitee is indemnified hereunder or any payment made to or for the account of such Tax Indemnitee by such Lessee pursuant to this Section 7.4, such Tax ----------- Indemnitee at any time realizes a reduction in any Taxes for which Lessee is not required to indemnify such Tax Indemnitee pursuant to this Section 7.4, which ----------- reduction in Taxes was not taken into account in computing such payment by such Lessee to or for the account of such Tax Indemnitee, then such Tax Indemnitee shall promptly pay to such Lessee (xx) the amount of such credit or refund, together with the amount of any interest received by such Tax Indemnitee on account of such credit or refund or (yy) an amount equal to such reduction in Taxes, as the case may be; provided that no such payment shall be made so long -------- as an Event of Default shall have occurred and be continuing and, provided, -------- further, that the amount payable to such Lessee by any Tax Indemnitee pursuant - - ------- to this Section 7.4(c) shall not at any time exceed the aggregate amount of all -------------- indemnity payments made by such Lessee under this Section 7.4 to such Tax ----------- Indemnitee with respect to the Taxes which gave rise to the credit or refund or with respect to the Tax which gave rise to the reduction in Taxes less the amount of all prior payments made to such Lessee by such Tax Indemnitee under this Section 7.4(d). Each Tax Indemnitee agrees to act in good faith to claim -------------- such refunds and other available Tax benefits, and take such other actions as may be reasonable to minimize any payment due from such Lessee pursuant to this Section 7.4. The disallowance or reduction of any credit, refund or other tax - - ----------- savings with respect to which a Tax Indemnitee has made a payment to such 34 Lessee under this Section 7.4(d) shall be treated as a Tax for which such Lessee -------------- is obligated to indemnify such Tax Indemnitee hereunder without regard to Section 7.4(b) hereof. - - -------------- (d) Payments. Any Tax indemnifiable under this Section 7.4 shall be -------- ----------- paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 7.4 shall be paid within thirty (30) days after ----------- receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before the date that the relevant Taxes are due. Any payments made pursuant to Section 7.4 shall be made to the Tax Indemnitee entitled thereto or such Lessee, - - ----------- as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Participation Agreement. Upon the request of any Tax Indemnitee with respect to a Tax that any Lessee is required to pay, such Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for such Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. (e) Reports. If any Lessee knows of any report, return or statement ------- required to be filed with respect to any Taxes that are subject to indemnification under this Section 7.4, such Lessee shall, if such Lessee is ----------- permitted by Applicable Law, timely file such report, return or statement (and, to the extent permitted by law, show ownership of the applicable Leased Property in such Lessee); provided, however, that if such Lessee is not permitted by -------- ------- Applicable Law or does not have access to the information required to file any such report, return or statement, such Lessee will promptly so notify the appropriate Tax Indemnitee, in which case Tax Indemnitee will file such report. In any case in which the Tax Indemnitee will file any such report, return or statement, such Lessee shall, upon written request of such Tax Indemnitee, prepare such report, return or statement for filing by such Tax Indemnitee or, if such Tax Indemnitee so requests, provide such Tax Indemnitee with such information as is reasonably available to such Lessee. (f) Verification. At the applicable Lessee's request, the amount of ------------ any indemnity payment by such Lessee or any payment by a Tax Indemnitee to such Lessee pursuant to this Section 7.4 shall be verified and certified by an ----------- independent public accounting firm selected by such Lessee and reasonably acceptable 35 to the Tax Indemnitee. Unless such verification shall disclose an error in Lessee's favor of 10% or more, the costs of such verification shall be borne by such Lessee. In no event shall such Lessee have the right to review the Tax Indemnitee's tax returns or receive any other confidential information from the Tax Indemnitee in connection with such verification. The Tax Indemnitee agrees to cooperate with the independent public accounting firm performing the verification and to supply such firm with all information reasonably necessary to permit it to accomplish such verification, provided that the information -------- provided to such firm by such Tax Indemnitee shall be for its confidential use. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to this Participation Agreement and that matters of interpretation of this Participation Agreement are not within the scope of the independent accounting firm's responsibilities. 36 7.5 Increased Costs, etc. --------------------- (a) Notwithstanding any other provisions herein, if any requirement of law, regulation, order or decree or any change therein or in the interpretation or application thereof shall make it unlawful for the Lenders to make or maintain Loans at a rate based on the LIBOR Rate as contemplated by the Operative Documents, the Commitments of the Lenders hereunder to make Loans at a rate based on the LIBOR Rate shall forthwith be canceled and Loans of the Lenders then outstanding, if any, shall, if and when required by such law, be converted automatically to bear interest at the Alternative Rate. If any such conversion of the interest rate applicable to Loans is made on a day which is not the end of a Rent Period, the related Lessee shall pay to the Agent for the account of the Lenders on such conversion date interest at the related LIBOR Rate plus 0.75% per annum on the affected Loans to the date of such automatic conversion and, upon the request of any Lender, shall pay to the Agent for the account of such Lender such other amount or amounts as may be necessary to compensate the Lender for any loss or expense which the Lender deems to be material as determined by the Lender and which has been sustained or incurred by such Lender in respect of such Loans as a result of such conversion. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by a Lender to the related Lessee shall be conclusive absent manifest error. As soon as practicable, the Agent or any Lender shall notify the related Lessee of any event of which it has knowledge occurring after the date of this Participation Agreement, which will cause or is likely to cause a conversion of the interest rate applicable to Loans pursuant to this Section ------- 7.5, and the Agent or such Lender shall designate a different funding office or - - --- take such other action to avoid the need for, or to reduce the amount of compensation related to, such conversion of the interest rate applicable to Loans which would not, in the reasonable opinion of the Agent or such Lender, be otherwise disadvantageous to the Agent or the Lenders. (b) If Regulation D of the Board of Governors of the Federal Reserve System, as the same may be amended or supplemented from time to time, or in the event that at any time or from time to time any change occurring after the date hereof in any requirement of law, regulation, order or decree or in the interpretation or application thereof or compliance by a Lender with any request or directive (whether or not having the force of law) occurring after the date hereof from any central bank or monetary authority or other governmental authority: (1) does or shall subject such Lender to any tax of any kind whatsoever with respect to the 37 Operative Documents or any Loan Amount, or change the basis of taxation of payments to such Lender of principal, fees, interest, yield or other amount payable hereunder (except for changes in the rate of tax on general income and similar taxes on the overall net income of such Operative Documents in any jurisdiction); or (2) does or shall impose, modify or hold applicable or change any reserve, special deposit, Federal Deposit Insurance Corporation premium, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the LIBOR Rate under the Operative Documents; (3) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing, converting or maintaining advances or extensions of credit as Loans bearing interest at a rate based on the LIBOR Rate or to reduce any amount receivable in respect of such Loans, then, in any such case, the related Lessee shall promptly pay to such Lender, such additional amount which will compensate the Lender for such additional cost or reduced amount receivable which the Lender deems to be material as determined by the Lender with respect to the Operative Documents or its Loans. (c) If any Lender shall have determined that compliance by such Lender with any applicable law, governmental rule, regulation or order regarding capital adequacy of banks or bank holding companies, or any interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender with any request or directive regarding capital adequacy (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of such Lender's obligations hereunder to a level below that which such Lender could have achieved but for such compliance (taking into consideration such Lender's policies with respect to capital adequacy immediately before such compliance and assuming that such Lender's capital was fully utilized prior to such 38 compliance) by an amount deemed by such Lender to be material, then, upon demand, the related Lessee shall immediately pay to such Lender as are so affected such additional amounts as shall be sufficient to compensate such Lenders for such reduced return, together with interest on each such amount from four Business Days after the date demanded until payment in full thereof at the rate of interest of 3% per annum over the Alternative Rate. A certificate of an officer of any such Lender setting forth the amount to be paid to it and the basis for computation thereof hereunder shall, in the absence of manifest error, be conclusive. In determining such amount, such Lender may use any reasonable averaging and attribution methods. The related Lessee may at its option elect to seek a substitute Lender (which may be one or more of the Lenders and which shall be reasonably satisfactory to the related Lessee and the Agent) to purchase the portion of the Loans then held by, and to assume the Commitment hereunder of, such Lender. Until such substitution shall be consummated, the related Lessee shall continue to pay to such Lender being replaced any amounts required by this Agreement, including this Section 7.5(c). Upon any such -------------- substitution, the related Lessee (or such substitute Lender, as applicable) shall pay to such Lender being replaced all principal, interest and other amounts accrued or owing to such Lender hereunder through the date of substitution. No liability or cost pursuant to this Section 7.5(c) shall be -------------- incurred by the related Lessee prior to, or relating to any period before, the date that the related Lessee receives a demand from a Lender under this Section ------- 7.5(c). - - ------ (d) If a Lender becomes entitled to claim any additional amounts pursuant to this Section 7.5, it shall promptly notify the related Lessee ----------- thereof. A certificate as to any additional amounts payable pursuant to the foregoing submitted by a Lender to the related Lessee shall be conclusive absent manifest error. For purposes of the application of this Section 7.5, and in ----------- calculating the amount necessary to compensate such Lender for any imposition of or increase in capital requirements or taxes hereunder, such Lender shall determine the applicability of this provision and calculate the amount payable to it hereunder in a manner consistent with the manner in which it shall apply and calculate similar compensation payable to it by other borrowers having provisions in their credit agreements comparable to this Section. (e) If any Lender shall, at any time, incur costs associated with reserve requirements pursuant to Regulation D in connection with the making or maintenance of any Loan, then the related Lessee shall immediately pay such costs to such Lender in accordance with Section 7.5(d). -------------- 39 (f) The related Lessee shall indemnify each Lender against any loss, funding cost, expense or loss of earnings, which such Lender, may, as a consequence of the related Lessee's failure to accept Loans requested at any time, failure to make a payment on the due date thereof or the payment, prepayment or conversion of any Loans subject to LIBOR Rate options hereunder on a day other than a Payment Date, sustain or incur in liquidating or employing deposits from third parties acquired to effect, fund or maintain such or any part thereof. If a Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Agent, which shall promptly notify the related Lessee thereof. (g) If any Lender has demanded compensation under this Section, the related Lessee shall have the right, after consultation with the Agent, to seek a substitute bank or banks (which may be one or more of the Lenders) to purchase the Loans for cash without recourse to such Lender and assume the Commitment of such Lender, which shall thereupon be released from all of its obligations hereunder. 7.6 End of Term Indemnity. In the event that at the end of the Lease Term --------------------- for a Leased Property: (i) The related Lessee elects the option set forth in Section 15.6 of the related Lease, and (ii) after the Lessor receives the sales proceeds from such Leased Property under Section 15.6 or 15.7 of such Lease, together with such Lessee's payment of the Recourse Deficiency Amount, the Lessor shall not have received the entire Lease Balance, then the Lessor or the Agent may obtain, at such Lessee's sole cost and expense, a report from the Appraiser (or, if the Appraiser is not available, another appraiser reasonably satisfactory to the Lessor or the Agent, as the case may be) in form and substance satisfactory to Lessor and the Agent (the "Report") to establish the ------ reason for any decline in value of such Leased Property from that anticipated for such date in the Appraisal delivered on the Closing Date. Such Lessee shall promptly reimburse the Lessor for the amount equal to such decline in value to the extent that the Report indicates that such decline was due to (w) extraordinary use, failure to maintain, to repair, to restore, to rebuild or to replace, failure to comply with all Applicable Laws, failure to use, workmanship, method of installation or removal or maintenance, repair, rebuilding or replacement, or any other cause or condition within the power of such Lessee to control or effect resulting in the Building failing to be a distribution center of the type and quality contemplated by the Appraisal (excepting in each case ordinary wear and tear), or 40 (x) any Alteration made to, or any rebuilding of, such Leased Property or any part thereof by such Lessee, or (y) any restoration or rebuilding carried out by such Lessee or any condemnation of any portion of such Leased Property pursuant to Article XI of such Lease, or (z) any use of such Leased Property or any part thereof by such Lessee other than as permitted by such Lease, or any act or omission constituting a breach of any requirement, condition, restriction or limitation set forth in the related Deed or the related Purchase Agreement. 8 MISCELLANEOUS 8.1 Survival of Agreements. The representations, warranties, covenants, ---------------------- indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery and the termination or expiration of this Participation Agreement and any of the Operative Documents, the transfer of any Land to the Lessor as provided herein (and shall not be merged into any Deed), any disposition of any interest of the Lessor in any Leased Property, the purchase and sale of the Notes, payment therefor and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Operative Documents and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. 8.2 Notices. Unless otherwise specified herein, all notices, requests, ------- demands or other communications to or upon the respective parties hereto shall be addressed to such parties at the addresses therefor as set forth in Schedule -------- 8.2, as such other address as any such party shall specify to the other parties - - --- hereto, and shall be deemed to have been given when received. 8.3 Counterparts. This Participation Agreement may be executed by the ------------ parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 8.3 8.4 Amendments. No Operative Document nor any of the terms thereof may be ---------- terminated, amended, supplemented, waived or modified with respect to any Lessee or any Participant, except 41 (a) in the case of a termination, amendment, supplement, waiver or modification to be binding on any Lessee, with the written agreement or consent of such Lessee, and (b) in the case of a termination, amendment, supplement, waiver or modification to be binding on the Participants, with the written agreement or consent of the Required Participants; provided, however, that -------- ------- (x) notwithstanding the foregoing provisions of this Section 8.4, the ----------- consent of each Participant affected thereby shall be required for any amendment, modification or waiver directly: (i) modifying any of the provisions of this Section 8.4, changing the ----------- definition of "Required Participants", or increasing the Commitment of such --------------------- Participant; (ii) amending, modifying, waiving or supplementing any of the provisions of Section 3 of the Loan Agreement or the representations of such Participant in Section 4.2 or 4.3 or the covenants of such Participant ----------- --- in Section 6 of this Participation Agreement; --------- (iii) reducing any amount payable to such Participant under the Operative Documents or extending the time for payment of any such amount, including, without limitation, any Rent, any Funded Amount, any fees, any indemnity, the Lease Balance, any Participant Balance, Recourse Deficiency Amount, interest or Yield; or (iv) consenting to any assignment of any Lease, releasing any of the collateral assigned to the Agent and the Lenders pursuant to any Mortgage and any Assignment of Lease and Rents (but excluding a release of any rights that the Lenders may have in any Leased Property, or the proceeds thereof as contemplated in the definition of "Release Date"), releasing any Lessee from its obligations in respect of the payments of Rent and the Lease Balance, releasing any Guarantor from its obligations under the Guaranty or the other Operative Documents or changing the absolute and unconditional character of any such obligation; and (y) no such termination, amendment, supplement, waiver or modification shall, without the written agreement or consent of the Lessor and the Lender, be made to any Lease; (z) subject to the foregoing clauses (x) and (y), the Lessor, the ----------- --- Agent and the Lenders may amend, supplement, waive or modify any terms of the Loan Agreement, the Notes, the Mortgages and the Assignments of Lease and Rents without the consent of the 42 Lessees so long as such amendment, supplement, waiver or modification does not reduce the Commitments or increase any Rent or the Lease Balance or accelerate the scheduled date of any payment of Rent or the Lease Balance, provided that, -------- so long as no Event of Default has occurred and is continuing, the Loan Agreement shall not be modified in a manner adversely affecting any Lessee without the consent of such Lessee (such consent not to be unreasonably withheld or delayed); the Lessor and the Lessees may not amend, supplement, waive or modify any terms of any Lease or any Security Agreement and Assignment without the Agent and the consent of the Lenders. 8.5 Headings, etc. The Table of Contents and headings of the various -------------- Articles and Sections of this Participation Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 8.6 Parties in Interest. Except as expressly provided herein, none of the ------------------- provisions of this Participation Agreement is intended for the benefit of any Person except the parties hereto, their successors and permitted assigns. 8.7 GOVERNING LAW. THIS PARTICIPATION AGREEMENT HAS BEEN DELIVERED IN, ------------- AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 8.8 Expenses. Whether or not the transactions herein contemplated are -------- consummated, the Lessees jointly and severally agree to pay, as Supplemental Rent, all reasonable and documented out-of-pocket costs and expenses of the Lessor, the General Partner, the Agent and the Lenders in connection with the preparation, execution and delivery of the Operative Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the fees and disbursements of Mayer, Brown & Platt) and of the Lessor, the Agent and the Lenders in connection with the enforcement of the Operative Documents and the documents and instruments referred to therein (including, without limitation, the fees and disbursements of counsel for the Lessor, the Agent and the Lenders) and all reasonable organizational and operational expenses of the Lessor and the General Partner incurred during the term of the transactions hereunder, including, without limitation, capital stock taxes, franchise fees, and corporate and partnership qualification and filing fees. 43 8.9 Severability. Any provision of this Participation Agreement that is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.10 Liabilities of the Participants. No Participant shall have any ------------------------------- obligation to any other Participant or to any Lessee with respect to the transactions contemplated by the Operative Documents except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. Lender shall not have any obligation or duty to any Lessee, any other Participants or any other Person with respect to the transactions contemplated hereby except to the extent expressly set forth in this Participation Agreement or the Loan Agreement. 8.11 Submission to Jurisdiction; Waivers. Each party hereto hereby ----------------------------------- irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Participation Agreement or any other Operative Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Georgia, the courts of the United States of America for the Northern District of Georgia, and appellate courts from any thereof; (ii) consents that any such action or proceedings may be brought to such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Schedule 8.2 or at such ------------ other address of which the other parties hereto shall have been notified pursuant to Section 8.2; and ----------- 44 (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. 8.12 Liabilities of the Agent. The Agent shall have no duty, liability or ------------------------ obligation to any party to this Participation Agreement with respect to the transactions contemplated hereby except those duties, liabilities or obligations expressly set forth in this Participation Agreement or the Loan Agreement, and any such duty, liability or obligations of the Agent shall be as expressly limited by this Participation Agreement or the Loan Agreement, as the case may be. 45 IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. UNISOURCE WORLDWIDE, INC., as Lessee By: /s/ Signature ---------------------------- Title: [Title] ------------------------- PARTICIPATION AGREEMENT S-1 AOP INC., as Lessee By: /s/ Signature ---------------------------- Title: [Title] ------------------------- PARTICIPATION AGREEMENT S-2 ALCO STANDARD CORPORATION, as Guarantor By:____________________________ Title:_________________________ PARTICIPATION AGREEMENT S-3 PPI SPV, L.P., as Lessor By: Pitcairn SPV, Inc., as General Partner By:____________________________ Title:_________________________ PARTICIPATION AGREEMENT S-4 PITCAIRN SPV, INC., as General Partner By:____________________________ Title:_________________________ PARTICIPATION AGREEMENT S-5 TRUST COMPANY BANK, as Lender and Agent By:____________________________ Title:_________________________ By:____________________________ Title:_________________________ PARTICIPATION AGREEMENT S-6 SCHEDULE 1 INITIAL LAND INTERESTS SCHEDULE 2.2 PAYMENT INSTRUCTIONS AND AMOUNT OF EACH PARTICIPANT'S COMMITMENT Lessor Commitment Percentage: 3% Trust Company Bank Commitment Percentage: 97%
2 SCHEDULE 8.2 ADDRESSES FOR NOTICES Guarantor and Lessees: 825 Duportail Road Wayne, Pennsylvania 19087 Attn: Real Estate Department copy to: Legal Department General Partner and Lessor: 3220 Tillman Drive Bensalem, Pennsylvania 19020 Lender and Agent: Trust Company Bank 25 Park Place Atlanta, Georgia 30303 Attn: Center 118/Southeastern Corporate APPENDIX A to Participation Agreement, Lease and Loan Agreement ------------------------ DEFINITIONS AND INTERPRETATION A. Interpretation. In each Operative Document, unless a clear contrary -------------- intention appears: (i) the singular number includes the plural number and vice versa; ---- ----- (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) reference in any Operative Document to any Article, Section, ------- ------- Appendix, Schedule or Exhibit means such Article or Section thereof or -------- -------- ------- ------- ------- Appendix, Schedule or Exhibit thereto; -------- -------- ------- (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other ------- ------- provision hereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; (ix) "or" is not exclusive; and (x) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". B. Accounting Terms. In each Operative Document, unless expressly ---------------- otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. C. Conflict in Operative Documents. If there is any conflict between any ------------------------------- Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control. D. Legal Representation of the Parties. The Operative Documents were ----------------------------------- negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. E. Defined Terms. Unless a clear contrary intention appears, terms ------------- defined herein have the respective indicated meanings when used in each Operative Document. "A Loan" means the A Percentage of Loans made by Lender pursuant to the ------ Loan Agreement and the Participation Agreement. "A Note" is defined in Section 2.2 of the Loan Agreement. ------ "A Percentage" means 85%. ------------ "Address" means with respect to any Person, its address set forth in ------- Schedule 8.2 to the Participation Agreement or such other address as it shall have identified to the parties to the Participation Agreement in writing. "Affected Participant" is defined in Section 7.5 of the Participation -------------------- Agreement. -2- "Affiliate" of any Person shall mean any other Person directly or --------- indirectly controlling, controlled by or under common control with, such Person. For purposes of this definition, the term "control" (including the correlative ------- meanings of the terms "controlling," "controlled by" and "under common control ----------- ------------- -------------------- with"), as used with respect to any Person, shall mean the possession, directly - - ---- or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise, provided (but without limiting the foregoing) that no pledge of voting securities of any Person without the current right to exercise voting rights with respect thereto shall by itself be deemed to constitute control over such Person. "After-Tax Basis" means (a) with respect to any payment to be received by --------------- an Indemnitee (which, for purposes of this definition, shall include any Tax Indemnitee), the amount of such payment supplemented by a further payment or payments so that, after deducting from such payments the amount of all Taxes (net of any current credits, deductions or other Tax benefits arising from the payment by the Indemnitee of any amount, including Taxes, for which the payment to be received is made) imposed currently on the Indemnitee by any Governmental Authority or taxing authority with respect to such payments, the balance of such payments shall be equal to the original payment to be received and (b) with respect to any payment to be made by any Indemnitee, the amount of such payment supplemented by a further payment or payments so that, after increasing such payment by the amount of any current credits or other Tax benefits realized by the Indemnitee under the laws of any Governmental Authority or taxing authority resulting from the making of such payments, the sum of such payments (net of such credits or benefits) shall be equal to the original payment to be made; provided, however, for the purposes of this definition, and for purposes of any - - -------- ------- payment to be made to either a Lessee or Tax Indemnitee on an after-tax basis, it shall be assumed that (i) federal, state and local taxes are payable at the highest combined marginal federal and state statutory income tax rate (taking into account the deductibility of state income taxes for federal income tax purposes) applicable to corporations from time to time and (ii) such Indemnitee or Lessee has sufficient income to utilize any deductions, credits (other than foreign tax credits, the use of which shall be determined on an actual basis) and other Tax benefits arising from any payments described in clause (b) of this definition. "Agent" means Trust Company Bank, a Georgia banking corporation, in its ----- capacity as agent under the Loan Agreement. -3- "Alco" means Alco Standard Corporation, an Ohio corporation. ---- "Alterations" means, with respect to any Leased Property, fixtures, ----------- alterations, improvements, modifications and additions to such Leased Property. "Alternative Rate" means, for any period, an interest rate per annum equal ---------------- to the rate of interest most recently announced by the Agent in Atlanta, Georgia from time to time as its "reference rate" for calculating interest on certain loans, which need not be the lowest interest rate charged by such bank. If such reference rate or equivalent of such bank changes from time to time after the date hereof, the Alternative Rate shall be automatically increased or decreased, as the case may be, without notice to the Lessees as of the effective time of each change in such reference rate or equivalent. "AOP" means AOP Inc., a Delaware corporation. --- "Applicable Law" means all existing and future applicable laws (including -------------- Environmental Laws), rules, regulations (including proposed, temporary and final income tax regulations), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Governmental Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi- judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands) and those pertaining to the construction, use or occupancy of any Leased Property) and any restrictive covenant or deed restriction or easement of record affecting any Leased Property. "Appraisal" is defined in Section 3.1 of the Participation Agreement. --------- "Appraiser" means a MAI appraiser satisfactory to the Agent and the Lessor. --------- "Architect" means with respect to any Leased Property the architect engaged --------- in connection with the construction of the related Building. "Architect's Agreement" means, with respect to any Leased Property, the --------------------- architectural services agreement, if any, between the related Lessee and the related Architect. "Assignment of Lease and Rents" means, with respect to any Leased Property, ----------------------------- the Assignment of Lease and Rents, dated as of -4- the related Closing Date, from the Lessor to the Agent substantially in the form of Exhibit B to the Loan Agreement. "Awards" means any award or payment received by or payable to Lessor or a ------ Lessee on account of any Condemnation or Event of Taking (less the actual costs, fees and expenses incurred in the collection thereof, for which the Person incurring the same shall be reimbursed from such award or payment). "B Loan" means the B Percentage of Loans made by Lender pursuant to the ------ Loan Agreement and the Participation Agreement. "B Note" is defined in Section 2.2 of the Loan Agreement. ------ "B Percentage" means 12%. ------------ "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended. --------------- "Base Note(s)" is defined in Section 2.2 of the Loan Agreement. ------------ "Base Term" means, with respect to any Leased Property, (a) the period --------- commencing on the initial Closing Date and ending on the fifth (5th) anniversary of such Closing Date or (b) such shorter period as may result from earlier termination of the related Lease as provided therein. "Basic Rent" means, for any Lease Term, the rent payable pursuant to ---------- Section 4.1 of the related Lease, determined in accordance with the following: each installment of Basic Rent payable on any Payment Date shall be in an amount equal to the sum of (A) the aggregate amount of Lender Basic Rent payable on such Payment Date, plus (B) the aggregate amount of Lessor Basic Rent payable on ---- such Payment Date. "Board of Directors", with respect to a corporation, means either the Board ------------------ of Directors or any duly authorized committee of that Board which pursuant to the by-laws of such corporation has the same authority as that Board as to the matter at issue. "Building" means, with respect to any Leased Property, the buildings, -------- structures and improvements described on Appendix B of the related Lease Supplement located or to be located on the related Land, along with all fixtures used or useful in connection with the operation of such Leased Property, including, without limitation, all furnaces, boilers, compressors, elevators, fittings, pipings, connectives, conduits, ducts, partitions, equipment and apparatus of every kind and description now or hereafter affixed or attached or used or useful in -5- connection with the Building, all equipment financed by Lessor and/or the Lenders and all Alterations (including all restorations, repairs, replacements and rebuilding of such buildings, improvements and structures) thereto (but in each case excluding trade fixtures financed other than by Lessor or the Lenders). "Business Day" means any day other than a Saturday, Sunday or other day on ------------ which banks are required or authorized to be closed for business in Atlanta, Georgia. "Casualty" means an event of damage or casualty relating to all or part of -------- any Leased Property which does not constitute an Event of Loss. "Change in Control" means (1) any person or group within the meaning of ----------------- (S)13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") -------- and the rules and regulations promulgated thereunder shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of Alco (or other securities convertible into such securities) representing twenty percent (20%) of the combined voting power of all securities of Alco entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency (hereinafter called a "Controlling Person"); or (2) a majority of ------------------ the Board of Directors of Alco shall cease for any reason to consist of (A) individuals who on December 18, 1991 were serving as directors of Alco and (B) individuals who subsequently become members of the Board if such individuals' nomination for election or election to the Board is recommended or approved by a majority of the Board of Directors of Alco. For purposes of clause (1) above, a ---------- person or group shall not be a Controlling Person if such person or group holds voting power in good faith and not for the purpose of circumventing this definition as an agent, bank, broker, nominee, trustee, or holder of revocable proxies given in response to a solicitation pursuant to the 1934 Act, for one or more beneficial owners who do not individually, or, if they are a group acting in concert, as a group have the voting power specified in clause (1). ---------- "Claims" means liabilities, obligations, damages, losses, demands, ------ penalties, fines, claims, actions, suits, judgments, settlements, utility charges, costs, expenses and disbursements (including, without limitation, reasonable legal fees and expenses) of any kind and nature whatsoever. "Closing Date" means, with respect to each Land Interest, the date on which ------------ such Land Interest is acquired and the initial -6- Funding occurs with respect to such Land Interest under the Participation Agreement. "Code" means the Internal Revenue Code of 1986, as amended. ---- "Commitment" means as to each Participant, its obligation to make Fundings ---------- as investments in each Leased Property, or Loans to the Lessor, as the case may be, in an aggregate amount not to exceed at any one time outstanding the amount set forth for such Participant on Schedule 2.2 to the Participation Agreement (as it may be adjusted from time to time pursuant to Section 6 of the Participation Agreement). "Commitment Percentage" means as to any Participant, at a particular time, --------------------- the percentage of the aggregate Commitments in effect at such time constituted by such Participant's Commitment, as such percentage is shown for such Participant on Schedule 2.2 to the Participation Agreement (as it may be adjusted from time to time pursuant to Section 6 of the Participation Agreement). "Completion Date" means the Business Day on which the conditions specified --------------- in Section 3.5 of the Participation Agreement have been satisfied. "Completion Date Appraisal" means that appraisal, dated as of the ------------------------- Completion Date, delivered by the Appraiser pursuant to Section 3.5 of the Participation Agreement. "Condemnation" means any condemnation, requisition, confiscation, seizure ------------ or other taking or sale of the use, occupancy or title to any Leased Property or any part thereof in, by or on account of any actual eminent domain proceeding or other action by any Governmental Authority or other Person under the power of eminent domain or otherwise or any transfer in lieu of or in anticipation thereof, which in any case does not constitute an Event of Taking. A Condemnation shall be deemed to have "occurred" on the earliest of the dates that use, occupancy or title is taken. "Consolidated Net Worth" shall be determined in accordance with GAAP and ---------------------- shall mean the sum (as reflected in the consolidated balance sheet of Alco and its Consolidated Subsidiaries) of (i) the stated dollar amount of outstanding capital stock, (ii) the stated dollar amount of additional paid in capital, if any, plus (iii) the amount of surplus and retained earnings minus (iv) the cost of treasury shares and the excess of redemption value over the stated value of preferred stock of Alco and its Consolidated Subsidiaries. -7- "Consolidated Subsidiaries" shall mean all Subsidiaries except the Finance ------------------------- Leasing Subsidiaries. "Construction" means, with respect to any Leased Property, the construction ------------ of the related Building pursuant to the related Plans and Specifications. "Construction Conditions" means the conditions set forth in Section 3.5 of ----------------------- the Participation Agreement. "Construction Contract" means, with respect to any Leased Property, that --------------------- certain construction contract, if any, between the applicable Lessee and a General Contractor for the construction of the related Building, provided that such contract shall be assigned by such Lessee to Lessor, and such assignment shall be consented to by such General Contractor, pursuant to an assignment of such construction contract substantially in the form of the Security Agreement and Assignment set forth as Exhibit D to the Participation Agreement. "Construction Force Majeure Event" means, with respect to any Leased -------------------------------- Property: (a) an act of God arising after the related Closing Date, or (b) any change in any state or local law, regulation or other legal requirement arising after such Closing Date and relating to the use of the Land or the construction of a building on the Land, which prevents the related Lessee from completing the Construction prior to the Scheduled Construction Termination Date and which could not have been avoided or which cannot be remedied by such Lessee or any Guarantor through the exercise of all commercially reasonable efforts or the expenditure of funds and, in the case of (b) above, the existence or potentiality of which was not known to and could not have been discovered prior to such Closing Date through the exercise of due diligence by such Lessee or any Guarantor. "Construction Funding Limit" means with respect to each Land Interest, the -------------------------- amount agreed upon in writing by the Lessee and the Participants. "Construction Land Interest" is defined in Section 2.1(b) of the -------------------------- Participation Agreement. "Construction Term" means, with respect to any Leased Property, the period ----------------- commencing on the related Closing Date and -8- ending on the related Construction Term Expiration Date, or such shorter period as may result from earlier termination of the related Lease as provided therein. "Construction Term Expiration Date" means, with respect to any Leased --------------------------------- Property, the earliest of the following: (a) the related Completion Date, (b) the date on which the aggregate Funded Amounts with respect to such Leased Property equal (or exceed) the related Construction Funding Limit, and (c) the related Scheduled Construction Termination Date. "Contractual Obligation", as applied to any Person, means any provision of ---------------------- any Securities issued by that Person or any indenture, mortgage, deed of trust, contract, undertaking, agreement, instrument or other document to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject (including, without limitation, any restrictive covenant affecting any of the properties of such Person). "Credit Agreement" means the Credit Agreement dated as of December 18, ---------------- 1991, as it has been heretofore amended from time to time and as the same may be amended, restated, supplemented, renewed, extended or otherwise modified from time to time, among Alco, various financial institutions as Banks and CoreStates Bank, N.A., as agent. "Deed" means, with respect to any Land Interest, a General Warranty Deed, ---- dated the applicable Closing Date, from the applicable Seller to the Lessor, conveying such Land Interest, substantially in the form of Exhibit B to the Participation Agreement. "Early Termination Fee" means an amount equal to the applicable percentage --------------------- of the aggregate outstanding principal amount of the Loans as set forth below:
Year of Prepayment Percentage ------------------ ---------- 1 1.5% 2 1.0% 3 0.5% 4 0.25%
-9- "Environmental Audit" means, with respect to each Land Interest, a Phase I ------------------- Environmental Assessment, dated no more than 60 days prior to the related Closing Date, by an environmental services firm satisfactory to the Agent and the Lessor. "Environmental Laws" means and include the Resource Conservation and ------------------ Recovery Act of 1976, (RCRA) 42 U.S.C. (S)(S) 6901-6987, as amended by the Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. (S)(S) 9601-9657, (CERCLA), the Hazardous Materials Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812, the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601-2671, the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq., and all similar federal, state and local environmental laws, ordinances, rules, orders, statutes, decrees, judgments, injunctions, codes and regulations, and any other federal, state or local laws, ordinances, rules, codes and regulations, and any other federal, state or local laws, ordinances, rules, codes and regulations relating to the environment, human health or natural resources or the regulation or control of or imposing liability or standards of conduct concerning human health, the environment, Hazardous Materials or the clean-up or other remediation of any Leased Property, or any part thereof, as any of the foregoing may have been from time to time amended, supplemented or supplanted. "Environmental Permits" means all permits, licenses, authorizations, --------------------- certificates and approvals of Governmental Authorities required by Environmental Laws. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time or any successor federal statute. "Event of Default" means any event or condition designated as an "Event of ---------------- Default" in Article XIII of any Lease. "Event of Loss" is defined in Section 11.1 of each Lease. ------------- "Event of Taking" is defined in Section 11.2 of each Lease. --------------- "Excused Early Termination" is defined in Section 2.5 of the Loan ------------------------- Agreement. "Fair Market Rental Value" means, with respect to any Leased Property, the ------------------------ fair market rental value as determined by an independent appraiser chosen by Lessor that would be obtained in an arm's-length lease between an informed and willing lessee and -10- an informed and willing lessor, in either case under no compulsion to lease, and neither of which is related to Lessor or Lessees for the lease of such Leased Property on the terms set forth, or referred to, in the related Lease. Such fair market rental value shall be calculated as the value for the use of such Leased Property to be leased in place at the Land, assuming, in the determination of such fair market rental value, that such Leased Property is in the condition and repair required to be maintained by the terms of such Lease (unless such fair market rental value is being determined for the purposes of Section 14.1 of such Lease and except as otherwise specifically provided in such Lease, in which case this assumption shall not be made). "Fair Market Sales Value" means, with respect to any Leased Property or any ----------------------- portion thereof, the fair market sales value as determined by an independent appraiser chosen by Lessor or, so long as the Notes are outstanding, the Agent that would be obtained in an arm's-length transaction between an informed and willing buyer (other than a lessee currently in possession) and an informed and willing seller, under no compulsion, respectively, to buy or sell and neither of which is related to Lessor or Lessees, for the purchase of such Leased Property. Such fair market sales value shall be calculated as the value for the use of such Leased Property, assuming, in the determination of such fair market sales value, that such Leased Property is in the condition and repair required to be maintained by the terms of the related Lease (unless such fair market sales value is being determined for purposes of Section 14.1 of such Lease and except as otherwise specifically provided in such Lease or the Participation Agreement, in which case this assumption shall not be made). "Final Rent Payment Date" is defined in Section 14.1(e) of each Lease. ----------------------- "Finance Leasing Subsidiaries" means Alco Capital Resource, Inc., a ---------------------------- Delaware corporation, Alco Capital Resource Canada Limited, a Canadian corporation, and TNL Financial, Inc., a Texas corporation, and their respective successor corporations. "Fiscal Year" means the fiscal year of the Guarantor and its Subsidiaries, ----------- which shall be the twelve (12) months ending on the September 30. "Funded Amount" means, as to the Lessor, the Lessor's Invested Amount, and, ------------- as to each Lender, the outstanding principal of such Lender's Loans. "Funded Debt" means any obligation payable more than one year from the date ----------- of the creation thereof which under GAAP is -11- shown on the consolidated balance sheet as a liability (excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute obligations for borrowed money and excluding the portion of any such obligation property classified as a current liability) and including, without limitation, capitalized leases. "Funding" means any funding by the Participants pursuant to Section 2.2 of ------- the Participation Agreement. "Funding Date" means collectively, each Closing Date and each other date ------------ during the Construction Term on which a Funding occurs under Section 2 of the Participation Agreement. "Funding Request" is defined in Section 2.2 of the Participation Agreement. --------------- "GAAP" means generally accepted accounting principles in the United States ---- of America as in effect from time to time. "General Contractor" means with respect to any Leased Property the general ------------------ contractor under the related Construction Contract as may be selected by the related Lessee. "General Partner" is defined in the Participation Agreement. --------------- "Governmental Action" means all permits, authorizations, registrations, ------------------- consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Law and shall include, without limitation, all citings, environmental and operating permits and licenses that are required for the use, occupancy, zoning and operation of the Leased Property. "Governmental Authority" means any foreign or domestic federal, state, ---------------------- county, municipal or other governmental or regulatory authority, agency, board, body, commission, instrumentality, court or any political subdivision thereof. "Guarantor" means Alco Standard Corporation, an Ohio corporation. --------- "Guaranty" means the Guaranty, dated as of November 8, 1994, by the -------- Guarantor in favor of the Participants. "Hazardous Material" means any substance, waste or material which is toxic, ------------------ explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous, -12- including petroleum, crude oil or any fraction thereof, petroleum derivatives, by products and other hydrocarbons, or which is or becomes regulated by any Governmental Authority, including any agency, department, commission, board or instrumentality of the United States, the State of California, Missouri, Texas or any jurisdiction in which a Leased Property is located or any political subdivision thereof and also including, without limitation, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon gas. "Houston Land Interest" is defined in Schedule 1 to the Participation --------------------- Agreement. "Indemnitee" means the Agent (in its individual capacity), each Lender, and ---------- the Lessor, and their respective Affiliates, successors, permitted assigns, permitted transferees, employees, officers, directors and agents; provided, -------- however, that in no event shall any Lessee or Guarantor be an Indemnitee. - - ------- "Indemnitee Group" means the respective Affiliates, employees, officers, ---------------- directors and agents of the Agent (in its individual capacity), each Lender or the Lessor, as applicable; provided, however, that in no event shall any Lessee -------- ------- or Guarantor be a member of the Indemnitee Group. "Inspecting Parties" is defined in Section 3.4 of each Lease. ------------------ "Land" means, with respect to any Lease, the land described in Appendix B ---- to the related Lease Supplement. "Land Interest" means one of the three interests in Land described in ------------- Schedule 1 to the Participation Agreement, as well as any substitute or additional interest in Land that the Participants may accept from time to time in their discretion at the request of a Lessee under the Participation Agreement. "Laws" means all ordinances, statutes, rules, regulations, orders, ---- injunctions, writs, treaties or decrees of any governmental or political subdivision or agency thereof, or of any court or similar entity established by any thereof. "Lease" means, with respect to any Leased Property, a Lease and Development ----- Agreement, entered into between the Lessor and a Lessee on the Closing Date pursuant to Section 3.1 of the Participation Agreement, together with each Lease Supplement thereto, with such modifications as are satisfactory to the Lessor and the Agent in conformity with Applicable Law to assure customary remedies in favor of the Participants in the jurisdiction where the Leased Property is located. -13- "Lease Balance" means, with respect to any Leased Property, as of any date ------------- of determination, an amount equal to the aggregate sum of the outstanding related Funded Amounts of all Participants, all accrued and unpaid interest on the related Loans, all accrued and unpaid Yield on the related Lessor's Invested Amount, all related unpaid fees owing to the Participants under the Operative Documents, including the Early Termination Fee and all other amounts owing to the Participants by the Lessee or any Guarantor under the Operative Documents. "Lease Supplement" is defined in Section 2.1 of each Lease. ---------------- "Lease Term" means, with respect to any Lease, (a) the Base Term, as it may ---------- be renewed pursuant to Section 15.9 of such Lease or (b) such shorter period as may result from earlier termination of such Lease as provided therein. "Lease Termination Date" means, with respect to any Lease, the last day of ---------------------- the related Lease Term, as the same may be accelerated pursuant to such Lease. "Leased Property" means a Land Interest and the related Building. --------------- "Lenders" means Trust Company Bank and such other financial institutions, ------- if any, who may become parties to the Loan Agreement as Lenders to the Lessor. "Lender Basic Rent" means, for any Rent Period, the aggregate amount of ----------------- interest accrued on the Loans pursuant to Section 2.4 of the Loan Agreement during such Rent Period, plus the amount of principal then due pursuant to Section 2.3 of the Loan Agreement, plus the amount of any Early Termination Fees due under Section 2.5 of the Loan Agreement. "Lessee" means, with respect to any Leased Property, Unisource Worldwide, ------ Inc. or AOP Inc., in each case in its capacity as lessee under the applicable Lease. "Lessor" means PPI SPV, L.P., a Pennsylvania limited partnership, in its ------ capacity as lessor under the Lease. "Lessor Basic Rent" means, for any Rent Period, the aggregate amount of ----------------- Yield accrued on the Lessor's Invested Amount under Section 2.3(a) of the Participation Agreement during such Rent Period, in each case computed for the actual number of days elapsed during such Rent Period on a 365-day (or 366-day, if appropriate) year basis. -14- "Lessor Liens" means Liens on or against any Leased Property, any Lease or ------------ any payment of Rent (a) which result from any act or omission of, or any Claim against, the Lessor unrelated to the transactions contemplated by the Operative Documents or (b) which result from any Tax owed by the Lessor, except any Tax for which any Lessee is obligated to indemnify (including, without limitation, in the foregoing exception, any assessments with respect to any Leased Property noted on the related Title Policy or assessed in connection with any construction or development by any Lessee). "Lessor's Invested Amount" means, with respect to any Lease, the amounts ------------------------ funded by the Lessor pursuant to Section 2 of the Participation Agreement that are not proceeds of Loans by the Lender, as increased during the related Construction Term pursuant to Section 2.3(c) of the Participation Agreement. "LIBOR Rate" means, with respect to any Rent Period, the rate per annum ---------- equal to the quotient of (i) the offered rate for deposits in U.S. Dollars of amounts equal or comparable to the principal amount of the Loans offered for a term comparable to such Rent Period (or, in the case of the first Rent Period for any Loan made on a Closing Date, the one, two or three month period beginning on such Closing Date that ends closest to the first Payment Date thereafter), which rates appear on the Reuters Screen LIBO Page as of 11:00 a.m. London time, two (2) Business Days prior to the first day of such Rent Period, provided that (x) if more than one such offered rate appears on the Reuters - - -------- Screen LIBO Page, the rate used to determine the LIBOR Rate will be the arithmetic average (rounded upward, if necessary, to the next higher 1/16th of 1%) of such offered rates, or (y) if no such offered rates appear on such page, the rate used for such Rent Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/16th of 1% of rates quoted by not less than two major banks in New York, New York, selected by the Agent, at approximately 10:00 a.m., New York time, two (2) Business Days prior to the first day of such Rent Period, for deposits in U.S. Dollars offered to leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of the Loans, divided by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage, the rate so determined to be rounded upwards to the nearest multiple of 1/100th of 1%. All determinations of Yield, interest, Lender Basic Rent, LIBOR Rate, Alternative Rate, and Overdue Rate by the Agent shall, in the absence of demonstrable error, be binding and conclusive upon the Lessees. "LIBOR Reserve Percentage" means, for any Rent Period, the aggregate ------------------------ reserve requirement (including any basic, emergency, supplemental, marginal or other reserve requirement) which is -15- actually imposed on the Agent during such Rent Period (or if more than one such percentage shall be so applicable, the daily average of such percentages) under Regulation D of the Board of Governors of the Federal Reserve System with respect to liabilities or assets consisting of or including "Eurocurrency liabilities" having a term equal to the applicable Rent Period. The LIBOR Rate shall be adjusted automatically on and as of the effective date of any change in the LIBOR Reserve Percentage. "Loan" shall have the meaning specified in Section 2.1 of the Loan ---- Agreement. "Loan Agreement" means the Loan Agreement, dated as of November 8, 1994, -------------- between the Lessor, the Agent and the Lenders. "Loan Documents" means the Loan Agreement, the Notes, the Assignments of -------------- Lease and Rents, the Mortgages and all documents and instruments executed and delivered in connection with each of the foregoing. "Loan Event of Default" means any of the events specified in Section 5.1 of --------------------- the Loan Agreement, provided that any requirement for the giving of notice, the -------- lapse of time, or both, or any other condition, event or act has been satisfied. "Loan Potential Event of Default" means any event, condition or failure ------------------------------- which, with notice or lapse of time or both, would become a Loan Event of Default. "Loss Proceeds" is defined in Section 11.6 of each Lease. ------------- "Material Adverse Effect" means a material adverse effect upon the ----------------------- financial condition, operations, performance or properties of the Lessees and the Guarantor, taken as a whole, or the ability of the Guarantor or any Lessee to perform in any material respect under the Operative Documents or the value, utility or useful life of any Leased Property, or the validity, enforceability or legality of any of the Operative Documents, or the priority, perfection or status of any Participant's interest in any Leased Property. "Mortgage" means, with respect to any Leased Property, that certain -------- mortgage or deed of trust, dated as of the related Closing Date, by Lessor to the Agent, in the form of Exhibit D attached to the Participation Agreement, with such modifications as are satisfactory to the Lessor and the Agent in conformity with Applicable Law to assure customary remedies in favor of the Agent in the jurisdiction where the Leased Property is located. -16- "New Taxes" is defined in Section 7 of the Participation Agreement. --------- "Notes" means the A Note and the B Note issued by the Lessor under the Loan ----- Agreement, and any and all notes issued in replacement or exchange therefor in accordance with the provisions thereof. "Officer's Certificate" of a Person means a certificate signed by the --------------------- Chairman of the Board or the President or any Executive Vice President or any Senior Vice President or any other Vice President of such Person signing with the Treasurer or any Assistant Treasurer or the Controller or any Assistant Controller or the Secretary or any Assistant Secretary of the such Person, or by any Vice President who is also Controller or Treasurer signing alone. "Operative Documents" means the Participation Agreement, the Guaranty, the ------------------- Deeds, the Leases, the Security Agreement and Assignment, the Notes, the Loan Agreement, the Assignments of Lease and Rents, the Mortgages and the other documents delivered in connection with the transactions contemplated by the Participation Agreement. "Overdue Rate" means the lesser of (a) the highest interest rate permitted ------------ by Applicable Law and (b) an interest rate per annum (calculated on the basis of a 365-day (or 366-day, if appropriate) year equal to 2.0% above the Alternative Rate in effect from time to time. "Participant Balance" means, with respect to any Leased Property for any ------------------- Participant as of any date of determination, an amount equal to the sum of the outstanding related Funded Amount of such Participant, all accrued and unpaid interest or Yield thereon, all unpaid related fees owing to such Participant under the Operative Documents, including any Early Termination Fee, and all other related amounts owing to such Participant by either Lessee or any Guarantor under the Operative Documents. "Participants" means the Lessor, the Agent and the Lenders, collectively. ------------ "Participation Agreement" means the Participation Agreement, dated as of ----------------------- November 8, 1994, among the Lessees, the Guarantor, the Lessor, the Agent and the Lenders. "Payment Date" means the first day of each January, April, July and ------------ October, or, if such day is not a Business Day, the next Business Day. -17- "Permitted Liens" means the following with respect to any Leased Property: --------------- (a) the respective rights and interests of the Lessee, the Lessor and the Lender, as provided in the Operative Documents, (b) Liens for Taxes either not yet due or being contested in good faith and by appropriate proceedings, so long as enforcement thereof is stayed pending such proceedings, (c) materialmen's, mechanics', workers', repairmen's, employees' or other like Liens arising after the related Closing Date in the ordinary course of business for amounts either not yet due or being contested in good faith and by appropriate proceedings, so long as enforcement thereof is stayed pending such proceedings, (d) Liens arising after such Closing Date out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith, so long as the enforcement thereof has been stayed pending such appeal or review, (e) easements, rights of way, reservations, servitudes and rights of others against the Land which are listed on Schedule B to the Title Policy, and (f) assignments, leases and subleases expressly permitted by the Operative Documents. "Person" means an individual, corporation, partnership, joint venture, ------ association, joint-stock company, trust, nonincorporated organization or government or any agency or political subdivision thereof. "Plans and Specifications" means with respect to any Building the final ------------------------ plans and specifications for such Building prepared by the Architect, and referred to by the Appraiser in the Appraisal, as such Plans and Specifications may be hereafter amended, supplemented or otherwise modified from time to time. "Pleasanton Building" means the distribution center to be built on the ------------------- Pleasanton Land Interest in accordance with the Plans and Specifications. "Pleasanton Land Interest" is defined in Schedule 1 to the Participation ------------------------ Agreement. "Pleasanton Lease" means the Lease in respect of the Pleasanton Land ---------------- Interest. "Potential Event of Default" means any event, condition or failure which, -------------------------- with notice or lapse of time or both, would become an Event of Default. "Purchase Agreement" means with respect to any Land, the purchase agreement ------------------ with the Seller for the conveyance of such Land to the Lessor. "Purchase Option" is defined in Section 15.1 of each Lease. --------------- -18- "Recourse Deficiency Amount" means the sum of (i) the aggregate principal -------------------------- amount of the A Loans, plus (ii) all accrued and unpaid interest on the A Loans. ---- "Regulations" means the income tax regulations promulgated from time to ----------- time under and pursuant to the Code. "Release" means the release, deposit, disposal or leak of any Hazardous ------- Material into or upon or under any land or water or air, or otherwise into the environment, including, without limitation, by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like. "Release Date" means, with respect to any Leased Property, the earlier of ------------ (i) the date that the Participant Balances of the Lenders have been paid in full, and (ii) the date on which the Agent gives notice to the Lessor that the Lenders release any and all interest they may have in such Leased Property, and all proceeds thereof, and any rights to direct, consent or deny consent to any action by the Lessor with respect to such Leased Property. "Remarketing Option" is defined in Section 15.6 of each Lease. ------------------ "Rent" means Basic Rent and Supplemental Rent, collectively. ---- "Rent Period" means, with respect to any Leased Property, initially the ----------- period commencing on the related Closing Date and ending on the first Payment Date, and thereafter each period from one Payment Date to the next following Payment Date. "Report" is defined in Section 7.5 of the Participation Agreement. ------ "Required Lenders" means, at any time, Lenders holding an aggregate ---------------- outstanding principal amount of Loans equal to at least 66-2/3% of the aggregate outstanding principal amount of all Loans. "Required Participants" means, at any time, Participants holding an --------------------- aggregate outstanding principal amount of Funded Amounts equal to at least 66- 2/3% of the aggregate outstanding principal amount of all Funded Amounts. "Requirements of Law" means, as to any Person, the charter and by-laws or ------------------- other organizational or governing documents of such Person, and any law, rule or regulation, permit, approval, -19- authorization, license or variance, order or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, including, without limitation, the Securities Act, the Securities Exchange Act, Regulations G, T, U and X, and any building, environmental or land use requirement or permit or occupational safety or health law, rule or regulation. "Responsible Officer" means the Chairman or Vice Chairman of the Board of ------------------- Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer. "Scheduled Construction Termination Date" means with respect to any --------------------------------------- Building the twelve-month anniversary of the related Closing Date. "SEC" means the United States Securities and Exchange Commission. --- "Securities" means any stock, shares, voting trust certificates, bonds, ---------- debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities", or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Securities Exchange Act" means the Securities Exchange Act of 1934, as ----------------------- amended. "Security Agreement and Assignment" means, with respect to any Leased --------------------------------- Property, the Security Agreement and Assignment (Construction Contract, Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans, Specifications and Drawings) from the Lessee to the Lessor, substantially in the form of Exhibit C to the Participation Agreement. "Seller" means as to any Leased Property, the seller thereof to the Lessor ------ on the related Closing Date. "Senior Funded Debt" means all Funded Debt other than Subordinated Funded ------------------ Debt. -20- "St. Louis Land Interest" is defined in Schedule 1 to the Participation ----------------------- Agreement. "Subordinated Funded Debt" means Funded Debt which has been subordinated to ------------------------ all other Senior Funded Debt pursuant to subordination provisions acceptable to the Lenders. "Subsidiary" means for any Person any corporation or other entity of which ---------- securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Supplemental Rent" means any and all amounts, liabilities and obligations ----------------- other than Basic Rent which the related Lessee assumes or agrees or is otherwise obligated to pay under the Lease or any other Operative Document (whether or not designated as Supplemental Rent) to Lessor, the Agent, any Lender or any other party, including, without limitation, amounts under Article XVII of each Lease, and indemnities and damages for breach of any covenants, representations, warranties or agreements, and all overdue or late payment charges in respect of any Loan or other Funded Amount. "Surrender Option" is defined in Section 15.6 of each Lease. ---------------- "Tax" or "Taxes" is defined in Section 7.4 of the Participation Agreement. --- ----- "Tax Indemnitee" means the Lessor, Lender and their respective Affiliates, -------------- successors, permitted assigns, permitted transferees, employees, officers, directors and agents thereof, provided, however, that in no event shall any -------- ------- Lessee or any Guarantor be a Tax Indemnitee. "Title Policy" is defined in Section 3.1 of the Participation Agreement. ------------ "Transaction" means all the transactions and activities referred to in or ----------- contemplated by the Operative Documents. "UCC" means the Uniform Commercial Code of Georgia, as in effect from time --- to time. "Unfunded Benefit Liabilities" means with respect to any Employee Benefit ---------------------------- Plan at any time, the amount of unfunded benefit liabilities of such Employee Benefit Plan at such time as determined under ERISA Section 4001(a)(18) which shall not be less than the accumulated benefit obligation, as disclosed in -21- accordance with FAS 87, over the fair market value of Employee Benefit Plan assets. "Unisource" means Unisource Worldwide, Inc., a Delaware corporation. --------- "Yield" is defined in Section 2.3 of the Participation Agreement. ----- -22- EXHIBIT G-1 to Participation Agreement FORM OF OPINION OF COUNSEL TO LESSEES AND GUARANTOR --------------------------------------------------- November 8, 1994 To Lessor, the Agent and the Lender as defined in the Participation Agreement hereinafter referred to Re: Alco Lease Transaction ---------------------- Ladies and Gentlemen: I have acted as counsel to Unisource Worldwide, Inc., a Delaware corporation ("Unisource"), AOP Inc., a Delaware corporation ("AOP" and together --------- --- with Unisource, collectively the "Lessees" and individually a "Lessee"), and ------- ------ Alco Standard Corporation, an Ohio corporation (the "Guarantor"), in connection --------- with the transactions contemplated by the Participation Agreement (as hereinafter defined). I have examined and am familiar with originals of or copies identified to my satisfaction of the Participation Agreement, dated as of November 8, 1994 (as heretofore amended, the "Participation Agreement"), among ----------------------- the Lessees, the Guarantor, PPI SPV, L.P., as Lessor, Pitcairn SPV, Inc., as General Partner of Lessor, and Trust Company Bank, as Lender and Agent, the other Operative Documents, and such other documents and proceedings as I have considered necessary for the purpose of rendering this opinion. In addition, I have examined and am familiar with such other legal and factual matters as I have deemed necessary for the purpose of rendering this opinion. Capitalized terms used in this opinion and not otherwise defined herein shall have the respective meanings specified in Appendix A to the Participation Agreement. This opinion is being furnished to you at the request of the Lessees and the Guarantor pursuant to Section 3.2(vii)(1) of the Participation Agreement. In rendering this opinion I have assumed: (a) the genuineness of the signatures on all documents and instruments, other than those on behalf of the Lessees and the Guarantor, and the authenticity of all documents submitted as originals, and the conformity to originals of all documents submitted as photostatic or certified copies; (b) that each of the parties to the Operative Documents, other than the Lessees and the Guarantor as to which I opine herein, has all the legal capacity, power and authority required for it to enter into the Operative Documents to which it is a party, and to perform its respective obligations thereunder; (c) that all such parties, other than the Lessees and the Guarantor as to which I opine herein, have received any corporate, governmental or other authorization required by any applicable charter, by-law, law or regulation; (d) the due execution and delivery of the Operative Documents by each of the parties thereto, other than Lessees and the Guarantor; (e) that there are no agreements between any parties which would alter the agreements set forth in the Operative Documents; and (f) that the Operative Documents constitute the legal, valid and binding obligations of the respective parties thereto, if any, other than the Lessees and the Guarantor as to which I opine herein. Based upon the foregoing, I am of the opinion that: 1. Each Lessee and the Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation and has full corporate power and authority to conduct its business as presently conducted, to own or hold under lease its properties, to enter into and perform its obligations under the Operative Documents to which it is a party, and is duly qualified as a foreign corporation authorized to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a material adverse effect on its ability to perform its obligations under the Operative Documents to which it is a party or upon its financial condition or its business as presently conducted. Unisource is duly qualified as a foreign corporation authorized to do business and is in good standing in the States of California, Missouri and Texas. 2. The execution and delivery by each of each Lessee and the Guarantor of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary corporate action on its part; and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby (including, without limitation, in the case of each Lessee, the operation of the Leased Property under its Lease), nor compliance by it with any of the terms and provisions thereof (i) requires any approval of its stockholders, or approval or consent of any trustee or holders of any of its indebtedness or other obligations, (ii) contravenes or will contravene any Applicable Laws currently in effect applicable to or binding upon it or any of its property, or, in the case of each Lessee, its Leased Property, (ii) results in any breach of or constitutes any default under, or results in the creation of any Lien (other than the respective rights and interests of the Lessees, the Lessor, the Agent and the Lenders as provided in the Operative Documents) upon any of its property under, (A) any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement or other material agreement or instrument to which its or any of its properties may be bound or by which -2- the Leased Property may be materially adversely affected, (B) its certificate of incorporation or (C) its Code of Regulations or (iv) does or will require any Governmental Action by any Governmental Authority except, in the case of the Lessees, for the filings and recordings described in Section 3.1(a) of the Participation Agreement to perfect the rights of Lessor, the Agent and the Lenders intended to be created by the Operative Documents. 3. Each Operative Document to which either Lessee or the Guarantor is a party constitutes its legal, valid and binding obligation enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. 4. To my knowledge, there is no action, proceeding or investigation pending or threatened which questions the validity of the Operative Documents to which either Lessee or the Guarantor is a party or any action taken or to be taken pursuant thereto; and there is no action, proceeding or investigation pending or threatened (i) which is likely to result, either in any case or in the aggregate, in any material adverse change in the ability of either Lessee or the Guarantor to perform its obligations under the Operative Documents to which it is a party or, in the case of either Lessee, its rights in its Leased Property, or (ii) that, if adversely determined, would materially adversely affect either Lessee's or the Guarantor's financial condition, business or operations. 5. Neither of the Lessees nor the Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. Neither of the Lessees nor the Guarantor is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7. Neither the Lender nor the Agent will become (i) solely by reason of entering into the Operative Documents or the consummation of the transactions contemplated thereby subject to ongoing regulation of its operations by a Governmental Authority; or (ii) except for regulation the applicability of which depends upon the existence of facts in addition to the ownership of, or the holding of any interest in, the Leased Property or any interest therein upon the exercise of remedies under either Lease or any Mortgage, subject to ongoing regulation of its operations by any Governmental Authority. -3- 8. It is not necessary in connection with the offer, issuance, sale or delivery of the Leases or the Notes to register such securities under the Securities Act of 1933, as amended. 9. The provisions of the Operative Documents concerning interest, Yield, prepayment premiums, default interest, late charges and other charges, including the methods of calculation and payment thereof, are not usurious under, or otherwise violative of, the laws of the Commonwealth of Pennsylvania. I am a member of the Bar of the Commonwealth of Pennsylvania. The opinions expressed herein are limited exclusively to the laws of the Commonwealth of Pennsylvania and the Federal laws of the United States of America and the rules and regulations, if any, under each of said laws. Very truly yours, -4- EXHIBIT G-2 to Participation Agreement FORM OF OPINION OF LOCAL COUNSEL FOR LESSEE ------------------------------------------- __________, 199_ To the Lessor, the Agent and the Lenders as defined in the Participation Agreement hereinafter referred to Re: Alco Lease Transaction ---------------------- Ladies and Gentlemen: We have acted as special _____________ counsel to ___________, a __________ corporation (the "Lessee"), in connection with the transactions ------ contemplated by the Participation Agreement. We have examined and are familiar with originals of or copies identified to our satisfaction of (i) the Participation Agreement, dated as of November 8, 1994 (as heretofore amended, the "Participation Agreement"), among the Lessee, [INSERT OTHER LESSEE'S NAME], ----------------------- PPI SPV, L.P., as Lessor, Pitcairn SPV, Inc., as General Partner of Lessor, the Lenders party thereto and Trust Company Bank, as Agent; and (ii) the other Operative Documents listed on Schedule A hereto (together with the Participation Agreement, the "Subject Documents"). In addition, we have examined and are ----------------- familiar with such legal matters as we have deemed necessary for the purpose of rendering this opinion. Capitalized terms used in this opinion and not otherwise defined herein shall have the respective meanings specified in Appendix A to the Participation Agreement. This opinion is being furnished to you at the request of the Lessee pursuant to Section 3.1(a)(xii) of the Participation Agreement in connection with the Closing Date related to the Leased Property covered by the Subject Documents. In rendering this opinion we have assumed: (a) the genuineness of the signatures on all documents and instruments and the authenticity of all documents submitted as originals, and the conformity to originals of all documents submitted as photostatic or certified copies; (b) that each of the parties to the Subject Documents has all the legal capacity, power and authority required for it to enter into the Subject Documents to which it is a party, and to perform its respective obligations thereunder; (c) that all such matters have received any corporate or other authorization required by any applicable charter, by-law, law or regulation; (d) the due execution and delivery of the Subject Documents by each of the parties thereto; and (e) that there are no agreements between any parties that would alter the agreements set forth in the Subject Documents. To the extent that the assumptions in clauses (b) and (c) relate to any laws or regulations, such assumptions relate only to those laws and regulations as to which we are not opining herein. Based upon the foregoing, we are of the opinion that: 1. The Lessee is duly qualified as a foreign corporation authorized to do business in, and is in good standing in, the State of _____________ (the "State"). ----- 2. None of the Agent and the Lenders are required under the laws of the State to qualify as a foreign corporation, foreign trust company or otherwise in the State, or to file any designation for service of process in the State, solely as a result of its execution, delivery and performance of the Subject Documents to which it is a party. 3. Each of the Mortgage, the Lease (as supplemented by the Lease Supplement) and the Assignment of Lease and Rents constitutes the legal, valid and binding obligation of the parties thereto enforceable against each such party in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. 4. The Deed delivered on the Closing Date for the Leased Property is in form sufficient under the laws of the State to convey valid title to the property described therein, and such instruments, when filed or recorded with ________________________ (the "Recording Office") will have been filed or ---------------- recorded in the appropriate public offices in the State in which such filing or recording is necessary to convey valid title to the property described therein to the Lessor. 5. The Lease and the Lease Supplement are in forms sufficient under the laws of the State to demise to the Lessee a valid leasehold interest in the Leased Property. The [Lease and the] Lease Supplement, when recorded with the Recording Office, will have been filed or recorded in all public offices in the State in which such filing or recording is necessary to provide constructive notice of the Lease on the Leased Property to third -2- Persons and to establish of record the interest of the Lessor thereunder. 6. If the transactions as provided for in the Lease are characterized as a loan: [(a) The provisions of the Lease are effective to create a power of sale in favor of the Lessor.] (b) The [Lease and the] Lease Supplement [are][is] in form sufficient under the laws of the State to create a valid lien or security interest in favor of the Lessor in the Leased Property described therein, and when recorded with the Recording Office, will have been filed or recorded in all public offices in the State in which such filing or recording is necessary to perfect the interest of the Lessor thereunder to the extent that such Leased Property constitutes real estate. The Lease provides the Lessor with all remedies customarily obtained by lenders in the State in connection with the type of loan and security provided thereby. The foreclosure of the Lease would not restrict, affect or impair the Lessee's liability with respect to the obligations secured thereby or the Lessor's rights or remedies with respect to the foreclosure or enforcement of any other security interests or liens securing such obligations to the extent any deficiency remains unpaid after application of the proceeds of the foreclosure. (c) Execution and delivery by the Lessee of, and enforcement by the Lessor of any of its remedies under, the Lease will not affect the validity or priority of the liens and security interests in favor of the Agent and the Lenders created by the Mortgage. 7. The Mortgage, the Assignment of Lease and Rents and the Security Agreement and Assignment are in form sufficient under the laws of the State to create valid liens or security interests in favor of the Lender in the collateral described therein, and when recorded with the Recording Office, will have been filed or recorded in all public offices in the State in which such filing or recording is necessary to perfect the interest of the Lender thereunder to the extent that such collateral constitutes real estate. The Mortgage, the Assignment of Lease and Rents and the Security Agreement and Assignment provide the Lender with all remedies customarily obtained by lenders in the State in connection with the type of loan and security provided for by the Loan Agreement. The foreclosure of the Mortgage would not restrict, affect or impair the Lessor's liability with respect to the obligations secured thereby or the Lender's rights or remedies with respect to the foreclosure or enforcement of any -3- other security interests or liens securing such obligations to the extent any deficiency remains unpaid after application of the proceeds of the foreclosure. 8. The law (statutory or otherwise) of the State does not require a lienholder to make an election of remedies where such lienholder holds security interests and liens on both the real and the personal property of a debtor or to take recourse first or solely against or otherwise exhaust its remedies against its collateral before otherwise proceeding to enforce against such debtor the obligations of such debtor. Nothing in the laws of this State will hinder or prevent enforcement in the State of the obligations of the Lessee or the Guarantor under any of the Subject Documents to which it is, respectively, a party. 9. Under the laws of the State the priority of the Mortgage, the Lease (if the transactions provided for in the Lease are characterized as a loan) and the Assignment of Lease and Rents, to the extent that such documents secure future advances and are a conveyance of or create a lien against a real property interest, is determined by the respective dates on which such documents are recorded. 10. The UCC Financing Statements which are to be recorded or filed within the State, the forms of which are attached hereto, are in form sufficient under the laws of the State for filing or recording, and when recorded with the Recorder's Office and the _______________ Secretary of State will have been filed or recorded in all public offices in the State in which such filing or recording is necessary to perfect the interests of the Lessor and the Agent in the collateral described therein to the extent the same can be perfected by filing or recording in the State. 11. Neither the execution and delivery of the Subject Documents, nor the fulfillment of or the compliance with the provisions thereof, by the Lessor, the Agent and the Lenders, results in a violation of, or contravenes any State statute, law, rule, code, ordinance or regulation to which the Lessor, the Agent or the Lenders are subject. 12. No approval, consent, or withholding of objection on the part of, or filing or registration with, any governmental authority or regulatory body in the State is required for the due execution and delivery of the Subject Documents by the Lessor, the Agent or the Lenders, or the performance of the transactions by the Lessor, the Agent or the Lenders as contemplated thereby. 13. Except for federal, state and local franchise, withholding and income taxes, no taxes, fees or other charges imposed by the State, ___________ County or any other local -4- governmental entity are payable by Lessor, the Agent or the Lenders solely as a result of (i) the issuance of the Notes on the date hereof, (ii) the acquisition by the Lessor of the Leased Property, or (iii) (except for nominal filing or recording fees payable at the time of filing or recording) the execution, delivery, recordation or filing (where applicable) of the Subject Documents and all other instruments delivered in connection with the transactions contemplated thereby. 14. The provisions in the Subject Documents concerning interest, Yield, loan fees, late fees, prepayment premiums, default rate of interest and other charges, including the methods of calculation and payment thereof, are not usurious under, or otherwise violative of, the laws of the State. 15. Under the laws of the State and local jurisdictions therein, there is no statutory or regulatory lien in favor of any Governmental Authority for (a) liability under the State environmental laws or regulations, or (b) damages (including natural resource damages) arising from, or costs incurred by, such Governmental Authority in response to the release of Hazardous Material into the environment. 16. Under the laws of the State and local jurisdictions therein, there are no statutory or regulatory requirements relating to the transfer of ownership or operation, sale or foreclosure of the Leased Property which require notification of the State or the local jurisdiction of such transfer, sale or foreclosure, certification that there has been no discharge of Hazardous Material or other substances, or, in the event of a discharge, responsibility of the Lessor, the Agent or the Lenders, as appropriate, for the undertaking of remedial measures to alleviate environmental contamination resulting from such discharge. We are members of the Bar of the State. The opinions expressed herein are limited exclusively to the laws of the State and the rules and regulations, if any, under each of said laws. Certain of the Subject Documents purport to be governed by laws of states other than the State. With your permission, we have assumed for the purposes of this opinion (contrary to the express provisions thereof) that such agreements would be governed by and construed and interpreted in accordance with the laws of the State. Very truly yours, -5- EXHIBIT G-3 TO PARTICIPATION AGREEMENT FORM OF OPINION OF LESSOR'S COUNSEL ----------------------------------- November 8, 1994 To Lessee, the Agent and the Lenders as defined in the Participation Agreement hereinafter referred to Re: Alco Lease Transaction ---------------------- Ladies and Gentlemen: We have acted as counsel to PPI SPV, L.P., a Pennsylvania limited partnership (the "Lessor"), and Pitcairn SPV, Inc., a Pennsylvania corporation ------ and general partner of the Lessor (the "General Partner") in connection with the --------------- transactions contemplated by the Participation Agreement (as hereinafter defined). We have examined and are familiar with originals of or copies identified to our satisfaction of the Participation Agreement, dated as of November 8, 1994 (as heretofore amended, the "Participation Agreement"), among ----------------------- the Lessor, the General Partner, Unisource Worldwide, Inc. and AOP Inc., as Lessees, Alco Standard Corporation, as Guarantor, and Trust Company Bank, as Lender and Agent, the other Operative Documents, and such other documents and proceedings as we have considered necessary for the purpose of rendering this opinion. In addition, we have examined and am familiar with such other legal and factual matters as we have deemed necessary for the purpose of rendering this opinion. Capitalized terms used in this opinion and not otherwise defined herein shall have the respective meanings specified in Appendix A to the Participation Agreement. This opinion is being furnished to you at the request of the Lessor pursuant to Section 3.2(vii) of the Participation Agreement. In rendering this opinion we have assumed: (a) the genuineness of the signatures on all documents and instruments, other than those on behalf of the Lessor and the General Partner, and the authenticity of all documents submitted as originals, and the conformity to originals of all documents submitted as photostatic or certified copies; (b) that each of the parties to the Operative Documents, other than the Lessor and the General Partner as to which we opine herein, has all the legal capacity, power and authority required for it to enter into the Operative Documents to which it is a party, and to perform its respective obligations thereunder; (c) that all such parties, other than the Lessor and the General Partner as to which we opine herein, have received any corporate, governmental or other authorization required by any applicable charter, by-law, law or regulation; (d) the due execution and delivery of the Operative Documents by each of the parties thereto, other than Lessor and the General Partner; (e) that there are no agreements between any parties which would alter the agreements set forth in the Operative Documents; and (f) that the Operative Documents constitute the legal, valid and binding obligations of the respective parties thereto, if any, other than the Lessor and the General Partner as to which we opine herein. Based upon the foregoing, I am of the opinion that: 1. The Lessor is a limited partnership duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has full power and authority to conduct its business as presently conducted, to own or hold under lease its properties, to enter into and perform its obligations under the Operative Documents to which it is a party, and is duly qualified as a foreign limited partnership authorized to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a material adverse effect on its ability to perform its obligations under the Operative Documents to which it is a party or upon its financial condition or its business as presently conducted. The General Partner is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has full power and authority to enter into and perform its obligations under the Participation Agreement. 2. The execution and delivery by the Lessor and the General Partner of, the consummation by each of the transactions provided for in, and the compliance by each with all of the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary partnership action on its part; and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby (including, without limitation, the acquisition of the Leased Property), nor compliance by it with any of the terms and provisions thereof (i) requires any approval of its partners or stockholders, as the case may be, or approval or consent of any trustee or holders of any of its indebtedness or other obligations, (ii) contravenes or will contravene any Applicable Law currently in effect applicable to or binding upon it or any of its property, (iii) results in any breach of or constitutes any default under, or results in the creation of any Lien (other than the respective rights and interests of the Lessees, the Lessor, the Agent and the Lenders as provided in the Operative Documents) upon any of its property under, (A) any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement or other material agreement or instrument to which -2- its or any of its properties may be bound or by which the Leased Property may be materially adversely affected, or (B) its constituent documents or (iv) does or will require any Governmental Action by any Governmental Authority other than the filings contemplated by Section 3.1(a)(xi) of the Participation Agreement to perfect the rights of the Agent intended to be created by the Operative Documents. 3. Each Operative Document to which the Lessor and the General Partner is a party constitutes its legal, valid and binding obligation enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and by general equitable principles. 4. To our knowledge, there is no action, proceeding or investigation pending or threatened against the Lessor or the General Partner. 5. Neither the Lessor nor the General Partner is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. Neither the Lessor nor the General Partner is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. We are members of the Bar of the Commonwealth of Pennsylvania. The opinions expressed herein are limited exclusively to the laws of the Commonwealth of Pennsylvania and the Federal laws of the United States of America and the rules and regulations, if any, under each of said laws. Very truly yours, -3- EXHIBIT A TO PARTICIPATION AGREEMENT FORM OF FUNDING REQUEST TO: The Lessor, the Agent and each Lender as defined in the Participation Agreement referred to below Reference is hereby made to the Participation Agreement dated as of November 8, 1994 (as heretofore amended, the "Participation Agreement") among ----------------------- Unisource Worldwide, Inc. and AOP Inc., as Lessees, PPI SPV, L.P., as Lessor, Pitcairn SPV, Inc., as General Partner of Lessor, Alco Standard Corporation, as Guarantor, the Lenders from time to time party thereto, and Trust Company Bank, as Agent. Capitalized terms not otherwise defined herein are used herein as defined in the Participation Agreement. [INSERT UNISOURCE WORLDWIDE, INC. OR AOP INC.] as Lessee (the "Lessee") ------ hereby notifies you that Lessee requests a Funding in the amount of $____________ on [INSERT REQUESTED FUNDING DATE] in respect of [DESCRIBE LAND INTEREST]. In connection with such requested Funding, the Lessee hereby represents and warrants to you as follows: (a) on the requested Funding Date the representations and warranties of the Lessee contained in each of the Operative Documents shall be true and correct in all material respects as though made on and as of such Funding Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (b) there shall not have occurred and be continuing any Event of Default or Potential Event of Default; (c) the amount of the requested Funding represents amounts in respect of the purchase price for the related Land Interest and/or amounts that the Lessee reasonably believes will be due in the 60 days following such Funding from the Lessee to third parties in respect of the Construction, or amounts paid by the Lessee to third parties in respect of the Construction for which the Lessee has not previously been reimbursed by a Funding; and (d) all of the conditions precedent to such Funding set forth in Section 3 of the Participation Agreement have been satisfied. Please wire transfer the proceeds of the Funding to _________________________________________. The Lessee has caused this Funding Request to be executed and delivered by its duly authorized officer this _______________ [TO BE DELIVERED NOT LATER THAN 12:00 NOON, THREE BUSINESS DAYS PRIOR TO THE REQUESTED FUNDING DATE]. [INSERT NAME OF RELATED LESSEE] By:__________________________ Title:_______________________ -2- EXHIBIT C TO PARTICIPATION AGREEMENT SECURITY AGREEMENT AND ASSIGNMENT (Construction Contract, Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans, Specifications and Drawings) FOR VALUE RECEIVED, and to secure the performance by _________________________________, a Delaware corporation ("Lessee"), of all of ------ its obligations under (i) that certain Lease and Development Agreement, by and between Lessee and PPI, SPV, L.P., a Pennsylvania limited partnership having an office at 3220 Tillman Drive, Bensalem, Pennsylvania 19020 (herein, together with its successors and assigns, called the "Secured Party"), dated as of ------------- November 8, 1994 (as the same may be amended, modified or restated from time to time, and together with all substitutions therefor and replacements thereof, the "Lease"), as the same may be amended, modified or restated from time to time, ----- and any substitutions thereunder and replacements thereof, and (ii) the other Operative Documents (as defined in the Lease), Lessee and Alco Standard Corporation, an Ohio corporation ("Guarantor"; Lessee and Guarantor are referred --------- to herein individually, collectively, jointly and severally as the "Assignor") -------- individually, jointly and severally do hereby quitclaim, sell, assign, transfer and set over unto the Secured Party, its successors and assigns, all of their rights, title and interests in and to the following (referred to collectively herein as the "Collateral"): ---------- (1) that certain [General Contracting Services Agreement] dated ________ __, 1994 between Lessee and _________________ (the "Contractor"), ---------- a _____________, having an address at ______________________________, as it may hereafter be supplemented, modified or amended (the "Construction ------------ Contract"); -------- (2) that certain [Architectural Services Agreement] dated _______ __, 1994 between Lessee and _______________, having an address at ____________________________________ (the "Architect") pertaining to the --------- Construction, as such Agreement may hereafter be supplemented, modified or amended (the "Architect's Agreement"); --------------------- (3) all plans, specifications and drawings of any and every kind heretofore or hereafter prepared for use in connection with the Construction, and any supplements, amendments or modifications thereto (collectively, the "Plans"); and ----- (4) all building and other permits, licenses and governmental approvals which are necessary or useful to the commencement and completion of the Construction, or otherwise relate to the Construction, heretofore or hereafter obtained or applied for by or on behalf of the Assignor or the Contractor or the Architect or any of the architects, engineers or contractors working on any aspect of the Construction, and any deposits made in connection therewith (referred to collectively herein as the "Permits"). ------- provided, however, that the Secured Party shall have no obligation or liability - - -------- ------- of any kind under or with respect to the Construction Contract, the Architect's Agreement, the Permits or the Plans, either before or after its exercise of any rights hereby granted to it, and the Assignor agrees to save and hold the Secured Party harmless of and from, and to indemnify it against, any and all such obligations and liabilities, contingent or otherwise. This assignment shall inure to the benefit of the Secured Party and its successors and assigns, and shall be binding upon the Assignor and its successors and assigns, and shall continue in full force and effect until all obligations, liabilities and indebtedness of any kind now or hereafter due the Secured Party from the Assignor under or with respect to the Lease or any of the other Operative Documents, or which are otherwise secured hereby, whether now existing or hereafter arising or incurred (collectively, the "Liabilities"), ----------- have been fully paid, performed and satisfied, at which time this assignment will terminate. The Secured Party will not exercise any of its rights hereunder until there occurs an Event of Default (which term is defined for purposes hereof as it is defined in the Lease). The Assignor hereby acknowledges that the Secured Party will assign all of its rights hereunder to Trust Company Bank, as Agent ("Agent") to secure the Loans, and agrees that the Agent may exercise ----- all of the rights of the Secured Party hereunder. For purposes of completing the Construction, the Secured Party may, at its option, further assign its right, title and interest in the Collateral without the consent of Assignor, the Contractor, the Architect or any other contractor, but shall promptly thereupon notify the Contractor and the Architect, and upon exercise by such assignee of its rights to complete the Construction pursuant hereto, only such assignee and not the Secured Party shall become liable to pay or perform the Secured Party's obligations under the Construction Contract and the Architect's Agreement. This Assignment is a present, perfected and absolute assignment, provided that the Secured Party shall not have the right to undertake completion of the Construction or directly to enforce the provisions of the Construction Contract or the -2- Architect's Agreement until an Event of Default shall have occurred under the Lease. During the continuance of any such Event of Default, the Secured Party may, without affecting any other right or remedy available to it, exercise its rights under this Assignment as provided herein in any manner permitted by law. If any notice to Assignor is required by law, such notice shall be deemed commercially reasonable if given at least ten (10) days prior to the date of intended action. This Assignment may be effectively waived, modified, amended or terminated only by a written instrument executed by the Secured Party. Any waiver by the Secured Party shall be effective only with respect to the specific instance described therein. Delay or course of conduct shall not constitute a waiver of any right or remedy of the Secured Party. THIS ASSIGNMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. All terms capitalized herein and not specifically defined herein which are capitalized and defined in the Lease shall have the same respective meanings for purposes hereof as for purposes of the Lease. -3- IN WITNESS WHEREOF, the undersigned have executed and delivered this assignment as of ____________, 1994 at ____________________________, pursuant to proper authority duly granted. _________________________, a Delaware corporation By:_________________________ Name:_____________________ Title:____________________ ALCO STANDARD CORPORATION, an Ohio corporation By:_________________________ Name:_____________________ Title:____________________ Security Agreement And Assignment S-1 ACCEPTANCE ---------- PPI SPV, L.P., being the Secured Party as described in the foregoing Security Agreement and Assignment, hereby acknowledges receipt of the foregoing instrument as of this ___ day of _____, 1994, and hereby assigns all of its rights under such agreement to Trust Company Bank, as Agent. PPI SPV, L.P., a Pennsylvania limited partnership By: Pitcairn SPV, Inc., its general partner By:_____________________________ Name:________________________ Title:_______________________ Security Agreement And Assignment S-2 SECURITY AGREEMENT AND ASSIGNMENT S-3 CONSENT AND ACKNOWLEDGMENT BY THE CONTRACTOR -------------------------------------------- The undersigned hereby acknowledges receipt of a counterpart original of, and consents to, the foregoing Security Agreement and Assignment. 1. The undersigned certifies that the Construction Contract is in full force and effect and constitutes the entire agreement between the Assignor and the undersigned, and that there have been no modifications, supplements, amendments or addenda thereto from the form thereof dated _______________, 1994, a true, correct and complete copy of which is attached hereto, and that the Assignor is not in default under the Construction Contract. 2. The undersigned agrees to look solely to the Assignor for the performance of all of the obligations of the Assignor under the Construction Contract, and not to look to Secured Party for such performance. However, if the Secured Party exercises, with respect to the Construction Contract, the rights and privileges conferred upon it by the Security Agreement and Assignment and asserts (by written election as specified in the immediately succeeding two sentences) the present right to have the benefits of the Construction Contract and to enforce the same against the undersigned in the place and stead of the Assignor, the undersigned agrees to perform for, and for the benefit of, the Secured Party all of the undersigned's obligations under and pursuant to the Construction Contract if the balance due under the Construction Contract (being the portion of the total price which is then or thereafter due and payable as provided therein, less the total of all portions thereof theretofore paid to or for the benefit of the Contractor) has been paid or is then paid (or for portions thereof not then due under the Construction Contract, such amounts are paid as and when due under the Construction Contract). Prior to the Secured Party's express written election (if any) to succeed to the Assignor's rights and to assume the Assignor's obligations (to the extent provided in the immediately succeeding sentence) under the Construction Contract, the Contractor agrees that the Secured Party shall have no personal obligations or liabilities of any kind under the Construction Contract, the Security Agreement and Assignment, or otherwise. In the event that the Secured Party shall so expressly elect in writing to succeed to the Assignor's rights and to assume the Assignor's obligations under the Construction Contract, the sole obligations which the Secured Party shall assume and be liable for are (i) obligations to pay the Contractor the amounts due under the Construction Contract as provided in the second sentence of this paragraph (whether due -i- before or after such election), and (ii) other obligations of the Assignor under the Construction Contract first accruing after such election by the Secured Party, and the Secured Party shall not be liable or obligated for any other obligations. 3. The Contractor hereby agrees to send to the Secured Party copies of all notices to the Assignor under the Construction Contract by courier or certified mail, return receipt requested, to the following address (or at such other address as the Secured Party shall, from time to time, notify the undersigned in writing): Trust Company Bank 25 Park Place Atlanta, Georgia 30303 Attention: Center 118/Southeastern Corporate Such notices shall be sent at the same time as any notices to the Assignor. 4. The Contractor agrees that it shall not voluntarily terminate the Construction Contract except in accordance with the following provisions of this paragraph. The Contractor agrees that if the Contractor is entitled to terminate the Construction Contract by reason of defaults of the Assignor, the Contractor shall not terminate the Construction Contract until it has provided the Secured Party with a written notice of its election to so terminate the Construction Contract by virtue of any such default thereunder by the Assignor and the Secured Party has not assumed the Assignor's obligations under the Construction Contract and cured the defaults as (but only to the extent) required in Section 3 of this Consent and Acknowledgment within thirty days --------- after Secured Party's receipt of said written notice. 5. Notices to the Contractor hereunder shall be sent by courier or certified mail, return receipt requested, to the following: Attention: __________________ 6. In the event the Construction Contract is terminated, the Secured Party shall be entitled to use, as required for the Construction (as defined in the Lease), without any additional cost or fee, any and all Permits and all Plans and Specifications and final plans and specifications developed in connection therewith for the Construction. -ii- The foregoing is furnished for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the undersigned, and the undersigned understands and intends that the Secured Party will rely on the foregoing and that the undersigned will be legally bound by the foregoing. This Consent and Acknowledgment shall inure to the benefit of the Secured Party and its successors and assigns. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent and Acknowledgment as of __________, 1994, pursuant to proper authority duly granted. [NAME OF CONTRACTOR] By:______________________________ Name:____________________________ Title:___________________________ -iii- Attach copy of Construction Contract -iv- CONSENT AND ACKNOWLEDGMENT BY ARCHITECT --------------------------------------- The undersigned hereby acknowledges receipt of a counterpart original of, and consents to, the foregoing Security Agreement and Assignment. 1. The undersigned certifies that the Architect's Agreement is in full force and effect and constitutes the entire agreement between the Assignor and the Architect, that there have been no modifications, supplements, amendments or addenda to the Architect's Agreement from the form thereof dated ____________, 1994, a true and correct copy of which is attached hereto, and that the Assignor is not in default under the Architect's Agreement. 2. The undersigned agrees to look solely to the Assignor for the performance of all of the obligations of the Assignor under the Architect's Agreement, and not to look to Secured Party for such performance. However, if the Secured Party exercises, with respect to the Architect's Agreement, the rights and privileges conferred upon it by the Security Agreement and Assignment and asserts (by written election as specified in the immediately succeeding two sentences) the present right to have the benefits of the Architect's Agreement and to enforce the same against the undersigned in the place and stead of the Assignor, the undersigned agrees to perform for, and for the benefit of, the Secured Party all of the undersigned's obligations under and pursuant to the Architect's Agreement if the balance due under the Architect's Agreement (being the portion of the total price which is then or thereafter due and payable as provided therein, less the total of all portions thereof theretofore paid to or for the benefit of the Architect) has been paid or is then paid (or for portions thereof not then due under the Architect's Agreement, such amounts are paid as and when due under the Architect's Agreement). Prior to the Secured Party's express written election (if any) to succeed to the Assignor's rights and to assume the Assignor's obligations (to the extent provided in the immediately succeeding sentence) under the Architect's Agreement, the Architect agrees that the Secured Party shall have no personal obligations or liabilities of any kind under the Architect's Agreement, the Security Agreement and Assignment, or otherwise. In the event that the Secured Party shall so expressly elect in writing to succeed to the Assignor's rights and to assume the Assignor's obligations under the Architect's Agreement, the sole obligations which the Secured Party shall assume and be liable for are (i) obligations to pay the Architect the amounts due under the Architect's Agreement as provided in the second sentence of this paragraph (whether due before or after such election), and (ii) other obligations of the Assignor -i- under the Architect's Agreement first accruing after such election by the Secured Party, and the Secured Party shall not be liable or obligated for any other obligations. 3. The Architect hereby agrees to send to the Secured Party copies of all notices to the Assignor under the Architect's Agreement by courier or certified mail, return receipt requested, to the following address (or at such other address as the Secured Party shall, from time to time, notify the undersigned in writing): Trust Company Bank 25 Park Place Atlanta, Georgia 30303 Attention: Center 118/Southeastern Corporate Such notices shall be sent at the same time as any notices to the Assignor. 4. The Architect agrees that it shall not voluntarily terminate the Architect's Agreement except in accordance with the following provisions of this paragraph. The Architect agrees that if the Architect is entitled to terminate the Architect's Agreement by reason of defaults of the Assignor, the Architect shall not terminate the Architect's Agreement until it has provided the Secured Party with a written notice of its election to so terminate the Architect's Agreement by virtue of any such default thereunder by the Assignor and the Secured Party has not assumed the Assignor's obligations under the Architect's Agreement and cured the defaults as (but only to the extent) required in Section ------- 4 of this Consent and Acknowledgment within thirty days after Secured Party's - - - receipt of said written notice. 5. Notices to the Architect hereunder shall be sent by courier or certified mail, return receipt requested, to the following: ___________________________ ___________________________ ___________________________ Attn: _____________________ 6. In the event the Architect's Agreement is terminated, the Secured Party shall be entitled to use, as required for the Construction (as defined in the Lease), without any additional cost or fee, any and all Permits and all Plans and Specifications and final plans and specifications developed in connection therewith for the Construction. -ii- The foregoing is furnished for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the undersigned, and the undersigned understands and intends that Secured Party will rely on the foregoing and that the undersigned will be legally bound by the foregoing. This Consent and Acknowledgment shall inure to the benefit of the Secured Party and its successors and assigns. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent and Acknowledgment as of ____________, 1994 pursuant to proper authority duly granted. ________________________________ By:______________________________ Name:_________________________ Title:________________________ -iii- Attach copy of Architect's Agreement -iv- EXHIBIT D TO THE PARTICIPATION AGREEMENT ================================================================================ DEED OF TRUST AND SECURITY AGREEMENT dated as of November 8, 1994 from PPI SPV, L.P., as Lessor, Grantor to __________________, Trustee for the use and benefit of TRUST COMPANY BANK as Agent, Beneficiary When recorded return to: _____________________________ _____________________________ _____________________________ _____________________________ ================================================================================ DEED OF TRUST AND SECURITY AGREEMENT DEED OF TRUST AND SECURITY AGREEMENT, dated as of _________, 199__ (this "Deed of Trust"), made by PPI SPV, L.P. (the "Grantor"), with an address ------------- ------- at 3220 Tillman Drive, Bensalem, Pennsylvania 19020 to _______________________, a ________ ("Trustee"), with an address at ------- _______________________________________ in favor of TRUST COMPANY BANK, with an address at 25 Park Place, Atlanta, Georgia 30303, in its capacity as Agent (in such capacity, the "Agent"), under the Loan Agreement, dated as of November 8, ----- 1994 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), between the Grantor, the Agent and the Lenders party thereto - - --------------- (the "Lenders"). ------- Preliminary Statement --------------------- Pursuant to the Loan Agreement, the Lenders have agreed to make Loans to the Grantor in an aggregate amount not to exceed $25,000,000 upon the terms and subject to the conditions set forth therein, to be evidenced by the notes ("Notes") issued by the Grantor under the Loan Agreement. The Notes bear interest as set forth in the Notes and mature (if not sooner accelerated) on a date no later than November 8, 1999. The Grantor is the legal and beneficial owner of the Mortgaged Property (as defined below). It is a condition, among others, to the obligation of the Lenders to make the Loans to the Grantor under the Loan Agreement that the Grantor shall have executed and delivered this Deed of Trust to the Trustee for the benefit of the Agent. NOW, THEREFORE, in consideration of the premises and to induce the Lenders to make the Loans under the Loan Agreement, the Grantor hereby agrees with the Trustee and the Agent, as follows: TO SECURE PAYMENT OF ALL THE AMOUNTS ADVANCED UNDER THE LOAN AGREEMENT AND THE NOTES AND THE OTHER SECURITY DOCUMENTS, THE GRANTOR HEREBY CONVEYS TO THE TRUSTEE AND HEREBY GRANTS, ASSIGNS, TRANSFERS, WARRANTS AND SETS OVER TO THE TRUSTEE, IN TRUST FOR THE USE AND BENEFIT OF THE AGENT, AND GRANTS THE AGENT AND THE TRUSTEE A SECURITY INTEREST IN: (A) the parcel(s) of real property described on Exhibit A --------- (the "Land"); and the fee interest in the land described in Exhibit A ---- --------- (if and when acquired by Grantor, and which shall then be deemed included in the "Land"); all buildings, structures, Fixtures, Equipment, and other improvements of every kind existing at any time and from time to time on or under the Land, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all modifications, alterations, renovations, improvements and other additions to or changes in the Improvements at any time ("Improvements"); all ------------ agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Land or the Improvements, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and all permits, licenses and rights, whether or not of record, appurtenant to the Land ("Appurtenant Rights"; Land, Improvements, Appurtenant Rights, Fixtures and ------------------ Equipment relating thereto being collectively referred to as the "Property"); -------- (B) all the estate, right, title, claim or demand whatsoever of the Grantor, in possession or expectancy, in and to the Property or any part thereof; (C) all right, title and interest of the Grantor in and to all of the fixtures, furnishings and fittings of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by the Grantor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property (all of the foregoing in this paragraph (C) being referred to as the "Fixtures"); --------- (D) all right, title and interest of the Grantor in and to all of the fixtures, chattels, business machines, machinery, apparatus, equipment, furnishings, fittings and articles of personal property of every kind and nature whatsoever, and all appurtenances and additions thereto and substitutions or replacements thereof (together with, in each case, attachments, components, parts and accessories) currently owned or subsequently acquired by the Grantor and now or subsequently attached to, or contained in or used or usable in any way in connection with any operation or letting of the Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, furniture and furnishings, heating, electrical, and mechanical equipment, lighting, switchboards, plumbing, ventilating, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, refrigerators, display cases, elevators, loading and unloading equipment and systems, stoves, ranges, laundry equipment, cleaning systems (including window cleaning apparatus), telephones, communication systems (including satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, -2- machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description (all of the foregoing in this paragraph (D) being ------------- referred to as the "Equipment"); ---------- (E) all right, title and interest of the Grantor in and to all substitutes and replacements of, and all additions and improvements to, the Improvements and the Fixtures and Equipment, subsequently acquired by the Grantor or constructed, assembled or placed by the Grantor on the Land, immediately upon such acquisition, release, construction, assembling or placement, including, without limitation, any and all building materials whether stored at the Property or offsite, and, in each such case, without any further conveyance, mortgage, assignment or other act by the Grantor; (F) all right, title and interest of the Grantor in, to and under all trade names, trade marks, logos, copyrights, good will and books and records relating to or used in connection with the operation of the Property or the Fixtures or any part thereof; and all general intangibles related to the operation of the Improvements now existing or hereafter arising; (G) all right, title and interest of the Grantor in and to all unearned premiums under insurance policies now or subsequently obtained by the Lessee relating to the Property or the Fixtures and the Grantor's interest in and to all proceeds of any such insurance policies (including title insurance policies) including the right to collect and receive such proceeds: and all awards and other compensation, including the interest payable thereon and the right to collect and receive the same, made to the present or any subsequent owner of the Property for the taking by eminent domain, condemnation or otherwise, of all or any part of the Property or any easement or other right therein; (H) all right, title and interest of the Grantor in and to (i) all consents, licenses, building permits, certificates of occupancy and other governmental approvals relating to construction, completion, occupancy, use or operation of the Property or any part thereof and (ii) all Plans and Specifications relating to the Property; (I) all Rent and all other rents, payments, purchase prices, receipts, revenues, issues and profits payable under the Lease or pursuant to any other lease with respect to the Property; and (J) all proceeds, both cash and noncash, of the foregoing; (All of the foregoing property and rights and interests now owned or held or subsequently acquired by the Grantor and described in the foregoing clauses (A) through (J) are collectively referred to as the "Trust Property"). -------------- -3- TO HAVE AND TO HOLD the Trust Property and the rights and privileges hereby granted unto the Trustee, its successors and assigns for the uses and purposes set forth, until all amounts due under the Notes, the Loan Agreement and the other Security Documents (collectively, the "Obligations") are paid. ----------- 1. Definitions. Capitalized terms used but not otherwise defined in ----------- this Deed of Trust shall have the respective meanings specified in Appendix A to this Deed of Trust. 2. Payment of Obligations. The Grantor shall pay the Obligations in ---------------------- accordance with the terms of the Loan Agreement and the Notes and perform each term to be performed by it under the Loan Agreement and the Notes and the other Operative Documents. 3. Other Covenants. At any time and from time to time, upon the --------------- written request of the Agent or the Trustee, and at the sole expense of the Grantor (but only to the extent the Grantor has been reimbursed by Lessee), the Grantor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Agent or the Trustee reasonably may request for the purposes of obtaining or preserving the full benefits of this Deed of Trust and of the rights and powers granted by this Deed of Trust. 4. Default: Remedies./1/ (a) If Loan Agreement Event of Default has ----------------- - occurred and is continuing and the Loans have been accelerated pursuant to Section 5 of the Loan Agreement: (i) the Trustee, in addition to all other remedies available at law or in equity, shall have the right forthwith to enter upon and take possession of the Trust Property, and to let the Trust Property and receive the rents, issues and profits thereof, to make repairs and to apply said rentals and profits, after payment of all necessary or proper charges and expenses, on account of the amounts hereby secured; and (ii) the Trustee, shall, as a matter of right, at the option of the Agent, be entitled to the appointment of a receiver for the Trust Property, and the Grantor hereby consents to such appointment and waives notice of any application therefor. ___________________________ /1/ Remedies are a matter of state law and vary from jurisdiction to jurisdiction. Local counsel will be consulted to be sure that the deed of trust covers all remedies available under local law, and that any waivers or other provisions required by state statutes to ensure enforceability of particular remedies are included in the deed of trust. -4- (f) The Grantor hereby waives the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Trust Property or any interest therein. 5. Remedies Not Exclusive. The Trustee shall be entitled to enforce ---------------------- payment of the indebtedness and performance of the Obligations and to exercise all rights and powers under this Deed of Trust or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be otherwise secured, whether by deed of trust, mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this Deed of Trust nor its enforcement, shall prejudice or in any manner affect the Trustee's right to realize upon or enforce any other security now or hereafter held by the Trustee, it being agreed that the Trustee shall be entitled to enforce this Deed of Trust and any other security now or hereafter held by the Trustee in such order and manner as the Trustee or the Agent may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Trustee or the Agent is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Trustee or the Agent or to which they may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Agent. In no event shall the Trustee, in the exercise of the remedies provided in this Deed of Trust (including, without limitation, in connection with the assignment of Rents to the Agent, or the appointment of a receiver and the entry of such receiver on to all or any part of the Trust Property), be deemed a "mortgagee in possession," and the Trustee shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. 6. Performance by the Trustee or the Agent of the Grantor's -------------------------------------------------------- Obligations. If the Grantor fails to perform or comply with any of its - - ----------- agreements contained herein the Trustee or the Agent, at their option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. The expenses of the Trustee and the Agent incurred in connection with actions undertaken as provided in this Section, together with interest thereon at a rate per annum equal to the Overdue Rate, from the date of payment by the Trustee or the Agent, as applicable, to the date reimbursed by the Grantor, shall be payable by the Grantor to the Trustee or the Agent on demand (but only to the extent the Grantor has been reimbursed by Lessee). 7. Duty of the Trustee. The Trustee's sole duty with respect to the ------------------- custody, safekeeping and physical preservation of any Trust Property in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Trustee deals with similar property for its own account. Neither the Trustee, the Agent nor any of their respective directors, officers, employees or agents shall be liable for failure to -5- demand, collect or realize upon any of the Trust Property or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Trust Property upon the request of the Grantor or any other Person or to take any other action whatsoever with regard to the Trust Property or any part thereof. 8. Powers Coupled with an Interest. All powers, authorizations and ------------------------------- agencies contained in this Deed of Trust are coupled with an interest and are irrevocable until this Deed of Trust is terminated and the lien created hereby is released. 9. Execution of Financing Statements. Pursuant to Section 9-402 of --------------------------------- the Uniform Commercial Code, the Grantor authorizes the Trustee or the Agent to file financing statements with respect to the Trust Property without the signature of the Grantor in such form and in such filing offices as the Trustee or the Agent reasonably determines appropriate to perfect the security interests of the Trustee and the Agent under this Deed of Trust. A carbon, photographic or other reproduction of this Deed of Trust shall be sufficient as a financing statement for filing in any jurisdiction. 10. Security Agreement under Uniform Commercial Code. (a) It is the ------------------------------------------------ intention of the parties hereto that this Deed of Trust shall constitute a Security Agreement within the meaning of the Uniform Commercial Code of the State in which the Trust Property is located. If a Loan Event of Default shall occur, then in addition to having any other right or remedy available at law or in equity, the Trustee, at the direction of the Agent, shall have the option of either (i) proceeding under the Uniform Commercial Code and exercising such rights and remedies as may be provided to a secured party by the Code with respect to all or any portion of the Trust Property which is personal property (including, without limitation, taking possession of and selling such property) or (ii) treating such property as real property and proceeding with respect to both the real and personal property constituting the Trust Property in accordance with the Trustee's rights, powers and remedies with respect to the real property (in which event the default provisions of the Uniform Commercial Code shall not apply). If the Trustee, at the direction of the Agent, shall elect to proceed under the Uniform Commercial Code, then five days' notice of sale of the personal property shall be deemed reasonable notice and the reasonable expenses of retaking, holding, preparing for sale, selling and the like incurred by the Trustee or the Agent shall include, but not be limited to, attorneys' fees and legal expenses. At the Trustee's request, the Grantor shall assemble the personal property and make it available to the Trustee and the Agent at a place designated by the Trustee or the Agent which is reasonably convenient to both parties. (b) The Grantor, the Trustee and the Agent agree, to the extent permitted by law, that this Deed of Trust upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a "fixture filing" within the meaning of Sections 9-313 and 9-402 of the Uniform Commercial Code. -6- (c) The Grantor, upon request by the Trustee or the Agent from time to time, shall execute, acknowledge and deliver to the Trustee or the Agent one or more separate security agreements, in form satisfactory to the Trustee and the Agent, covering all or any part of the Trust Property and will further execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any financing statement, affidavit, continuation statement or certificate or other document as the Trustee or the Agent may request in order to perfect, preserve, maintain, continue or extend the security interest under and the priority of this Deed of Trust and such security instrument. The Grantor further agrees to pay to the Trustee and the Agent on demand all costs and expenses incurred by the Trustee or the Agent in connection with the preparation, execution, recording, filing and re-filing of any such document and all reasonable costs and expenses of any record searches for financing statements the Trustee or the Agent shall reasonably require; provided, however, -------- -------- that the Grantor shall not be liable for payment of any amount under this Section to the extent Lessee is responsible for payment of such amount under the Lease or the Participation Agreement. If the Grantor shall fail to furnish any financing or continuation statement within 10 days after request by the Trustee or the Agent, then pursuant to the provisions of the Uniform Commercial Code, the Grantor hereby authorizes the Trustee and the Agent, without the signature of the Grantor, to execute and file any such financing and continuation statements. The filing of any financing or continuation statements in the records relating to personal property or chattels shall not be construed as in any way impairing the right of the Trustee to proceed against any personal property encumbered by this Deed of Trust as real property, as set forth above. 11. Authority of Trustee. The Grantor acknowledges that the rights -------------------- and responsibilities of the Trustee under this Deed of Trust with respect to any action taken by the Trustee or the exercise or non-exercise by the Trustee of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Deed of Trust shall, as between the Grantor and the Agent, the Trustee shall be conclusively presumed to be acting as agent for the Agent with full and valid authority so to act or refrain from acting, and the Grantor shall be under no obligation, or entitlement, to make any inquiry respecting such authority. 12. Notices. All notices, requests and demands to or upon the ------- Trustee, the Agent or the Grantor shall be given in accordance with Section 8.2 of the Participation Agreement. 13. Severability. Any provision of this Deed of Trust which is ------------ prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 14. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None ----------------------------------------------------- of the terms or provisions of this Deed of Trust may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Grantor, the Trustee and the Agent in accordance with the terms of the Loan Agreement. -7- (b) No failure to exercise, nor any delay in exercising, on the part of the Trustee or the Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Trustee or the Agent would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 15. Section Headings. The section headings used in this Deed of ---------------- Trust are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 16. Successors and Assigns. This Deed of Trust shall run with the ---------------------- land and be binding upon the successors and assigns of the Grantor and shall inure to the benefit of the Trustee, the Agent and their respective successors and assigns. 17. Grantor's Waiver of Rights. Except as otherwise set forth -------------------------- herein, to the fullest extent permitted by law, the Grantor waives the benefit of all laws now existing or that may subsequently be enacted providing for (i) any appraisement before sale of any portion of the Trust Property, (ii) any extension of the time for the enforcement of the collection of the indebtedness or the creation or extension of a period of redemption from any sale made in collecting such debt and (iii) exemption of the Trust Property from attachment, levy or sale under execution or exemption from civil process. Except as otherwise set forth herein, to the full extent the Grantor may do so, the Grantor agrees that the Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, exemption, extension, reinstatement or redemption, or requiring foreclosure of this Deed of Trust before exercising any other remedy granted hereunder and the Grantor, for the Grantor and its successors and assigns, and for any and all Persons ever claiming any interest in the Trust Property, to the extent permitted by law, hereby waives and releases all rights of reinstatement, redemption, valuation, appraisement stay of execution, notice of election to mature or declare due the whole of the secured indebtedness and marshalling in the event of foreclosure of the liens hereby created. 18. Multiple Security. If (a) the Trust Property shall consist of ----------------- one or more parcels, whether or not contiguous and whether or not located in the same county, or (b) in addition to this Deed of Trust, the Trustee and the Agent shall now or hereafter hold one or more additional mortgages, liens, deeds of trust or other security (directly or indirectly) for the Obligations upon other property in the State in which the Trust Property is located (whether or not such property is owned by the Grantor or by others) or (c) both the circumstances described in clauses (a) and (b) shall be true, then to the fullest extent permitted by law, the Trustee and the Agent may, in their discretion, commence or consolidate in a single foreclosure action all foreclosure proceedings against all such collateral securing the Obligations (including the Trust Property), which action may be brought or consolidated in the courts of any county in which any of such collateral is located. The Grantor acknowledges that the right to maintain a consolidated foreclosure action is a specific inducement to the Lenders to extend the Obligations, and the Grantor expressly and irrevocably waives any objections to the commencement or consolidation of the foreclosure proceedings in a single action and any objections to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have. The Grantor ----- --- ---------- further agrees that if the Trustee or the Agent shall be prosecuting one or more foreclosure or other proceedings against a portion of the Trust Property or against any collateral other than the Trust Property, which collateral directly or indirectly secures the Obligations, or if the Trustee or the Agent shall have obtained a judgment of foreclosure and sale or similar judgment against such collateral, then, whether or not such proceedings are being maintained or judgments were obtained in or outside the State in which the Trust Property is located, the Trustee and the Agent may commence or continue foreclosure proceedings and exercise its other remedies granted in this Deed of Trust against all or any part of the Trust Property and the Grantor waives any objections to the commencement or continuation of a foreclosure of this Deed of Trust or exercise of any other remedies hereunder based on such other proceedings or judgments, and waives any right to seek to dismiss, stay, remove, transfer or consolidate either any action under this Deed of Trust or such other proceedings on such basis. Neither the commencement nor continuation of proceedings to foreclose this Deed of Trust nor the exercise of any other rights hereunder nor the recovery of any judgment by the Trustee and the Agent in any such proceedings shall prejudice, limit or preclude the Trustee's and the Agent's rights to commence or continue one or more foreclosure or other proceedings or obtain a judgment against any other collateral (either in or outside the State in which the Trust Property is located) which directly or indirectly secures the Obligations, and the Grantor expressly waives any objections to the commencement of, continuation of, or entry of a judgment in such other proceedings or exercise of any remedies in such proceedings based upon any action or judgment connected to this Deed of Trust, and the Grantor also waives any right to seek to dismiss, stay, remove, transfer or consolidate either such other proceedings or any action under this Deed of Trust on such basis. It is expressly understood and agreed that to the fullest extent permitted by law, the Trustee may, at its election, cause the sale of all collateral which is the subject of a single foreclosure action at either a single sale or at multiple sales conducted simultaneously and take such other measures as are appropriate in order to effect the agreement of the parties to dispose of and administer all collateral securing the Obligations (directly or indirectly) in the most economical and least time-consuming manner. 19. GOVERNING LAW. THIS DEED OF TRUST SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF _________________. -9- 20. Partial Release; Full Release. The Trustee, at the direction of ----------------------------- the Agent, may release, for such consideration or none, as it may require, any portion of the Trust Property without, as to the remainder of the Trust Property, in any way impairing or affecting the lien, security interest and priority herein provided for the Trustee compared to any other lien holder or secured party. 21. Miscellaneous. (a) This Deed of Trust is one of several deeds of ------------- trust, mortgages and other documents that create liens and security interests that secure payment and performance of the Obligations. The Trustee, at the direction of the Agent, at its election, may commence or consolidate in a single action all proceedings to realize upon all such liens and security interests. The Grantor hereby waives (i) any objections to the commencement or continuation of an action to foreclose this Deed of Trust or exercise of any other remedies hereunder based on any action being prosecuted or any judgment entered with respect to the Obligations or any liens or security interests that secure payment and performance of the Obligations and (ii) any objections to the commencement of, continuation of, or entry of a judgment in any such other action based on any action or judgment connected to this Deed of Trust. In case of a foreclosure sale, the Trust Property may be sold, at the Trustee's election, in one parcel or in more than one parcel and the Trustee is specifically empowered (without being required to do so, and in its sole and absolute discretion) to cause successive sales of portions of the Trust Property to be held. (b) Except as provided in the Operative Documents, the Trustee, with the express written consent of the Grantor, may at any time or from time to time renew or extend this Deed of Trust, or alter or modify the same in any way, or the Trustee may waive any of the terms, covenants or conditions hereof in whole or in part and may release any portion of the Trust Property or any other security, and grant such extensions and indulgences in relation to the Obligations secured hereby as the Agent may determine without the consent of any other person and without any obligation to give notice of any kind thereto and without in any manner affecting the priority of the lien hereof on any part of the Trust Property. 22. Future Advances; Revolving Credit. This Deed of Trust is given --------------------------------- to secure not only existing indebtedness, but also future advances made pursuant to or as provided in the Loan Agreement and the other Loan Documents, whether such advances are obligatory or to be made at the option of the Lenders, or otherwise, to the same extent as if such future advances were made on the date of execution of this Deed of Trust, although there may be no advance made at the time of execution hereof, and although there may be no indebtedness outstanding at the time any advance is made. [The portion of the indebtedness evidenced by the Notes constitutes "revolving credit" as that term is used in 205 ILCS 5/5d and 735 ILCS 5/15-140, as amended and as the same may hereafter be amended from time to time.] To the fullest extent permitted by law, the lien of this Deed of Trust shall be valid as to all such indebtedness, including all revolving credit and future advances, from the time this Deed of Trust is recorded. Notwithstanding anything in this Deed of Trust to the contrary, although the amount of -10- indebtedness secured by this Deed of Trust may increase or decrease from time to time, the maximum principal amount of indebtedness secured by this Deed of Trust at any one time shall not exceed Twenty-Five Million and No/100 Dollars ($25,000,000.00), plus all costs of enforcement and collection of this Deed of Trust, the Notes, the Loan Agreement and the other Loan Documents, plus the total amount of any advances made pursuant to the Loan Documents to protect the collateral and the security interest and lien created hereby; together with interest on all of the foregoing as provided in the Loan Documents. IN WITNESS WHEREOF, the undersigned has caused this Deed of Trust to be duly executed and delivered as of the date first above written. PPI SPV, L.P., as Lessor, Grantor By: Pitcairn SPV, Inc., as its general partner By:_________________________ Name:_______________ Title:______________ -11- STATE OF __________________ ) ) SS.: COUNTY OF _________________ ) On the ___ day of__________, 199__, before me personally came ________________ ___________ to me known, who, being by me duly sworn, did depose and say that he/she resides at_________________________________________; that he/she is the _____________________ of Pitcairn SPV, Inc., the corporation described in and which executed the above instrument; and that he/she signed his/her name thereto by order of the board of directors of said corporation, as general partner of PPI SPV, L.P. ____________________________ Notary Public Exhibit A --------- Legal Description of the Land ----------------------------- -13- EXHIBIT E TO PARTICIPATION AGREEMENT CERTIFICATE AS TO FINANCIAL STATEMENTS I, _______________________, the [Chairman of the Board] [President] [Vice President] [Treasurer] of Alco Standard Corporation, an Ohio corporation (the "Company"), hereby certify, pursuant to Section 5.3 of the Participation Agreement dated as of November 8, 1994 among the Company, as Guarantor, Unisource Worldwide, Inc. and AOP Inc., as Lessee, PPI SPV, L.P., as Lessor, Pitcairn SPV, Inc., as General Partner of Lessor, the Lenders from time to time party thereto, and Trust Company Bank, as Agent (the "Participation Agreement"; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Participation Agreement), that: 1. To the best of my knowledge, (a) the accompanying unaudited consolidated financial statements of the Company and its Consolidated Subsidiaries as at ___________________ and for the ________ fiscal quarter ending __________________, 19___, are complete and correct and present fairly, in accordance with generally accepted accounting principles (except for changes therein or therefrom described below that have been approved in writing by Messrs. __________________, the Company's current independent certified public accountants), the consolidated financial position of the Company and its Consolidated Subsidiaries as of the end of such fiscal quarter, and the consolidated results of operations and cash flows for such fiscal quarter, and for the elapsed portion of the fiscal year ended with the last day of such fiscal quarterly period, in each case on the basis presented and subject only to usual and customary year-end auditing adjustments and footnote disclosures; and (b) to the best of my knowledge, except as previously disclosed in writing to the Lenders, the Agent and the Lessor, neither the Company nor any of its Subsidiaries had any significant liabilities, contingent or otherwise, including liabilities for Taxes or any unusual forward or long-term commitments, nor any material unrealized or unanticipated losses from any unfavorable commitments of the Company or any of its Subsidiaries. 2. There follow the calculations required to establish whether or not the Company was in compliance with the following Section 7 of the Guaranty: 3. Based on an examination sufficient to enable me to make an informed statement, no Event of Default or Potential Event of Default exists, including, in particular, any such arising under the provisions of Section 7 of the Guaranty, except the following: [If none such exist, insert "None"; if any do exist, specify the same by Section, give the date the same occurred, whether it is continuing, and the steps being taken by the Company or a Subsidiary with respect thereto.] Dated: _________________________________ Title: EXHIBIT F TO PARTICIPATION AGREEMENT [letterhead of firm that performed environmental audit] ____________, 199_ PPI SPV, L.P., as Lessor under the Participation Agreement dated as of November 3, 1994 among Unisource Worldwide, Inc., and AOP Inc. as Lessees, Alco Standard Corporation, as Guarantor, such Lessor, Pitcairn SPV, Inc., the Lenders party thereto and Trust Company Bank, as Agent 320 Tillman Drive Bensalem, Pennsylvania 19020 The Lenders and the Agent under such Participation Agreement c/o Trust Company Bank, as Agent 25 Park Place Atlanta, Georgia 30303 Attn: Center 118/Southeastern Corporate Ladies/Gentlemen: We refer to the Phase One environmental assessment dated _________, prepared by us for ______________, with respect to [DESCRIBE PROPERTY]. Please be advised that you may rely upon such report as if it were addressed directly to you. Very truly yours, EXHIBIT H TO PARTICIPATION AGREEMENT FORM OF COMPLETION DATE CERTIFICATE TO: Lessor, Agent and each Lender as defined in the Participation Agreement referred to below Reference is hereby made to the Participation Agreement dated as of November 8, 1994 (as heretofore amended, the "Participation Agreement") among ----------------------- Unisource Worldwide, Inc. and AOP Inc., as Lessees, PPI SPV, L.P., as Lessor, Pitcairn SPV, Inc., as General Partner of Lessor, Alco Standard Corporation, as Guarantor, the Lenders from time to time party thereto, and Trust Company Bank, as Agent. Capitalized terms not otherwise defined herein are used herein as defined in the Participation Agreement. This Certificate is being delivered pursuant to Section 3.5(c) of the Participation Agreement. The undersigned Lessee hereby certifies to you that as of ____________, 199___ (the "Completion Date") with respect to [DESCRIBE THE LEASED PROPERTY]: --------------- (i) all amounts owing to third parties for the Construction have been paid in full (other than contingent obligations for which the Lessee has made adequate reserves), and no litigation or proceedings are pending, or to the best of Lessee's knowledge, are threatened, against the Leased Property or the Lessee which could reasonably be expected to materially adversely affect (A) the enforceability or priority of the Participation Agreement or the other Operative Documents or (B) the ability of the Lessee to fully perform its obligations pursuant to and as contemplated by the terms and provisions of the Participation Agreement and the other Operative Documents; (ii) all consents, licenses and permits and other governmental authorizations or approvals required for the Construction and operation of the Leased Property have been obtained and are in full force and effect; (iii) the Leased Property has available all services of public facilities and other utilities necessary for use and operation of the Leased Property for its intended purposes, including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between the Building and public highways for pedestrians and motor vehicles; (iv) all material agreements, easements and other rights, public or private, which are necessary to permit the lawful use and operation of the Leased Property as the Lessee intends to use the Leased Property under the Lease and which are necessary to permit the lawful intended use and operation of all then intended utilities, driveways, roads and other means of egress and ingress to and from the same have been obtained and are in full force and effect and the Lessee has no knowledge of any pending modification or cancellation of any of the same; and the use of the Leased Property does not depend on any variance, special exception or other municipal approval, permit or consent that has not been obtained and is in full force and effect for its continuing legal use; (v) all of the requirements and conditions set forth in Section ------- 3.5(b) of the Participation Agreement have been completed and fulfilled; ------ (vi) the Leased Property is in compliance with all applicable zoning laws and regulations; and (vii) the representations set forth in Section 4.1 of the ----------- Participation Agreement are true and correct on the Completion Date. -2- The Lessee has caused this Completion Date Certificate to be executed and delivered by its duly authorized officer this _______________, 199___. [INSERT NAME OF RELATED LESSEE] By:______________________ Title:___________________ -3- EX-4.8 6 ASSUMPTION AGREEMENT EXHIBIT 4.8 AMENDMENT AGREEMENT No. 1 ------------------------- This AMENDMENT AGREEMENT, dated as of September 30, 1995, is entered into between Alco Standard Corporation (the "Company") and The Prudential Insurance Company of America ("Prudential"). WHEREAS, the Company and Prudential have entered into that certain Assumption Agreement and Amended and Restated Note Agreement, dated as of May 13, 1994 (the "Note Agreement"); and WHEREAS, the Company wishes to amend certain provisions of the Note Agreement and Prudential has agreed to the amendments set forth below; NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Paragraph 6A. Paragraph 6A is amended and restated in its entirety to ------------ read as follows: "6A(1) Funded Debt to Net Worth Ratios. Senior Funded Debt of the Company and its Consolidated Subsidiaries (x) to exceed 45% of the sum of Senior Funded Debt and Subordinated Funded Debt of the Company and its Consolidated Subsidiaries plus the consolidated minority interest obligations shown on the most recently delivered consolidated balance sheet of the Company and its Consolidated Subsidiaries and the Consolidated Net Worth of the Company and its Consolidated Subsidiaries, or (y) plus Subordinated Funded Debt of the Company and its Consolidated Subsidiaries, taken together, to exceed 55% of the sum of Senior Funded Debt and Subordinated Funded Debt of the Company and its Consolidated Subsidiaries plus the consolidated minority interest obligations shown on the most recently delivered consolidated balance sheet of the Company and its Consolidated Subsidiaries and the Consolidated Net Worth of the Company and its Consolidated Subsidiaries; and 6A(2) Interest Coverage Ratios. The consolidated earnings (before reduction for taxes and after interest expense has been added back) of the Company and its Consolidated Subsidiaries for the most recent four quarters to be less than 3.5 times the consolidated interest expense of the Company and its Consolidated Subsidiaries for such four quarters. For purposes of calculating such ratio, (a) the Finance Leasing Subsidiaries shall be treated as if they were accounted for under the equity accounting method (i.e., the net or deficit of their income over their expenses shall be taken into account in determining consolidated earnings of the Company and its Consolidated Subsidiaries but their aggregate interest expense shall not be added to the consolidated interest expense of the Company and its Consolidated Subsidiaries) and (b) the amount of either unusual or special non-operating gains or unusual or special non-operating losses during such four quarters that, in either the case of losses or gains, exceed, individually or in the aggregate, U.S. $25,000,000 shall be excluded. The total of either such gains or such losses up to and including U.S. $25,000,000 of either or both is to be included in the consolidated earnings for purposes of calculating compliance with this clause (iii); and 6A(3) Contingent Liabilities. Contingent Liabilities to exceed the sum of U.S. $20,000,000 plus 10% of Consolidated Net Worth." 2. Paragraph 6B. Paragraph 6B of the Note Agreement is hereby amended and ------------ restated in its entirety as follows: "6B. [Intentionally left blank]" 3. Paragraph 6C(6). Paragraph 6C(6) of the Note Agreement is hereby --------------- amended and restated in its entirety as follows: "6C(6). [Intentionally left blank]" 4. Paragraph 7A(xii). Paragraph 7A(xii) of the Note Agreement is amended ----------------- by deleting the phrase "6A(3)" and inserting in place thereto the phrase "6A(2)." 5. Miscellaneous. ------------- (a) Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Note Agreement. (b) The Note Agreement, as amended by this Amendment Agreement, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) This Amendment Agreement may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which constitute one and the same Agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to set their hands below as of the day and year first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ (Signature Appears Here) --------------------------------- Vice President ALCO STANDARD CORPORATION By: /s/ (Signature Appears Here) --------------------------------- Title: Vice President and Treasurer 3 EX-4.9 7 NOTE PURCHASE AGREEMENT EXHIBIT 4.9 ================================================================================ ALCO STANDARD CORPORATION $55,000,000 7.15% SERIES A SENIOR NOTES DUE NOVEMBER 15, 2005 ______________ NOTE PURCHASE AGREEMENT ______________ DATED SEPTEMBER 14, 1995 PPN: 013788 D@ 0 ================================================================================ TABLE OF CONTENTS
Section Page - - --------- ---- 1. AUTHORIZATION OF NOTES.................................................................1 2. SALE AND PURCHASE OF NOTES.............................................................1 3. CLOSING................................................................................1 4. CONDITIONS TO CLOSING..................................................................2 4.1. Representations and Warranties...................................................2 4.2. Performance; No Default..........................................................2 4.3. Compliance Certificates..........................................................2 4.4. Opinions of Counsel..............................................................3 4.5. Purchase Permitted By Applicable Law, etc........................................3 4.6. Sale of Other Notes..............................................................3 4.7. Payment of Special Counsel Fees..................................................3 4.8. Private Placement Number.........................................................3 4.9. Changes in Corporate Structure...................................................4 4.10. Proceedings and Documents........................................................4 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................4 5.1. Organization; Power and Authority................................................4 5.2. Authorization, etc...............................................................4 5.3. Disclosure.......................................................................5 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.................5 5.5. Financial Statements.............................................................6 5.6. Compliance with Laws, Other Instruments, etc.....................................6 5.7. Governmental Authorizations, etc.......................................................6 5.8. Litigation; Observance of Agreements, Statutes and Orders........................6 5.9. Taxes............................................................................7 5.10. Title to Property; Leases........................................................7 5.11. Licenses, Permits, etc...........................................................7 5.12. Compliance with ERISA............................................................8 5.13. Private Offering by the Company..................................................9 5.14. Use of Proceeds; Margin Regulations..............................................9 5.15. Existing Indebtedness; Future Liens..............................................9 5.16. Foreign Assets Control Regulations, etc.........................................10 5.17. Status under Certain Statutes...................................................10 5.18. Environmental Matters...........................................................10
i 6. REPRESENTATIONS OF THE PURCHASER.......................................................11 6.1. Purchase for Investment..........................................................11 6.2. Source of Funds..................................................................11 7. INFORMATION AS TO COMPANY..............................................................12 7.1. Financial and Business Information...............................................12 7.2. Officer's Certificate............................................................15 7.3. Inspection.......................................................................15 8. PREPAYMENT OF THE NOTES................................................................16 8.1. Required Prepayments.............................................................16 8.2. Optional Prepayments and Rating Decline Prepayment...............................16 8.3. Allocation of Partial Prepayments................................................17 8.4. Maturity; Surrender, etc.........................................................17 8.5. Purchase of Notes................................................................18 8.6. Make-Whole Amount................................................................18 9. AFFIRMATIVE COVENANTS..................................................................19 9.1. Compliance with Law..............................................................19 9.2. Insurance........................................................................20 9.3. Maintenance of Properties........................................................20 9.4. Payment of Taxes and Claims......................................................20 9.5. Corporate Existence, etc.........................................................20 10. NEGATIVE COVENANTS.....................................................................21 10.1. Transactions with Affiliates.....................................................21 10.2. Merger, Consolidation, etc.......................................................21 10.3. Liens............................................................................22 10.4. Limitation on Sale and Lease-Back................................................24 10.5. Exemption from Limitation on Liens and Sale and Lease-Back.......................24 11. EVENTS OF DEFAULT......................................................................25 12. REMEDIES ON DEFAULT, ETC...............................................................27 12.1. Acceleration.....................................................................27 12.2. Other Remedies...................................................................28 12.3. Rescission.......................................................................28 12.4. No Waivers or Election of Remedies, Expenses, etc................................28 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..........................................28 13.1. Registration of Notes............................................................28 13.2. Transfer and Exchange of Notes...................................................29 13.3. Replacement of Notes.............................................................29 14. PAYMENTS ON NOTES......................................................................30 14.1. Place of Payment.................................................................30
ii 14.2. Home Office Payment.............................................................30 15. EXPENSES, ETC..........................................................................30 15.1. Transaction Expenses............................................................30 15.2. Survival........................................................................31 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..............................................................................31 17. AMENDMENT AND WAIVER...................................................................31 17.1. Requirements....................................................................31 17.2. Solicitation of Holders of Notes................................................32 17.3. Binding Effect, etc.............................................................32 17.4. Notes held by Company, etc......................................................32 18. NOTICES................................................................................32 19. REPRODUCTION OF DOCUMENTS..............................................................33 20. CONFIDENTIAL INFORMATION...............................................................33 21. SUBSTITUTION OF PURCHASER..............................................................34 22. MISCELLANEOUS..........................................................................35 22.1. Successors and Assigns..........................................................35 22.2. Payments Due on Non-Business Days...............................................35 22.3. Severability....................................................................35 22.4. Construction....................................................................35 22.5. Counterparts....................................................................35 22.6. Governing Law...................................................................35
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS SCHEDULE B -- DEFINED TERMS SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Certain Litigation iii SCHEDULE 5.11 -- Patents, etc. SCHEDULE 5.15 -- Existing Indebtedness SCHEDULE 10.3 -- Existing Liens EXHIBIT 1 -- Form of 7.15% Series A Senior Note due November 15, 2005 EXHIBIT 4.4(a) -- Form of Legal Opinions iv ALCO STANDARD CORPORATION Box 834 Valley Forge, Pennsylvania 19482 7.15% Series A Senior Notes due November 15, 2005 September 14, 1995 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: ALCO STANDARD CORPORATION, an Ohio corporation (the "COMPANY"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $55,000,000 aggregate principal amount of its 7.15% Series A Senior Notes due November 15, 2005 (the "NOTES", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. You and the other Purchasers are referred to herein individually as a "Purchaser" and collectively as the "Purchasers." The funding and the obligations of the Purchasers under this Agreement are several and not joint obligations and you shall have no obligation and no liability to any Person for the performance or non-performance by any other Purchaser hereunder. 3. CLOSING. The sale and purchase of the Notes to be purchased by the Purchasers shall occur at the offices of Gardner, Carton & Douglas, 321 North Clark Street, Suite 3400, Chicago, Illinois 60610, at 9:00 a.m., Central Standard Time, at a closing (the "CLOSING") on November 28, 1995 or on such other Business Day thereafter on or prior to November 28, 1995 as may be agreed upon by the Company and the Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 0117-7190 at Corestates Bank, N.A., Philadelphia, Pennsylvania, ABA# 0310-0001- 1. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Sections 10.1 or 10.2 hereof had such Sections applied since such date. 4.3. COMPLIANCE CERTIFICATES. (a) Officer's Certificate. The Company shall have delivered to you --------------------- Officer's Certificates, dated the date of execution of this Agreement and the date of the Closing, respectively, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you ----------------------- certificates dated the date of execution of this Agreement and the date of Closing, respectively, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreements. 2 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of execution of this Agreement and the date of the Closing, respectively, (a) from Thompson, Hine and Flory, special counsel for the - Company, and from Karin M. Kinney, Esq., Corporate Counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your special counsel in - connection with such transactions, substantially in the form set forth in Exhibit 4.4(a) and covering such other matters incident to such transactions as you may reasonably request. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (i) be - permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not -- violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to --- any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. SALE OF OTHER NOTES. The Company shall have consummated the sale of the entire $55,000,000 principal amount of Notes to be sold on the Closing Date pursuant to this Agreement. 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 3 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.10. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you as of the date of execution of this Agreement and as of the date of Closing that: 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 5.2. AUTHORIZATION, ETC. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or - other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is -- considered in a proceeding in equity or at law). 4 5.3. DISCLOSURE. The Company, through its agents, First Fidelity Bank, N.A. and SPP Hambro & Co., has delivered to you and each other Purchaser a copy of a private placement memorandum (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since September 30, 1994, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each - Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of -- the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's --- directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. 5 (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5. FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the consolidated financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said consolidated financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or - constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in -- a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute --- or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 6 (d) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not - individually or in the aggregate Material or (ii) the amount, applicability or -- validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended September 30, 1987. 5.10. TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and 7 (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $5,000,000 in the case of any single Plan and by more than $25,000,000 in the aggregate for all Plans. The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to (i) the accuracy of your representation in Section 6.2 as to - the sources of the funds used to pay the purchase price of the Notes to be purchased by you and (ii) the assumption, made solely for the purpose of making -- such 8 representation, that Department of Labor Interpretive Bulletin 75-2 with respect to prohibited transactions remains valid in the circumstances of the transactions contemplated herein. 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than the Purchasers, and not more than 15 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes to the repayment of short-term borrowings. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation G. 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of August 15 1995 and November 15, 1995, respectively, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.3. 9 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the -------- disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (b) the Source is either (i) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (c) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity - of such QPAM and (ii) the names of all employee benefit plans whose -- assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or 11 (d) the Source is a governmental plan; or (e) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (f) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. FINANCIAL AND BUSINESS INFORMATION The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each -------------------- quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified -------- above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements -- within 105 days after the end of each fiscal ----------------- year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and 12 (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that the delivery within the time period specified above of the -------- Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section (b); (c) SEC and Other Reports -- promptly upon their becoming available, --------------------- one copy of (i) each financial statement, report, notice or proxy - statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each -- registration statement (without exhibits except as expressly requested by such holder and excepting Form S-8), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default -- promptly, and in any ------------------------------------- event within five days after a Responsible Officer becoming aware of the existence of any Default or 13 Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five Business ------------- Days after a Senior Financial Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority -- promptly, and in any event ----------------------------------- within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) Requested Information -- with reasonable promptness, such other --------------------- data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 14 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed ------------------- calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.5 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed ---------------- the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default -- if no Default or Event of Default then exists, at ---------- the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the ------- expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, 15 finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES 8.1. REQUIRED PREPAYMENTS. Except as set forth in Section 8.2(b), no prepayments of the Notes are required. 8.2. OPTIONAL PREPAYMENTS AND RATING DECLINE PREPAYMENT. (a) The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 5% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. (b) Upon the occurrence of a Ratings Decline, the Company shall offer to prepay the entire principal amount of the Notes at a price of 100% of the principal amount thereof, plus the Make-Whole Amount determined for the prepayment date. The Company shall give notice of any offer to prepay the Notes pursuant to this Section 8.2(b) to each holder of the Notes promptly after a Responsible Officer becomes aware of the occurrence of a Ratings Decline and in any event no later than five Business Days following the occurrence of a Ratings Decline. Such notice shall specify (i) in reasonable detail, the facts and circumstances surrounding such Ratings Decline, including reports from Moody's and S&P concerning the Ratings Decline, (ii) the date fixed for prepayment which shall be not less than 60 or more than 90 calendar days after the date of such notice, (iii) the accrued interest applicable to the prepayment and (iv) the date by which any holder of a Note that wishes to accept such offer must deliver notice thereof to the Company which shall not be earlier than five calendar days after the date of such notice and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole amount as of the specified prepayment date. Such calculation shall use the Reinvestment Yield on the date two Business 16 Days prior to the date fixed for prepayment, but shall use the actual date fixed for prepayment as the prepayment date. A "Ratings Decline" shall be deemed to exist if (1) Moody's and S&P (the "Rating Agencies") shall: (i) have lowered their ratings of the Company's senior notes pari passu in ranking to the Notes (collectively defined herein as the "Company's Senior Notes") to a rating below Investment Grade or (ii) have previously rated the Company's Senior Notes below Investment Grade, and both ratings are further lowered by one rating category (including gradations of rating category by numerical modifier "+" or "-" or otherwise) or (2) the Company's Senior Notes cease to be rated by either Moody's or S&P (except for reasons through no fault of the Company where both Rating Agencies become unable to provide a rating for the Company's Senior Notes due to business failure or business interruption of such Rating Agencies) and the Company is unable to replace the rating with a rating by a Comparable Rating Agency within 90 days. "Comparable Rating Agency" shall mean any nationally recognized rating agency which, in the ordinary course of its business, rates Indebtedness obligations. 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.4. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make- Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5. PURCHASE OF NOTES. The Company will not and will not permit any Subsidiary or Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly cancel all Notes acquired by it or any Subsidiary or Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 17 8.6. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no -------- event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, the yield to maturity implied by (i) the yields reported, as of - 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, plus .50 of 1%, or (ii) if such yields are not reported as of such time or the -- yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, plus .50 of 1%. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill - quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the - - actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. - Treasury security with the duration closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products - -- obtained by multiplying (a) the principal component of each Remaining - Scheduled Payment with respect to such Called Principal by (b) the number - of years (calculated to the nearest one-twelfth year) that will elapse 18 between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a -------- date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. INSURANCE. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co- insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. MAINTENANCE OF PROPERTIES. The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and 19 condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that -------- this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided -------- that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by - the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in -- the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. CORPORATE EXISTENCE, ETC. Subject to Section 10.2, the Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Section 10.2, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's 20 business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 10.2. MERGER, CONSOLIDATION, ETC. The Company shall not consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person unless: (a) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer or lease substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation, (i) - such corporation shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (ii) -- shall have caused to be delivered to each holder of any Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.2 from its liability under this Agreement or the Notes. 10.3. LIENS. Except to the extent provided in Section 10.5, the Company will not create or assume, and will not permit any Subsidiary to create or assume, any Lien of or upon any Principal Property or shares of capital stock or Indebtedness of any Subsidiary, whether owned at the date of this Agreement or thereafter acquired, without making effective provision whereby the Notes shall be secured by such Lien equally and ratably with any and all other Indebtedness or obligations thereby secured so long as such other Indebtedness or obligations shall be secured; provided that the foregoing shall not apply to any of the following: (a) Liens on any Principal Property existing at the time that it is acquired by the Company or any Subsidiary; or Liens on any Principal Property acquired, constructed or improved by the Company or any Subsidiary after the date of this Agreement which are created or assumed contemporaneously with, or within 180 days after (or, in the case of any such Principal Property which is being financed on the basis of long-term contracts or similar financing arrangements for which a firm commitment is made by one or more 21 banks, insurance companies or other lenders or investors (not including the Company or any Subsidiary), within 360 days after) the completion of such acquisition, construction or improvement to secure or provide for the payment of any part of the purchase price of such property or the cost of such construction or improvement. (b) Liens on property or shares of capital stock or Indebtedness of a corporation existing at the time such corporation is merged into or consolidated with the Company or a Subsidiary or at the time of a sale, lease or other disposition of the properties of a corporation as an entirety or substantially as an entirety to the Company or a Subsidiary: (c) Liens on property or shares of capital stock or Indebtedness of a corporation existing at the time such corporation becomes a Subsidiary; (d) Liens to secure Indebtedness of a Subsidiary to the Company or to another Subsidiary, but only so long as such Indebtedness is held by the Company or a Subsidiary; (e) Liens in favor of the United States of America or any state thereof, or any department, agency or political subdivision of the United States of America or any state thereof, to secure partial, progress, advance or any payments pursuant to any contract or statute, including without limitation, Liens to secure Indebtedness represented by pollution control or industrial revenue bonds, or to secure any Indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such Liens; (f) Liens in favor of any customer arising in respect of partial, progress, advance or other payments made by or on behalf of such customer for goods produced for or services rendered to such customer in the ordinary course of business not exceeding the amount of such payments; (g) Liens existing at the date of this Agreement, as set forth in Schedule 10.3; (h) mechanics', workers', repairmen's, materialmen's, warehousemen's, carriers' or other similar Liens arising in the ordinary course of business; (i) pledges or deposits under the workers' compensation laws or similar legislation and Liens of judgments thereunder which are not currently dischargeable, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of money) or leases to which the Company or any Subsidiary is a party, or deposits in connection with obtaining or maintaining self-insurance or to obtain the benefits of any law, regulation or arrangement pertaining to unemployment insurance, old age pensions, social security or similar matters, or deposits of cash or obligations of the United States of America to secure surety, appeal or customs bonds to which the Company or any Subsidiary is a party, or deposits in litigation or other proceedings such as, but not limited to, interpleader proceedings; 22 (j) Liens created by or resulting from any litigation or proceedings which are being contested in good faith; Liens arising out of judgments or awards against the Company or any Subsidiary with respect to which the Company or such Subsidiary is in good faith prosecuting an appeal or proceedings for review; or Liens incurred by the Company or any Subsidiary for the purpose of obtaining a stay or discharge in the course of any legal proceeding to which the Company or such Subsidiary is a party; (k) Liens for taxes or assessments or governmental charges or levies not yet due or delinquent, or which can thereafter be paid without penalty, or which are being contested in good faith by appropriate proceedings; landlord's Liens on property held under lease, and tenants' rights under leases; and easements; (l) other Liens incidental to the conduct of the business or the ownership of the property and assets of the Company or a Subsidiary which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not, in the opinion of the Company, materially detract from the value of the property or assets or materially impair the use thereof in the operation of the business of the Company and its Subsidiaries taken as a whole; (m) Liens for the sole purpose of extending, renewing or replacing in whole or in part any Lien referred to in the foregoing clauses (a) to (l), inclusive, or in this clause (m), provided that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of any Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property subject to the Lien so extended, renewed or replaced (plus improvements on such property). In the event that the Company or any Subsidiary creates, assumes, incurs or permits to exist any Lien not otherwise permitted by this Section 10.3, the Company will make or cause to be made provision whereby the Notes will be secured equally and ratably with all other obligations secured by such Liens (subject (i) to any holder of Notes having the right to decline to have its Notes secured by such Liens and (ii) to the receipt by the Noteholders of an opinion of counsel in form and substance satisfactory to such Noteholders to the effect that the Notes will be secured equally and ratably with all other obligations secured by such Liens), and in any case the Notes shall have the benefit, to the full extent that, and with such priority as, the holders may be entitled thereto under applicable law, of an equitable Lien on such Property securing the Notes. 10.4. LIMITATION ON SALE AND LEASE-BACK. Except to the extent provided in Section 10.5, the Company will not, nor will it permit any Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of any Principal Property (except for leases of not more than three years and except for leases between the Company and a Subsidiary or between Subsidiaries), which property has been owned and operated by the Company or any Subsidiary for more than 23 180 days and has been or is to be sold or transferred by the Company or such Subsidiary to such Person (in Section 10.4 and in Section 10.5 referred to as a "Sale and Lease-Back Transaction") unless either (i) the Company or such Subsidiary would be entitled to incur Indebtedness secured by a Lien on such property without equally and ratably securing the Notes pursuant to the provisions of Section 10.3 or (ii) the Company shall apply an amount equal to the Attributable Debt in respect of such Sale and Lease-Back Transaction to (1) the acquisition of one or more Principal Properties of equal or greater aggregate fair market value, (2) the optional prepayment of Indebtedness, including, at the option of each holder of a Note, the Notes (which shall be prepaid pursuant to the terms and conditions of Section 8.2(a)), incurred or assumed by the Company or any Subsidiary (other than Indebtedness for borrowed money owed to the Company or any Subsidiary) prepaid within 180 days after such sale or (3) any combination of the foregoing. Notwithstanding the foregoing, no prepayment referred to in clause (2) of the preceding sentence may be effected by payment at maturity or pursuant to any mandatory sinking fund payment or any mandatory prepayment provision. 10.5. EXEMPTION FROM LIMITATION ON LIENS AND SALE AND LEASE-BACK. Notwithstanding the provisions of Section 10.3 and Section 10.4, the Company and its Subsidiaries may create or assume Liens and enter into Sale and Lease-Back Transactions which would otherwise require the securing of the Notes, the acquisition of one or more Principal Properties or the prepayment of Indebtedness under said provisions, provided that the aggregate amount of all such Liens and Sale and Lease-Back Transactions permitted by Section 10.5 outstanding at the time such Lien is assumed or created or such Sale and Lease- Back Transaction is entered into (as measured by (i) all Indebtedness secured by all such Liens then outstanding or to be so created or assumed (and after giving effect to the retirement of any Indebtedness or obligations which are concurrently being retired) and (ii) the Attributable Debt in respect of all such Sale and Lease-Back Transactions then outstanding or to be so entered into) shall not exceed 10% of Consolidated Net Assets, as determined in accordance with the most recent consolidated balance sheet of the Company and after giving effect to the receipt and application of any proceeds of all Indebtedness secured by all such Liens so to be created or assumed and of any Sale and Lease- Back Transactions so to be entered into. 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make- Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Sections 10.2, 10.4 and 10.5; or 24 (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual - knowledge of such default and (ii) the Company receiving written notice -- of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as principal or - as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $15,000,000 beyond any period of grace provided with respect thereto, or (ii) the -- Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $15,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or --- condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (x) the - Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $15,000,000, or (y) one or more Persons have the right to - require the Company or any Subsidiary so to purchase or repay such Indebtedness; or (g) the Company or any Subsidiary (i) is generally not paying, or - admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it -- of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its --- creditors, (iv) consents to the appointment of a custodian, receiver, -- trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as - insolvent or to be liquidated, or (vi) takes corporate action for the -- purpose of any of the foregoing; or 25 (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 45 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 45 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding - standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent -- to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the --- aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $25,000,000, (iv) the Company or any -- ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the - Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee -- welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1. ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause 26 encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 25% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and - unpaid interest thereon and (y) the Make-Whole Amount determined in respect of - such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 75% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) - the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts - that have become due solely by reason of such declaration, have been cured or have been waived 27 pursuant to Section 17, and (c) no judgment or decree has been entered for the - payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be 28 transferred in denominations of less than $100,000, provided that if necessary -------- to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that an Institutional Investor's -------- own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made at the address of the Purchasers set forth in Schedule A hereto. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the 29 Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred - in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) - the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding 30 sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the - provisions of Section 1, 2, 3, 4, 5, 6 or 20 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of - the holder of each Note at the time outstanding affected thereby, (i) subject to - the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal -- amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or --- 20. 17.2. SOLICITATION OF HOLDERS OF NOTES. (a) Solicitation. The Company will provide each holder of the Notes ------------ (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or ------- cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, 31 covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a - confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt - requested (postage prepaid), or (c) by a recognized overnight delivery service - (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be - executed, (b) documents received by you at the Closing (except the Notes - themselves), and (c) financial statements, certificates and other information - previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates 32 that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not -------- include information that (a) was publicly known or otherwise known to you prior - to the time of such disclosure, (b) subsequently becomes publicly known through - no act or omission by you or any person acting on your behalf, (c) otherwise - becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under - Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential -------- Information to (i) your directors, officers, employees, agents, attorneys and - affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial -- advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor --- -- to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company - (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal -- or state regulatory authority having jurisdiction over you, (vii) the National --- Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or ---- disclosure may be necessary or appropriate (w) to effect compliance with any - law, rule, regulation or order applicable to you, (x) in response to any - subpoena or other legal process, (y) in connection with any litigation to which - you are a party or (z) if an Event of Default has occurred and is continuing, to - the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or 33 its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. MISCELLANEOUS. 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with 34 any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Pennsylvania excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. 35 * * * * * If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, ALCO STANDARD CORPORATION By /s/ Signature ------------------------------- Title: [Title] 36 The foregoing is hereby agreed to as of the date thereof. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By: /s/ Signature ------------------------------------ By: /s/ Signature ------------------------------------ Authorized Signatories NATIONWIDE LIFE INSURANCE COMPANY By: /s/ Signature ------------------------------------ Title: [Title] NATIONWIDE LIFE INSURANCE COMPANY SEPARATE ACCOUNT OH By: /s/ Signature ------------------------------------ Title: [Title] EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU By: /s/ Signature ------------------------------------ Title: [Title] CONNECTICUT GENERAL LIFE INSURANCE COMPANY By: CIGNA Investments, Inc. By: /s/ Signature ------------------------------------ Name: [Name] Title: [Title] LIFE INSURANCE COMPANY OF NORTH AMERICA By: CIGNA Investments, Inc. By: /s/ Signature ------------------------------------ Name: [Name] Title: [Title] 37 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- GREAT-WEST LIFE & ANNUITY INSURANCE $20,000,000 COMPANY 8515 East Orchard Road Third Floor, Tower 2 Englewood, Colorado 80111 Attn: Private Placements
All notices of scheduled payments and written confirmations of such wire transfer should be sent to the address above. All payments by Fedwire transfer of immediately available funds, identifying the name of the Issuer (and the Credit, if any), the Private Placement Number preceded by "DPP" and the payment as principal, interest or premium, in the format as follows: [BBK =Norwest Bank Minnesota, N.A. ABA #091-000-019 NW MPLS/TRUST CLEARING BNF = Great-West Life & Annuity Insurance Company Collection Account #08-40-245 ATTN: Acct. #12468800 ORG = Alco Standard Corporation OBI = DPP (PPN: 013788 D@ 0) Payment Due Date (MM/DD/YY) - P__________ (Enter "P" and amount of principal being remitted, for example, P5000000.00) - I__________ (Enter "I" and amount of interest being remitted, for example, I225000.00) Schedule A Securities to be delivered to: Norwest Bank Minnesota, N.A. 733 Marquette Avenue 5th Floor Minneapolis, Minnesota 55479-0047 Attention: Security Clearance All financial reports, compliance certificates and all other written communications, including notice of prepayments, to be sent to: Great-West Life & Annuity Insurance Company 8515 East Orchard Road 3rd Floor, Tower 2 Englewood, Colorado 80111 Attention: U.S. Private Placements Tax ID #84-0467907 Schedule A 2 SCHEDULE A INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- NATIONWIDE LIFE INSURANCE COMPANY $16,000,000 One Nationwide Plaza Columbus, Ohio 43215-2220
(1) All payments by wire transfer of immediately available funds to: Morgan Guaranty Trust Company of New York ABA #021-000-238 JOURNAL #999-99-024 F/A/O Nationwide Life Insurance Company Custody A/C #71615 Attn: Custody Service Dept. PPN: 013788 D@ 0 Security Description:___________________ With notice of each such payment to: Nationwide Life Insurance Company One Nationwide Plaza (1-32-09) Columbus, Ohio 43215-2220 Attention: Corporate Money Management (2) All notices and communications to: Nationwide Life Insurance Company One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention; Corporate Fixed-Income Securities Schedule A 3 (3) The original note should be registered in the name of NATIONWIDE LIFE INSURANCE COMPANY and delivered to: Morgan Guaranty Trust Company of New York Safekeeping Incoming 55 Exchange Place - A Level New York, New York 10260-0023 F/A/O Nationwide Life Insurance Company Custody Account #71615 Tax ID #31-4156830 Schedule A 4 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- NATIONWIDE LIFE INSURANCE COMPANY $1,000,000 Separate Account OH One Nationwide Plaza Columbus, Ohio 43215-2220
(1) All payments by wire transfer of immediately available funds to: Morgan Guaranty Trust Company of New York ABA #021-000-238 JOURNAL #999-99-024 F/A/O Nationwide Life Insurance Company Separate Acct. OH Custody A/C #74605 Attn: Custody Service Dept. PPN: 013788 D@ 0 Security Description:___________________ With notice of each such payment to: Nationwide Life Insurance Company Separate Account OH One Nationwide Plaza (1-32-09) Columbus, Ohio 43215-2220 Attention: Corporate Money Management (2) All notices and communications to: Nationwide Life Insurance Company Separate Account OH One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention; Corporate Fixed-Income Securities Schedule A 5 (3) The original note should be registered in the name of NATIONWIDE LIFE INSURANCE COMPANY SEPARATE ACCOUNT OH and delivered to: Morgan Guaranty Trust Company of New York Safekeeping Incoming 55 Exchange Place - A Level New York, New York 10260-0023 F/A/O Nationwide Life Insurance Company Separate Account OH Custody Account #74605 Tax ID #31-4156830 Schedule A 6 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- EMPLOYERS LIFE INSURANCE COMPANY $3,000,000 OF WAUSAU 2000 Westwood Drive Wausau, Wisconsin 54401
(1) All payments by wire transfer of immediately available funds to: Morgan Guaranty Trust Company of New York ABA #021-000-238 JOURNAL #999-99-024 F/A/O Employers Life Custody A/C #50135 Attn: Custody Service Dept. PPN: 013788 D@ 0 Security Description:___________________ With notice of each such payment to: Employers Life Insurance Company of Wausau 2000 Westwood Drive Wausau, Wisconsin 54401 (2) All notices and communications to: Employers Life Insurance Company of Wausau One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attention; Corporate Fixed-Income Securities Schedule A 7 (3) The original note should be registered in the name of EMPLOYERS LIFE INSURANCE COMPANY OF WAUSAU and delivered to: Morgan Guaranty Trust Company of New York Safekeeping Incoming 55 Exchange Place - A Level New York, New York 10260-0023 F/A/O Employers Life Insurance Company of Wausau Custody Account #50135 A copy of the note should be mailed directly to: Ms. Lorraine Moran Employers Life Insurance Company of Wausau 2000 Westwood Drive Wausau, Wisconsin 54401 Tax ID #39-1049873 Schedule A 8 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- CONNECTICUT GENERAL LIFE INSURANCE $9,000,000 COMPANY
(1) In the case of all payments on account of the Notes: --------------------------------------------------- By crediting in the form of bank wire transfer of Federal or other immediately available funds, to: FED ABA #021000021 Chase NYC/CTR BNF=CIGNA Private Placements/AC=9009001802 OBI=[Issue Name, Private Placement Number, description of security with rate and maturity, the amount of interest and/or principal, the amount of any prepayment, the payable date, contact name and telephone number] (2) In the case of all notices with respect to payments only: -------------------------------------------------------- CIG & Co. c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2206 Attention: Securities Accounting Department (S-206) with a copy to each of: Chase Manhattan Bank, N.A. Private Placement Servicing P.O. Box 1508, Bowling Green Station New York, New York 10081 Attention: CIGNA Private Placements Fax: (212) 552-3107/1005 and Schedule A 9 CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Attention: Private Securities Department (S-307) (3) In the case of all other communications: --------------------------------------- CIG & Co. c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Attention: Private Securities Department (S-307) SECURITIES SHOULD BE REGISTERED IN THE NAME OF CIG & CO. CIG & Co.'s Tax ID #13-3574027 Schedule A 10 SCHEDULE A ---------- INFORMATION RELATING TO PURCHASERS
Principal Amount of Name and Address of Purchaser Notes to be Purchased - - ----------------------------- --------------------- LIFE INSURANCE COMPANY OF $6,000,000 NORTH AMERICA
(1) In the case of all payments on account of the Notes: --------------------------------------------------- By crediting in the form of bank wire transfer of Federal or other immediately available funds, to: FED ABA #021000021 Chase NYC/CTR/ BNF=CIGNA Private Placements/AC=9009001802 OBI=[Issue Name, Private Placement Number, description of security with rate and maturity, the amount of interest and/or principal, the amount of any prepayment, the payable date, contact name and telephone number] (2) In the case of all notices with respect to payments only: -------------------------------------------------------- CIG & Co. c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2206 Attention: Securities Accounting Department (S-206) with a copy to each of: Chase Manhattan Bank, N.A. Private Placement Servicing P.O. Box 1508, Bowling Green Station New York, NY 10081 Attention: CIGNA Private Placements Fax: (212) 552-3107/1005 and CIGNA Investments, Inc. Schedule A 11 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Attention: Private Securities Department (S-307) (3) In the case of all other communications: --------------------------------------- CIG & Co. c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Attention: Private Securities Department (S-307) SECURITIES SHOULD BE REGISTERED IN THE NAME OF CIG & CO. CIG & Co.'s Tax ID #13-3574027 Schedule A 12 SCHEDULE B ---------- DEFINED TERMS ------------- As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "ATTRIBUTABLE DEBT" means, as to any particular lease under which any Person is at the time liable, at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof, excluding renewals at the option of lessee, discounted at a rate per annum equal to the prevailing market interest rate, at the time such lease was entered into, on United States Treasury obligations having a maturity substantially the same as the average term of such lease, plus 3%. The net amount of rent required to be paid under any such lease for any such period shall be the amount of the rent payable by the lessee with respect to such period, after excluding amounts required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges and contingent rents such as those based on sales. In the case of any lease which is terminable by the lessee upon the payment of a penalty, such net amount shall also include the amount of such penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day - other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any - other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Denver, Colorado; Columbus, Ohio; or Hartford, Connecticut, Philadelphia, Pennsylvania are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. Schedule B "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means Alco Standard Corporation, an Ohio corporation. "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED NET ASSETS" means the total of all assets after deducting all current liabilities appearing on a consolidated balance sheet of the Company and its consolidated Subsidiaries, prepared in accordance with generally accepted accounting principles, the assets to be determined at their net book values (after deducting related depreciation, depletion, amortization and all other valuation reserves which, in accordance with such principles, should be set aside in connection with the business conducted). "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) - two percent (2%) per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) two percent (2%) over the rate of -- interest publicly announced by The Chase Manhattan Bank, N.A., in New York, New York as its "base" or "prime" rate. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2 Schedule B "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INDEBTEDNESS" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; 3 Schedule B (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, - (b) any holder of a Note holding more than 5% of the aggregate principal amount - of the Notes then outstanding, and (c) any bank, trust company, savings and loan - association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INVESTMENT GRADE" means ratings by Moody's and S&P of BBB-1/Baa3, respectively, or above. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the - business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company - to perform its obligations under this Agreement and the Notes, or (c) the - validity or enforceability of this Agreement or the Notes. 4 Schedule B "MEMORANDUM" is defined in Section 5.3. "MOODY'S" means Moody's Investors Service, Inc. or any successor thereof. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "PRINCIPAL PROPERTY" means any manufacturing plant, research facility or warehouse owned or leased by the Company or any Subsidiary which is located within the United States of America and has a net book value exceeding 2-1/2% of Consolidated Net Assets. "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "RATINGS DECLINE" is defined in Section 8.2(b). 5 Schedule B "REQUIRED HOLDERS" means, at any time, the holders of at least 66-2/3% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "SALE AND LEASEBACK TRANSACTION" is defined in Section 10.4 "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "S&P" means Standard & Poor's Corporation or any successor thereto. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SWAPS" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting 6 Schedule B interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. 7 Schedule B EXHIBIT 1 --------- [FORM OF NOTE] ALCO STANDARD CORPORATION 7.15% SERIES A SENIOR NOTE DUE NOVEMBER 15, 2005 No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, ALCO STANDARD CORPORATION (herein called the "Company"), a corporation organized and existing under the laws of the State of Ohio, hereby promises to pay to [________________], or registered assigns, the principal sum of [_______________] DOLLARS on November 15, 2005, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 7.15% per annum from the date - hereof, payable semiannually, on the fifteenth day of November and May in each year, commencing with May 15, 1996, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment - (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.15% or (ii) 2% over the rate of - -- interest publicly announced by The Chase Manhattan Bank, N.A., from time to time in New, York, New York as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the address set forth in Schedule A to the Note Purchase Agreement (as defined below). This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of September 14, 1995 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality - provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to -- have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and Exhibit 1 registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note is subject to prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. No replacement or substitution of this Note shall constitute a novation of this Note. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Pennsylvania excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Company subject to the Note Purchase Agreements may be found. ALCO STANDARD CORPORATION By_________________________ [Title] 2 Exhibit 1 EXHIBIT 4.4(a) FORM OF LEGAL OPINIONS A. The opinion of Gardner, Carton & Douglas, special counsel for the Purchasers, shall be to the effect that: 1. The Company is a corporation organized and validly existing in good standing under the laws of the State of Ohio, with all requisite corporate power and authority referred to in the Agreement, to enter into and perform the Agreement and to issue and sell the Notes. 2. The Agreement has been duly authorized by proper corporate action on the part of the Company, has been duly executed and delivered by an authorized officer of the Company and constitutes the legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that enforcement of the Agreement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 3. The Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company and constitute the legal, valid and binding obligations of the Company, enforceable in accordance with their terms, except to the extent that enforcement of the Notes may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 4. Based upon the representations set forth in the Agreement, the offering, sale and delivery of the Notes do not require the registration of the Notes under the Securities Act of 1933, as amended, nor the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 5. The issuance and sale of the Notes and compliance with the terms and provisions of the Notes and the Agreement will not conflict with or result in any breach of any of the provisions of the Certificate of Incorporation or By- Laws of the Company. The opinion of Gardner, Carton & Douglas also shall state that the opinion of Karin M. Kinney, Esq., Corporate Counsel for the Company and the opinion of Thompson, Hine and Flory, special counsel for the Company, each delivered to you pursuant to the Agreement, are each satisfactory in form and scope to Gardner, Carton & Douglas, and, in their opinion, the Purchasers and it are justified in relying thereon and shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. Exhibit 4.4(a) B. The opinion of Karin M. Kinney, Esq., Corporate Counsel for the Company and the opinion of Thompson, Hine and Flory, special counsel for the Company, shall together cover all matters specified in clauses 1 through 4 set forth in A. above and also shall together be to the effect that: 1. The Company has full corporate power and authority to conduct the activities in which it is now engaged and own its property. 2. Each Subsidiary of the Company is a corporation duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation, and each has all requisite corporate power and authority to carry on its business as now conducted and own its property. 3. Each of the Company and its Subsidiaries is duly qualified or licensed and in good standing as a foreign corporation authorized to do business in each jurisdiction where the nature of the business transacted by it or the character of its properties owned or leased makes such qualification or licensing necessary except where failure to so qualify would not, individually or in the aggregate, have a material adverse affect on its business, properties, or condition, financial or otherwise. 4. No authorization, approval or consent of any governmental or regulatory body is necessary or required in connection with the lawful execution and delivery by the Company of the Agreement or the lawful offering, issuance and sale of the Notes, and no designation, filing, declaration, registration and/or qualification with any governmental authority is required by the Company in connection with such offer, issuance and sale. 5. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Agreement will not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation of any Lien on the property of the Company or any Subsidiary pursuant to, (i) the provisions of the Certificate of Incorporation or other charter document of the Company or any Subsidiary or By- laws of the Company or any Subsidiary or any loan agreement under which the Company or any Subsidiary is bound, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them or their property is bound or (ii) any law (including usury laws) or regulation, order, writ, injunction or decree of any court or governmental authority applicable to the Company. 6. There are no actions, suits or proceedings pending or, to the best of such counsel's knowledge after due inquiry, threatened against, or affecting the Company or its Subsidiaries, at law or in equity or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which are likely to result, either individually or in the aggregate, in any material adverse change in the business, 2 Exhibit 4.4(a) properties, operations or condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole. 7. All of the issued and outstanding shares of capital stock of each Subsidiary have been duly and validly issued, are fully paid and nonassessable and, to the knowledge of such counsel, are owned by the Company free and clear of any Lien. 8. The issuance of the Notes and the use of the proceeds of the sale of the Notes do not violate or conflict with Regulation G, T, U or X of the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II). 9. Neither the Company nor any Subsidiary is: (i) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" or an "affiliated person" thereof or an "affiliated person" of any such "affiliated person," as such terms are defined in the Investment Company Act of 1940, as amended. The opinion of Karin M. Kinney, Esq., Corporate Counsel for the Company and the opinion of Thompson, Hine and Flory, special counsel for the Company, shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinions are based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company and with respect to matters governed by the laws of any jurisdiction other than the United States of America and the State of Pennsylvania, such counsel may rely upon the opinions of counsel deemed (and stated in their opinion to be deemed) by them to be competent and reliable. The opinion of Karin M. Kinney, Esq., Corporate Counsel for the Company and the opinion of Thompson, Hine and Flory, special counsel for the Company, shall provide that such opinions may be relied upon by the Purchasers and its counsel and (i) in connection with enforcement of obligations of the Company under the Notes and the Note Agreement, (ii) in response to a subpoena or other legal process, (iii) as otherwise required by applicable law or regulation or (iv) in connection with the sale or transfer of any of the Notes to a subsequent purchaser or transferee. 3 Exhibit 4.4(a) EX-10.2 8 LONG TERM INCENTIVE PLAN ALCO STANDARD CORPORATION LONG TERM INCENTIVE COMPENSATION PLAN 1. Purpose. The Alco Standard Corporation Long-Term Incentive Plan is ------- adopted effective October 1, 1994 for the purpose of motivating, recognizing and rewarding performance at the corporate, group and business unit levels which enhances long term shareholder value. The Plan has been designed and is intended to operate in a manner consistent with Alco Standard Corporation's decentralized operating philosophy and multitiered organizational structure. 2. Eligibility. Participation in the Plan shall be limited to full- ----------- time key employees of Alco Standard Corporation ("Alco") and its subsidiaries (collectively, the "Company"). 3. Shares. No more than 2,500,000 shares of common stock, no par ------ value, of Alco ("Shares") may be issued under the Plan. Shares subject to awards which have been forfeited pursuant to the terms of the Plan may again be awarded pursuant to the Plan. 4. Adjustments. If the outstanding Shares are increased, decreased or ----------- exchanged for a different number or kind of shares or other securities, or if additional Shares or other property (other than ordinary cash dividends) are distributed with respect to such Shares or other securities, through merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, dividend, stock split, reverse stock split, spin off, split off, or other distribution with respect to such Shares or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares that may be issued under the Plan and (ii) the number and kind of shares or other securities subject to then outstanding awards. No fractional shares will be issued under the Plan on account of any such adjustments. 5. Administration and Interpretation. The Plan as it applies to --------------------------------- participants who are executive officers of Alco shall be administered by a committee of the Board of Directors of Alco (the "Committee"), which shall consist of two or more directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3(c) under the Securities Exchange Act of 1934 and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code and applicable regulations thereunder. The Committee may make such rules and establish such procedures as it deems appropriate for the administration of the Plan as it applies to executive officers. In the event of any disagreement as to the interpretation of the Plan or any rule or procedure thereunder, the decision of the Committee shall be final and binding upon all persons in interest. The Plan as it applies to participants who are not executive officers of Alco shall be administered by the Chief Executive Officer of Alco. The Chief Executive Officer may make such rules and establish such procedures as it deems appropriate for the administration of the Plan as it applies to non-executive officers. In the event of any disagreement as to the interpretation of the Plan or any rule or procedure thereunder, the decision of the Chief Executive Officer shall be final and binding upon all persons in interest. 6. Awards. The Committee shall have the authority to make awards ------ ("Awards") under the Plan to any executive officer. Awards may be made in the form of Shares, cash, stock options, or any other form which the Committee deems appropriate. At the time an Award is made, the Committee shall specify (i) the amount and form of the Award, (ii) the objective performance goals that must be met in order for the executive officer to receive all or any part of the Award and (iii) the time period within which the performance goals must be met ("Performance Period"). The performance goals specified by the Committee may relate to the performance of an executive officer's business unit or the performance of the Company as a whole, or to any combination of the foregoing. Measurements of performance may include stock price, sales, earnings per share, return on equity, return on assets, growth in assets, total shareholder return or such other objective performance goals as may be established by the Committee. The number of Awards, if any, made each year, the executive officers to whom and the time or times at which Awards are made, the amount or form of any Award, the performance goals applicable to each Award and the other terms and provisions of such Award shall be wholly within the discretion of the Committee, subject to the limit on the number of Shares described in Section 3. The Chief Executive Officer shall have the authority to make awards ("Awards") under the Plan to any eligible non-executive officer. At the time an Award is made, the Chief Executive Officer shall specify (i) the amount and form of the Award, (ii) the objective performance goals that must be met in order for the employee to receive all or any part of the Award and (iii) the time period within which the performance goals must be met ("Performance Period"). The performance goals specified by the Chief Executive Officer may relate to the performance of an employee's business unit or the performance of the Company as a whole, or to any combination of the foregoing. Measurements of performance may include stock price, sales, earnings per share, return on equity, return on assets, growth in assets, total shareholder return or such other objective performance goals as may be established by the Chief Executive Officer. The number of Awards, if any, made each year, the employees to whom and the time or times at which Awards are made, the amount or form of any Award, the performance goals applicable to each Award and the other terms and provisions of such Award shall be wholly within the discretion of the Chief Executive Officer, subject to the limit on the number of Shares described in Section 3. 7. Certification; Forfeiture. If the Committee or Chief Executive ------------------------- Officer (as applicable) shall certify, after the end of the Performance Period, that the applicable performance goals have been met, Alco shall cause such amount as is earned pursuant to the Award to be delivered to the employee, subject to valid income tax deferral under any of Alco's deferred compensation programs and/or reduction in the amount of the Award for tax withholding purposes. If the Committee or Chief Executive Officer (as applicable) does not so certify, the Award shall be forfeited. Unless otherwise determined by the Committee or Chief Executive Officer, an Award will be forfeited if the participant is not an employee of the Company on the last day of the Performance Period, subject to the provisions of Section 9 hereof. 8. Certificate. Each Award shall be evidenced by an Award Certificate, ----------- which shall specify the amount and form of the Award, the Performance Period, and the applicable performance goals. In addition, the Committee or Chief Executive Officer, as applicable, may specify additional terms, not inconsistent with this Plan, by rules of general application or by specific direction in connection with a particular Award or group of Awards. 9. Termination of Employment -- Unless otherwise determined by the ------------------------- Committee or Chief Executive Officer, as applicable, an Award will be forfeited if the participant ceases to be a full-time active employee of Alco and its subsidiaries before the end of the Performance Period for any reason other than death or total disability. If the participant becomes totally disabled (as defined in Alco's Long-Term Disability Plan) or dies before the end of the Performance Period, the participant (or estate or legal heir) shall generally be entitled to receive a prorated Award (payable, if earned, after the end of the Performance Period). If the participant's full-time active employment terminates prior to the end of the Performance Period due to early retirement, voluntary or involuntary termination, demotion, transfer to part-time status, or for any reason other than disability or death, the Award will be forfeited. In the event the participant transfers to a position as a full-time active employee of another business unit within Alco prior to the end of the Performance Period, the Committee or Chief Executive Officer, as applicable, may make an adjustment in the amount of the Award, the Performance Period and/or performance goals associated with the Award, and/or may determine that the Award should be forfeited in part or its entirety. Any such adjustment is in the sole discretion of the Committee or Chief Executive Officer, as applicable. Before making any such adjustment for an executive officer, however, the Committee shall take into consideration the requirements of Section 162(m) of the Internal Revenue Code and the applicable regulations thereunder. 10. Common Stock Subject to Award. Any Shares issued pursuant to an ----------------------------- Award may be unissued shares or treasury shares, including shares bought on the open market. 11. Rights of Participant in Shares. A participant shall not be deemed ------------------------------- to be the holder of, or to have the rights of a holder with respect to, any Shares subject to an Award unless and until a stock certificate representing such Shares is issued to such participant. 12. Tax Withholding. At the election of the employee, the Company --------------- shall reduce and withhold the amount which becomes deliverable pursuant to the Award by up to fifty percent of such amount and shall apply the amount withheld to applicable federal, state, city, non-U.S. and other taxes required to be withheld by the Company pursuant to any statutes or other governmental regulation or ruling. 13. Nonassignment. Any Award and the rights and privileges conferred ------------- hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. 14. Plan and Award Not to Affect Employment, Neither this Plan nor any --------------------------------------- Award shall confer upon any employee any right to continue in the employ of the Company. 15. Amendment of Plan. The Board of Directors of Alco may terminate ----------------- the Plan or make such amendments to the Plan as it deems necessary or advisable, provided, however, that unless otherwise required by law, no such amendment may impair the rights of any participant under any Award previously granted without such participant's consent. 16. Successors. The Plan shall be binding upon and inure to the ---------- benefit of any successor, successors or assigns of Alco. 17. Severability. If any part of the Plan shall be determined to be ------------ invalid or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of the Plan which shall continue in full force and effect. 18. Governing Law. The Plan and actions taken in connection herewith ------------- shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 19. Construction. Wherever any words are used in the Plan in the ------------ masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 20. Liability of Plan Administrators, No administrator of the Plan -------------------------------- shall be liable, in the absence of bad faith or willful misconduct, for any act or omission with respect to administration of the Plan. Service as a Plan Administrator, whether on the Committee or as Chief Executive Officer, shall constitute service as a director of the Company so that the plan administrators named herein shall be entitled to indemnification and reimbursement as directors of the Company pursuant to its Code of Regulations. 21. Other Benefits. Neither the receipt of an Award nor the delivery -------------- of cash, stock options, Shares, or any other amounts pursuant to an Award shall be deemed compensation for purposes of computing benefits under any retirement plan nor affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 22. Costs. Unless otherwise determined by the Board of Directors, the ----- Company shall bear all expenses incurred in administering the Plan, including expenses of issuing Shares or granting stock options pursuant to an Award. 23. Effective Date. The Plan shall be effective October 1, 1992. -------------- 24. Termination of the Plan. No Award shall be made after ----------------------- September 30, 2004. However, Awards made prior to such date shall continue to be governed in accordance with the terms of the Plan and participants shall be entitled to receive payment for such Awards under the terms of the Plan. EX-10.6 9 1986 STOCK OPTION PLAN Exhibit 10.6 ALCO STANDARD CORPORATION 1986 STOCK OPTION PLAN 1. Purpose. The purpose of this 1986 Stock Option Plan (the "Plan") of Alco Standard Corporation, an Ohio corporation ("Alco"), is to secure for Alco and its shareholders the benefits of the incentive inherent in the ownership of common stock of Alco by employees and other persons who will be responsible for the future growth and continued success of Alco and its subsidiaries. 2. Effectiveness. This Plan became effective on February 21, 1986. As of the effective date of this Plan, there were no further grants under the prior Alco Standard Corporation 1981 Stock Option Plan. 3. Stock. There are authorized for issuance or delivery upon the exercise of options to be granted from time to time under the Plan an aggregate of 4,000,000 shares of Alco's common stock, no par value, subject to adjustment as provided hereinafter in paragraph 14. Such shares may be, as a whole or in part, authorized but unissued shares, whether now or hereafter authorized, or issued shares which have been reacquired by Alco. If any option under this Plan shall expire, terminate or be cancelled for any reason without having been exercised in full, the shares which have not been purchased thereunder shall again become available for the purpose of this Plan. 4. Administration. The Plan shall be administered by a committee (the "Committee") of not less than three members of the board of directors of Alco (each of whom is a "disinterested person" within the meaning of the Securities Exchange Act of 1934, as amended from time to time) who have been appointed by the board of directors to administer the Plan. No member or former member of the Committee shall be liable, in the absence of bad faith or misconduct, for any act or omission with respect to service on the Committee. Service on the Committee shall constitute service as a director of Alco so that members of the Committee shall be entitled to indemnification and reimbursement as directors of Alco pursuant to its Code of Regulations. Subject to the express provisions of paragraph 6 of the Plan with respect to eligibility, the Committee shall determine the persons to whom, and the time or times at which, options shall be granted and the number of shares to be subject to each option. The Committee shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of particular options (which terms and provisions need not be the same in each case) and to make all other determinations deemed necessary or advisable in administering the Plan. The determinations of the Committee on the matters referred to in this paragraph shall be conclusive. 5. Time of Granting. The action of the Committee with respect to the granting of an option shall take place on such date as a majority of the members of the Committee, at a meeting, shall make a determination with respect to the granting of an option, or, in the absence of a meeting, on such date as a unanimous written consent covering such option shall have been executed by all members of the Committee. The effective date of the grant of an option (hereinafter called the "Granting Date") shall be the date specified by the Committee in its determination or consent relating to the grant of such option. 6. Participants. Options may be granted to key persons who on the Granting Date are (a) employees of Alco or any of its present or future domestic subsidiary corporations, as defined in Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"), (b) employees of any other subsidiary of Alco as determined by the Board, or (c) persons who directly or through a corporation in which they own a majority of the outstanding shares of voting stock provide services to Alco or any of its subsidiaries as independent contractors. Options may be granted only to those persons described in the foregoing sentence who, in the opinion of the Committee, exercise such functions or discharge such responsibilities that they merit consideration as key persons. The Committee shall have the authority to determine whether to grant to any employee of Alco or any of its present or future subsidiary corporations, as defined in Section 424 of the Code, options which may qualify for special tax treatment under the Code, as the same may be amended from time to time. 7. Terms and Conditions; Stock Option Awards. In granting options, the Committee shall determine the exercise prices (which may be less than the current fair market value), the duration (which may be up to ten years), any conditions precedent to the vesting of the right to exercise options (which, at a minimum, shall include continued employment for a six-month period after the Granting Date) and other terms and conditions of the options (including any business performance criteria, any restrictions to be placed on the transferability of shares upon exercise of options, and any provisions considered appropriate from the standpoint of possible tax consequences). Each grant of an option shall be reflected in an option award document. 8. Limitations. (a) All options granted pursuant to this Plan shall be granted by November 14, 1995. (b) No option granted pursuant to this Plan shall be transferable by the optionee otherwise than by will or the laws of descent and distribution, and an option shall be exercisable during the optionee's lifetime only by the optionee. (c) The aggregate fair market value (determined as of the time the option is granted) of the stock with respect to which "incentive stock options" (within the meaning of the Code) are exercisable for the first time by such individual during any calendar year (under all plans of the individual's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. 9. Relationship at Time of Exercise. Except as provided in paragraphs 10 and 11 below, no option may be exercised at any time unless the holder thereof is then an employee of, or rendering service as an independent contractor to, Alco or a subsidiary. 10. Termination of Relationship. In the event of termination of the employment of any employee with Alco and all of its subsidiaries, or the services of any other person to whom an option has been granted, such option may, unless not permitted under the particular option agreement, be exercised by the optionee (to the extent that the optionee was entitled to do so at the termination of employment or services) within three months after such termination, but in no event after the expiration of the term of the option. If a company ceases to be a subsidiary of Alco, such shall be deemed a termination of the employment or services of persons employed by or serving such company for purposes of this paragraph, and the three-month post-termination exercise period shall apply. Notwithstanding the foregoing, the Committee may determine that Alco's divestiture of a company shall not be considered a termination of employment for purposes of the Plan, so that an optionee who continues to be employed by such divested company will be entitled to exercise his or her outstanding options (and will be entitled to continued vesting) in accordance with the terms of the stock option award as though the optionee remained an employee of Alco. -2- 11. Death of Optionee. If an optionee to whom an option has been granted under the Plan shall die while employed by, or performing services for, Alco or any of its subsidiaries or within three months after the termination of the optionee's employment or services (including a deemed termination as described in paragraph 10 above), such option may be exercised within one year after the optionee's death (even if the optionee was not entitled to do so at the date of death) by the person or persons to whom the optionee's rights hereunder shall pass by will or by the laws of descent and distribution, but in no event after the expiration of the term of the option. 12. Payment. The purchase price of shares purchased upon the exercise of any option shall be paid in full in cash or check payable to the order of Alco prior to the delivery of the shares, or options may be exercised through broker-assisted exercises in which the broker pays the exercise price out of the proceeds of a same-day sale of the shares acquired upon exercise. 13. Rights as a Shareholder. An optionee shall have no rights as a shareholder with respect to any shares covered by an option until the date of issuance of a share certificate to the optionee for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such share certificate is issued. 14. Adjustments. If the outstanding shares of Alco common stock are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or other property (other than ordinary cash dividends) are distributed with respect to such shares of Alco common stock or other securities, through merger, consolidation, sale of all or substantially all of the assets of Alco, reorganization, recapitalization, reclassification, dividend stock split, reverse stock split, spin off, split off, or other distribution with respect to such shares of common stock, or other securities, an appropriate and proportionate adjustment may be made in (i) the maximum number and kind of shares reserved for issuance under the Plan, (ii) the number and kind of shares or other securities subject to then outstanding options under the Plan, and (iii) the price for each share subject to any then outstanding options under the Plan. No fractional shares will be issued under the Plan on account of any such adjustments. 15. Amendment and Termination. The board of directors of Alco shall have complete power and authority to amend the Plan, provided, however, that it shall not without the affirmative vote of the holders of a majority of the shares of voting stock of Alco (a) increase the maximum number of shares for which options may be granted under the Plan, (b) reduce any minimum option price for stock options which become entitled to special tax treatment under future amendments to the Code, (c) extend the period during which options may be granted or exercised, or (d) alter the class of persons eligible to receive options. No amendment or termination of the Plan may, without the consent of the holders of their outstanding options, adversely affect the rights of such holders under such options. 16. Government and Other Regulations. The obligation of Alco to sell, issue and deliver shares upon exercise of options granted under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies as may be required, including (but not limited to) satisfaction of the income tax withholding requirements of the Code. 17. Other Actions. Nothing contained in the Plan shall be construed to limit the authority of Alco to exercise its corporate rights and powers including, but not limited to, the right of Alco (a) to grant options for proper corporate purposes otherwise than under the Plan to any employee or other person, firm or corporation or association, or (b) to grant options to, or assume the options of, any person in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation or association. -3- EX-10.14 10 DEFERRED COMPENSATION PLAN November 1, 1995 ALCO STANDARD CORPORATION 1994 DEFERRED COMPENSATION PLAN THE PLAN Alco Standard Corporation ("Alco") is offering to certain employees of its divisions and subsidiaries ("Employer(s)") the opportunity to participate in the Alco Standard Corporation 1994 Deferred Compensation Plan (the "Plan"), pursuant to which participants may defer a portion of their compensation and receive certain benefits upon retirement or other termination of employment. The Plan initially became effective for certain employees on May 1, 1994. It was amended and restated as of January 1, 1995 and was further amended and restated as of July 1, 1995 for all current and new participants. The full text of the amended and restated Plan is set forth beginning on page 8 of this document. This document sets forth information about the Plan, but should be read in conjunction with the text of the Plan itself. Alco's principal office is located at Wayne, Pennsylvania 19087. Its telephone number is (610) 296-8000. Alco's federal tax identification number is 23-0334400. ELIGIBILITY You are eligible to participate in the Plan if you are: --A full-time employee of Alco or an Employer; --A "highly compensated" employee (employees who have had compensation from Alco or an Employer in excess of $100,000 in calendar year 1992 or 1993 will be considered "highly compensated" for purposes of the Plan) or a "Partner" or have been selected for participation by the President of Alco; and --A U.S. taxpayer. ELECTION TO PARTICIPATE If you were a "Partner" on July 1, 1995 and did not already participate in the Plan, you were permitted to begin participation as of July 1, 1995 by signing an agreement ("Participation Agreement") which expressed your commitment to participate in the Plan through December 31, 1999 (or until your employment terminates, if earlier) and set forth your deferral election for the period from July 1, 1995 through December 31, 1995. You may also be required to sign any other forms required by the Plan Administrator. If you were a "Partner" on July 1, 1995 and were already participating in the Plan, you were permitted to increase your previous deferral election by up to $5,000 for the period July 1, 1995 through December 31, 1995 by signing the form provided for such purpose by the Plan Administrator. DEFERRALS You may elect to defer from your compensation an amount between $3,000 and $30,000 for each of five plan years. (If you began participation as of July 1, 1995, you were permitted to elect to defer an amount between $1,500 and $5,000 for the period from July 1, 1995 through December 31, 1995 and an amount between $3,000 and $30,000 for each of the next four plan years.) The amounts you defer may vary from year to year, subject to these minimum and maximum limits. A participant who does not elect a specific amount for any year will be deemed to have elected to defer $3,000 for such year. If you terminate employment during the deferral period, your deferral of income will immediately cease. Generally, your Employer will deduct from your compensation, through payroll deduction in substantially equal installments, the amounts you elect to defer. INVESTMENT ACCOUNTS Amounts that you defer under the Plan will be credited to an account established by Alco in your name. Your account will be "indexed", or credited with earnings based on the performance of various investment alternatives selected by you. In other words, Alco will measure the performance of these funds, and will credit your account accordingly. You may allocate your account balance among one or more of the following alternatives (or such other alternatives as Alco may designate from time to time), in any combination of whole percentages adding up to 100%: . Growth Alternative - pursues capital growth through investment in common stocks of financially sound companies believed to have above average earnings or otherwise provide above average potential for capital appreciation. . Value Equity Alternative - pursues capital growth through a conservative investment approach designed to 2 increase capital with reasonable risk through investment in common stocks of established companies. . Balanced Alternative - pursues long-term capital growth and reasonable current income without undue risk to principal through investment in both common stocks and bonds. . Limited Maturity Bond Alternative - seeks to achieve the highest current income consistent with low risk to principal and liquidity through investment in a diversified group of short to intermediate term debt securities. Average maturity will not exceed 5 years. . Government Income Alternative - seeks a high level of current income and total return consistent with safety of principal through investment in debt securities issued or guaranteed by the U.S. Government, including Government Mortgage-backed securities. . Short-Term Investment Alternative - pursues maximum current income consistent with liquidity and preservation of capital through investment in money market securities. . Quality Equity Alternative - seeks to attain the highest total investment return consistent with prudent risk through a fully managed investment policy utilizing equity securities, primarily common stocks of large-capitalization companies, as well as investment grade debt and convertible securities. . Equity Growth Alternative - seeks to attain long-term growth of capital by investing primarily in common stocks of relatively small companies believed to have special investment value and emerging growth companies regardless of size. . International Equity Focus Alternative - seeks to obtain capital appreciation through investments in securities, principally equities, of issuers in countries other than the United States. Nueberger & Berman Management, Inc. serves as the investment adviser to the Growth, Value Equity, Balanced, Limited Maturity Bond, Government Income and Short-Term Investment Alternatives. Merrill Lynch Asset Management L.P. manages the Quality Equity, Equity Growth and International Equity Focus Alternatives. You will receive additional information for each of the above Alternatives from the Plan Administrator. The above descriptions are qualified in their entirety by reference to such information. 3 You may change your allocation among the various alternatives once during any calendar quarter. Any change you request will become effective as of the first day of the next calendar quarter. THE VALUE OF THE BENEFIT YOU ULTIMATELY RECEIVE UNDER THE PLAN DEPENDS ON THE RETURNS CREDITED TO YOUR ACCOUNT, BASED ON YOUR SELECTION OF ALTERNATIVES. THERE IS NO GUARANTEED RATE OF RETURN ON YOUR ACCOUNT UNDER THE PLAN. VESTING You will become vested in your account if you remain a full-time employee of Alco or an Employer for a period of five years after you begin participating in the Plan (or, in the case of employees who began participating in the Plan as of July 1, 1995, until December 31, 1999) or until you reach age 65, whichever occurs first. If you leave employment (for any reason other than death or total disability) before you are vested in your account, you will not receive any retirement benefits, but you will receive a lump sum payment equal to the lesser of the balance in your account or the total amount of your deferrals. DISABILITY BENEFITS If your employment with Alco or an Employer terminates because of total disability before your benefits have vested, you will automatically become vested as of such date. Your retirement benefits will not begin until the January after you reach age 60, except that you may, in the case of financial hardship, apply to the Committee for an earlier commencement of benefits. DEATH BENEFITS If you die before you begin to receive your retirement benefits, your beneficiary will be entitled to receive, in a lump sum, the balance in your account as of the last day of the month following your date of death. RETIREMENT BENEFITS Your retirement benefits will be paid to you in ten annual payments, beginning in January of the year after you reach age 60 or retire from the employ of Alco or an Employer, whichever is later. Your retirement benefits will be paid to you as follows: . 1/10 of your account balance in year 1, . 1/9 of your account balance in year 2, 4 . 1/8 of your account balance in year 3, . 1/7 of your account balance in year 4, . 1/6 of your account balance in year 5, . 1/5 of your account balance in year 6, . 1/4 of your account balance in year 7, . 1/3 of your account balance in year 8, . 1/2 of your account balance in year 9, and . the balance in year 10. You may elect to defer receipt of your benefits to a later date by providing written notice to the Administrator at least 12 months prior to the date on which your benefits would otherwise commence. If you die after your retirement benefit payments have commenced, your beneficiary will be entitled to receive, for the duration of the ten-year period, the retirement benefits to which you would have been entitled if you had lived. USE OF PARTICIPANT PAYMENTS Alco currently intends (but is not obligated) to use participant deferrals to purchase life insurance on the lives of participating employees. The obligations of Alco and/or the Employers under the Plan will not be secured in any manner, however, nor will specific assets or funds be set aside for the payment of benefits. A Participant's interest in the Plan or a Participation Agreement may not be assigned, transferred, pledged, encumbered, alienated or charged. OTHER EMPLOYEE BENEFIT PLANS Participation in this Plan does not in any way affect your right to participate in any pension, profit-sharing, incentive, thrift, group health insurance, stock option, termination pay, or similar plan of Alco or an Employer, except that the deferrals shall not be included in determining your benefits under any retirement plans qualified under section 401(a) of the Internal Revenue Code. Deferrals under this Plan will be included as compensation for purposes of calculating the level of contributions under Alco's Partners' Stock Purchase Plan. 5 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is a "pension plan" as defined in the Employee Retirement Income Security Act of 1974 ("ERISA") and is subject to certain provisions of ERISA, including certain requirements relating to reporting, disclosure, enforcement and claims. The Plan is unfunded for purposes of ERISA. The Plan is not subject to eligibility, participation, vesting, benefit accrual, or plan termination insurance provisions of ERISA. ADMINISTRATION The Plan provides that authority for the administration and interpretation of the Plan will be vested in a Committee selected by the Board of Directors of Alco (the "Committee"). The Board of Directors may at any time change the membership of the Committee. The Committee will from time to time appoint a Plan Administrator who will be responsible for the general administration of the Plan under the policy guidance of the Committee. William M. Bauer, Director of Risk Management of Alco, P.O. Box 834, Valley Forge, PA 19482 has been selected as the Plan Administrator, and the agent for service of process under the Plan. A new Administrator may be appointed by the Committee at any time. The Plan's fiscal year is January 1 - December 31. Its Plan number is 301. All expenses incurred in administering the Plan will be paid by Alco and none will be paid by the Plan participants. CLAIMS PROCEDURE If at any time the Plan Administrator denies your written claim for any benefit to which your believe you are entitled under the Plan, the Plan Administrator will send you written notice within 90 days (or 180 days under special circumstances) of the date on which you filed your claim. This notice will (a) explain the specific reason or reasons for the denial of your claim, (b) refer to the specific Plan provision on which the denial is based, (c) describe any additional information required in order to obtain a favorable determination of your claim and explain why this information is necessary, and (d) explain the steps to be taken in you wish to submit your claim for review. If you wish to appeal a denied claim, you must, within 60 days of receiving your notice of denial, petition the Committee for a review. All petitions for review must be made in writing on forms supplied by Alco. The Committee will render a written 6 decision with 60 days (or 120 days under special circumstances) after receiving your petition. You must follow the claims procedure described above before you can consider legal action against Alco. Naturally, both you and Alco will want to avoid legal action. Should you feel legal action is necessary, however, any summons or other legal process should be served on the agent named on page 6. TAX CONSEQUENCES The following discussion is intended to provide general information under current federal law concerning the tax consequences of the Plan to the Plan participants and to Alco and its Employers. It does not provide information about the tax consequences under any state or local law which may be applicable to the transactions described herein. Because the consequences under federal, state and local law may vary with each employee and may materially affect an employee's decisions with respect to the Plan, you should seek competent advice from legal or other counsel. There may also be changes in the law subsequent to the date hereof which affect the tax consequences of the Plan or which cause Alco to terminate the Plan in accordance with its terms. The Plan is not a qualified Plan under section 401(a) of the Internal Revenue Code of 1986, as amended. 1. YEARS OF DEFERRAL An effective election to defer compensation otherwise payable in a taxable year will remove the amount so deferred from the taxable income of the participant for such year for federal income tax purposes. Neither Alco nor an Employer will be permitted a current federal income tax deduction for any amounts deferred under the Plan. Amounts deferred will generally be subject to taxes imposed under the Federal Insurance Contributions Act ("FICA") or the Federal Unemployment Tax Act ("FUTA") in the year of deferral. 2. YEARS OF PAYMENT Retirement benefits (or lump sum payments) will be taxable income to the participants or a beneficiary in the year in which such benefits (or lump sum payments) are received. Such benefits will generally not be subject to taxes imposed under FICA or FUTA, but are subject to federal income tax withholding requirements. Alco or an Employer will generally be permitted a federal income tax deduction for the year in which such benefits are paid. 7 ALCO STANDARD CORPORATION 1994 DEFERRED COMPENSATION PLAN (AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1995) 1. PURPOSE. The purpose of the Alco Standard Corporation 1994 Deferred Compensation Plan is to permit certain eligible employees of Alco Standard Corporation and its affiliated companies to defer a portion of their compensation and to participate in a program under which they are provided supplemental income after their retirement. The program is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees. 2. DEFINITION. Unless the context otherwise requires, the following words as used herein shall have the following meanings: (a) "Administrator" shall mean the person or persons so designated and acting under Paragraph 16 hereof. (b) "Affiliated Employer" shall mean any domestic corporation of which Alco (directly or through any subsidiary) owns 80% or more of the outstanding voting stock. (c) "Alco" shall mean Alco Standard Corporation, an Ohio corporation. (d) "Compensation" shall mean all salaries, commissions and incentive compensation from an Employer, but shall not include company contributions under Alco's Partners' Stock Purchase Plan or the Alco Retirement Savings Plan or any fringe benefits. (e) "Effective Date" shall mean July 1, 1995, the effective date of this amended and restated Plan. The rights of a Participant whose participation in the Plan commenced prior to the Effective Date and who remains a Participant on the Effective Date shall be governed by the terms of the amended and restated Plan as set forth herein. (f) "Employer" shall mean Alco or an Affiliated Employer. (g) "Participant" shall mean any person employed by an Employer on the Effective Date who is eligible, and who has elected, to participate in the Plan. 8 (h) "Participation Agreement" shall mean the agreement executed by each Participant and the Employer setting forth certain information relating to the Participant's participation in the Plan. (i) "Plan" shall mean the Alco Standard Corporation 1994 Deferred Compensation Plan, as amended from time to time. (j) "Plan Year" shall mean the period beginning on January 1 and ending on December 31 of each year. (k) "Total Disability" shall mean a total disability as defined in the long term disability plan adopted by the Participant's Employer (or, if the Participant's Employer does not have such a plan, the long term disability plan of Alco). 3. PARTICIPATION. Any person who (a) is employed by an Employer on a full-time basis as of the Effective Date, (b) is "highly compensated" (employees who received Compensation from an Employer in the 1992 or 1993 calendar year in excess of $100,000 are considered "highly compensated" for purposes of the Plan) or has been designated by Alco as a "Partner" and (c) is a United States taxpayer as of the Effective Date, shall be eligible to participate herein. In addition, other persons who satisfy conditions (a) and (c) of the foregoing sentence shall be eligible to participate in the Plan if selected by the President of Alco prior to the Effective Date. A person eligible under this Paragraph 3 shall become a Participant by executing a Participation Agreement and such other forms as may be required by the Administrator. 4. DEFERRAL OF COMPENSATION. Prior to the Effective Date, a "Partner" who is not already a Participant may irrevocably elect to defer or forgo a portion of his Compensation for the period from July 1, 1995 through December 31, 1995 and for each of the next four Plan Years (or, if less, for each of the Plan Years while he is an active employee of an Employer). The amount to be deferred for the period from July 1, 1995 through December 31, 1995 shall be designated on the Participant's Participation Agreement, which amount shall be no less than $1,500 and no more than $5,000. Prior to the Effective Date, a "Partner" who is already a Participant may elect to defer or forgo up to an additional $5,000 of Compensation for the period from July 1, 1995 through December 31, 1995. The amount of the deferral for each subsequent Plan Year may vary, but may be no less than $3,000 and no more than $30,000. For each of the next four Plan Years after a Participant's initial deferral election (or, if less, for each Plan Year while 9 he is an active employee of an Employer), the Participant will be given the opportunity, prior to the beginning of each Plan Year, to elect the amount to be deferred (subject to the minimum and maximum limitations set forth above). In the event that a Participant fails to specify the amount to be deferred in any Plan Year, he shall be deemed to have elected to defer $3,000 for such Plan Year. The Administrator shall have the right to waive the future deferral obligation for a Participant who has suffered an unforseeable emergency. The amount to be deferred for a Plan Year will be deducted from the Participant's Compensation otherwise payable by an Employer, in substantially equal installments. 5. INVESTMENT ACCOUNTS. Amounts deferred by a Participant pursuant to Paragraph 4 will be credited to an account established by Alco in the name of the Participant. A Participant's account will be credited with earnings based on the performance of various investment alternatives selected by the Participant from among those made available by Alco from time to time. A Participant may request a change in his allocation among the various investment alternatives once during any calendar quarter. Any such changes will become effective as of the first day of the next calendar quarter. 6. VESTING. A Participant shall vest in the benefits to be provided hereunder on the fifth anniversary of the date of his initial participation in the Plan (or, in the case of Participants whose participation in the Plan began as of July 1, 1995, on December 31, 1999) or when he attains age 65, whichever shall first occur, provided the Participant has been a full-time employee of an Employer for the entire period. A Participant who incurs a Total Disability while still employed by an Employer shall become immediately vested in the benefits to be provided hereunder (as described in Paragraph 8, below). Each other Participant whose employment terminates prior to vesting (other than on account of death, as described in Paragraph 7, below) shall be entitled to receive, in a lump sum payment, an amount equal to the lesser of (i) the Participant's deferrals to the date of termination, without interest or (ii) the value of the Participant's account as of the last day of the calendar month coincident with or next following the date of termination. No other benefits shall be payable under the Plan to such Participant. 10 7. DEATH BENEFITS. If a Participant dies while employed by an Employer (whether or not vested) or if a vested Participant dies while no longer employed by an Employer but before benefit payments commence, his beneficiary shall be entitled to receive, in a lump sum payment, the value of the Participant's account as of the last day of the calendar month coincident with or next following the Participant's date of death. 8. DISABILITY BENEFITS. If a Participant incurs a Total Disability while still employed by an Employer, he shall be entitled to receive the benefits described in Paragraph 9, which shall commence in the January following the year in which he attains age 60. A Participant who has incurred a Total Disability may begin to receive benefits before reaching age 60 if the Committee (as defined in Paragraph 16) determines, upon application by the Participant, that the Participant has a financial hardship that cannot reasonably be relieved by use of other resources available to him. 9. AMOUNT AND TIMING OF BENEFIT PAYMENTS. Except as otherwise provided in Paragraphs 6, 7 and 8, payment of benefits under the Plan shall commence in the January following the later of the Participant's attaining age 60 or the Participant's retirement from the employ of an Employer, unless the Participant has notified the Administrator, in writing, at least 12 months prior to such date, of his election to defer receipt of such benefits until a later date. The Participant's benefits shall be paid to him in ten annual payments, as follows: (a) 1/10 of the value of his account as of the preceding December 31 in the first year. (b) 1/9 of the value of his account as of the preceding December 31 in the second year. (c) 1/8 of the value of his account as of the preceding December 31 in the third year. (d) 1/7 of the value of his account as of the preceding December 31 in the fourth year. (e) 1/6 of the value of his account as of the preceding December 31 in the fifth year. (f) 1/5 of the value of his account as of the preceding December 31 in the sixth year. (g) 1/4 of the value of his account as of the preceding December 31 in the seventh year. (h) 1/3 of the value of his account as of the preceding December 31 in the eighth year. 11 (i) 1/2 of the value of his account as of the preceding December 31 in the ninth year. (j) All amounts remaining in his account in the tenth year. 10. BENEFICIARY DESIGNATION - CONTINUATION OF BENEFITS. Upon the death of a Participant who is receiving benefits under the Plan, any benefits to which he would otherwise have been entitled shall continue to be paid after his death to the beneficiary or beneficiaries designated by the Participant in his Participation Agreement. This designation may be amended in writing and filed with the Administrator from time to time by the Participant. In the event that there is no effective beneficiary designation when benefits are payable, such benefits shall be paid to the members of the first surviving class of the Participant in the following priority: (a) spouse; (b) the living children (including adopted children) in equal amounts; (c) estate. 11. INCAPACITY OF RECIPIENT. Any payment required to be made under the Plan to a person who is under a legal disability may be made to or for the benefit of such person in such of the following ways as the Administrator shall determine: (a) to such person; (b) to the legal representatives of such person; (c) to a near relative of such person to be used for his benefit; or (d) to pay the expenses of support, maintenance or education of such person. The Administrator shall not be required to see to the application by any third party of payments made pursuant to this Paragraph 11. 12. RESPONSIBILITY FOR PAYMENT. All benefits under the Plan shall be paid by Alco. Alco may, in its sole discretion, determine the manner in which it shall finance its obligation to pay such benefits. 13. NON-ASSIGNMENT. Except as hereinafter provided with respect to marital or family support disputes, no amount payable under the Plan shall be subject to assignment, transfer, sale, 12 pledge, encumbrance, alienation or charge by the Participant or any beneficiary. Any attempt to assign, transfer, sell, pledge, encumber, alienate or charge any amount hereunder shall be without effect. In cases of marital or family support disputes, the Administrator will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation in the Plan, the Participant shall agree to hold the Employer harmless from any claim that arises out of obeying an order of any state or federal court with respect to marital or family support disputes, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. 14. NO FUNDING. Alco shall not segregate or physically set aside any funds or assets as a result of this Plan. Neither a Participant, nor his beneficiary, nor any other person shall be deemed to have, pursuant to this Plan, any property interest, legal or equitable, in any specific asset of Alco or an Employer. To the extent that any person acquires any right to receive benefits under this Plan or a Participation Agreement, such right shall be no greater than, nor shall it have any preference or priority over, the rights of any unsecured general creditor of Alco or an Employer. 15. OWNERSHIP OF LIFE INSURANCE POLICIES. Alco may, but is not obligated to, purchase life insurance policies to assist it in meeting its obligation to pay benefits under the Plan. Alco will retain all incidents of ownership in such policies. As a condition of participation in the Plan, the Participant shall agree that Alco or an Employer may, at their expense, purchase life insurance on the life of the Participant. 16. ADMINISTRATION. The Plan shall be administered by a Committee selected from time to time by the Board of Directors of Alco (the "Committee"). The Committee shall select an Administrator from time to time to administer the Plan under the general policy guidance of the Committee. The Administrator shall be one or more persons who shall be responsible for: (a) maintaining any records necessary in connection with the Plan; (b) making calculations under the Plan; (c) interpreting the provisions of the Plan; and (d) otherwise administering the Plan in accordance with its terms. 13 17. CLAIMS PROCEDURES. At any time the Administrator makes a determination adverse to a Participant or beneficiary with respect to a claim for benefits or participation under the Plan, the Administrator shall notify the claimant in writing of such determination, setting forth: (a) the specific reason for such determination; (b) a reference to the specific provision or provisions of the Plan on which such determination is based; (c) a description of any additional material or information necessary to perfect the claim, and an explanation of the reason that such material is required; and (d) an explanation of the rights and procedures set forth in this Paragraph 17. A person who receives notice of an adverse determination by the Administrator with respect to a claim may request, within 60 days of receipt of such notice, that the Committee review the Administrator's determination. This request may be made on behalf of a claimant by a duly authorized representative. The claimant or representative may review pertinent documents and submit issues and comments with respect to the controversy to the Committee. The Committee shall render a decision within 60 days of a request for review (or within 120 days under special circumstances), which decision shall be in writing and shall set forth the specific reasons for the decision reached and the specific provisions of the Plan on which the decision is based. A copy of the ruling shall be forwarded to the claimant. 18. EMPLOYEE BENEFIT PLANS. This Plan shall not in any way affect a Participant's right to participate in any pension, profit-sharing, incentive, thrift, group health insurance, stock option, termination pay or similar plan of an Employer, which is now in effect or may hereafter be adopted, to the extent that the Participant is entitled to participate under the applicable terms and provisions of such plan, except that the amounts deferred herein shall not be included in determining a Participant's benefits under any retirement plans qualified under section 401(a) of the Internal Revenue Code. Deferrals under this Plan will be included as compensation for purposes of calculating the level of contributions under Alco's Partners' Stock Purchase Plan. 19. AMENDMENT. This Plan shall remain in effect until termination by the Board of Directors of Alco. The Board of Directors shall have the power to amend this Plan at any time; provided, however, that, except as set forth in Paragraph 20 and/or Paragraph 21, no amendment or termination of the Plan 14 shall have a material adverse effect upon a Participant unless he consents to such amendment or termination in writing. 20. TERMINATION. The Board of Directors of Alco shall have the right to terminate the Plan in its entirety, and not in part, at any time it determines that proposed or pending tax law changes or other events cause, or are likely in the future to cause, the Plan to have an adverse financial impact upon Alco. In such event, Alco shall have no liability or obligation under the Plan or the Participant's Participation Agreement (or any other document), provided that Alco distributes to each Participant, in a lump sum payment, the value of his account, valued as of the end of the month in which such termination occurs. 21. ACCELERATION. Alco shall have the right at any time to (a) accelerate the vesting of benefits to be provided under the Plan or (b) cause the payment of all amounts thereafter due to a Participant to be paid in a single lump sum or in such other accelerated manner as Alco shall deem appropriate. The amount of any lump sum payment shall be the value of a Participant's account, valued as of the end of the month following Alco's determination to accelerate benefits. If Alco accelerates the payment of benefits to more than 70% of all Participants pursuant to this provision, it must accelerate the payment of benefits to all Participants under the Plan in a comparable manner. 22. CHANGE IN CONTROL. In the event that a Flip-in Transaction or Event or a Flip-over Transaction or Event occurs (as defined in the Alco Standard Corporation Preferred Share Purchase Rights Plan, as amended from time to time), the Plan shall terminate, and the Participant shall receive, in a lump sum payment, the value of his account, valued as of the end of the month in which such transaction or event occurs. 23. MISCELLANEOUS. (a) The existence of this Plan and the Participation Agreements hereunder, and any actions undertaken pursuant hereto, shall not confer upon the Participant any right to continued employment by any Employer. (b) This Plan shall be administered under and in accordance with the laws of the Commonwealth of Pennsylvania, in which Alco's principal place of business is located. (c) The terms of this Plan and the Participation Agreements and other documents executed in accordance herewith shall be binding upon Alco, its successors and assigns, and each Participant, his heirs and legal representatives. 15 (d) Any taxes imposed on a Participant shall be the sole responsibility of the Participant. Employers shall have the right to deduct from any benefits payable under the Plan any federal, state or local taxes required to be deducted or withheld from such benefits. (e) No expenses of administering the Plan shall be charged against the Participants or their benefits hereunder. (f) As used herein, the singular shall include the plural, the masculine shall include the feminine, and vice versa. 16 EX-10.21 11 DISTRIBUTION AGREEMENT EXHIBIT 10.21 U.S. $1,028,000,000 ALCO CAPITAL RESOURCE, INC. MEDIUM-TERM NOTES, SERIES B DISTRIBUTION AGREEMENT June 30, 1995 Lehman Brothers Lehman Brothers Inc. 3 World Financial Center, 12th Floor New York, New York 10285-1200 Chase Securities, Inc. One Chase Manhattan Plaza New York, New York 10081 Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Dear Sirs: Alco Capital Resource, Inc., a Delaware corporation (the "Company"), confirms its agree ment with each of you (individually, an "Agent" and collectively, the "Agents") (which terms shall, for all purposes of this Agreement, include Lehman Government Securities Inc., an affiliate of Lehman Brothers, Lehman Brothers Inc.) with respect to the issuance and sale by the Company of up to an aggregate of $1,028,000,000 in gross proceeds of its Medium- Term Notes, Series B (the "Notes"). The Notes are to be issued from time to time pursuant to an indenture, dated as of June 30, 1995 (as it may be supplemented or amended from time to time, the "Indenture"), between the Company and Chemical Bank, as trustee (the "Trustee"). The Notes shall have the maturity ranges, applicable interest rates or interest rate formulas, specified currency, issue price, redemption and repayment provisions and other terms set forth in the Prospectus referred to in Section 1(a) as it may be amended or supplemented from time to time, including any supplement providing for the interest rate, maturity and other terms of any Note (a "Pricing Supplement"). The Notes will be issued, and the terms thereof established, from time to time, by the Company in accordance with the Indenture and the Procedures referred to below. This Agreement shall only apply to sales of the Notes and not to sales of any other securities or evidences of indebtedness of the Company and only on the specific terms set forth herein. Subject to the terms and conditions stated herein and to the reservation by the Company of the right to sell its Notes directly on its own behalf, the Company hereby (i) appoints each of the Agents as the agent of the Company for the purpose of soliciting and receiving offers to purchase Notes from the Company and (ii) agrees that whenever the Company determines to sell Notes directly to an Agent as principal it will enter into a separate agreement (each a "Purchase Agreement"). Each such Purchase Agreement, whether oral (and confirmed in writing, which may be by facsimile transmission) or in writing, shall be with respect to such information (as appli cable) as specified in Exhibit C hereto, relating to such sale in accordance with Section 2(e) hereof. 1. Representations and Warranties The Company represents and warrants to each Agent as of the date hereof, as of the Closing Date (defined herein) and as of the times referred to in Sections 6(a) and 6(b) hereof (the Closing Date and each such time being hereinafter sometimes referred to as a "Representation Date"), as follows: (a) General. Registration statements (No. 33-57377 and No. 33-53779) on Form S-3 with respect to the Notes have been prepared and filed by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, and have become effective under the Act. The Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). As used in this Agreement (i) "Registration Statement" means such registration statements when they became effective under the Act, and as from time to time amended or supplemented thereafter (if any post-effective amendment to such registration statements have been filed with the Commission prior to the execution and delivery of this Agreement, the time the most recent such amendment has been declared effective by the Commission); (ii) "Basic Prospectus" means the prospectus (including all documents incorporated therein by reference) included in the Registration Statement; and (ii) "Prospectus" means the Basic Prospectus (together with all documents incorporated therein by reference) and any amendments or supplements thereto (including the applicable Pricing Supplement) relating to the Notes, as filed with the Commission pursuant to paragraph (b) of Rule 424 of the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of the Prospectus. Any reference in this Agreement to amending or supplementing the Prospectus shall be deemed to include the filing of materials incorporated by reference in the Prospectus after the Closing Date (defined herein) and any reference in this Agreement to any amendment or supplement to the Prospectus shall be deemed to include any such materials incorporated by reference in the Prospectus after the Closing Date (defined herein). (b) Registration Statement, Prospectus and Indenture: Contents. The Registration Statement and each Prospectus conformed, and the Registration Statement and each Prospectus will conform as of the applicable Representation Date and at all times during each period during -2- which, in the opinion of counsel for the Agents, a prospectus relating to the Notes is required to be delivered under the Act (each a "Marketing Period"), in all respects to the requirements of the Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Trust Indenture Act, and the rules and regulations of the Commission under such Acts; the Indenture, including any amendments and supplements thereto, conforms with the requirements of the Trust Indenture Act and the rules and regulations of the Commission thereunder; and the Registration Statement and each Prospectus do not, and will not as of the applicable Representation Date and at all times during each Marketing Period, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company makes no representation or warranty as to information contained in or omitted from the Registration Statement or any Prospectus in reliance upon and in conformity with written information furnished to the Company by the Agents specifically for inclusion therein or to any statements in or omissions from the statement of eligibility and qualification on Form T-1 (the "Form T-1") of the Trustee under the Trust Indenture Act. (c) No Defaults. The Company is not in violation of its corporate charter or by-laws or in default under any agreement, indenture or instrument, the effect of which violation or default would be material to the Company; the execution, delivery and performance of this Agreement, the Indenture, the Notes, the Support Agreement, dated June 1, 1994 (the "1994 Support Agreement") between the Company and Alco Standard Corporation ("Alco Standard"), and each applicable Purchase Agreement, if any, and compliance by the Company with the provisions of the Notes and the Indenture have been duly authorized by all necessary corporate action and will not conflict with, result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument, or result in a violation of the corporate charter or by-laws of the Company or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company or its properties; and except as required by the Act, the Trust Indenture Act, the Exchange Act and applicable state securities laws, no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance of the transactions contemplated by this Agreement, the Notes, the 1994 Support Agreement, each applicable Purchase Agreement, if any, or the Indenture. The Company has no subsidiaries within the meaning of Rule 405 of the Rules and Regulations. (d) Material Changes or Material Transactions. Except as described in the Registration Statement and each Prospectus, (i) there has not been any material adverse change in, or any adverse development which materially affects, the business, properties, condition (financial or other), results of operations or prospects of the Company, and (ii) there has been no material transaction entered into by the Company other than those in the ordinary course of business. (e) Accountants. Ernst & Young LLP, whose report appears in the Company's Annual Report on Form 10-K which is incorporated by reference in each Prospectus, are independent public accountants with respect to the Company as required by the Act and the Rules and Regulations. (f) Validity of the Indenture and the Notes. (i) The Indenture has been duly authorized, executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms; (ii) the Notes have been validly authorized -3- for issuance and sale pursuant to this Agreement and, when the terms of the Notes and of their issue and sale have been duly established in accordance with the Indenture and this Agreement so as not to violate any applicable law or agreement or instrument binding on the Company, and the Notes have been duly executed, authenticated, delivered and paid for as provided in this Agreement and the Indenture, the Notes will be validly issued and outstanding, and will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms and the terms of the Indenture; and (iii) the Notes and the Indenture conform to the descriptions thereof contained in each Prospectus. The validity, enforceability and legally binding nature of the Indenture and the Notes are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (g) Due Incorporation and Qualification. The Company has been duly incorporated, is validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and in good standing as a foreign corporation in each jurisdiction in which its ownership of properties or the conduct of its businesses requires such qualification (except where the failure to obtain such qualification would not have a material adverse effect on the Company), and has the power and authority necessary to own or hold its properties and to conduct the businesses in which it is engaged, as described in each Prospectus. (h) Validity of the Support Agreements. (i) Each of the 1994 Support Agreement, and the Maintenance Agreement, dated August 15, 1991 (the "Maintenance Agreement") and the Operating Agreement dated August 15, 1991 (the "Operating Agreement") between the Company and Alco Standard has been duly authorized, executed and delivered by each of the Company and Alco Standard and constitutes the valid and legally binding obligation of the Company and Alco Standard and, enforceable in accordance with its terms; and (ii) such agreements conform to the descriptions thereof contained in each Prospectus. The validity, enforceability and legally binding nature of such agreements are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (i) Ownership of Property. The Company owns, or has valid rights to use, all items of real and personal property which are material to the business of the Company, free and clear of all liens, encumbrances and claims which may materially interfere with the business, properties, financial condition or results of operations of the Company. (j) Legal Proceedings. Except as described in each Prospectus, there is no material litigation or governmental proceeding pending or, to the knowledge of the Company, threatened against the Company which might result in any material adverse change in the condition (financial or other), results of operations, business, property, or prospects of the Company or which is required to be disclosed in the Registration Statement. (k) Financial Statements. The audited financial statements included or incorporated by reference in each Prospectus present and will present fairly, as of the applicable Representation -4- Date and at all times during each Marketing Period, the financial condition, results of operations, changes in shareholder's equity and cash flows of the entities purported to be shown thereby in conformity with generally accepted accounting principles, at the dates and for the periods indicated, and have been, and will be as of the applicable Representation Date and at all times during each Marketing Period, prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the period or periods involved; and the supporting schedules, if applicable, included or incorporated by reference in each Prospectus present, and will present as of the applicable Representation Date and at all times during each Marketing Period, fairly the information required to be stated therein. The unaudited financial statements of the Company, if any, and the related notes, included or incorporated by reference in each Prospectus present fairly and will present fairly at all times during each period specified in Section 3(c) hereof the financial position of the Company at the dates and for the periods indicated in conformity with generally accepted accounting principles (except for the absence of notes) applied on a consistent basis throughout the periods shown, subject to normally recurring changes, and prepared in accordance with the instructions to Form 10-Q. (l) Documents Incorporated by Reference. The documents incorporated by reference into any Prospectus have been, and will be as of the applicable Representation Date and at all times during each Marketing Period, prepared by the Company in conformity with the applicable requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations of the Commission thereunder; and none of such documents contained, or will contain as of the applicable Representation Date and at all times during each Marketing Period, an untrue statement of a material fact or omitted, or will omit, to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and such documents have been, or will be, as of the applicable Representation Date and at all times during each Marketing Period, timely filed as required thereby. (m) Exhibits to Registration Statement. There are no contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which were required to be filed as exhibits to any document incorporated by reference in any Prospectus by the Exchange Act or the rules and regulations of the Commission thereunder, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Exchange Act, as the case may be. (n) Licenses, Approvals and Consents. The Company has all licenses, approvals and consents for the conduct of its business the failure of which to have would have a material adverse effect on the business, properties, financial condition or results of operations of the Company. (o) Investment Company Act. The Company is not required to register under the provisions of the Investment Company Act of 1940, as amended (the "Investment Company Act"), and no action need be taken with respect to or under the Investment Company Act by reason of the issuance of the Notes by the Company. (p) Rating. The Notes have been rated by a "nationally recognized statistical rating agency" (as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act), including one or both of Moody's Investor Services, Inc. and Standard & Poor's Corporation. -5- (q) Doing Business with Cuba. The Company confirms as of the date hereof, and each acceptance by the Company of an offer to purchase Notes will be deemed to be an affirmation, that the Company is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (r) True and Complete Documents. The certificates delivered pursuant to paragraph (f) of Section 5 hereof and all other documents delivered by the Company or its representatives in connection with the issuance and sale of the Notes were on the dates on which they were delivered, or will be on the dates on which they are to be delivered, true and complete in all material respects. 2. Solicitations as Agent; Purchases as Principal (a) Appointment. Subject to the terms and conditions stated herein, the Company hereby appoints each of the Agents as the agent of the Company for the purpose of soliciting or receiving offers to purchase the Notes from the Company by others. On the basis of the representations and warranties contained herein, but subject to the terms and conditions herein set forth, each Agent agrees, as the agent of the Company, to use its reasonable efforts to solicit offers to purchase the Notes upon the terms and conditions set forth in the Prospectus. The Company may offer the Notes for sale from time to time otherwise than through an Agent. However, so long as this Agreement is in effect the Company shall not solicit offers to purchase Notes through any agent without (i) amending this Agreement to appoint such agent as an additional Agent hereunder on the same terms and conditions as provided herein for the Agents (the consent of the then current Agents shall not be necessary for such purpose) and (ii) delivering 2 days prior written notice thereof to the Agents. The Company may, however, accept offers to purchase Notes through an agent other than an Agent, provided that (i) the Company shall not have solicited such offers, (ii) the Company and such agent shall have executed an agreement with respect to such purchases having the same terms and conditions (including, without limitation, commission and discount rates) as those which would apply to such purchases under this Agreement if such agent were an Agent (which may be accomplished by incorporating by reference in such agreement the terms and conditions of this Agreement) and (iii) the Company shall provide the Agents with a copy of such agreement promptly following the execution thereof. Each Agent may also purchase Notes from the Company as principal for purposes of resale, as more fully described in paragraph (e) of this Section. (b) Suspension of Solicitation. The Company reserves the right, in its sole discretion, to suspend solicitation of offers to purchase the Notes commencing at any time for any period of time or indefinitely. Upon receipt of at least one business day's prior written notice from the Company, the Agents will forthwith suspend solicitation of offers to purchase Notes from the Company until such time as the Company has advised the Agents that such solicitation may be resumed. For the purpose of the foregoing sentence, "business day" shall mean any day which is not a Saturday or Sunday and which is not a day on which (i) banking institutions are generally authorized or -6- obligated by law to close in The City of New York and (ii) the New York Stock Exchange, Inc. is closed for trading. Upon receipt of notice from the Company as contemplated by Section 3(c) hereof, each Agent shall suspend its solicitation of offers to purchase Notes until such time as the Company shall have furnished it with an amendment or supplement to the Registration Statement or the Prospectus, as the case may be, contemplated by Section 3(c) and shall have advised such Agent that such solicitation may be resumed. (c) Agent's Commission. Promptly upon the closing of the sale of any Notes sold by the Company as a result of a solicitation made by or offer to purchase received by an Agent, the Company agrees to pay such Agent a commission, in the form of a discount, in accordance with the schedule set forth in Exhibit A hereto. (d) Solicitation of Offers. The Agents are authorized to solicit offers to purchase the Notes only in denominations as are specified in the Prospectus at a purchase price as shall be specified by the Company. Each Agent shall communicate to the Company, orally or in writing, each reasonable offer to purchase Notes received by it as an Agent. The Company shall have the sole right to accept offers to purchase the Notes and may reject any such offer in whole or in part. Each Agent shall have the right, in its discretion reasonably exercised without advising the Company, to reject any offer to purchase the Notes received by it, in whole or in part, and any such rejection shall not be deemed a breach of its agreement contained herein. No Note which the Company has agreed to sell pursuant to this Agreement shall be deemed to have been purchased and paid for, or sold by the Company, until such Note shall have been delivered to the purchaser thereof against payment by such purchaser. (e) Purchases as Principal. Each sale of Notes to any Agent as principal, for resale to one or more investors or to another broker-dealer (acting as principal for purposes of resale), shall be made in accordance with the terms of this Agreement and a Purchase Agreement whether oral (and confirmed in writing by such Agent to the Company, which may be by facsimile transmission) or in writing, which will provide for the sale of such Notes to, and the purchase thereof by, such Agent. A Purchase Agreement may also specify certain provisions relating to the reoffering of such Notes by such Agent. The commitment of any Agent to purchase Notes from the Company as principal shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. Each Purchase Agreement shall specify the principal amount and terms of the Notes to be purchased by an Agent, the time and date (each such time and date being referred to herein as a "Time of Delivery") and place of delivery of and payment for such Notes and such other information (as applicable) as is set forth in Exhibit C hereto. The Company agrees that if any Agent purchases Notes as principal for resale such Agent shall receive such compensation, in the form of a discount or otherwise, as shall be indicated in the applicable Purchase Agreement or, if no compensation is indicated therein a commission in accordance with Exhibit A hereto. Any Agent may utilize a selling or dealer group in connection with the resale of such Notes. In addition, any Agent may offer the Notes it has purchased as principal to other dealers. Any Agent may sell Notes to any dealer at a discount and, unless otherwise specified in the applicable Pricing Supplement, such discount allowed to any dealer will not be in excess of the discount to be received by such Agent from the Company. Such Purchase Agreement shall also specify any requirements for -7- delivery of opinions of counsel, accountant's letters and officers' certificates pursuant to Section 5 hereof. (f) Administrative Procedures. Administrative procedures respecting the sale of Notes (the "Procedures") are set forth in Exhibit B hereto and may be amended in writing from time to time by the Agents and the Company. Each Agent and the Company agree to perform the respective duties and obligations specifically provided to be performed by each of them herein and in the Procedures. The Procedures shall apply to all transactions contemplated hereunder including sales of Notes to any Agent as principal pursuant to a Purchase Agreement, unless otherwise set forth in such Purchase Agreement. (g) Delivery of Documents. The documents required to be delivered by Section 5 hereof shall be delivered at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, not later that 10:00 A.M., New York City time, on the date of this Agreement or at such later time as may be mutually agreed upon by the Company and the Agents, which in no event shall be later than the time at which the Agents commence solicitation of offers to purchase Notes hereunder (the "Closing Date"). 3. Covenants of the Company The Company covenants and agrees: (a) Delivery of Signed Registration Statement. To furnish promptly to the Agents and to their counsel a signed copy of the Registration Statement as originally filed and each amendment or supplement thereto. (b) Delivery of Other Documents. To deliver promptly to the Agents, and in such number as they may request, each of the following documents: (i) conformed copies of the Registration Statement (excluding exhibits other than the computation of the ratio of earnings to fixed charges, the Indenture, this Agreement and such other exhibits that the Agents may request), (ii) the Basic Prospectus, (iii) each Prospectus and (iv) any documents incorporated by reference in the Prospectus. (c) Revisions to Prospectus - Material Changes. If, during any Marketing Period, any event occurs as a result of which the Prospectus would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, or if it is necessary at any time to amend any Prospectus to comply with the Act, to notify the Agents promptly, in writing, to suspend solicitation of purchases of the Notes; and if the Company shall decide to amend or supplement the Registration Statement or any Prospectus, to promptly advise the Agents by telephone (with confirmation in writing) and to promptly, in writing, prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance; provided, however, that if during the period referred to above any Agent shall own any Notes which it has purchased from the Company as principal with the intention of reselling them, the Company shall promptly prepare and timely file with the Commission any amendment or supplement to the Registration Statement or any Prospectus that may, in the judgment of the Company or the Agents, be required by the Act or requested by the Commission. -8- (d) Commission Filings. To timely file with the Commission during any Marketing Period, all documents (and any amendments to previously filed documents) required to be filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. (e) Copies of Filings with Commission. Prior to filing with the Commission during any Marketing Period, (i) any amendment or supplement to the Registration Statement, (ii) any amendment or supplement to any Prospectus or (iii) any document incorporated by reference in any of the foregoing or any amendment of or supplement to any such incorporated document, to furnish a copy thereof to the Agents. (f) Notice to Agent of Certain Events. To advise the Agents immediately (i) when any post-effective amendment to the Registration Statement relating to or covering the Notes becomes effective, (ii) of any request or proposed request by the Commission for an amendment or supplement to the Registration Statement, to any Prospectus, to any document incorporated by reference in any of the foregoing or for any additional information and the Company will afford the Agents a reasonable opportunity to comment on any such proposed amendment or supplement, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any part thereof or any order directed to any Prospectus or any document incorporated therein by reference or the initiation or threat of any stop order proceeding or of any challenge to the accuracy or adequacy of any document incorporated by reference in any Prospectus, (iv) of receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose, (v) of any downgrading in the rating of the Notes or any other debt securities of the Company, or any proposal to downgrade the rating of the Notes or any other debt securities of the Company, by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading of such rating) as soon as the Company learns of any such downgrading, proposal to downgrade or public announcement and (vi) of the happening of any event which makes untrue any statement of material fact made in the Registration Statement or any Prospectus or which requires the making of a change in the Registration Statement or any Prospectus in order to make any material statement therein not misleading. (g) Stop Orders. If, during any Marketing Period, the Commission shall issue a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting of that order at the earliest possible time. (h) Earnings Statements. As soon as practicable, but not later than 18 months, after the date of each acceptance by the Company of an offer to purchase Notes hereunder, to make generally available to its security holders an earnings statement covering a period of at least 12 months beginning after the later of (i) the effective date of the Registration Statement, (ii) the effective date of the most recent post-effective amendment to the Registration Statement to become effective prior to the date of such acceptance and (iii) the date of the Company's most recent Annual Report on Form 10-K filed with the Commission prior to the date of such acceptance which will satisfy the provisions of Section 11(a) of the Act (including, at the option of the Company, Rule 158 of the Rules and Regulations under the Act). -9- (i) Copies of Reports, Releases and Financial Statements. So long as any of the Notes are outstanding, to furnish to the Agents, not later than the time the Company makes the same available to others, copies of all public reports or releases and all reports and financial statements furnished by the Company to any securities exchange on which the Notes are listed pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder. (j) Blue Sky Qualifications. To endeavor, in cooperation with the Agents, to qualify the Notes for offering and sale under the securities laws of such jurisdictions as the Agents may designate, and to maintain such qualifications in effect for as long as may be required for the distribution of the Notes; and to file such statements and reports as may be required by the laws of each jurisdiction in which the Notes have been qualified as above provided. (k) Holdback. Between the date of a Purchase Agreement and the date of delivery of the Notes with respect thereto, the Company will not offer or sell, or enter into any agreement to sell, any of its debt securities, other than borrowings under the Company's revolving credit agreements and lines of credit, the private placement of securities and issuances of its commercial paper. (l) Pricing Supplement. To prepare, with respect to any Notes to be sold through or to the Agents pursuant to this Agreement, a Pricing Supplement with respect to such Notes in a form previously approved by the Agents and to file such Pricing Supplement timely pursuant to Rule 424 under the Act with the Commission. Section 4. Payment of Expenses The Company will pay: (i) the costs incident to the authorization, issuance, sale and delivery of the Notes and any taxes payable in that connection, (ii) the costs incident to the preparation, printing and filing under the Act of the Registration Statement and any amendments and exhibits thereto, (iii) the costs incident to the preparation, printing and filing of any document and any amendments and exhibits thereto required to be filed by the Company under the Exchange Act, (iv) the costs of distributing the Registration Statement as originally filed, and each amendment and post-effective amendment thereof (including exhibits), the Basic Prospectus, each Prospectus, any supplement or amendment to any Prospectus and any documents incorporated by reference in any of the foregoing documents, (v) the fees and disbursements of the Trustee, any paying agent, any calculation agent, any exchange agent and any other agents appointed by the Company, and their respective counsel, -10- (vi) the costs and fees in connection with the listing of the Notes on any securities exchange, (vii) the cost and fees in connection with any filings with the National Association of Notes Dealers, Inc., (viii) the fees and disbursements of counsel to the Company and counsel to the Agents, (ix) the fees paid to rating agencies in connection with the rating of the Notes, (x) the fees and expenses of qualifying the Notes under the securities laws of the several jurisdictions as provided in Section 3(j) hereof and of preparing and printing a Blue Sky Memorandum and a memorandum concerning the legality of the Notes as an investment (including fees and expenses of counsel for the Agents in connection therewith), (xi) all advertising expenses in connection with the offering of the Notes incurred with the consent of the Company, and (xii) all other costs and expenses arising out of the transactions contemplated hereunder and incident to the performance of the Company's obligations under this Agreement or otherwise in connection with the activities of the Agents under this Agreement. Section 5. Conditions of Obligations of Agent The obligation of the Agents, as agents of the Company, under this Agreement to solicit offers to purchase the Notes, the obligation of any person who has agreed to purchase Notes to make payment for and take delivery of Notes, and the obligation of any Agent to purchase Notes pursuant to any Purchase Agreement, is subject to the accuracy, on each Representation Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company's officers made in any certificate furnished pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) Registration Statement. The Prospectus as amended or supplemented (including the Pricing Supplement) with respect to such Notes shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the Rules and Regulations and in accordance with Section 3(1) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof nor any order directed to any document incorporated by reference in any Prospectus have been issued and no stop order proceeding shall have been initiated or threatened by the Commission and no challenge shall have been made to the accuracy or adequacy of any document incorporated by reference in any Prospectus; any request of the Commission for inclusion of additional information in the Registration Statement or any Prospectus or otherwise shall have been complied with; and the Company shall not have filed with the Commission any amendment or supplement to the -11- Registration Statement or any Prospectus (or any document incorporated by reference therein) without the consent of the Agents. (b) No Suspension of Sale of the Notes. No order suspending the sale of the Notes in any jurisdiction designated by the Agents pursuant to Section 3(j) hereof shall have been issued, and no proceeding for that purpose shall have been initiated or threatened. (c) No Material Omissions or Untrue Statements. The Agents shall not have discovered and disclosed to the Company that the Registration Statement or any Prospectus contains an untrue statement of a fact which, in the opinion of counsel for the Agents, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (d) Legal Matters Satisfactory to Counsel. All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Notes, the Indenture, the form of the Registration Statement, each Prospectus (other than financial statements and other financial data) and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be satisfactory in all respects to counsel for the Agents and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (e) Opinion of Company Counsel. At the Closing Date, the Agents shall have received the opinion, addressed to the Agents and dated the Closing Date, of J. Kenneth Croney, General Counsel of Alco Standard Corporation, in form and substance satisfactory to the Agents and counsel, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and in good standing as a foreign corporation in all jurisdictions in which its ownership of properties or the conduct of its businesses requires such qualification (except where the failure to so qualify would not have a material adverse effect on the Company), and has all power and authority necessary to own its properties and conduct the businesses in which it is engaged, as described in the Prospectus; (ii) Such counsel has no reason to believe that the Registration Statement, as of its effective date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or the Prospectus contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made not misleading, it being understood that such counsel need express no opinion as to the financial statements or other financial information contained or incorporated therein or omitted therefrom, or the Form T-1 that is an exhibit to the Registration Statement; (iii) Such counsel does not know, after reasonable investigation, of any litigation or any governmental proceeding pending or threatened against the Company which would affect the subject matter of this Agreement or is required to be disclosed in the Prospectus which is not disclosed and correctly summarized therein; -12- (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein except such as have been obtained under the Act and such as may be required under the blue sky laws of any jurisdiction in connection with the sale of the Notes as contemplated by this Agreement and such other approvals (specified in such opinion) as have been obtained; (v) Such counsel does not know, after reasonable investigation, of any contracts or other documents which are required to be filed as exhibits to the Registration Statement by the Act or by the Rules and Regulations, or which are required to be filed by the Exchange Act or the rules and regulations of the Commission thereunder as exhibits to any document incorporated by reference in the Prospectus, which have not been filed as exhibits to the Registration Statement or to such document or incorporated therein by reference as permitted by the Rules and Regulations or the rules and regulations of the Commission under the Exchange Act; (vi) To the best of such counsel's knowledge, the Company is not in violation of its corporate charter or by-laws, or in default (except where such default would not have a material adverse effect upon the Company) under any agreement, indenture or instrument; (vii) The execution, delivery and performance of this Agreement, the 1994 Support Agreement and the Purchase Agreements, if any, and compliance by the Company with the provisions of the Notes and the Indenture will not conflict with, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms of, or constitute a default under, any agreement, indenture or instrument known to such counsel, or result in a violation of the corporate charter or by-laws of the Company (as in effect on the date of such opinion) or any order, rule or regulation (also as in effect on the date of such opinion) of any court or governmental agency having jurisdiction over the Company or its properties; and no consent, authorization or order of, or filing or registration with, any court or governmental agency is required for the execution, delivery and performance by the Company of this Agreement, the 1994 Support Agreement and the Purchase Agreements, if any, except such as may be required by the Act, the Trust Indenture Act, the Exchange Act or state securities laws; (viii) The Indenture has been duly authorized by the Company, duly executed and delivered by the Company and the Trustee and duly qualified under the Trust Indenture Act and is a valid and legally binding obligation of the Company enforceable in accordance with its terms; (ix) The Notes are in a form contemplated by the Indenture and have been duly authorized by all necessary corporate action and, when the terms of the Notes and of their issue and sale have been duly established in accordance with the Indenture and this Agreement so as not to violate any applicable law or agreement or instrument then binding on the Company, and when the Notes have been duly executed and authenticated as specified in the Indenture and delivered against payment therefor in accordance with this -13- Agreement, the Notes will be legal, valid and binding obligations of the Company enforceable in accordance with their terms, and entitled to the benefits of the Indenture; (x) The Notes and the Indenture conform to the statements concerning each of them in the Registration Statement and the Prospectus; (xi) Each of the 1994 Support Agreement, the Operating Agreement and the Maintenance Agreement has been duly authorized, executed and delivered by each of the Company and Alco Standard and constitutes the valid and legally binding obligation of the Company and Alco Standard in accordance with its terms; and (ii) such agreements conform to the descriptions thereof contained in each Prospectus; (xii) The Registration Statement has become effective under the Act and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose is pending or threatened by the Commission; (xiii) To the knowledge of such counsel, after reasonable investigation, no order directed to any document incorporated by reference in the Prospectus has been issued and no challenge has been made to the accuracy or adequacy of any such document; and they have no reason to believe that any of such documents, when they became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, in the case of other documents which were filed under the Act or the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; (xiv) The Registration Statement and the Prospectus (except that no opinion need be expressed as to the financial statements and other financial data contained therein or the Form T-1 that is an exhibit thereto) comply as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations of the Commission under said Acts and the documents incorporated by reference in the Prospectus (except that no opinion need be expressed as to the financial statements and other financial data contained therein) comply as to form in all material respects with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder; (xv) The statements made in the Prospectus under the captions "Description of Debt Securities" and "Description of Notes," insofar as they purport to summarize the provisions of documents or agreements specifically referred to therein, fairly present the information called for with respect thereto by Form S-3; (xvi) The Company has the corporate power and authority necessary to execute and deliver this Agreement and the 1994 Support Agreement, and to perform its -14- obligations (including the sale and delivery of the Notes under this Agreement) thereunder; and this Agreement has been duly authorized, executed and delivered by the Company; (xvii) The Company is not required to register under the provisions of the Investment Company Act, and no action need be taken with respect to or under the Investment Company Act by reason of the issuance of the Notes by the Company; and (xviii) The description contained in the Prospectus under the heading "Certain United States Federal Income Tax Consequences" while not purporting to discuss all possible income tax ramifications of the proposed issuance, is correct in all material respects. The opinions set forth in paragraphs (viii), (ix) and (xi) above are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (f) Officers' Certificate. The Company shall have furnished to the Agents on the Closing Date a certificate, dated the Closing Date, of its President or a Vice President and its Treasurer or an Assistant Treasurer stating that: (i) The representations, warranties and agreements of the Company in Section 1 hereof are true and correct as of the Closing Date; the Company has complied with all its agreements contained herein; and the conditions set forth in Sections 5(a) and 5(b) hereof have been fulfilled; and (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion, (A) the Registration Statement, as of its effective date, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (B) the Prospectus does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (C) since the effective date of the Registration Statement there has not occurred any event required to be set forth in an amended or supplemented prospectus which has not been so set forth. (g) Accountant's Letter. The Company shall have furnished to the Agents on the Closing Date a letter of Ernst & Young LLP, addressed jointly to the Company and the Agents and dated the Closing Date, of the type described in the American Institute of Certified Public Accountants' Statement on Auditing Standards No. 72, in form and substance reasonably satisfactory to the Agents confirming that they are independent accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating in effect that: (i) In their opinion, the financial statements examined by them and incorporated by reference in the prospectus contained in the Registration Statement comply -15- in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) They have made a review of any unaudited financial statements incorporated by reference in the Prospectus in accordance with standards established by the American Institute of Certified Public Accountants; (iii) On the basis of the review referred to in (ii) above and a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements, if any, incorporated by reference in the Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Prospectus; (B) the unaudited capsule information, if any, included in the Prospectus does not agree with the amounts set forth in the unaudited financial statements from which it was derived or was not determined on a basis substantially consistent with that of the audited financial statements incorporated by reference in the Prospectus; (C) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than five days prior to the Closing Date, there was any change in the capital stock, any increase in short-term indebtedness or long-term debt of the Company or, at the date of the latest available balance sheet read by such accountants, there was any decrease in net assets as compared with amounts shown on the latest balance sheet incorporated by reference in the Prospectus; or (D) for the period from the date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year in revenues, income before income taxes and cumulative effect of accounting change, or net income, or in the ratio of earnings to fixed charges; except in all cases set forth in clauses (C) and (D) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) They have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Prospectus (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company -16- subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. All financial statements included in material incorporated by reference into the Prospectus shall be deemed included in the Prospectus for purposes of this subsection. (h) The Agents shall have received from Sullivan & Cromwell, counsel to the Agents, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Notes, the Indenture, the Registration Statement, the Prospectus and other related matters as the Agents may reasonably require, and the Company shall have furnished to such counsel such docu ments as they may request for the purpose of enabling them to pass upon such matters. (i) Additional Conditions. There shall not have occurred: (i) any change in the capital stock or long-term debt of the Company or any of its Subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, shareholder's equity, business, properties, condition (financial or other), results of operations or prospects of the Company which in the opinion of the Agents materially impairs the investment quality of the Notes; (ii) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market or the establishment of minimum prices on such exchanges or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction; (iii) a general moratorium on commercial banking activities declared by Federal, or New York State authorities; (iv) any downgrading in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national calamity or emergency; or (vi) any material adverse change in the existing financial, political or economic conditions in the United States, including any effect of international conditions on the financial markets in the United States, that in the judgment of the Agents makes it impracticable or inadvisable to proceed with the solicitation of offers to purchase Notes or the purchase of Notes from the Company as principal pursuant to the applicable Purchase Agreement, as the case may be. (j) Other Information and Documentation. Prior to the Closing Date, the Company shall have furnished to the Agents such further information, certificates and documents as the Agents or counsel to the Agents may reasonably request. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agree ment shall be deemed to be in compliance with the provisions hereof only if they are in the form and substance satisfactory to counsel for the Agents. -17- Section 6. Additional Covenants of the Company The Company covenants and agrees that: (a) Acceptance of Offer Affirms Representations and Warranties. Each acceptance by it of an offer for the purchase of Notes shall be deemed to be an affirmation that the representations and warranties of the Company contained in this Agreement and in any certificate theretofore given to the Agents pursuant hereto are true and correct at the time of such acceptance, and an undertaking that such representations and warranties will be true and correct at the time of delivery to the purchaser or his agent of the Notes relating to such acceptance as though made at and as of each such time (and such representations and warranties shall relate to the Registration Statement and the Prospectus as amended or supplemented to each such time). (b) Subsequent Delivery of Officers' Certificates. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented (other than by a Pricing Supplement providing solely for the interest rates or maturities of the Notes or the principal amount of Notes remaining to be sold or similar changes), each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of an officers' certificate under this Section 6(b) as a condition to the purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus, the Company shall submit to the Agents a certificate, (i) as of the date of such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement or filing was not filed during a Marketing Period, as of the first day of the next succeeding Marketing Period, representing that the statements contained in the certificate referred to in Section 5(f) hereof which was last furnished to the Agents are true and correct at the time of such amendment, supplement or filing, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration Statement and each Prospectus as amended and supplemented to such time). (c) Subsequent Delivery of Legal Opinions. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented (other than by a Pricing Supplement providing solely for the interest rates or maturities of the Notes or the principal amount of Notes remaining to be sold or similar changes), each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of a legal opinion under this Section 6(c) as a condition to the purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus, the Company shall, (i) concurrently with such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement or filing was not filed during a Marketing Period, on the first day of the next succeeding Marketing Period, furnish the Agents and their counsel with the written opinions of the General Counsel of the Company, each addressed to the Agents and dated the date of delivery of such opinion, in form satisfactory to the Agents, of the same effect as the opinions referred to in Section 5(e) hereof, but modified, as necessary, to relate to the Registration Statement and each Prospectus as amended or supplemented to the time of delivery of such opinion; provided, however, that in lieu of such opinion, such counsel may furnish the Agents with a letter to the effect that the Agents may rely on such prior opinion to the same extent as though it -18- was dated the date of such letter authorizing reliance (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and each Prospectus as amended or supplemented to the time of delivery of such letter authorizing reliance). (d) Subsequent Delivery of Accountant's Letters. The Company agrees that during each Marketing Period, each time that the Registration Statement or any Prospectus shall be amended or supplemented to include additional financial information, each time the Company sells Notes to an Agent as principal and the applicable Purchase Agreement specifies the delivery of a letter under this Section 6(d) as a condition to the purchase of Notes pursuant to such Purchase Agreement or the Company files with the Commission any document incorporated by reference into any Prospectus which contains additional financial information, the Company shall cause Ernst & Young (or other independent accounts of the Company acceptable to the Agents) to furnish the Agents, (i) concurrently with such amendment, supplement, Time of Delivery relating to such sale or filing or (ii) if such amendment, supplement, or filing was not filed during a Marketing Period, on the first day of the next succeeding Marketing Period, a letter, addressed jointly to the Company and the Agents and dated the date of delivery of such letter, in form and substance reasonably satisfactory to the Agents, of the same effect as the letter referred to in Section 5(g) hereof but modified to relate to the Registration Statement and each Prospectus, as amended and supplemented to the date of such letter, with such changes as may be necessary to reflect changes in the financial statements and other information derived from the accounting records of the Company; provided, however, that if the Registration Statement or any Prospectus is amended or supplemented solely to include financial information as of and for a fiscal quarter, such accountants may limit the scope of such letter to the unaudited financial statements included in such amendment or supplement unless there is contained therein any other accounting, financial or statistical information that, in the reasonable judgment of the Agents, should be covered by such letter, in which event such letter shall also cover such other information. (e) Opinion on Settlement Date. On any settlement date for the sale of Notes, the Company shall, if requested by the Agent that solicited or received the offer to purchase any Notes being delivered on such settlement date, furnish such Agent with a written opinion of the General Counsel of the Company, dated such settlement date, in form satisfactory to such Agent, to the effect set forth in Section 5(e) hereof, but modified, as necessary, to relate to the Prospectus relating to the Notes to be delivered on such settlement date; provided, however, that in lieu of such opinion, such counsel may furnish the Agents with a letter to the effect that the Agents may rely on such prior opinion to the same extent as though it was dated such settlement date (except that statements in such prior opinion shall be deemed to relate to the Registration Statement and such Prospectus as amended or supplemented to the time of delivery of such letter authorizing reliance). -19- Section 7. Indemnification and Contribution (a) Indemnification of Agents. The Company shall indemnify and hold harmless each Agent and each person, if any, who controls any Agent within the meaning of the Act from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which such Agent or controlling person may become subject, under the Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus, or arises out of, or is based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each Agent and controlling person for any legal and other expenses reasonably incurred by such Agent or controlling person in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Form T-1 or made in the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by the Agents specifically for inclusion therein; provided further, that as to any prospectus included in the Registration Statement before it became effective under the Act (a "Preliminary Prospectus") this indemnity agreement shall not inure to the benefit of any Agent on account of any loss, claim, damage, liability or action arising from the sale of Notes to any person by that Agent if that Agent failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Act, and the untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 3(b). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Agent or controlling person. (b) Indemnification of the Company. Each Agent shall indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and any person who controls the Company within the meaning of the Act from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Act, the Exchange Act or federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus, or arises out of, or is based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Agent specifically for inclusion therein, and shall reimburse the Company or any such director, officer or controlling person for any legal and other expenses reasonably incurred by such indemnified party in investigating or defending or preparing to defend against any such loss, claim, damage, liability or action. The foregoing indemnity agreement is in addition to any liability which any Agent may otherwise have to the Company or any of its directors, officers or controlling persons. -20- (c) Notice. Promptly after receipt by an indemnified party under this Section of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the claim or the commencement of action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investiga tion; provided, however, that the Agents shall have the right to employ counsel to represent the Agents who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Agents against the Company under this Section if, in the reasonable judgment of the Agents, it is advisable for the Agents to be represented by separate counsel, and in that event the fees and expenses of such counsel shall be paid by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 7 shall for any reason be unavailable to an indemnified party under Section 7(a) or 7(b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and any Agents on the other from the offering of the Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and any Agents on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and any Agents on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of -21- the Notes (before deducting expenses) received by the Company bears to the total commissions received by the such Agent with respect to such offering. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or any Agent, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Agents agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Agents were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Agent shall be required to contribute any amount in excess of the amount by which the total price at which the Notes sold through such Agent and distributed to the public were offered to the public exceeds the amount of any damages which such Agent has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Section 8. Status of Each Agent In soliciting offers to purchase the Notes from the Company pursuant to this Agreement (other than in respect of any Purchase Agreement), each Agent is acting individually and not jointly and is acting solely as agent for the Company and not as principal. Each Agent will make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Notes from the Company has been solicited by such Agent and accepted by the Company but such Agent shall have no liability to the Company in the event any such purchase is not consummated for any reason. If the Company shall default in its obligations to deliver Notes to a purchaser whose offer it has accepted, the Company shall (i) hold the Agents harmless against any loss, claim or damage arising from or as a result of such default by the Company, and (ii) in particular, pay to the Agents any commission to which they would be entitled in connection with such sale. Section 9. Representations, Warranties and Obligations to Survive Delivery The respective indemnities, agreements, representations, warranties and other statements of the Company and the Agents contained in this Agreement, or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Agent or any person controlling such Agent or by or on behalf of the Company, and shall survive each delivery of and payment for any of the Notes. -22- Section 10. Termination This Agreement may be terminated for any reason with respect to any party hereto, at any time, by any party hereto upon the giving of one day's written notice of such termination to the other parties hereto; provided, however, if such terminating party is an Agent, such termination shall be effective only with respect to such terminating party. If, at the time of a termination, an offer to purchase any of the Notes has been accepted by the Company but the time of delivery to the purchaser has not occurred, the provisions of this Agreement shall remain in effect until such Notes are delivered. The provisions of Sections 2(c), 3(d), 3(h), 3(i), 4, 7, 8 and 9 hereof shall survive any termination of this Agreement. Section 11. Sales of Notes Denominated in a Foreign Currency and Indexed Notes If at any time the Company and any of the Agents shall determine to issue and sell Notes denominated in a currency or currency unit other than U.S. Dollars, which other currency may include a composite currency, or with respect to which an index is used to determine the amounts of payments of principal and any premium or interest, the Company and any such Agent shall execute and deliver an Amendment (a "Foreign Currency Amendment" or "Indexed Note Amendment," as the case may be) in the form attached hereto as Exhibit D. Such amendment shall establish, as appropriate additions and modifications that shall apply to the sales, whether offered on an agency or principal basis, of the Notes covered thereby. The Agents are authorized to solicit offers to purchase Notes with respect to which an index is used to determine the amounts of payments of principal and any premium and interest, and the Company shall agree to any sales of such Notes (whether offered on an agency or principal basis), only in a minimum aggregate amount of $2,500,000. Section 12. Notices Except as otherwise provided herein, all notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Agents shall be directed to them as follows: Lehman Brothers Inc., 3 World Financial Center, New York, New York 10285-1200, Attention: Medium Term Note Department, 12th Floor, Telephone No.: (212) 526-2040, Telecopy No.: (212) 528- 1718; Chase Securities, Inc., 1 Chase Manhattan Plaza - 15th Floor, New York, New York 10081, Attention: Medium-Term Note Desk, Telephone No.: (212) 552-2969, Telecopy No.: (212) 552-1507; Goldman, Sachs & Co., MTN Desk, 85 Broad Street, New York, New York 10004, Attention: Karen Robertson, Telephone No.: (212) 902- 1482, Telecopy No.: (212) 902-6658; Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, World Financial Center, North Tower, 10th Floor, New York, New York 10281-1310, Attention: MTN Product Management, Telephone No.: (212) 449-7476, Telecopy No.: (212) 449-2234; notices to the Company shall be directed to it as follows: Alco Capital Resource, Inc., c/o Alco Standard Corporation, 825 Duportail Road, Wayne, PA 19087, Attention: Kathleen Burns, Telephone No.: (610) 296-8000, Telecopy No.: (610) 296-8419. -23- Section 13. Binding Effect; Benefits This Agreement shall be binding upon each Agent, the Company, and their respective suc cessors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (a) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Agent within the meaning of Section 15 of the Act, and (b) the indemnity agreement of the Agents contained in Section 7 hereof shall be deemed to be for the benefit of directors of the Company, officers of the Company who have signed the Registration Statement and any person controlling the Company. Nothing in this Agreement is intended or shall be construed to give any persons other than the person referred to in this Section, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Section 14. Governing Law; Counterparts This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement may be executed in counterparts and the executed counterparts shall together constitute a single instrument. Section 15. Paragraph Headings The paragraph headings used in this Distribution Agreement are for convenience of reference only, and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. -24- If the foregoing correctly sets forth our agreement, please indicate your acceptance hereof in the space provided for that purpose below. Very truly yours, ALCO CAPITAL RESOURCE, INC. By: /s/ Signature --------------------------------- Authorized Signatory CONFIRMED AND ACCEPTED as of the date first above written: LEHMAN BROTHERS INC. By: /s/ Signature ------------------------------------- Authorized Signatory CHASE SECURITIES, INC. By: /s/ Signature --------------------------- GOLDMAN, SACHS & CO. By: /s/ Signature --------------------------- MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Signature --------------------------- -25- Exhibit A ALCO CAPITAL RESOURCE, INC. Medium-Term Notes, Series B SCHEDULE OF PAYMENTS The Company agrees to pay each Agent a commission equal to the following percentage of the aggregate U.S. dollar equivalent of the principal amount of Notes sold by it:
======================================================================== TERM COMMISSION RATE ------------------------------------------------------------------------ 9 months to less than 12 months .125% ------------------------------------------------------------------------ 12 months to less than 18 months .150% ------------------------------------------------------------------------ 18 months to less than 2 years .200% ------------------------------------------------------------------------ 2 years to less than 3 years .250% ------------------------------------------------------------------------ 3 years to less than 4 years .350% ------------------------------------------------------------------------ 4 years to less than 5 years .450% ------------------------------------------------------------------------ 5 years to less than 6 years .500% ------------------------------------------------------------------------ 6 years to less than 7 years .550% ------------------------------------------------------------------------ 7 years to less than 10 years .600% ------------------------------------------------------------------------ 10 years to less than 15 years .625% ------------------------------------------------------------------------ 15 years to less than 20 years .650% ------------------------------------------------------------------------ 20 years to 30 years .750% ------------------------------------------------------------------------ More than 30 years Determined at time of issue ========================================================================
Exhibit B ALCO CAPITAL RESOURCE, INC. Medium-Term Notes, Series B Administrative Procedures Medium-Term Notes, Series B, with maturities of nine months or more from date of issue (the "Notes") are to be offered on a continuing basis by Alco Capital Resource, Inc. (the "Company"). Lehman Brothers, Lehman Brothers Inc., Goldman, Sachs & Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Chase Securities, Inc., as agents (each an "Agent" and collectively, the "Agents", which shall include Lehman Special Securities Inc., an affiliate of Lehman Brothers Inc.), have each agreed to use their reasonable best efforts to solicit offers to purchase the Notes. The Notes are being sold pursuant to a Distribution Agreement between the Company and the Agents dated June 30, 1995 (as it may be supplemented or amended from time to time, the "Distribution Agreement") to which these administrative procedures are attached as an exhibit. The Notes will be issued under the Company's Indenture, dated as of June 30, 1995 between the Company and Chemical Bank, as trustee (the "Trustee"), as heretofore supplemented. The Notes will rank equally with all other unsecured and unsubordinated indebtedness of the Company and will have been registered with the Securities and Exchange Commission (the "Commission"). Terms defined in the Prospectus relating to the Notes (the "Prospectus," which term shall include any Prospectus Supplement relating to the Notes and any Pricing Supplement relating to an applicable Note) and in the Distribution Agreement shall have the same meaning when used in this exhibit. The Notes will be issued either (a) in certificated form (each, a "Certificated Note") delivered to the purchaser thereof or a person designated by such purchaser or (b) in book-entry form (each, a "Book-Entry Note") represented by one or more fully registered global Notes (each, a "Global Security") delivered to the Trustee, as agent for The Depository Trust Company ("DTC"), and recorded in the book-entry system maintained by DTC. Owners of beneficial interests in Book-Entry Notes will be entitled to physical delivery of Certificated Notes equal in principal amount to their respective beneficial interests only in certain limited circumstances described in the Prospectus. General procedures relating to the issuance of all Notes are set forth in Part I hereof. Certificated Notes will be issued in accordance with the procedures set forth in Part II, as supplemented, in the case of Certificated Notes denominated other than in U.S. dollars ("Multi-Currency Notes"), by Part III. Book-Entry Notes will be issued in accordance with the procedures set forth in Part IV. Administrative responsibilities, document control and record-keeping functions to be performed by the Company will be performed by its Treasurer. Administrative procedures for the offering are explained below. PART I: Procedures of General Applicability Price to Public Each Note will be issued at 100% of principal amount, unless otherwise determined by the Company. Date of Issuance Each Note will be dated and issued as of the date of its authentication by the Trustee. Maturities Each Note will mature on a day at least nine months or more from the date of issuance selected by the purchaser and agreed upon by the Company. Each Floating Rate Note (as defined below) will mature on an Interest Payment Date (as defined below). Registration Notes will be issued only in fully registered form as either a Book-Entry Note or a Certificated Note. Interest Payments Each Note bearing interest at a fixed rate (a "Fixed Rate Note") will bear interest from its issue date at the annual rate stated on the face thereof, payable in the case of Fixed Rate Notes other than Amortizing Notes, unless otherwise specified in an applicable Pricing Supplement, on June 15 and December 15 of each year (each an "Interest Payment Date" with respect to such Fixed Rate Note) and at Stated Maturity or upon redemption, if applicable. Special provisions are set forth in the Prospectus relating to Notes bearing interest at a rate or rates determined by reference to an interest rate formula ("Formula Rate Notes") at a rate determined pursuant to the formula stated on the face thereof, payable in arrears on such dates as are specified therein (each an "Interest Payment Date" with respect to such Floating Rate Note). Unless otherwise specified in an applicable Pricing Supplement, interest on Fixed Rate Notes will be calculated and paid on the basis of a 360-day year of twelve 30-day months. Unless otherwise specified in an applicable Pricing Supplement, interest will be payable to the person in whose name such Note is registered at the close of business on May 31 or November 30 (whether or not a Business Day) with respect to Fixed Rate Notes other than Amortizing Notes (as hereinafter defined) or the fifteenth day (whether or not a Business Day) next preceding an Interest Payment Date with respect to Floating Rate Notes (the "Record Dates"); provided, however, that interest payable at Stated Maturity will be payable to the person to whom principal shall be payable. Payments of principal and interest on Notes for which payments of principal and interest are made in equal installments over the life of the security ("Amortizing Notes") will be made either quarterly on each March 15, June 15, September 15 and December 15 or semiannually on each June 15 and December 15 as set forth in the applicable Pricing Supplement, and at maturity or upon earlier redemption or repayment. Payments with respect to Amortizing Notes will be applied first to interest due and payable thereon and then to the reduction of the unpaid principal amount thereof. A table setting forth repayment information in respect of each Amortizing Note will be provided to the original purchaser and will be available, upon request, to subsequent Holders. Any payment of principal B-2 and interest on any such Note required to be paid on an Interest Payment Date or at Stated Maturity or upon redemption, if applicable, which is not a Business Day shall be postponed to the next day which is a Business Day. The first payment of interest on any Note originally issued between a Record Date and an Interest Payment Date will be made on the Interest Payment Date following the next succeeding Record Date. All interest payments (and, in the case of Amortizing Notes, principal payments) excluding interest payments and, in the case of Amortizing Notes, principal payments made at Stated Maturity or upon redemption, if applicable, will be made by check mailed to the person entitled thereto as provided above, or, at the option of the Company, by wire transfer to an account maintained by such person with a bank located in the United States. Notwithstanding the foregoing, the holder of $10 million or more in aggregate principal amount of Notes of like tenor and terms with the same Interest Payment Date may request payment by wire transfers. On the fifth Business Day immediately preceding each Interest Payment Date, the Trustee will furnish the Company with the total amount of the interest payments and, in the case of Amortizing Notes, principal payments, to be made on such Interest Payment Date. The Trustee (or any duly selected paying agent) will provide monthly to the Company's Treasury Department a list of the principal and interest to be paid on Notes maturing in the next succeeding month. The Company will provide to the Trustee not later than the payment date sufficient moneys to pay in full all principal and interest payments due on such payment date. The Trustee will assume responsibility for withholding taxes on interest paid as required by law. Acceptance and Rejection of Offers The Company shall have the sole right to accept offers to purchase Notes and may reject any such offer in whole or in part. Each Agent shall promptly communicate to the Company, orally or in writing, each reasonable offer to purchase Notes from the Company received by it other than those rejected by such Agent. Each Agent shall have the right, in its discretion reasonably exercised without advising the Company, to reject any offers in whole or in part. Settlement The receipt of immediately available funds in U.S. dollars by the Company in payment for a Note (less the applicable commission) and the authentication and issuance of such Note shall, with respect to such Note, constitute "Settlement." All offers accepted by the Company will be settled on the third Business Day next succeeding such date of acceptance, unless the Company accepts an offer to purchase Notes after 4:30 p.m. on such date in which case Settlement will occur on the fourth Business Day next succeeding such date of acceptance, pursuant to the timetable for Settlement set forth below, unless otherwise agreed to by the Company and the purchaser; provided, however, that the Company will so notify the Trustee of any such other date on or before the Business Day immediately prior to the Settlement date. B-3 Procedures for Establishing the Terms of the Notes The Company and the Agents will discuss from time to time the rates to be borne by the Notes that may be sold as a result of the solicitation of offers by the Agents. Once any Agent has recorded any indication of interest in Notes upon certain terms, and communicated with the Company, if the Company accepts an offer to purchase Notes upon such terms, it will prepare a Pricing Supplement in the form previously approved by the Agents, reflecting the terms of such Notes and, after approval from the Presenting Agent, will arrange to have 10 copies of such Pricing Supplement (together with the Prospectus, if amended or supplemented) filed with the Commission and will supply an appropriate number of copies of the Prospectus, as then amended or supplemented, together with such Pricing Supplement, to the Presenting Agent. See "Delivery of Prospectus." No settlements with respect to Notes upon such terms may occur prior to such filing and the Presenting Agent will not, prior to such filing, mail confirmations to customers who have offered to purchase Notes upon such terms. After such filing, sales, mailing of confirmations and settlements may occur with respect to Notes upon such terms, subject to the provisions of "Delivery of Prospectus" below. If the Company decides to post rates and a decision has been reached to change interest rates, the Company will promptly notify each Agent. Each Agent will forthwith suspend solicitation of purchases. At that time, the Agents will recommend and the Company will establish rates to be so "posted." Following establishment of posted rates and prior to the filing described in the following sentence, the Agents may only record indications of interest in purchasing Notes at the posted rates. Once any Agent has recorded any indication of interest in Notes at the posted rates and communicated with the Company, if the Company accepts an offer at the posted rate, it will prepare a Pricing Supplement reflecting such posted rates and, after approval from the Presenting Agent, will arrange to have 10 copies of such Pricing Supplement (together with the Prospectus if amended or supplemented) filed with the Commission and will supply an appropriate number of copies of the Prospectus, as then amended or supplemented, to the Presenting Agent. See "Delivery of Prospectus." No settlements at the posted rates may occur prior to such filing and the Presenting Agent will not, prior to such filing, mail confirmations to customers who have offered to purchase Notes at the posted rates. After such filing, sales, mailing of confirmations and settlements may resume, subject to the provisions of "Delivery of Prospectus" below. Suspension of Solicitation; Amendment or Supplement In the event that at the time the Agents, at the direction of the Company, suspend solicitation of offers to purchase from the Company there shall be any orders outstanding which have not been settled, the Company will promptly advise the Agents and the Trustee whether such orders may be settled and whether copies of the Prospectus as theretofore amended and/or supplemented as in effect at the time of the suspension may be delivered in connection with the settlement of such orders. The Company will have the sole responsibility for such decision and for any arrangements which may be made in the event that the Company determines that such orders may not be settled or that copies of such Prospectus may not be so delivered. B-4 Delivery of Prospectus A copy of the Prospectus as most recently amended or supplemented on the date of delivery thereof, together with the applicable Pricing Supplement, must be delivered to a purchaser prior to or together with the earlier of the delivery by the Agents of (i) the written confirmation of a sale sent to a purchaser or his agent and (ii) any Note purchased by such purchaser. The Company shall ensure that the Presenting Agent receives copies of the Prospectus and each amendment or supplement thereto (including the applicable Pricing Supplement) in such quantities and within such time limits as will enable the Presenting Agent to deliver such confirmation or Note to a purchaser as contemplated by these procedures and in compliance with the preceding sentence. Copies of Pricing Supplements should be delivered by 11:00 A.M. on the Business Day following the applicable trade date by telecopy to (i) Lehman Brothers Inc., c/o ADP, Prospectus Services, 536 Broad Hollow Road, Melville, New York 11747, Attention: Eric Johnson, Telephone: (516) 254-7106, Telecopy: (516) 249-7942 and by hand to Lehman Brothers Inc., 3 World Financial Center, 9th Floor, New York, New York 10285-0900, Attention: Brunie Vazquez, Telephone: (212) 526-8400; (ii) Chase Securities, Inc., One Chase Manhattan Plaza, 15th Floor, New York, New York 10081, Attention: Medium-Term Note Desk, Telephone No.: (212) 552-2969, Telecopy No.: (212) 552-1507; (iii) Goldman, Sachs & Co., MTN Desk, 85 Broad Street, New York, New York 10004, Attention: Karen Robertson, Telephone No.: (212) 902-1482, Telecopy No.: (212) 902-6658; or (iv) Merrill Lynch & co. - Tritech Services, 4 Corporate Place, Corporate Park 287, Piscataway, New Jersey 08854; Attention: Final Prospectus Unit/Nachman Kimerling, Telephone No.: (908) 878-6525/26/27, Telecopy No.: (908) 878-6530; also, for record keeping purposes, send a copy to: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Merrill Lynch World Headquarters, World Financial Center, North Tower 10th Floor, 250 Vesey Street, New York, New York 10281-1310, Attention: MTN Product Management. If, since the date of acceptance of a purchaser's offer, the Prospectus shall have been supplemented solely to reflect any sale of Notes on terms different from those agreed to between the Company and such purchaser or a change in posted rates not applicable to such purchaser, such purchaser shall not receive the Prospectus as supplemented by such new supplement, but shall receive the Prospectus as supplemented to reflect the terms of the Notes being purchased by such purchaser and otherwise as most recently amended or supplemented on the date of delivery of the Prospectus. The Company will make all such deliveries with respect to all Notes sold directly by the Company. B-5 Redemption and Repayment Unless one or more Redemption Dates are specified in the applicable Pricing Supplement, the Notes will not be redeemable prior to their Stated Maturity. If one or more Redemption Dates are so specified with respect to any Note, the applicable Pricing Supplement will also specify one or more redemption prices (expressed as a percentage of the principal amount of such Note) ("Redemption Prices") and the redemption period or periods ("Redemption Periods") during which such Redemption Prices shall apply. Unless otherwise specified in the Pricing Supplement, any such Note shall be redeemable at the option of the Company at the specified Redemption Price applicable to the Redemption Period during which such Note is to be redeemed, together with interest accrued to the Redemption Date. Unless otherwise specified in the applicable Pricing Supplement, the Notes will not be subject to any sinking fund. The Company may redeem any of the Notes that are redeemable and remain outstanding either in whole or from time to time in part, upon not less than 30 nor more than 60 days' notice. In the event of a redemption in part of any Note, a new Note for the amount of the unredeemed portion shall be issued in the name of the Holder upon cancellation of the redeemed Note. The Pricing Supplement relating to each Note will indicate either that such Note cannot be repaid prior to Stated Maturity or that such Note will be repayable at the option of the holder on a date or dates specified prior to Stated Maturity at a price or prices set forth in the applicable Pricing Supplement, together with accrued interest to the date of repayment. In order for a Note that is subject to repayment at the option of the Holder to be repaid, the Paying Agent must receive at least 30 days but not more than 45 days prior to the repayment date (a) appropriate wire instructions and (b) either (i) the Note with the form entitled "Option to Elect Repayment" attached to the Note duly completed or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc. or a commercial bank or trust company in the United States setting forth the name of the Holder of the Note, the principal amount of the Note, the portion of the principal amount of the Notes to be repaid, the certificate number or a description of the tenor and terms of the Note, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Note to be repaid with the form entitled "Option to Elect Repayment" attached to the Note duly completed will be received by the Paying Agent not later than five Business Days after the date of such telegram, telex, facsimile transmission or letter and such Note and form duly completed must be received by the Paying Agent by such fifth Business Day. Exercise of the repayment option by the Holder of a Note shall be irrevocable, except as otherwise described under "Interest Rate Reset" and "Extension of Maturity" in the Prospectus Supplement. The repayment option may be exercised by the Holder of a Note for less than the entire principal amount of the Note provided that the principal amount of the Note remaining outstanding after repayment is an authorized denomination. No registration of, transfer or exchange of any Note (or, in the event that any Note is to be repaid in part, the portion of the Note to be repaid) will be permitted after exercise of a repayment option. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for repayment will be determined by the Company, whose determination will be final, binding and non-appealable. If a Note is represented by a Global Security, the Depositary's nominee will be the Holder of such Note and therefore will be the only entity that can exercise a right to repayment. In order to ensure that the Depositary's nominee will timely exercise a right to repayment with respect to a particular Note, the beneficial owner of such Note must instruct the broker or other direct or indirect participant through which B-6 it holds an interest in such Note to notify the Depositary of its desire to exercise a right to repayment. Different firms have different cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other direct or indirect participant through which it holds an interest in a Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to the Depositary. Unless otherwise specified in the applicable Pricing Supplement, if a Note is an Original Issue Discount Note, the amount payable on such Note in the event of redemption or repayment prior to its Stated Maturity shall be the Amortized Face Amount of such Note, as specified in the applicable Pricing Supplement, as of the Redemption Date or the date of repayment, as the case may be. Authenticity of Signatures The Company will cause the Trustee to furnish the Agents from time to time with the specimen signatures of each of the Trustee's officers, employees and agents who have been authorized by the Trustee to authenticate Notes, but the Agents will have no obligation or liability to the Company or the Trustee in respect of the authenticity of the signature of any officer, employee or agent of the Company or the Trustee on any Note. Advertising Costs The Company will determine with the Agents the amount and nature of advertising that may be appropriate in offering the Notes. Advertising expenses incurred with the consent of the Company will be paid by the Company. Business Day "Business Day" shall mean, with respect to any particular location, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions and trust companies in such location are authorized or required by law, regulation or executive order to close and, with respect to Notes as to which LIBOR is an applicable Base Rate, is also a London Banking Day (as defined in the Prospectus). PART II: Procedures For Certificated Notes Prior to any issuance of Certificated Notes, the Company will deliver to the Trustee an adequate supply of 4-ply notes meeting the specifications set forth herein. Currency B-7 Certificated Notes will be denominated in U.S. dollars or in one or more foreign currencies or foreign currency units, as specified in the applicable Pricing Supplement. For special procedures relating to Multi-Currency Notes, see Part III hereof. Registration Certificated Notes may be presented for registration of transfer or exchange at the Trustee's drop facility in The City of New York. Denominations Except as provided in the applicable Pricing Supplement, Certificated Notes will be issued and payable in U.S. dollars in the denomination of $1,000 and any larger denomination which is an integral multiple of $1,000. Maturity Upon presentation of each Certificated Note at Maturity the Trustee (or any duly appointed Paying Agent) will pay the principal amount thereof, together with accrued interest due at maturity. Such payment shall be made in immediately available funds in U.S. dollars, provided that the Certificated Note is presented to the Trustee (or any such Paying Agent) in time for the Trustee (or such Paying Agent) to make payments in such funds in accordance with its normal procedures. The Company will provide the Trustee (and any such Paying Agent) with funds available for immediate use for such purpose. Certificated Notes presented at Maturity will be cancelled by the Trustee as provided in the Indenture. Settlement Procedures In the event of a purchase of Certificated Notes by an Agent, as principal, appropriate Settlement details will be as set forth below unless such details are set forth in the applicable Purchase Agreement to be entered into between such Agent and the Company pursuant to the Distribution Agreement. In the event of the sale of a Certified Note that is a Multi-Currency Note or an Indexed Note, whether the sale is through an Agent or to an Agent, as principal, additional or different Settlement details may be set forth in an amendment to these administrative procedures to be entered into between such Agent and the Company. Other than as contemplated above, settlement procedures with regard to each Certificated Note sold through each Agent shall be as follows: B-8 A. Such Agent (the "Presenting Agent") will advise the Company by telephone, telex or facsimile, of the following Settlement information: 1. Exact name in which the Note is to be registered ("Registered Owner"). 2. Exact address of the Registered Owner and address for payment of principal and interest, if any. 3. Taxpayer identification number of the Registered Owner. 4. Principal amount of the Note (and, if multiple Notes are to be issued, denominations thereof). 5. Settlement date. 6. Stated Maturity and, if the Company has the option to extend the Stated Maturity, the Extension Periods and the Final Maturity Date. 7. Issue Price and any OID information. 8. Trade Date/Original Issue Date. 9. If such Note is a Fixed Rate Note, whether such Note is an Amortizing Note. 10. Interest rate (including, if appropriate, such interest rate information applicable to any Extension Period): (a) Fixed Rate Certificated Notes: (i) interest rate (ii) interest payment dates, if other than as specified above (iii) date or dates, if any, on which the interest rate may be reset and the basis or formula, if any, for such resetting (iv) overdue rate, if any (b) Floating Rate Certificated Notes: (i) interest rate basis (ii) initial interest rate (iii) spread or spread multiplier, if any (iv) date or dates, if any, on which the spread or spread multiplier may be reset and the basis or formula, if any, for such resetting (v) interest rate reset periods (vi) interest payment dates (vii) index maturity (viii) maximum and minimum interest rates, if any B-9 (ix) record dates (x) interest determination dates (xi) overdue rate, if any 11. The date on or after which the Certificated Notes are redeemable at the option of the Company or are to be repaid at the option of the Holder, and additional redemption or repurchase provisions, if any. 12. Wire transfer information. 13. Presenting Agent's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon Settlement). 14. That the Note will be a Certificated Note. B. The Company will confirm the above Settlement information to the Trustee by telephone, telex or facsimile, and the Trustee will assign a Note number to the transaction. If the Company rejects an offer, the Company will promptly notify the Presenting Agent and the Trustee by telephone. C. The Trustee will complete the first page of the preprinted 4-ply Certificated Note packet, the form of which was previously approved by the Company, the Agents and the Trustee. D. The Trustee will deliver the Certificated Note (with the attached white confirmation) and the yellow and blue stubs to the Presenting Agent at one of the following addresses: (i) Chemical Bank, Four New York Plaza, Ground Floor, Physical Delivery Window, SAO Lehman Brothers; (ii) Chase Securities, Inc., One Chase Manhattan Plaza, Level 4B, Window 11, New York, New York 10081, Attention: Receive and Deliver; (iii) Goldman, Sachs & Co., 85 Broad Street, 6th Floor, New York, New York 10004, Attention: Edward Bissoth; or Merrill Lynch, Pierce, Fenner & Smith Incorporated, Money Market Clearance - MTNs, 75 Barclay Street, Window C, New York, New York 10080, Attention: Kevin Brennan. The Presenting Agent will acknowledge receipt of the Certificated Note by completing the yellow stub and returning it to the Trustee. E. The Presenting Agent will cause to be wire transferred to a bank account designated by the Company immediately available funds in U.S. dollars in the amount of the principal amount of the Certificated Note, less the applicable commission or discount, if any. F. The Presenting Agent will deliver the Certificated Note (with the white confirmation) to the purchaser against payment in immediately available funds in the amount of the principal amount of the Certificated Note. The Presenting Agent will deliver to the purchaser a copy of the most recent Prospectus applicable to the Certificated Note with or prior to any written offer of Certificated Notes, delivery of the Certificated Note and the confirmation and payment by the purchaser for the Certificated Note. G. The Presenting Agent will obtain the acknowledgment of receipt for the Certificated Note and Prospectus by the purchaser through the purchaser's completion of the blue stub. H. The Trustee will mail the pink stub to the Company's Treasurer. B-10 Settlement Procedures Table For offers to purchase Certificated Notes accepted by the Company, Settlement procedures "A" through "H" set forth above shall be completed on or before the respective times set forth below:
=========================================================================== Settlement Procedure Time (New York) =========================================================================== A 5 PM on the Trade Date --------------------------------------------------------------------------- B 3 PM on the Business Day prior to Settlement Date --------------------------------------------------------------------------- C-D 12 Noon on the Settlement Date --------------------------------------------------------------------------- E 2:15 PM on the Settlement Date --------------------------------------------------------------------------- F-G 3 PM on the Settlement Date --------------------------------------------------------------------------- H 5 PM on the Business Day after the Settlement Date ===========================================================================
Fails In the event that a purchaser of a Certificated Note shall either fail to accept delivery of or make payment for such Certificated Note on the date fixed by the Company for Settlement, the Presenting Agent will immediately notify the Trustee and the Company's Treasurer by telephone, confirmed in writing, of such failure and return the Certificated Note to the Trustee. Upon the Trustee's receipt of the Certificated Note from the Presenting Agent, the Company will promptly return to the Presenting Agent an amount of immediately available funds in U.S. dollars equal to any amount previously transferred to the Company in respect of the Certificated Note pursuant to advances made by the Agent. Such returns will be made on the Settlement Date, if possible, and in any event not later than 12 noon (New York City time) on the Business Day following the Settlement Date. The Company will reimburse the Presenting Agent on an equitable basis for its loss of the use of the funds during the period when the funds were credited to the account of the Company. Upon receipt of the Certificated Note in respect of which the default occurred, the Trustee will mark the Certificated Note "cancelled," make appropriate entries in its records and deliver the Certificated Note to the Company with an appropriate debit advice. The Presenting Agent will not be entitled to any commission with respect to any Certificated Note which the purchaser does not accept or make payment for. PART III: Special Administrative Procedures For Multi-Currency Notes Unless otherwise set forth in an applicable Foreign Currency Amendment, the following procedures and terms shall apply to Multi-Currency Notes in addition to, and to the extent inconsistent therewith in replacement of, the procedures and terms set forth above. B-11 Denominations The authorized denominations of any Multi-Currency Note will be the amount of the Specified Currency for such Multi-Currency Note equivalent, at the noon buying rate in the City of New York for cable transfers for such Specified Currency (the "Market Exchange Rate") on the first Business Day in the City of New York and the country issuing such currency (or, in the case of ECUs, Brussels) next preceding the date on which the Company accepts the offer to purchase such Multi-Currency Note, to U.S. $1,000 (rounded down to an integral multiple of 10,000 units of such Specified Currency) and any greater amount that is an integral multiple of 10,000 units of such Specified Currency. Currencies Unless otherwise specified in the applicable Pricing Supplement, payments of principal of (and premium, if any) and interest on all Multi-Currency Notes will be made in the applicable Specified Currency, provided, however, that payments of principal of (and premium, if any) and interest on Multi-Currency Notes denominated in other than U.S. dollars will nevertheless be made in U.S. dollars (i) at the option of the Holders thereof under the procedures described below and (ii) at the option of the Company in the case of imposition of exchange controls or other circumstances beyond the control of the Company as described below. Payment of Principal and Interest If so specified in the applicable Pricing Supplement, except as provided in the next paragraph, payments of interest and principal (and premium, if any) with respect to any Multi-Currency Note will be made in U.S. dollars if the Holder of such Note on the relevant Regular Record Date or at Maturity, as the case may be, has transmitted a written request for such payment in U.S. dollars to the Trustee at its Corporate Trust Office on or prior to such Regular Record Date or the date 15 days prior to Maturity, as the case may be. Such request may be in writing (mailed or hand delivered) or by cable, telex or other form of facsimile transmission. Any such request made with respect to any Multi-Currency Note by a Holder will remain in effect with respect to any further payments of interest and principal (and premium, if any) with respect to such Multi-Currency Note payable to such Holder, unless such request is revoked on or prior to the relevant Regular Record Date or the date 15 days prior to Maturity, as the case may be. Holders of Multi-Currency Notes denominated in other than U.S. dollars whose Notes are registered in the name of a broker or nominee should contact such broker or nominee to determine whether and how an election to receive payments in U.S. dollars may be made. The U.S. dollar amount to be received by a Holder of a Multi-Currency Note who elects to receive payments in U.S. dollars will be based on the highest bid quotation in The City of New York received by the Currency Determination Agent (as defined below) as of noon New York City time on the third Business Day next preceding the applicable payment date from three recognized foreign exchange dealers (one of which may be the Currency Determination Agent) for the purchase by the quoting dealer of the Specified Currency for U.S. dollars for settlement on such payment date in the aggregate amount of the Specified Currency payable to all Holders of Multi-Currency Notes electing to receive U.S. dollar payments and at which the applicable dealer commits to execute a contract. If three such bid quotations are not available on B-12 the third Business Day preceding the date of payment of principal (and premium, if any) or interest with respect to any such Multi-Currency Note, such payment will be made in the Specified Currency. All currency exchange costs associated with any payment in U.S. dollars on any such Multi-Currency Note will be borne by the Holder thereof by deductions from such payment. Unless otherwise provided in the applicable Pricing Supplement, Lehman Brothers Inc. will be the Currency Determination Agent (the "Currency Determination Agent") with respect to the Multi-Currency Notes. Payment Currency If the principal of (and premium, if any) or interest on any Multi-Currency Note is payable in any currency other than U.S. dollars and such Specified Currency is not available due to the imposition of exchange controls or other circumstances beyond the control of the Company, the Company will be entitled to satisfy its obligations to Holders of the Multi-Currency Notes by making such payment in U.S. dollars on the basis of the Market Exchange Rate on the last date such Specified Currency was available (the "Conversion Date"). Any payment made under such circumstances in U.S. dollars where the required payment is in other than U.S.dollars will not constitute an Event of Default under the Indenture. If payment in respect of a Note is required to be made in any currency unit (e.g., ECU) and such currency unit is unavailable due to the imposition of exchange controls or other circumstances beyond the Company's control, then all payments in respect of such Multi-Currency Note shall be made in U.S. dollars until such currency unit is again available. The amount of each payment in U.S. dollars shall be computed on the basis of the equivalent of the currency unit in U.S. dollars, which shall be determined by the Company or its agent on the following basis. The component currencies of the currency unit for this purpose (the "Component Currencies") shall be the currency amounts that were components of the currency unit as of the Conversion Date for such currency unit. The equivalent of the currency unit in U.S. dollars shall be calculated by aggregating the U.S. dollar equivalents of the Component Currencies. The U.S. dollar equivalent of each of the Component Currencies shall be determined by the Company or such agent on the basis of the Market Exchange Rate for each such Component Currency that is available as of the third Business Day prior to the date on which the relevant payment is due and for each such Component Currency that is unavailable, if any, as of the Conversion Date for such Component Currency. If the official unit of any Component Currency is altered by way of combination or subdivision, the number of units of that currency as a Component Currency shall be divided or multiplied in the same proportion, if two or more Component Currencies are consolidated into a single currency, the amounts of those currencies as Component Currencies shall be replaced by an amount in such single currency equal to the sum of the amounts of the consolidated Component Currencies expressed in such single currency. If any Component Currency is divided into two or more currencies, the amount of the original Component Currency shall be replaced by the amounts of such two or more currencies, the sum of which shall be equal to the amount of the original Component Currency. B-13 Outstanding Multi-Currency Notes For purposes of calculating the principal amount of any Multi-Currency Note for any purpose under the Indenture, the principal amount of such Multi-Currency Note at any time Outstanding shall be deemed to be the U.S. dollar equivalent at the Market Exchange Rate, determined as of the date of the original issuance of such Multi-Currency Note, of the principal amount of such Multi-Currency Note. Details for Settlement of Multi-Currency Notes In addition to the Settlement information specified in "Settlement Procedures" above, the Presenting Agent shall communicate to the Company in the manner set forth in "Settlement Procedures" the following information: 1. Specified Currency 2. Denominations 3. Wire transfer and overseas bank account information (if holder has elected payment in a Specified Currency). Whether the sale is through an Agent or to the Agent, as principal, additional or different Settlement details may be set forth in an amendment to these administrative procedures to be agreed to by the Agent and the Company. PART IV: Special Administrative Procedures for Book-Entry Notes In connection with the qualification of the Book-Entry Notes for eligibility in the book-entry system maintained by DTC, the Trustee will perform or cause to be performed the custodial, document control and administrative functions described below, in accordance with its respective obligations under a Letter of Representations from the Company and the Trustee to DTC and a Medium- Term Note Certificate Agreement previously entered into between the Trustee and DTC, and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement System ("SDFS"). Except as otherwise set forth in this Exhibit B, Book-Entry Notes will be issued in accordance with the administrative procedures set forth below. B-14 Issuance On any date of settlement (as defined under "Settlement" below) for one or more Fixed Rate Book-Entry Notes, the Company will issue a single Global Security in fully registered form without coupons representing up to $200,000,000 principal amount, or the equivalent thereof in any Specified Currency, other than U.S. dollars, at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency), of all of such Notes that have the same original issuance date, interest rate, redemption or repayment provisions and Stated Maturity. Similarly, on any settlement date for one or more Floating Rate Book-Entry Notes, the Company will issue a single Global Security representing up to $200,000,000 principal amount, or the equivalent thereof in any Specified Currency, other than U.S. dollars, at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency), of all of such Notes that have the same interest rate formula, original issuance date, Initial Interest Rate, Interest Payment Dates, Index Maturity, Spread, Spread Multiplier, minimum interest rate (if any), maximum interest rate (if any), redemption or repayment provisions and Stated Maturity. Each Global Security will be dated and issued as of the date of its authentication by the Trustee. Each Global Security will have an interest accrual date (the "Interest Accrual Date"), which will be (i) with respect to an original Global Security (or any portion thereof), its original issuance date and (ii) with respect to any Global Security (or portion thereof) issued subsequently upon exchange of a Global Security or in lieu of a destroyed, lost or stolen Global Security, the most recent Interest Payment Date to which interest has been paid or duly provided for on the predecessor Global Security or Securities (or if no such payment or provision has been made, the original issuance date of the predecessor Global Security), regardless of the date of authentication of such subsequently issued Global Security. No Global Security will represent (i) both Fixed Rate and Floating Rate Book-Entry Notes or (ii) any Certificated Note. Identification Numbers The Company will arrange, on or prior to commencement of a program for the offering of Book-Entry Notes,with the CUSIP Service Bureau of Standard & Poor's Ratings Group (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including tranche numbers), consisting of approximately 900 CUSIP numbers and relating to Global Securities representing the Book-Entry Notes. The Company will obtain a written list of such series of reserved CUSIP numbers and will deliver to the Trustee and DTC such written list of 900 CUSIP numbers of such series. The Company will assign CUSIP numbers to Global Securities as described below under Settlement Procedure "B." DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Company has assigned to Global Securities. When fewer than 100 of the reserved CUSIP numbers remain unassigned to Global Securities, and if it deems necessary, the Company will reserve additional CUSIP numbers for assignment to Global Securities representing Book-Entry Notes. Upon obtaining such additional CUSIP numbers the Company shall deliver such additional CUSIP numbers to the Trustee and DTC. B-15 Registration Each Global Security will be registered in the name of Cede & Co., as nominee for DTC, on the Securities Register maintained under the Indenture governing such Global Security. The beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC with respect to such Book-Entry Note (the "Participants") to act as agent or agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such Book-Entry Note in the account of such Participants. The ownership interest of such beneficial owner in such Book-Entry Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC. Voting In the event of any solicitation of consents from or voting by holders of the Book-Entry Notes, the Company or the Trustee shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall, to the extent possible, send notice of such record date to DTC not less than 15 calendar days in advance of such record date. Transfers Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in turn, by Participants (and in certain cases, one or more indirect participants in DTC ) acting on behalf of beneficial transferors and transferees of such Book-Entry Note. B-16 Consolidation and Exchange The Trustee may deliver to DTC and the CUSIP Service Bureau at any time a written notice of consolidation specifying (i) the CUSIP numbers of two or more Outstanding Global Securities that represent (A) Fixed Rate Book-Entry Notes having the same original issuance date, interest rate, redemption and repayment provisions and Stated Maturity and with respect to which interest has been paid to the same date or (B) Floating Rate Book-Entry Notes having the same interest rate formula, original issuance date, Initial Interest Rate, Interest Payment Dates, Index Maturity, Spread or Spread Multiplier, minimum interest rate (if any), maximum interest rate (if any), redemption and repayment provisions and with respect to which interest has been paid to the same date, (ii) a date, occurring at least thirty days after such written notice is delivered and at least thirty days before the next Interest Payment Date for such Book-Entry Notes, on which such Global Securities shall be exchanged for a single replacement Global Security and (iii) a new CUSIP number, obtained from the Company, to be assigned to such replacement Global Security. Upon receipt of such a notice, DTC will send to its Participants (including the Trustee) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, the Trustee will deliver to the CUSIP Service Bureau a written notice setting forth such exchange date and the new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Securities to be exchanged will no longer be valid. On the specified exchange date, the Trustee will exchange such Global Securities for a single Global Security bearing the new CUSIP number and a new Interest Accrual Date, and the CUSIP numbers of the exchanged Global Securities will, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. Notwithstanding the foregoing, if the Global Securities to be exchanged exceed $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency)) in aggregate principal amount, one Global Security will be authenticated and issued to represent each $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note as described below (rounded down to an integral multiple of 10,000 units of such Specified Currency)) of principal amount of the exchanged Global Securities and an additional Global Security will be authenticated and issued to represent any remaining principal amount of such global Securities (see "Denominations" below). Notice of Redemption and Repayment Dates The Trustee will give notice to DTC prior to each redemption date or repayment date (as specified in the Book-Entry Note), if any, at the time and in the manner set forth in the letter of representation. B-17 Denominations Book-Entry Notes denominated in U.S. dollars will be issued in principal amounts of $1,000 or any amount in excess thereof that is an integral multiple of $1,000. The authorized denomination of any Book-Entry Notes denominated in other than U.S. dollars will be the amount of the Specified Currency for such Book-Entry Note equivalent, at the Market Exchange Rate on the first Business Day in the City of New York and the country issuing such currency (or, in the case of ECUs, Brussels) next preceding the date on which the Company accepts the offer to purchase such Book-Entry Note, to U.S. $1,000 (rounded down to an integral multiple of 10,000 units of such Specified Currency) and any greater amount that is an integral multiple of 10,000 units of such Specified Currency. Global Securities representing one or more Book-Entry Notes will be denominated in principal amounts not in excess of $200,000,000, or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note (rounded down to an integral multiple of 10,000 units of such Specified Currency). If one or more Book-Entry Notes having an aggregate principal amount in excess of $200,000,000 (or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note down to an integral multiple of 10,000 units of such Specified Currency)) would, but for the preceding sentence, be represented by a single Global Security, then one Global Security will be issued to represent each $200,000,000 principal amount, or the equivalent thereof in any Specified Currency other than U.S. dollars at the Market Exchange Rate used to determine the denomination of such Book-Entry Note (rounded down to an integral multiple of 10,000 units of such Specified Currency), of such Book-Entry Note or Notes and an additional Global Security will be issued to represent any remaining principal amount of such Book-Entry Note or Notes. In such a case, each of the Global Securities representing such Book-Entry Note or Notes shall be assigned the same CUSIP number. Interest General. Interest on each Book-Entry Note will accrue from the date of issue of the Global Security representing such Note or from and including the last date in respect of which interest has been paid or duly provided for. Each payment of interest on a Book-Entry Note will include interest accrued through the day preceding, as the case may be, the Interest Payment Date or the date of Maturity, redemption or repayment; provided, however, that if the Interest Reset Dates with respect to any such Note are daily or weekly, interest payable on any Interest Payment Date, other than interest payable on any date on which principal for such Note is payable, will include interest accrued from the date of issue of the Global Security, or from and including the last Interest Payment Date as the case may be, to and including the regular record date immediately preceding the applicable Interest Payment Date except that at the Stated Maturity the interest payments will include accrued interest from and including the date of issue, or from and including the last day in respect of which interest has been paid or duly provided for, as the case may be, to, but excluding, the Stated Maturity. Interest payable at the Maturity or upon earlier redemption or repayment of a Book-Entry Note will be payable to the Person to whom the principal of such Note is payable. Standard & Poor's Ratings Group will use the information received in the pending deposit message described under Settlement Procedure "C" below in order to include the amount of any interest payable and certain other information regarding the related Global Security in the appropriate weekly bond report published by Standard & Poor's Ratings Group. B-18 Floating Rate Note Notices. On the first Business Day of January, April, July and October of each year, the Trustee will deliver to the Company and DTC a written list of Regular Record Dates and Interest Payment Dates that will occur with respect to Floating Rate Book-Entry Notes during the six-month period beginning on such first Business Day. Promptly after each Interest Determination Date (as defined in Appendix A hereto) for Floating Rate Notes, the Company will notify the Trustee, and the Trustee in turn will notify Standard & Poor's Ratings Group, of the interest rates determined on such Interest Determination Date. Payments of Principal and Interest Payments of Interest Only. Promptly after each Regular Record Date, the Trustee will deliver to the Company and DTC a written notice specifying by CUSIP number the amount of interest to be paid on each Global Security on the following Interest Payment Date (other than an Interest Payment Date coinciding with Maturity or an earlier redemption or repayment date) and the total of such amounts. DTC will confirm the amount payable on each Global Security on such Interest Payment Date by reference to the daily bond reports published by Standard & Poor's Ratings Group. The Company will pay to the Trustee, as paying agent, the total amount of interest due on such Interest Payment Date (other than at Maturity), and the Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment." Promptly after each Interest Determination Date for Floating Rate Book-Entry Notes, the Calculation Agent will notify the Trustee and Standard & Poor's Ratings Group of the interest rates determined on such Interest Determination Date. Payments at Maturity or Upon Redemption or Repayment. On or about the first Business Day of each month, the Trustee will deliver to the Company and DTC a written list of principal and interest to be paid on each Global Security maturing either at maturity or any redemption or repayment date in the following month. The Company, the Trustee and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Security on or about the fifth Business Day preceding the Maturity or redemption or repayment date of such Global Security. The Company will pay to the Trustee, as the paying agent, the principal amount of such Global Security, together with interest due at such Maturity or redemption or repayment date, as the case may be. The Trustee will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment." Promptly after payment to DTC of the principal and interest due at the Maturity of such Global Security, the Trustee will cancel such Global Security in accordance with the Indenture and deliver to the Company an appropriate debit advice. On the first Business Day of each month, the Trustee will prepare a written statement indicating the total principal amount of Outstanding Global Securities for which it serves as paying agent as of the immediately preceding Business Day. Manner of Payment. The total amount of any principal and interest due on global Securities on any Interest Payment Date or at Maturity or upon redemption or repayment shall be paid by the Company to the Trustee in funds available for use by the Trustee as of 9:30 A.M. (New York City time) on such date. The Company will make such payment on such Global Securities by instructing the Trustee to withdraw funds from an account maintained by the Company at the Trustee. For maturity, redemption or any other principal payments: prior to 10 A.M. (New York City time) on such date or as soon as possible thereafter, the Trustee will make such payments to DTC in same day funds in accordance with DTC's Same Day Funds Settlement Paying Agent Operating Procedures. For interest payments: the Trustee will make such B-19 payments to DTC in accordance with existing arrangements between DTC and the Trustee. DTC will allocate such payments to its Participants in accordance with its existing operating procedures. Neither the Company, the Trustee (as Trustee or as Paying Agent nor any other Paying Agent) shall have any direct responsibility or liability for the payment by DTC to such Participants of the principal of and interest on the Book-Entry Notes. Withholding Taxes. The amount of any taxes required under applicable law to be withheld from any interest payment on a Book-Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other Person responsible for forwarding payments and materials directly to the beneficial owner of such Note. Settlement Procedures In the event of a purchase of Book-Entry Notes by an Agent, as principal, Settlement details will be as set forth below unless such details are set forth in the applicable Purchase Agreement to be entered into between such Agent and the Company pursuant to the Distribution Agreement. In the event of a sale of a Book-Entry Note that is a Multi-Currency Note or an Indexed Note, whether the sale is through an Agent or to an Agent, as principal, additional or different Settlement details may be set forth in an amendment to the administrative procedures to be entered into between the such Agent and the Company. Other than as contemplated above, settlement procedures with regard to each Book-Entry Note sold by the Company through an Agent, as agent, shall be as follows: A. The Presenting Agent will advise the Company by telephone, telex or facsimile, of the following settlement information: 1. Principal amount of the Book-Entry Note (and, if multiple Notes are to be issued, denominations thereof). 2. Settlement date. 3. Stated Maturity and, if the Company has the option to extend the Stated Maturity, the Extension Periods and the Final Maturity Date. 4. Issue Price and any OID information. 5. Trade date. 6. If such Book-Entry Note is a Fixed Rate Note, whether such Note is an Amortizing Note. 7. The DTC Participant account number of such Agent. B-20 8. Interest rate (including, if appropriate, such interest rate information applicable to any Extension Period): (a) Fixed Rate Notes: (i) interest rate (ii) interest payment dates, if other than as specified above (iii) date or dates, if any, on which the interest rate may be reset and the basis or formula, if any, for such resetting (iv) overdue rate, if any (b) Floating Rate Notes: (i) interest rate basis (ii) initial interest rate (iii) spread or spread multiplier, if any (iv) date or dates, if any, on which the spread or spread multiplier may be reset and the basis or formula, if any, for such resetting (v) interest rate reset periods (vi) interest payment dates (vii) index maturity (viii) maximum and minimum interest rates, if any (ix) record dates (x) interest determination dates (xi) overdue rate, if any 9. The date on or after which the Book-Entry Notes are redeemable at the option of the Company or are to be repaid at the option of the Holder, and additional redemption or repurchase provisions, if any. 10. Wire transfer information. 11. Presenting Agent's commission (to be paid in the form of a discount from the proceeds remitted to the Company upon settlement). 12. That the Note will be a Book-Entry Note. B. The Company will assign a CUSIP number to the Global Security representing such Note and then advise the Trustee by telephone (confirmed in writing at any time on the same date) or electronic transmission of the information set forth in Settlement Procedure "A" above, such CUSIP number and the name of such Agent. C. The Trustee will enter a pending deposit message through DTC's Participant Terminal System, providing the following settlement information to DTC, the Presenting Agent, Standard & Poor's Ratings Group and, upon request, the Trustee under the Indenture pursuant to which such Note is to be issued: 1. The information set forth in Settlement Procedure "A." B-21 2. Identification as a Fixed Rate Book-Entry Note or a Floating Rate Book-Entry Note. 3. Initial Interest Payment Date for such Note, number of days by which such date succeeds the related "DTC Record Date" (which term means the Regular Record Date except in the case of floating rate notes which reset daily or weekly in which case it means the date five (5) calendar days immediately preceding the Interest Payment Date) and amount of interest payable on such Interest Payment Date. 4. Frequency of interest payments (monthly, semiannually, quarterly, etc.). 5. CUSIP number of the Global Security representing such Book-Entry Note. 6. Whether such Global Security will represent any other Book-Entry Note (to the extent known at such time). 7. The number of Participant accounts to be maintained by DTC on behalf of the Agents or the Trustee. D. The Trustee, as Trustee will complete and authenticate the note certificate evidencing the Global Security representing such Book-Entry Note. E. DTC will credit such Book-Entry Note to the Trustee's participant account at DTC. F. The Trustee will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC to (i) debit such Book-Entry Note to the Trustee's participant account and credit such Note to the Presenting Agent's participant account and (ii) debit the Presenting Agent's settlement account and credit the Trustee's settlement account for an amount equal to the price of such Book-Entry Note less the Presenting Agent's commission. G. The Presenting Agent will enter an SDFS deliver order through DTC's Participant Terminal System instructing DTC (i) to debit such Book-Entry Note to the Presenting Agent's participant account and credit such Note to the participant accounts of the Participants with respect to such Book-Entry Note and (ii) to debit the settlement accounts of such Participants and credit the settlement account of the Presenting Agent for an amount equal to the price of such Note. H. Transfers of funds in accordance with SDFS deliver orders described in Settlement Procedures "F" and "G" will be settled in accordance with SDFS operating procedures in effect on the settlement date. I. The Trustee will credit to an account of the Company maintained at the Trustee funds available for immediate use in the amount transferred to the Trustee in accordance with Settlement Procedure "F." J. The Presenting Agent will deliver to the purchaser a copy of the most recent Prospectus applicable to the Book-Entry Note with or prior to any written offer of Book-Entry Notes and the confirmation and payment by the purchaser of the Book-Entry Note. B-22 The Presenting Agent will confirm the purchase of such Book-Entry Note to the purchaser either by transmitting to the Participants with respect to such Book-Entry Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. Settlement Procedures Timetable For offers to purchase Book-Entry Notes solicited by an Agent, as agent, and accepted by the Company for settlement, Settlement Procedures "A" through "J" set forth above shall be completed as soon as possible but not later than the respective times (New York City time) set forth below:
============================================================================ Settlement Time Procedures - - ---------------------------------------------------------------------------- A-B 11:00 A.M. on the Sale date - - ---------------------------------------------------------------------------- C 2:00 P.M. on the Sale date - - ---------------------------------------------------------------------------- D 3:00 P.M. on date before Settlement date - - ---------------------------------------------------------------------------- E 10:00 A.M. on Settlement date - - ---------------------------------------------------------------------------- F-G 2:00 P.M. on Settlement date - - ---------------------------------------------------------------------------- H 4:45 P.M. on Settlement date - - ---------------------------------------------------------------------------- I-J 5:00 P.M. on Settlement date ============================================================================
If a sale is to be settled more than one (1) Business Day after the sale date, Settlement Procedures "A," "B" and "C" shall be completed as soon as practicable but no later than 11:00 A.M., 11:00 A.M. and 2:00 P.M., as the case may be, on the first Business Day after the sale date. If the initial interest rate for a Floating Rate Book-Entry Note has not been determined at the time that Settlement Procedure "A" is completed, Settlement Procedures "B" and "C" shall be completed as soon as such rate has been determined but not later than 11:00 A.M. and 12:00 Noon, respectively, on the second Business Day before the settlement date. Settlement Procedure "I" is subject to extension in accordance with any extension of Fedwire closing deadlines and in the other events specified in the SDFS operating procedures in effect on the settlement date. If settlement of a Book-Entry Note is rescheduled or canceled, the Trustee will deliver to DTC, through DTC's Participant Terminal System, a cancellation message to such effect by no later than 2:00 P.M. on the Business Day immediately preceding the scheduled settlement date. B-23 Failure To Settle If the Trustee fails to enter an SDFS deliver order with respect to a Book- Entry Note pursuant to Settlement Procedure "F," the Trustee may deliver to DTC, through DTC's Participant Terminal System, as soon as practicable a withdrawal message instructing DTC to debit such Book-Entry Note to the Trustee's participant account. DTC will process the withdrawal message, provided that the Trustee's participant account contains a principal amount to be debited. If a withdrawal message is processed with respect to all the Book-Entry Notes represented by a Global Security, the Trustee will mark such Global Security "canceled," make appropriate entries in the Trustee's records and send such canceled Global Security to the Company. The CUSIP number assigned to such Global Security shall, in accordance with CUSIP Service Bureau procedures, be canceled and not immediately reassigned. If a withdrawal message is processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Security, the Trustee will exchange such Global Security for two Global Securities, one of which shall represent such Book-Entry Note or Notes and shall be canceled immediately after issuance and the other of which shall represent the other Book-Entry Notes previously represented by the surrendered Global Security and shall bear the CUSIP number of the surrendered Global Security. If the purchase price for any Book-Entry Note is not timely paid to the Participants with respect to such Book-Entry Note by the beneficial purchaser thereof (or a Person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participants and, in turn, the Agent for such Book- Entry Note may enter SDFS deliver orders through DTC's Participant Terminal System reversing the orders entered pursuant to Settlement Procedures "F" and "G," respectively. Thereafter, the Trustee will deliver the withdrawal message and take the related actions described in the preceding paragraph. Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Security, the Trustee will provide, in accordance with Settlement Procedure "D," for the authentication and issuance of a Global Security representing the other Book-Entry Notes to have been represented by such Global Security and will make appropriate entries in its records. B-24 Exhibit C PURCHASE AGREEMENT ALCO CAPITAL RESOURCE, INC. [Date] 1738 Bass Road Macon, Georgia 31210 Attention: Treasurer The undersigned agrees to purchase the following principal amount of the Notes described in the Distribution Agreement dated June 30, 1995 (as it may be supplemented or amended from time to time, the "Distribution Agreement"): Principal Amount: $__________ Specified Currency: Denominated and Indexed Currencies: Interest Rate: ____% Discount: ____% of Principal Amount Aggregate Price to be Paid to $__________ Company (in immediately available Funds): Settlement Date: Other Terms: Terms defined in the Prospectus relating to the Notes and in the Distribution Agreement shall have the same meaning when used herein. [In the case of Notes issued in a Specified Currency other than U.S. dollars, payments of principal of (and premium, if any) and interest on all Notes will be made in the applicable Specified Currency, provided, however, that payments of principal of (and premium, if any) and interest on Notes denominated in other than U.S. dollars will nevertheless be made in U.S. dollars (i) at the option of the Holders thereof; (ii) at the option of the Company in the case of imposition of exchange controls or other circumstances beyond the control of the Company as described below; or (iii) if so specified in the applicable Pricing Supplement. The U.S. dollar amount to be received by a Holder of a Note denominated in other than U.S. dollars who elects to receive payments in U.S. dollars will be based on the highest bid quotation in The City of New York received by the Currency Determination Agent (as defined below) as of noon New York City time on the third Business Day next preceding the applicable payment date from three recognized foreign exchange dealers (one of which may be the Currency Determination Agent) for the purchase by the quoting dealer of the Specified Currency for U.S. dollars for settlement on such payment date in the aggregate amount of the Specified Currency payable to all Holders of Notes electing to receive U.S. dollar payments and at which the applicable dealer commits to execute a contract. If three such bid quotations are not available on the third Business Day preceding the date of payment of principal (and premium, if any) or interest with respect to any Note, such payment will be made in the Specified Currency. All currency exchange costs associated with any payment in U.S. dollars on any such Note will be borne by the Holder thereof by deductions from such payment.] Our obligation to purchase Notes hereunder is subject to the continued accuracy of your representations and warranties contained in the Distribution Agreement and to your performance and observance of all applicable covenants and agreements contained therein, including, without limitation, your obligations pursuant to Section 7 thereof. Our obligation hereunder is subject to the further condition that we shall receive (a) the opinions required to be delivered pursuant to Sections 5(e) and 5(h) of the Distribution Agreement, (b) the certificate required to be delivered pursuant to Section 5(f) of the Distribution Agreement, (c) the letter referred to in Section 5(g) of the Distribution Agreement in each case dated as of the above Settlement Date and (d) [insert other conditions as appropriate]. In further consideration of our agreement hereunder, you agree that between the date hereof and the above Settlement Date, you will not offer or sell, or enter into any agreement to sell, any debt securities of the Company [, other than borrowings under your revolving credit agreements and lines of credit, the private placement of securities and issuances of your commercial paper]. We may terminate this Agreement, immediately upon notice to you, at any time prior to the Settlement Date, if prior thereto there shall have occurred: (i) any change, or any development involving a prospective change, in or affecting the general affairs, management, shareholder's equity, business, properties, condition (financial or other), results of operations or prospects of the Company which in our opinion materially impairs the investment quality of the Notes; (ii) a suspension or material limitation in trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market, or the establishment of minimum prices on such exchanges or such markets; (iii) a general moratorium on commercial banking activities declared by Federal or New York State authorities; (iv) any downgrading in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national calamity or emergency; or (vi) any material adverse change in the existing financial, political or economic conditions in the United States, including the effect of international conditions on the financial markets in the United States, or you are unable to provide any of the opinions, certificates or letters referred to in the second preceding paragraph. In the event of such termination, no party shall have any liability to the other party hereto, except as provided in Sections 4, 7 and 13 of the Distribution Agreement. C-2 This Agreement shall be governed by and construed in accordance with the laws of New York. [Insert Name[s] of Agent[s]] By:____________________________________ [Title] Accepted: , ALCO CAPITAL RESOURCE, INC. By:____________________________________ [Authorized Signatory] C-3 Exhibit D [INDEXED NOTE] AMENDMENT NO. ___ TO DISTRIBUTION AGREEMENT DATED June 30, 1995, AS AMENDED [Insert Title of the Denominated and Indexed Currencies] The undersigned hereby agree that for the purposes of the issue and sale of Notes denominated in [title of currency or currency unit] (the "Denominated Currency") and indexed to [title of currency or currency unit] (the "Indexed Currency") pursuant to the Distribution Agreement, dated June 30, 1995, as it may be amended (the "Distribution Agreement"), the following additions and modifications shall be made to the Distribution Agreement. The additions and modifications adopted hereby shall be of the same effect for the sale under the Distribution Agreement of all Notes denominated in the Denominated Currency and indexed to the Indexed Currency, whether offered on an agency or principal basis, but shall be of no effect with respect to Notes denominated in any currency or currency unit other than the Applicable Foreign Currency. Except as otherwise expressly provided herein, all terms used herein which are defined in the Distribution Agreement shall have the same meanings as in the Distribution Agreement. The terms Agent or Agents, as used in the Distribution Agreement, shall be deemed to refer [only] to the undersigned Agents for purposes of this Amendment. [Insert appropriate additions and modifications to the Distribution Agreement, for example, to opinions of counsel, conditions to obligation and settlement procedures, etc.] _________________, 19__ Alco Capital Resource, Inc. By:_______________________________________ Name: Title: [Name(s) of Agent(s) Participating In the Offering of the Indexed Notes] By:_______________________________________ Name: Title: EX-10.23 12 INDENTURE ALCO AND CHEMICAL BANK EXHIBIT 10.23 ================================================================================ ALCO CAPITAL RESOURCE, INC. TO CHEMICAL BANK, Trustee ______________ INDENTURE Dated as of June 30, 1995 ______________ ================================================================================ TABLE OF CONTENTS __________
Page ---- Parties..................................................................... 1 Recitals of the Company..................................................... 1
ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions: Act......................................................... 1 Affiliate; control.......................................... 2 Alco Standard............................................... 2 Authenticating Agent........................................ 2 Board of Directors.......................................... 2 Board Resolution............................................ 2 Business Day................................................ 2 Commission.................................................. 2 Company..................................................... 2 Company Request; Company Order.............................. 3 Consolidated Net Tangible Assets............................ 3 Corporate Trust Office...................................... 3 corporation................................................. 3 Covenant Defeasance......................................... 3 Defaulted Interest.......................................... 3 Defeasance.................................................. 3 Depositary.................................................. 3 Event of Default............................................ 3 Exchange Act................................................ 3 Expiration Date............................................. 3 Global Security............................................. 3 Holder...................................................... 4 Indenture................................................... 4 interest.................................................... 4 Interest Payment Date....................................... 4 Investment Company Act...................................... 4 Maturity.................................................... 4 Notice of Default........................................... 4 Officers' Certificate....................................... 4 Opinion of Counsel.......................................... 4 Original Issue Discount Security............................ 4
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Page ---- Outstanding................................................. 5 Paying Agent................................................ 6 Person...................................................... 6 Place of Payment............................................ 6 Predecessor Security........................................ 6 Redemption Date............................................. 6 Redemption Price............................................ 6 Regular Record Date......................................... 6 Responsible Officer......................................... 6 Secured Debt................................................ 6 Securities.................................................. 6 Securities Act.............................................. 7 Security Register and Security Registrar.................... 7 Special Record Date......................................... 7 Stated Maturity............................................. 7 Subsidiary.................................................. 7 Support Agreement........................................... 7 Trust Indenture Act......................................... 7 Trustee..................................................... 7 U.S. Government Obligation.................................. 7 Vice President.............................................. 7 Wholly-owned Subsidiary..................................... 7 Section 102. Compliance Certificates and Opinions........................ 8 Section 103. Form of Documents Delivered to Trustee...................... 8 Section 104. Acts of Holders; Record Dates............................... 9 Section 105. Notices, Etc., to Trustee and Company....................... 11 Section 106. Notice to Holders; Waiver................................... 11 Section 107. Conflict with Trust Indenture Act........................... 12 Section 108. Effect of Headings and Table of Contents.................... 12 Section 109. Successors and Assigns...................................... 12 Section 110. Separability Clause......................................... 12 Section 111. Benefits of Indenture....................................... 12 Section 112. Governing Law............................................... 13 Section 113. Legal Holidays.............................................. 13
-ii- Page ---- ARTICLE TWO Security Forms Section 201. Forms Generally............................................. 13 Section 202. Form of Face of Security.................................... 14 Section 203. Form of Reverse of Security................................. 15 Section 204. Form of Legend for Global Securities........................ 20 Section 205. Form of Trustee's Certificate of Authentication............. 20 Section 206. Form of Assignment.......................................... 20
ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series........................ 21 Section 302. Denominations............................................... 24 Section 303. Execution, Authentication, Delivery and Dating.............. 24 Section 304. Temporary Securities........................................ 26 Section 305. Registration, Registration of Transfer and Exchange......... 27 Section 306. Mutilated, Destroyed, Lost and Stolen Securities............ 28 Section 307. Payment of Interest; Interest Rights Preserved.............. 29 Section 308. Persons Deemed Owners....................................... 30 Section 309. Cancellation................................................ 30 Section 310. Computation of Interest..................................... 31
ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture..................... 31 Section 402. Application of Trust Money.................................. 32
-iii- Page ---- ARTICLE FIVE Remedies Section 501. Events of Default........................................... 32 Section 502. Acceleration of Maturity; Rescission and Annulment.......... 34 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.................................... 35 Section 504. Trustee May File Proofs of Claim............................ 36 Section 505. Trustee May Enforce Claims Without Possession of Securities............................................. 36 Section 506. Application of Money Collected.............................. 37 Section 507. Limitation on Suits......................................... 37 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest...................................... 38 Section 509. Restoration of Rights and Remedies.......................... 38 Section 510. Rights and Remedies Cumulative.............................. 38 Section 511. Delay or Omission Not Waiver................................ 38 Section 512. Control by Holders.......................................... 39 Section 513. Waiver of Past Defaults..................................... 39 Section 514. Undertaking for Costs....................................... 39 Section 515. Waiver of Usury, Stay or Extension Laws..................... 40
ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities......................... 40 Section 602. Notice of Defaults.......................................... 40 Section 603. Certain Rights of Trustee................................... 41 Section 604. Not Responsible for Recitals or Issuance of Securities...... 42 Section 605. May Hold Securities......................................... 42 Section 606. Money Held in Trust......................................... 42 Section 607. Compensation and Reimbursement.............................. 42 Section 608. Conflicting Interests....................................... 43 Section 609. Corporate Trustee Required; Eligibility..................... 44 Section 610. Resignation and Removal; Appointment of Successor........... 44 Section 611. Acceptance of Appointment by Successor...................... 45
-iv- Page ---- Section 612. Merger, Conversion, Consolidation or Succession to Business............................................... 47 Section 613. Preferential Collection of Claims Against Company........... 47 Section 614. Appointment of Authenticating Agent......................... 47
ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders................................................ 49 Section 702. Preservation of Information; Communications to Holders................................................ 49 Section 703. Reports by Trustee.......................................... 50 Section 704. Reports by Company.......................................... 50
ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease Section 801. Company May Consolidate, Etc., Only on Certain Terms............................................. 51 Section 802. Successor Substituted....................................... 52
ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders.......... 52 Section 902. Supplemental Indentures With Consent of Holders............. 53 Section 903. Execution of Supplemental Indentures........................ 54 Section 904. Effect of Supplemental Indentures........................... 54 Section 905. Conformity with Trust Indenture Act......................... 55 Section 906. Reference in Securities to Supplemental Indentures.......... 55
-v- Page ---- ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest................. 55 Section 1002. Maintenance of Office or Agency............................ 55 Section 1003. Money for Securities Payments to Be Held in Trust.......... 56 Section 1004. Maintenance of Support Agreement........................... 57 Section 1005. Restriction on Creation of Secured Debt.................... 57 Section 1006. Statement by Officers as to Default........................ 59 Section 1007. Existence.................................................. 59 Section 1008. Maintenance of Properties.................................. 59 Section 1009. Payment of Taxes and Other Claims.......................... 60 Section 1010. Waiver of Certain Covenants................................ 60
ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article................................... 60 Section 1102. Election to Redeem; Notice to Trustee...................... 60 Section 1103. Selection by Trustee of Securities to Be Redeemed.......... 61 Section 1104. Notice of Redemption....................................... 62 Section 1105. Deposit of Redemption Price................................ 62 Section 1106. Securities Payable on Redemption Date...................... 63 Section 1107. Securities Redeemed in Part................................ 63
ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article................................... 63 Section 1202. Satisfaction of Sinking Fund Payments with Securities...... 64 Section 1203. Redemption of Securities for Sinking Fund.................. 64
-vi- Page ---- ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance...................................... 65 Section 1302. Defeasance and Discharge................................... 65 Section 1303. Covenant Defeasance........................................ 65 Section 1304. Conditions to Defeasance or Covenant Defeasance............ 66 Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions............ 68 Section 1306. Reinstatement.............................................. 68 Testimonium................................................................. 70 Signatures and Seals........................................................ 70 Acknowledgements............................................................ 71
-vii- ALCO CAPITAL RESOURCE, INC. CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTIONS 310 THROUGH 318, INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939:
TRUST INDENTURE ACT SECTION INDENTURE SECTION (S) 310(a)(1).................................. 609 (a)(2) ...................................... 609 (a)(3) ...................................... Not Applicable (a)(4) ...................................... Not Applicable (b) ...................................... 608 610 (S) 311(a) ...................................... 613 (b) ...................................... 613 (S) 312(a) ...................................... 701 702 (b) ...................................... 702 (c) ...................................... 702 (S) 313(a) ...................................... 703 (b) ...................................... 703 (c) ...................................... 703 (d) ...................................... 703 (S) 314 ...................................... 704 (a)(4) ...................................... 101 1006 (b) ...................................... Not Applicable (c)(1) ...................................... 102 (c)(2) ...................................... 102 (c)(3) ...................................... Not Applicable (d) ...................................... Not Applicable (e) ...................................... 102 (S) 315(a) ...................................... 601 (b) ...................................... 602 (c) ...................................... 601 (d) ...................................... 601 (e) ...................................... 514 (S) 316(a) ...................................... 101 (a)(1)(A) ...................................... 502 512 (a)(1)(B) ...................................... 513 (a)(2) ...................................... Not Applicable (b) ...................................... 508 (c) ...................................... 104 (S) 317(a)(1) ...................................... 503 (a)(2) ...................................... 504 (b) ...................................... 1003 (S) 318(a) ...................................... 107
___________________ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. INDENTURE, dated as of June 30, 1995, between Alco Capital Resource, Inc., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 1738 Bass Road, Macon, Georgia, and Chemical Bank, a banking corporation duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee"). Recitals of the Company The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. Now, Therefore, This Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE ONE Definitions and Other Provisions of General Application Section 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting prin ciples" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Indenture; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Alco Standard" means Alco Standard Corporation, an Ohio corporation, and its successors. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is (i) not a day on which banking institutions and trust companies in that Place of Payment are authorized or obligated by law, regulation or executive order to close or (ii) such other days as may be designated in respect of Securities of a particular Series pursuant to Section 301. "Commission" means the Securities and Exchange Commission, from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. -2- "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Net Tangible Assets" means as of any particular time the aggregate amount of assets after deducting therefrom (a) all current liabilities (excluding any such liability that by its terms is extendable or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed) and (b) all goodwill, excess of cost over assets acquired, patents, copyrights, trademarks, trade names, unamortized debt discount and expense and other like intangibles, all as shown in the most recent consolidated financial statements of the Company and its Subsidiaries prepared in accordance with generally accepted accounting principles. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office as of the date of this Indenture is the address of the Trustee set forth in Section 105. "corporation" means a corporation, association, company, joint-stock company or business trust. "Covenant Defeasance" has the meaning specified in Section 1303. "Defaulted Interest" has the meaning specified in Section 307. "Defeasance" has the meaning specified in Section 1302. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time. "Expiration Date" has the meaning specified in Section 104. -3- "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Section 204 (or such legend as may be specified as contemplated by Section 301 for such Securities). "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed and as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an instalment of interest on such Security. "Investment Company Act" means the Investment Company Act of 1940 and any statute successor thereto, in each case as amended from time to time. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of accele ration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 501(5) or 501(6). "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1006 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. -4- "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (2) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities as to which Defeasance has been effected pursuant to Section 1302; and (4) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of an Original Issue Discount Security which shall be deemed to be Outstanding shall be the amount of the principal thereof which would be due and payable as of such date upon acceleration of the Maturity thereof to such date pursuant to Section 502, (B) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as specified or determined as contemplated by Section 301, (C) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner provided as contemplated by Section 301, of the principal amount of such Security (or, in the case of a Security described in Clause (A) or (B) above, of the amount determined as provided in such Clause), and (D) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and -5- that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Department (or any successor department) including without limitation any vice president, any assistant vice president, any trust officer, any assistant secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers, in each case with direct responsibility for the administration of this Indenture, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Secured Debt" means indebtedness for money borrowed which is secured by a mortgage, pledge, lien, security interest or encumbrance on any property of any character of the Company. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. -6- "Securities Act" means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or inter est is due and payable. "Subsidiary" means with respect to any Person, a corporation of which more than 50% of the outstanding stock having ordinary voting power to elect directors is owned, directly or indirectly, by such Person or by one or more other corporations more than 50% of such stock of which is similarly owned or controlled. "Support Agreement" means the Support Agreement, dated as of June 1, 1994, between Alco Standard and the Company as in effect on the date hereof or as it may from time to time be amended pursuant to the applicable provisions hereof or thereof. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "U.S. Government Obligation" has the meaning specified in Section 1304. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Wholly-owned Subsidiary" of any Person means any Subsidiary of which, at the time of determination, all of the outstanding stock having ordinary voting power to elect directors (other than directors' qualifying shares) is owned by such Person directly and/or indirectly. -7- Section 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (except for certificates provided for in Section 1006) shall include, (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or -8- representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 104. Acts of Holders; Record Dates. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, -9- demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such -10- change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Section 105. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, which office as of the date hereof is located at Chemical Bank, 450 West 33rd Street, 15th Floor, New York, New York 10001, Atten tion: Corporate Trust Administration, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. -11- Section 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act which is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. -12- Section 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 111. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 112. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. Section 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwith standing any other provision of this Indenture or of the Securities (other than a provision of any Security which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest or original issue discount with respect to such payment shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. -13- ARTICLE TWO Security Forms Section 201. Forms Generally. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Reso lution and set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary therefor or as may, con sistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. -14- Section 202. Form of Face of Security. [Insert any legend required by the Internal Revenue Code and the regulations thereunder.] Alco Capital Resource, Inc. [Title of Security] CUSIP No. ........ No. ......... $ ........ Alco Capital Resource, Inc., a corporation duly organized and existing under the laws of Delaware (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ........................., or registered assigns, the principal sum of ...................................... Dollars on ........................................................ [if the Security is to bear interest prior to Maturity, insert -- , and to pay interest thereon from ............. or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ............ and ............ in each year, commencing ........., at the rate of ....% per annum, until the principal hereof is paid or made available for payment [if applicable, insert -- , provided that any principal and premium, and any such instalment of interest, which is overdue shall bear interest at the rate of ...% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ....... or ....... (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [If the Security is not to bear interest prior to Maturity, insert -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal and any overdue premium shall bear interest at the rate of ....% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts -15- are due until they are paid or made available for payment. Interest on any overdue principal or premium shall be payable on demand. Any such interest on overdue principal or premium which is not paid on demand shall bear interest at the rate of ......% per annum (to the extent that the payment of such interest on interest shall be legally enforceable), from the date of such demand until the amount so demanded is paid or made available for payment. Interest on any overdue interest shall be payable on demand.] Payment of the principal of (and premium, if any) and [if applicable, insert - - -- any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in ............, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts [if applicable, insert -- ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register] [if applicable, insert -- provided, however, that so long as this Security is registered in the name of The Depository Trust Company or its nominee, all payments of principal, premium, if any, and interest will be made by the Company in immediately available funds]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. In Witness Whereof, the Company has caused this instrument to be duly executed under its corporate seal. Dated: Alco Capital Resource, Inc. By.......................... Attest: ................. -16- Section 203. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of ..............., 1995 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and Chemical Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [if applicable, insert -- , limited in aggregate principal amount to $...........]. [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, [if applicable, insert -- (1) on ........... in any year commencing with the year ...... and ending with the year ...... through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)] at any time [if applicable, insert -- on or after .........., 19..], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [if applicable, insert -- on or before ..............., ...%, and if redeemed] during the 12-month period beginning ............. of the years indicated,
Year Redemption Year Redemption - - ---- Price ---- Price ---------- ----------
and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption [if applicable, insert -- (whether through operation of the sinking fund or otherwise)] with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] -17- [If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' notice by mail, (1) on ............ in any year commencing with the year .... and ending with the year .... through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time [if applicable, insert -- on or after ............], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ............ of the years indicated,
Year Redemption Price Redemption Price For - - ---- For Redemption Redemption Otherwise Through Operation Than Through Operation of the of the Sinking Fund Sinking Fund ---------------------- -----------------
and thereafter at a Redemption Price equal to .....% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or other wise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [If applicable, insert -- Notwithstanding the foregoing, the Company may not, prior to ............., redeem any Securities of this series as contemplated by [if applicable, insert -- Clause (2) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than .....% per annum.] [If applicable, insert -- The sinking fund for this series provides for the redemption on ............ in each year beginning with the year ....... and ending with the year ...... of [if applicable, insert -- not less than $.......... ("mandatory sinking fund") and not more than] $......... aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through [if applicable, insert -- mandatory] sinking fund payments may be credited against subsequent [if applicable, insert -- mandatory] sinking fund payments otherwise required to be made [if applicable, insert -- , in the inverse order in which they become due].] -18- [If the Security is subject to redemption of any kind, insert -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [If the Security is not an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [If the Security is an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to -- insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of 66 2/3% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of -19- indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. During a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of Securities of the series selected for redemption and ending at the close of business on the day of such mailing, the Company shall not be required to issue, register the transfer of or exchange this Security except as provided in the Indenture. The Securities of this series are issuable only in registered form without coupons in denominations of $....... and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. This Security shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -20- Section 204. Form of Legend for Global Securities. Unless otherwise specified as contemplated by Section 301 for the Securities evidenced thereby, every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be exchanged in whole or in part for a Security registered, and no transfer of this Security in whole or in part may be registered, in the name of any Person other than such Depositary or a nominee thereof, except in the limited circumstances described in the Indenture. Section 205. Form of Trustee's Certificate of Authentication. The Trustee's certificates of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Chemical Bank, As Trustee By....................... Authorized Officer Section 206. Form of Assignment. The form of assignment on the Securities shall be substantially in the following form: ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to -21- _____________________________________ (Insert assignee's soc. sec. or tax ID no.) ____________________________________________________ ____________________________________________________ ____________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: _______________________ _____________________ SIGNATURE GUARANTEE Signature Guaranteed by: _________________________ By: _____________________ _________________________ The signature must be guaranteed by an eligible guarantor institution (a bank, stockbroker, savings and loan association or credit union with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ARTICLE THREE The Securities Section 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the -22- manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of any Securities of the series is payable; (5) the rate or rates at which any Securities of the series shall bear interest, if any, the date or dates from which any such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any such interest payable on any Interest Payment Date; (6) the place or places where the principal of and any premium and interest on any Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series may be redeemed, in whole or in part, at the option of the Company and, if other than by a Board Resolution, the manner in which any election by the Company to redeem the Securities shall be evidenced; (8) the obligation, if any, of the Company to redeem or purchase any Securities of the series pursuant to any sinking fund or analogous provisions or at the option of the Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which any Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which any Securities of the series shall be issuable; (10) if the amount of principal of or any premium or interest on any Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; -23- (11) if other than the currency of the United States of America, the currency, currencies or currency units in which the principal of or any premium or interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States of America for any purpose, including for purposes of the definition of "Outstanding" in Section 101; (12) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or the Holder thereof, in one or more currencies or currency units other than that or those in which such Securities are stated to be payable, the currency, currencies or currency units in which the principal of or any premium or interest on such Securities as to which such election is made shall be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner in which such amount shall be determined); (13) if other than the entire principal amount thereof, the portion of the principal amount of any Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (14) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (15) if applicable, that any Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the respective Depositaries for such Global Securities, the form of any legend or legends which shall be borne by any such Global Security in addition to or in lieu of that set forth in Section 204 and any circumstances in addition to or in lieu of those set forth in Clause (2) of the last paragraph of Section 305 in which any such Global Security may be exchanged in whole or in part for Securities registered, and any transfer of such Global Security in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Security or a nominee thereof; (16) if applicable, that the Securities of the series, in whole or any specified part, shall be defeasible pursuant to Section 1302 or Section 1303 or both such Sections and, if other than by a Board Resolution, the manner in which any election by the Company to defease such Securities shall be evidenced; (17) any addition to or change in the Events of Default which applies to any Securities of the series and any change in the right of the Trustee or the requisite -24- Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 502; (18) any deletion or addition to or change in the covenants set forth in Article Ten which applies to Securities of the series; (19) if other than as provided in Section 201, the form or forms of the Securities; and (20) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and (subject to Section 303) set forth, or determined in the manner provided, in the Officers' Certificate referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. Section 302. Denominations. The Securities of each series shall be issuable only in registered form without coupons and only in such denominations as shall be specified as contemplated by Section 301. In the absence of any such specified denomination with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, one of its Vice Presidents or its Treasurer, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. -25- At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) the form of such Securities has been established in conformity with the provisions of this Indenture; (2) the terms of such Securities have been established in conformity with the provisions of this Indenture; (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and an Officer's Certificate stating that all conditions precedent to authentication of such Securities have been complied with. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers' Certificate or other certificates delivered pursuant to Sections 102 and 301 shall be true and correct as if made on such date. A Company Order, Officers' Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time -26- in the aggregate principal amount, if any, established for such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of Persons designated in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such Persons) and that such Persons are authorized to determine, consistent with such Company Order, Officers' Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. -27- Section 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of a series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly autho rized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 306 906 or 1107 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (B) to -28- register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) there shall exist such circumstances, if any, in addition to or in lieu of the foregoing as have been specified for this purpose as contemplated by Section 301. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security -29- has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obli gation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 307. Payment of Interest; Interest Rights Preserved. Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. -30- Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Prede cessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to each Holder of Securities of such series in the manner set forth in Section 106, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. -31- Section 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed and a certificate of destruction delivered to the Company. Section 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR Satisfaction and Discharge Section 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when -32- (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose money in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Company to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. -33- Section 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE Remedies Section 501. Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of or any premium on any Security of that series at its Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance, or breach, of any term or provision of Section 1004; or (5) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities of that series a written notice specifying such -34- default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (6) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company (including a default with respect to Securities of any series other than that series), or under any mortgage, indenture or instrument (including this Indenture) under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay any portion of the principal of such indebtedness in a principal amount in excess of $15,000,000 when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in such indebtedness in a principal amount in excess of $15,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such portion or such indebtedness, as the case may be, becoming no longer due and payable or having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 10% in principal amount of the Outstanding Securities of that series a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled, as the case may be, and stating that such notice is a "Notice of Default" hereunder; or (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or compo sition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (8) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making -35- by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (9) in connection with any proceeding under any law relating to bankruptcy, insolvency or reorganization or relief of debtors involving Alco Standard or one of its Subsidiaries, an order for relief shall be entered by a court of competent jurisdiction which affects any significant part of the assets of the Company or any of its Subsidiaries; or (10) any other Event of Default provided with respect to Securities of that series. Section 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount of all the Securities of that series (or, if any Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified by the terms thereof) to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee under Section 607; -36- and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for princi pal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. -37- Section 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. Section 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: -38- First: To the payment of all amounts due the Trustee under Section 607; and Second: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively. Section 507. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. -39- Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. Section 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. -40- Section 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that (1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Inden ture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. -41- Section 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company. Section 515. Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX The Trustee Section 601. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, (a) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and (b) no provision of this Indenture shall require the Trustee to determine the maximum interest rate permissible under applicable law. -42- Section 602. Notice of Defaults. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by of the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(5) with respect to Securities of such series, no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. The Trustee shall not be deemed to have knowledge of any default or Event of Default except (i) an Event of Default described in Section 501(1), (2) or (3) or (ii) any default or Event of Default of which the Trustee shall have received written notification or a Responsible Officer charged with the administration of the Indenture shall have obtained actual knowledge, and such notification shall not be deemed to include receipt of information obtained in any report or other documents furnished under Section 704 of this Indenture, which reports and documents the Trustee shall have no duty to examine. Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically pre scribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; -43- (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authen ticating Agent, Paying Agent, Security Registrar or such other agent. Section 606. Money Held in Trust. Subject to Section 1003, money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. -44- Section 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee and each predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel and of all agents and other persons not regularly in its employ and the reasonable fees of in-house counsel in the regular employ of the Trustee which are allocable to this trust and the expenses and disbursements of such counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee and each predecessor Trustee and the officers, directors, employees and agents of the Trustee or any such predecessor Trustee (the Trustee, each predecessor Trustee and such officers, directors, employees and agents being hereinafter referred to in this Section collectively as the "Indemnified Parties" and individually as an "Indemnified Party") for, and to hold each Indemnified Party harmless against, any loss, damage, claim, cost, liability or expenses (including reasonable attorneys fees) incurred without negligence or bad faith on the part of such Indemnified Party, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder and the duties of the Trustee hereunder, and the costs and expenses incurred by such Indemnified Party in the course of defending itself against or investigating any claim of liability in the premises. The obligations of the Company under this Section to compensate and indemnify the Indemnified Parties and to pay or reimburse each Indemnified Party for expenses, disbursements and advances shall constitute an additional obligation hereunder and shall survive resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (7) or (8) of Section 501 of this Indenture, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any other applicable federal or state law for the relief of debtors. As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or -45- collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities. Section 608. Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by such Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. Section 609. Corporate Trustee Required; Eligibility. There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be Trustee hereunder for Securities of one or more other series. Each Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has either (i) a reported capital and surplus aggregating at least $50,000,000 or (ii) a reported capital and surplus aggregating at least $10,000,000 and is a wholly-owned subsidiary of a bank, a trust company or a bank holding company having a reported capital and surplus aggregating at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. Resignation and Removal; Appointment of Successor. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. -46- The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (B) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. -47- The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided in Section 607. In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any suc- -48- cessor Trustee, such retiring Trustee shall, upon payment of its charges, duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject to the lien, if any, of the retiring Trustee provided in Section 607. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). -49- Section 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenti cating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall give notice of such appointment in the manner provided in Section 106 to all Holders of Securities of the series with respect to which such Authenticating Agent will serve. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an -50- Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Chemical Bank, As Trustee By........................, As Authenticating Agent By......................... Authorized Officer ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (1) semi-annually, not later than June 15 and December 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of each series as of the preceding May 31 or November 30, as the case may be, and -51- (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. Section 702. Preservation of Information; Communications to Holders. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. Section 703. Reports by Trustee. Any Trustee's report required under Section 313(a) of the Trust Indenture Act shall be transmitted by July 15 of each year, and shall be dated as of the preceding May 15, commencing July 15, 1996. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. -52- Section 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. The Company will deliver to the Trustee, within forty days of the date of original issuance of any Original Issue Discount Securities, an Officers' Certificate, setting forth (i) the amount of the original issue discount on such Original Issue Discount Securities, expressed as a U.S. dollar amount per $1,000 of principal amount at Stated Maturity, (ii) the yield to maturity for such Original Issue Discount Securities, and (iii) a table of the amount of the original issue discount on such Original Issue Discount Securities, expressed as a U.S. dollar amount per $1,000 of principal amount at Stated Maturity. On or before December 15 of each year during which any Original Issue Discount Securities are outstanding, the Company shall furnish to the Trustee such information as may be reasonably requested by the Trustee in order that the Trustee may prepare the information which it is required to report for such year on Internal Revenue Services Forms 1096 and 1099 pursuant to Section 6049 of the Internal Revenue Code of 1986, as amended. Such information shall include the amount of original issue discount includible in income for each $1,000 of principal amount at Stated Maturity of Outstanding Original Issue Discount Securities during such year. ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease Section 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties -53- and assets of the Company substantially as an entirety shall be a cor poration, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or any Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; (3) if, as a result of any such consolidation or merger or such conveyance, transfer or lease, properties or assets of the Company would become subject to a mortgage, pledge, lien, security interest or other encumbrance which would not be permitted by this Indenture, the Company or such successor Person, as the case may be, shall take such steps as shall be necessary effectively to secure the Securities equally and ratably with (or prior to) all indebtedness secured thereby; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 802. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. -54- ARTICLE NINE Supplemental Indentures Section 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series); or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities pursuant to the requirements of Section 1005 or otherwise; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or -55- (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611; or (9) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this Clause (9) shall not adversely affect the interests of the Holders of Securities of any series in any material respect. Section 902. Supplemental Indentures With Consent of Holders. With the consent of the Holders of not less than 66_% in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supple mental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security or any other Security which would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1010, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to -56- "the Trustee" and concomitant changes in this Section and Section 1010, or the deletion of this proviso, in accordance with the requirements of Sections 611 and 901(8). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. -57- Section 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN Covenants Section 1001. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. -58- Section 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or before each due date of the principal of or any premium or inter est on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before -59- being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 1004. Maintenance of Support Agreement. The Company covenants that it: (1) will observe and perform in all material respects all covenants or agreements of the Company contained in the Support Agreement; (2) to the extent possible, will cause Alco Standard to observe and perform in all material respects all covenants or agreements of Alco Standard contained in the Support Agreement; and (3) will not waive compliance under, amend in any material respect or terminate the Support Agreement; provided, however, that the Support Agreement may be amended or terminated if either (i) all the outstanding debt of the Company is repaid or (ii) both Moody's Investor Service, Inc. and Standard & Poor's Ratings Group confirm in writing prior to the effectiveness of any such amendment or termination that the Company's debt rating would not be downgraded as a result of any such amendment or termination Section 1005. Restriction on Creation of Secured Debt. The Company will not at any time create, assume or guarantee any Secured Debt without making effective provision (and the Company covenants that in such case it will make or cause to be made effective provision) whereby the Securities of any series then outstanding and, if the Company shall so determine, any other indebtedness of or guaranteed by the Company, subject to applicable priorities of payment, shall be secured by such mortgage, pledge, lien, security interest or encumbrance equally and ratably with any and all other obligations and indebtedness thereby secured, so long as any such other obligations and indebtedness shall be so secured; provided, however, that the foregoing covenants shall not be applicable to the following: (a) (i) Any mortgage, pledge, lien, security interest or encumbrance on any fixed asset or other physical or real property hereafter acquired (including acquisition through merger or consolidation) or hereafter constructed or improved by the Company and created, or for the creation of which a bona fide firm commitment in writing was executed, prior to, contemporaneously with or within 180 days after such acquisition or the completion of such construction or improvement or the -60- commencement of commercial operation or the placing in service of such property by the Company, whichever is later, to secure or provide for the payment of all or a part of the purchase price or cost of construction or improvement of such property; or (ii) the acquisition of property subject to any mortgage, pledge, lien, security interest or encumbrance upon such property existing at the time of acquisition thereof, whether or not assumed by the Company; or (iii) any mortgage, pledge, lien, security interest or encumbrance on property of a corporation existing at the time such corporation is merged into or consolidated with the Company or at the time of a sale, lease or other disposition of the properties of a corporation or firm as an entirety or substantially as an entirety to the Company; provided, however, that the lien of any such mortgage, pledge, lien, security interest or encumbrance permitted by clauses (ii) or (iii) of this subparagraph (a) shall not extend to property owned by the Company prior to any event referred to in such clauses or to other property thereafter acquired by the Company, other than additions and improvements to the property referred to in such clauses; or (b) Mortgages, including mortgages, pledges, liens, security interests or encumbrances, on property of the Company in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country, or any department, agency or instrumentality or political subdivision thereof, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such mortgages; or (c) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any mortgage, pledge, lien, security interest or encumbrance referred to in the foregoing subparagraphs (a) and (b); provided, however, that the principal amount of Secured Debt secured thereby shall not exceed the principal amount outstanding at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to the property which secured the mortgage so extended, renewed or replaced and additions to such property; or (d) Any mortgage, pledge, lien, security interest or encumbrance securing indebtedness owing by the Company to one or more Wholly-owned Subsidiaries. Notwithstanding the foregoing provisions of this Section 1005, the Company may create, assume or guarantee Secured Debt which would otherwise be subject to the foregoing restrictions in an aggregate amount which, together with all other Secured Debt of the Company which would otherwise be subject to the foregoing restrictions (not including Secured Debt permitted to be secured under subparagraphs (a) through (d) above), does not at the time exceed 5% of Consolidated Net Tangible Assets. -61- Section 1006. Statement by Officers as to Default. (a) The Company will deliver to the Trustee, within 90 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. (b) The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon any officer becoming aware of (i) any default or Event of Default or (ii) any default or event of default on the part of the Company under any other mortgage, indenture or instrument to which the Company is a party, an Officers' Certificate specifying such default, Event of Default or default and what action the Company is taking or proposes to take with respect thereto. Section 1007. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 1008. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. -62- Section 1009. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 1010. Waiver of Certain Covenants. Except as otherwise specified as contemplated by Section 301 for Securities of such series, the Company may, with respect to the Securities of any series, omit in any particular instance to comply with any term, provision or condition set forth in any covenant provided pursuant to Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such series or in any of Sections 1004, 1005, 1008 or 1009 if before the time for such compliance the Holders of at least 66_% in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN Redemption of Securities Section 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for such Securities) in accordance with this Article. -63- Section 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. In case of any redemption at the election of the Company of less than all the Securities of any series (including any such redemption affecting only a single Security), the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. Section 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series are to be redeemed (unless all the Securities of such series and of a specified tenor are to be redeemed or unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any Security of such series, provided that the unredeemed portion of the principal amount of any Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. If less than all the Securities of such series and of a specified tenor are to be redeemed (unless such redemption affects only a single Security), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed. The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Security, whether such Security is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Security shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Security. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities -64- redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. Section 1104. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price (and accrued interest, if any), (3) the CUSIP or other identifying number of the Securities to be redeemed, (4) if less than all the Outstanding Securities of any series consisting of more than a single Security are to be redeemed, the identification (and, in the case of partial redemption of any such Securities, the principal amounts) of the particular Securities to be redeemed and, if less than all the Outstanding Securities of any series consisting of a single Security are to be redeemed, the principal amount of the particular Security to be redeemed, (5) that on the Redemption Date the Redemption Price and accrued interest, if any, will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (6) the place or places where each such Security is to be surrendered for payment of the Redemption Price and accrued interest, if any, and (7) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. Section 1105. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. -65- Section 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 1107. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Global Security is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the Depositary as shall be specified in the Company Order to the Trustee with respect thereto, without service charge, a Global Security in a denomination equal to and in exchange for the unredeemed portion of the principal amount of the Global Security so surrendered. -66- ARTICLE TWELVE Sinking Funds Section 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of any series except as otherwise specified as contemplated by Section 301 for such Securities. The minimum amount of any sinking fund payment provided for by the terms of any Securities is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of such Securities is herein referred to as an "optional sinking fund payment". If provided for by the terms of any Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of such Securities. Section 1202. Satisfaction of Sinking Fund Payments with Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to any Securities of such series required to be made pursuant to the terms of such Securities as and to the extent provided for by the terms of such Securities; provided that the Securities to be so credited have not been previously so credited. The Securities to be so credited shall be received and credited for such purpose by the Trustee at the Redemption Price, as specified in the Securities so to be redeemed, for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. -67- Section 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 days prior to each such sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN Defeasance and Covenant Defeasance Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may elect, at its option at any time, to have Section 1302 or Section 1303 applied to any Securities or any series of Securities, as the case may be, designated pursuant to Section 301 as being defeasible pursuant to such Section 1302 or 1303, in accordance with any applicable requirements provided pursuant to Section 301 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 301 for such Securities. -68- Section 1302. Defeasance and Discharge. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, the Company shall be deemed to have been discharged from its obligations with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities when payments are due, (2) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the rights set forth under Section 607, and (4) this Article. Subject to compliance with this Article, the Company may exercise its option (if any) to have this Section applied to any Securities notwithstanding the prior exercise of its option (if any) to have Section 1303 applied to such Securities. Section 1303. Covenant Defeasance. Upon the Company's exercise of its option (if any) to have this Section applied to any Securities or any series of Securities, as the case may be, (1) the Company shall be released from its obligations under Section 801(3), Sections 1004, 1005, 1008 or 1009 and any covenants provided pursuant to Section 301(18), 901(2) or 901(7) for the benefit of the Holders of such Securities, and (2) the occurrence of any event specified in Sections 501(5) (with respect to any of Section 801(3), Sections 1004, 1005, 1008 or 1009 and any such covenants provided pursuant to Section 301(18), 901(2) or 901(7)), 501(6) and 501(10) shall be deemed not to be or result in an Event of Default, in each case with respect to such Securities as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(4)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. -69- Section 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 1302 or Section 1303 to any Securities or any series of Securities, as the case may be: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefits of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on such Securities on the respective Stated Maturities, in accordance with the terms of this Indenture and such Securities. As used herein, "U.S. Government Obligation" means (x) any security which is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is uncondi tionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Govern ment Obligation which is specified in Clause (x) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the event of an election to have Section 1302 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this instrument, there has been a change in the applicable Federal income tax law, in either case (A) or (B) to the effect that, and based thereon such opinion shall confirm that, the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. -70- (3) In the event of an election to have Section 1303 apply to any Securities or any series of Securities, as the case may be, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Securities will not recognize gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Securities and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that neither such Securities nor any other Securities of the same series, if then listed on any securities exchange, will be delisted as a result of such deposit. (5) No event which is, or after notice or lapse of time or both would become, an Event of Default with respect to such Securities or any other Securities shall have occurred and be continuing at the time of such deposit or, with regard to any such event specified in Sections 501(7) and (8), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) Such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act). (7) Such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (8) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act unless such trust shall be registered under such Act or exempt from registration thereunder. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. -71- Section 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 1304 in respect of any Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Securities. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 with respect to any Securities which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to such Securities. Section 1306. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 1302 or 1303 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1305 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in trust. -72- In Witness Whereof, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Alco Capital Resource, Inc. By /s/ Signature ................................ Attest: /s/ Signature ................... Chemical Bank By /s/ Signature ................................. Attest: /s/ Signature ................... -73- State of New York ) ) ss.: County of New York) On the .... day of ..........., ...., before me personally came ............., to me known, who, being by me duly sworn, did depose and say that he is .................... of ................................., one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. ......................... State of New York ) ) ss.: County of New York) On the .... day of ..........., ...., before me personally came ______________, to me known, who, being by me duly sworn, did depose and say that he is a _____________ of ____________________________________________, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority. ......................... -74- EX-11 13 EARNINGS PER SHARE EXHIBIT 11 ALCO STANDARD CORPORATION COMPUTATIONS OF EARNINGS PER SHARE (in thousands, except earnings (loss) per share)
1995 1994 1993 ------------------------ ----------------------- ----------------------- Fully Fully Fully Primary Diluted(1) Primary Diluted(1) Primary Diluted(1) ------- ---------- ------- ---------- ------- ---------- Fiscal Year Ended September 30 Average Shares Outstanding Common shares 110,342 110,342 105,382 105,382 93,314 93,314 Preferred stock Considered common equivalents 10 10 Senior securities 9,016 2,066 2,372 96 96 Options 2,178 2,472 1,382 1,502 -------- -------- -------- -------- -------- -------- Total shares 112,520 121,830 107,458 107,764 94,792 94,912 ======== ======== ======== ======== ======== ======== Income (Loss) Continuing operations $ 219,273 $ 219,273 $ 70,609 $ 70,609 $ 7,615 $ 7,615 Discontinued operations (16,541) (16,541) (7,515) (7,515) -------- -------- -------- -------- -------- -------- Net Income 202,732 202,732 70,609 70,609 100 100 Less: Preferred dividends 15,209 3,637 11,572 11,572 9,571 9,571 -------- -------- -------- -------- -------- -------- Net income available to common shareholders $ 187,523 $ 199,095 $ 59,037 $ 59,037 $ (9,471) $ (9,471) ======== ======== ======== ======== ======== ======== Earnings (Loss) Per Share Continuing operations $1.81 $1.77 $0.55 $0.55 ($0.02) ($0.02) Discontinued operations (0.14) (0.14) (0.08) (0.08) -------- -------- -------- -------- -------- -------- $1.67 $1.63 $0.55 $0.55 ($0.10) ($0.10) ======== ======== ======== ======== ======== ========
(1) This calculation is submitted in accordance with Regulation S-K item 601 (b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. Note: All amounts give effect of common stock split announced October 17, 1995. EX-12.1 14 RATIO EARNINGS TO FIXED EXHIBIT 12.1 ALCO STANDARD CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands)
----------------------------------------------------------------- 9/30/95 1994 1993 1992 1991 --------- --------- --------- --------- --------- Earnings Income from continuing operations $ 219,273 $ 70,609 $ 7,615 $ 104,217 $ 76,642 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 140,630 86,203 16,984 68,303 49,160 Fixed charges 130,684 101,779 86,615 70,168 68,748 --------- --------- --------- --------- --------- Earnings, as adjusted (A) $ 490,587 $ 375,749 $ 113,752 $ 242,688 $ 194,550 ========= ========= ========= ========= ========= Fixed charges Other interest expense, including interest on capital leases $ 96,054 $ 71,780 $ 63,851 $ 51,203 $ 53,173 Estimated interest component of rental expense 34,630 29,999 22,764 18,965 15,575 --------- --------- --------- --------- --------- Total fixed charges (B) $ 130,684 $ 101,779 $ 86,615 $ 70,168 $ 68,748 ========= ========= ========= ========= ========= Ratio of earnings to fixed charges (A) divided by (B) 3.8 3.7 1.3 * 3.5 2.8 === === === === ===
* Excluding the effect of the restructuring costs, the ratio of earnings to fixed charges for fiscal 1993 is 3.3. EX-12.2 15 RATIO EARNINGS TO FIXED EXCLUDING SUBSIDIARIES EXHIBIT 12.2 ALCO STANDARD CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES) (dollars in thousands)
----------------------------------------------------------------------------- 9/30/95 1994 1993 1992 1991 ----------- ---------- --------- -------- --------- Earnings Income (loss) from continuing operations $ 204,801 $ 57,262 $ 11,025 $ 98,162 $ 73,051 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 129,067 77,792 11,512 64,592 46,221 Fixed charges 90,468 73,751 62,535 50,595 52,951 ----------- ---------- --------- ---------- --------- Earnings, as adjusted (A) $ 424,336 $ 325,963 $ 87,610 $ 213,349 $ 172,223 =========== ========== ========= ========== ========= Fixed charges Other interest expense, including interest on capital leases $ 55,838 $ 43,802 $ 40,189 $ 31,680 $ 37,426 Estimated interest component of rental expense 34,630 29,949 22,346 18,915 15,525 ----------- ----------- --------- ---------- --------- Total fixed charges (B) $ 90,468 $ 73,751 $ 62,535 $ 50,595 $ 52,951 =========== =========== ========= ========== ========= Ratio of earnings to fixed charges (A) divided by (B) 4.7 4.4 1.4 * 4.2 3.3 --- --- --- --- ---
* Excluding the effect of the restructuring costs, the ratio of earnings to fixed charges (excluding captive finance subsidiaries) for fiscal 1993 is 4.2. EX-12.3 16 RATIO EARNINGS TO FIXED PREFERRED EXHIBIT 12.3 ALCO STANDARD CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (dollars in thousands)
---------------------------------------------------------------- 9/30/95 1994 1993 1992 1991 --------- --------- --------- --------- --------- Earnings Income from continuing operations $ 219,273 $ 70,609 $ 7,615 $ 104,217 $ 76,642 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 140,630 86,203 16,984 68,303 49,160 Fixed charges 130,684 101,779 86,615 70,168 68,748 ---------- ---------- ---------- ---------- ---------- Earnings, as adjusted (A) $ 490,587 $ 375,749 $ 113,752 $ 242,688 $ 194,550 ========== ========== ========== ========== ========== Fixed charges and preferred stock dividends Other interest expense, including interest on capital leases $ 96,054 $ 71,780 $ 63,851 $ 51,203 $ 53,173 Estimated interest component of rental expense 34,630 29,999 22,764 18,965 15,575 ---------- ---------- ---------- ---------- ---------- Total fixed charges 130,684 101,779 86,615 70,168 68,748 Preferred stock dividends, as adjusted 24,974 19,002 15,846 129 228 Total fixed charges and preferred ---------- ---------- ---------- ---------- ---------- stock dividends (B) $ 155,658 $ 120,781 $ 102,461 $ 70,297 $ 68,976 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends (A) divided by (B) 3.2 3.1 1.1 * 3.5 2.8 --- --- --- --- ---
* Excluding the effect of the restructuring costs, the ratio of earnings to fixed charges and preferred stock dividends for fiscal 1993 is 2.8. EX-12.4 17 RATIO EARNINGS TO FIXED PREFERRED EXCLUDE SUBSIDIARIES EXHIBIT 12.4 ALCO STANDARD CORPORATION AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES) (dollars in thousands)
------------------------------------------------------------------------ 9/30/95 1994 1993 1992 1991 ----------- ---------- ---------- ---------- ----------- Earnings Income (loss) from continuing operations $ 204,801 $ 57,262 $ 11,025 $ 98,162 $ 73,051 Add: Loss from unconsolidated affiliate 117,158 2,538 Provision for income taxes 129,067 77,792 11,512 64,592 46,221 Fixed charges 90,468 73,751 62,535 50,595 52,951 ----------- ---------- ---------- ---------- ----------- Earnings, as adjusted (A) $ 424,336 $ 325,963 $ 87,610 $ 213,349 $ 172,223 =========== ========== ========== ========== =========== Fixed charges and preferred stock dividends Other interest expense, including interest on capital leases $ 55,838 $ 43,802 $ 40,189 $ 31,680 $ 37,426 Estimated interest component of rental expense 34,630 29,949 22,346 18,915 15,525 ----------- ---------- ---------- ---------- ----------- Total fixed charges 90,468 73,751 62,535 50,595 52,951 Preferred stock dividends, as adjusted 24,811 19,002 15,613 129 227 Total fixed charges and preferred ----------- ---------- ---------- ---------- ----------- stock dividends (B) $ 115,279 $ 92,753 $ 78,148 $ 50,724 $ 53,178 =========== ========== ========== ========== =========== Ratio of earnings to fixed charges and preferred stock dividends (A) divided by (B) 3.7 3.5 1.1 * 4.2 3.2 --- --- --- --- ---
* Excluding the effect of the restructuring costs, the ratio of earnings to fixed charges and preferred stock dividends (excluding captive finance subsidiaries) for fiscal 1993 is 3.4. EX-13 18 FINANCIAL SECTION Exhibit 13 FINANCIAL SECTION 24 Management's Responsibility for Financial Reporting 24 Report of Ernst & Young LLP, Independent Auditors 25 Consolidated Financial Statements 40 Financial Review 44 Corporate Financial Summary 46 Segment Data 48 Quarterly Data ALCO STANDARD CORPORATION AND SUBSIDIARIES 23 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of Alco Standard Corporation is responsible for the preparation and presentation of the financial statements and related financial information included in this annual report. The financial statements include amounts that are based on management's best estimates and judgements. These statements have been prepared in conformity with generally accepted accounting principles consistently applied and have been audited by Ernst & Young LLP, independent auditors. Management is also responsible for maintaining systems of internal accounting controls that are designed to provide reasonable assurance as to the integrity of the financial records and the protection of corporate assets. Alco Standard Corporation supports an active program of auditing to monitor the proper functioning of its systems. The reports issued by the Alco Audit Department, as well as comment letters from Ernst & Young LLP, are reviewed regularly by the Audit Committee of the Board of Directors, which is composed of four directors who are not employees of the Company. The Audit Committee meets periodically with Ernst & Young LLP, the Alco Audit Department and management to review audit scope, timing and results. /s/ Kurt E. Dinkelacker Kurt E. Dinkelacker Executive Vice President REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Shareholders Alco Standard Corporation We have audited the accompanying consolidated balance sheets of Alco Standard Corporation and subsidiaries as of September 30, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alco Standard Corporation and subsidiaries at September 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania October 17, 1995, except for the stock split described in note 1, as to which the date is November 9, 1995 24 ALCO STANDARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Fiscal Year Ended September 30 (in thousands except per share data)
1995 1994 1993 - - ---------------------------------------------------------------------------------------------------------------------------- REVENUES Net sales $9,794,186 $7,925,784 $6,387,078 Dividends, interest and other income 4,621 3,537 6,332 Finance subsidiaries (note 12) 93,019 66,731 51,149 - - ---------------------------------------------------------------------------------------------------------------------------- 9,891,826 7,996,052 6,444,559 - - ---------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Cost of goods sold 7,326,721 5,884,819 4,799,757 Selling and administrative 2,109,148 1,765,483 1,378,814 Interest 55,838 43,802 40,189 Finance subsidiaries interest (note 12) 40,216 27,978 23,662 Restructuring costs (note 15) 175,000 - - ---------------------------------------------------------------------------------------------------------------------------- 9,531,923 7,722,082 6,417,422 - - ---------------------------------------------------------------------------------------------------------------------------- LOSS FROM UNCONSOLIDATED AFFILIATE (note 4) (117,158) (2,538) - - ---------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE TAXES 359,903 156,812 24,599 TAXES ON INCOME (note 7) 140,630 86,203 16,984 - - ---------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 219,273 70,609 7,615 LOSS FROM DISCONTINUED OPERATIONS, net of taxes (note 2) (16,541) (7,515) - - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME 202,732 70,609 100 PREFERRED DIVIDENDS (note 6) 15,209 11,572 9,571 - - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 187,523 $ 59,037 $ (9,471) ============================================================================================================================ EARNINGS (LOSS) PER SHARE (note 1) Continuing operations $ 1.81 $ .55 $ (.02) Discontinued operations (.14) (.08) - - ---------------------------------------------------------------------------------------------------------------------------- $ 1.67 $ .55 $ (.10) ============================================================================================================================
See notes to consolidated financial statements. ALCO STANDARD CORPORATION AND SUBSIDIARIES 25 CONSOLIDATED BALANCE SHEETS September 30 (dollars in thousands)
1995 1994 - - ------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 90,106 $ 53,369 Accounts receivable, less allowance for doubtful accounts: 1995-$48,628; 1994-$29,428 (note 13) 1,175,699 915,495 Inventories (note 1) 747,895 609,974 Prepaid expenses and deferred taxes 146,867 131,638 - - ------------------------------------------------------------------------------------------------------- Total current assets 2,160,567 1,710,476 - - ------------------------------------------------------------------------------------------------------- OTHER INVESTMENTS AND LONG-TERM RECEIVABLES 56,086 68,472 PROPERTY AND EQUIPMENT, at cost (note 5) Land 30,717 29,308 Buildings and improvements 225,011 213,037 Machinery and equipment 489,507 411,377 - - ------------------------------------------------------------------------------------------------------- 745,235 653,722 Less accumulated depreciation 375,285 299,775 - - ------------------------------------------------------------------------------------------------------- 369,950 353,947 - - ------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill (note 1) 1,058,214 747,629 Miscellaneous 109,436 59,331 - - ------------------------------------------------------------------------------------------------------- 1,167,650 806,960 - - ------------------------------------------------------------------------------------------------------- FINANCE SUBSIDIARIES ASSETS (note 12) 983,322 562,403 - - ------------------------------------------------------------------------------------------------------- $4,737,575 $3,502,258 =======================================================================================================
26 ALCO STANDARD CORPORATION AND SUBSIDIARIES September 30 (dollars in thousands)
1995 1994 - - ------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 26,319 $ 12,299 Notes payable (note 5) 280,832 91,999 Trade accounts payable 501,316 500,166 Accrued salaries, wages and commissions 115,874 96,987 Deferred revenues 172,900 134,485 Restructuring costs (note 15) 33,302 56,971 Other accrued expenses 259,534 164,023 - - ------------------------------------------------------------------------------------------------------- Total current liabilities 1,390,077 1,056,930 - - ------------------------------------------------------------------------------------------------------- LONG-TERM DEBT (note 5) 325,314 340,771 DEFERRED TAXES AND OTHER LIABILITIES Deferred taxes 96,082 32,192 Restructuring costs (note 15) 6,000 50,000 Other long-term liabilities 178,782 156,511 - - ------------------------------------------------------------------------------------------------------- 280,864 238,703 - - ------------------------------------------------------------------------------------------------------- FINANCE SUBSIDIARIES LIABILITIES (note 12) 872,783 498,710 SHAREHOLDERS' EQUITY (note 6) Series AA convertible preferred stock, no par value: 4,025,000 depositary shares issued and outstanding 201,924 199,912 Series BB conversion preferred stock, no par value: 3,877,200 depositary shares issued and outstanding 290,152 Common stock, no par value: authorized 150,000,000 shares; issued 1995-112,182,000 shares;1994-109,044,000 shares 637,414 551,215 Retained earnings 765,309 642,634 Foreign currency translation adjustment (21,536) (22,550) Cost of common shares in treasury: 1995-118,000 shares; 1994-148,000 shares (4,726) (4,067) - - ------------------------------------------------------------------------------------------------------- 1,868,537 1,367,144 - - ------------------------------------------------------------------------------------------------------- $4,737,575 $3,502,258 =======================================================================================================
See notes to consolidated financial statements. ALCO STANDARD CORPORATION AND SUBSIDIARIES 27 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Fiscal Year Ended September 30 (in thousands except per share data)
1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------------- Shares Amounts Shares Amounts Shares Amounts - - --------------------------------------------------------------------------------------------------------------------------------- SERIES AA CONVERTIBLE PREFERRED STOCK Balance, beginning of year 4,025 $199,912 4,025 $197,900 Issued in public offering 4,025 $196,335 Dividend accretion 2,012 2,012 1,565 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year 4,025 $201,924 4,025 $199,912 4,025 $197,900 ================================================================================================================================= SERIES BB CONVERSION PREFERRED STOCK Issued in public offering 3,877 $290,152 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year 3,877 $290,152 ================================================================================================================================= COMMON STOCK Balance, beginning of year 109,044 $551,215 97,544 $259,031 97,544 $257,069 Issued in public offering 11,500 293,500 Mergers, acquisitions and other 3,138 81,478 (4,104) Tax benefit relating to stock plans 4,721 2,788 1,962 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year 112,182 $637,414 109,044 $551,215 97,544 $259,031 ================================================================================================================================= RETAINED EARNINGS Balance, beginning of year $642,634 $651,373 $699,015 Net income 202,732 70,609 100 Cash dividends declared: Series AA preferred stock, per share: 1995-$2.875; 1994-$2.875; 1993-$2.236 (11,572) (11,572) (9,571) Series BB preferred stock, per share: 1995-$.938 (3,637) Common stock, per share: 1995-$.52; 1994-$.50; 1993-$.48 (57,267) (52,222) (44,858) Pooled companies, prior to merger (1,259) (2,408) Credits (charges) from issuance of treasury shares and other (6,322) (13,146) 6,687 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year $765,309 $642,634 $651,373 ================================================================================================================================= FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance, beginning of year $(22,550) $(23,640) $ (6,622) Translation adjustment 1,014 (1,347) (17,018) Sale of investment in unconsolidated affiliate 2,437 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year $(21,536) $(22,550) $(23,640) ================================================================================================================================= COST OF COMMON SHARES IN TREASURY Balance, beginning of year 148 $ (4,067) 3,616 $(64,048) 5,646 $(89,099) Purchases 2,783 (91,430) 1,774 (47,733) 1,512 (32,389) Reissued for Exercise of options (544) 16,652 (908) 18,027 (810) 13,063 Sales to employee stock plans (2,267) 74,067 (2,344) 47,799 (2,500) 40,564 Mergers, acquisitions and other (2) 52 (1,990) 41,888 (232) 3,813 - - --------------------------------------------------------------------------------------------------------------------------------- Balance, end of year 118 $ (4,726) 148 $ (4,067) 3,616 $(64,048) =================================================================================================================================
See notes to consolidated financial statements. 28 ALCO STANDARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year Ended September 30 (in thousands)
1995 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 202,732 $ 70,609 $ 100 Additions (deductions) to reconcile net income to net cash provided by operating activities Depreciation 75,765 70,037 57,272 Amortization 33,959 26,791 22,137 Provision for losses on accounts receivable 21,900 19,668 19,702 Provision (benefit) for deferred income taxes 68,298 22,487 (55,042) Change in deferred liabilities 32,513 2,816 15,232 Restructuring costs (60,364) (46,588) 169,939 Loss on sale of Investment in unconsolidated affiliate 115,265 Alco Diversified Services 9,841 Changes in operating assets and liabilities Decrease (increase) in Accounts receivable (193,717) (74,369) (72,064) Inventories (111,933) 3,154 (52,877) Prepaid expenses (10,407) (17,873) (5,083) Increase (decrease) in accounts payable, deferred revenues, and accrued expenses 59,979 79,855 (52,563) Miscellaneous (3,808) 364 (13,267) - - ----------------------------------------------------------------------------------------------------------------------- Net cash provided 114,917 272,216 43,327 - - ----------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from sale (net of cash retained) of Investment in unconsolidated affiliate 8,226 Alco Diversified Services 69,836 Cost of companies acquired, net of cash acquired (299,840) (46,705) (439,447) Proceeds from sale of property and equipment 25,926 24,833 21,769 Expenditures for property and equipment (99,234) (107,969) (83,789) Payments received on long-term receivables 6,837 9,251 5,369 Purchases of miscellaneous assets (51,445) (7,973) (10,702) Finance subsidiaries receivables - Additions (696,217) (408,412) (278,503) Finance subsidiaries receivables - Collections 247,798 210,969 166,274 - - ----------------------------------------------------------------------------------------------------------------------- Net cash used (866,175) (317,780) (549,193) - - ----------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from Issuance of long-term debt 42,813 20,835 319,338 Issuance of Series BB conversion preferred stock, net 290,152 Issuance of common stock, net 293,500 Issuance of Series AA convertible preferred stock, net 196,335 Option exercises and sale of treasury shares 91,848 69,914 62,284 Sale of finance subsidiaries lease receivables 66,677 125,000 Life insurance borrowings 3,342 31,055 Issuance (repayment) of short-term borrowings, net 158,569 (68,278) 163,563 Proceeds (repayments) of accounts receivable sold 10,741 14,985 (3,440) Long-term debt repayments (66,956) (369,238) (241,827) Finance subsidiaries debt - Issuance 534,717 248,098 228,307 Finance subsidiaries debt - Repayments (182,014) (196,308) (124,201) Dividends paid (70,464) (59,392) (49,995) Purchase of treasury shares (91,430) (47,733) (32,389) - - ----------------------------------------------------------------------------------------------------------------------- Net cash provided 787,995 62,438 517,975 - - ----------------------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH 36,737 16,874 12,109 - - ----------------------------------------------------------------------------------------------------------------------- CASH AT BEGINNING OF YEAR 53,369 36,495 24,386 - - ----------------------------------------------------------------------------------------------------------------------- CASH AT END OF YEAR $ 90,106 $ 53,369 $ 36,495 =======================================================================================================================
See notes to consolidated financial statements. ALCO STANDARD CORPORATION AND SUBSIDIARIES 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Alco Standard Corporation and its wholly owned subsidiaries (the Company). Significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Revenues are recorded at the time of shipment of products or performance of services. Revenues from service contracts are recognized in earnings over the term of the contract. The present values of payments due under sales-type lease contracts are recorded as revenues and cost of goods sold is charged with the book value of the equipment at the time of shipment. Future interest income is deferred and recognized over the related lease term. Inventories Inventories are stated at the lower of cost or market and consist of finished goods available for sale. The Company uses the LIFO method of determining cost for approximately 60% of its inventories and the FIFO method for the balance. If the FIFO method of accounting had been used for all inventories, these balances would have been $92,590,000 higher at September 30, 1995 and $36,877,000 higher at September 30, 1994. Goodwill Substantially all goodwill (excess of cost of acquired companies over equity) is amortized over 40 years by the straight-line method. The recoverability of goodwill is evaluated at the operating unit level by an analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit has current operating losses and based upon projections there is a likelihood that such operating losses will continue, the Company will evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations before interest for the remaining amortization period. If impairment exists, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. Depreciation Properties and equipment are depreciated over their useful lives by the straight-line method. Earnings (Loss) Per Share Earnings (loss) per share are based on 112,520,000 weighted average shares in 1995, 107,458,000 shares in 1994 and 94,792,000 shares in 1993, and include the dilutive effect of common stock equivalents, principally stock options. Reclassifications Certain prior-year amounts have been reclassified to conform with the current- year presentation. Foreign Currency Translation All assets and liabilities of foreign subsidiaries are translated into US dollars at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The resulting translation adjustments are recorded as a component of shareholders' equity. Accounting Changes During fiscal 1994, the Company changed its methods of accounting for income taxes and retiree healthcare benefits. The cumulative effect of adopting each of these new accounting methods was immaterial. Pending Accounting Change In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of fiscal 1996 and, based on current circumstances, does not believe the effect of adoption will be material. Interest Rate Swap Agreements The Company has entered into several interest rate swap agreements as a means of managing its interest rate exposure. These agreements have the effect of converting certain of the Company's variable rate obligations to fixed rate obligations. Net amounts paid or received are reflected as adjustments to interest expense. Stock Split All common shares and per share amounts have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a stock dividend distributed on November 9, 1995 to holders of record on October 27, 1995. 2 DISCONTINUED OPERATIONS AND DIVESTITURES The Company has owned several manufacturing and industrial businesses, all of which have been sold. There are currently environmental remediation claims pending for manufacturing or landfill sites in the United States that relate to these discontinued operations. As a result of several recent environmental remediation claims, and increased estimated costs associated with existing environmental remediation sites, primarily related to discontinued manufacturing operations divested by the Company in 1991 and prior, the Company took a fourth quarter charge in fiscal 1995 to increase its liabilities for environmental remediation. The discontinued operations charge was $23,630,000 ($16,541,000 net of tax) or $.14 per share. The adjustment reflects management's best estimate, based on information currently available, of costs to be incurred for existing and probable environmental claims of discontinued operations. In July 1993, the Company completed the sale of the Alco Diversified Services (ADS) assets of approximately $102,000,000 to an investor group for $84,000,000 in cash and notes. Accordingly, ADS results for fiscal 1993 are reported in the accompanying Statements of Income as discontinued operations. In fiscal 1993, ADS had revenues of $153,063,000, an operating loss of $3,946,000, a loss on disposal of $9,841,000, and tax benefits of $6,272,000, resulting in a net loss from discontinued operations of $7,515,000. 30 ALCO STANDARD CORPORATION AND SUBSIDIARIES 2. DISCONTINUED OPERATIONS AND DIVESTITURES (CONTINUED) In September 1995, the Company divested Central Products Company for $80,000,000 in cash and notes, and recorded a continuing operations pretax gain of approximately $4,000,000 on the sale. Also included in the Company's continuing operations and related to Central Products Company are fiscal 1995 revenues of $120,219,000 and net income from operations of $2,668,000. During 1995, the Company agreed to pay $10,000,000 to settle a claim by a former subsidiary, which had asserted that the Company was liable for certain employee liabilities. This amount has been primarily charged against existing reserves for discontinued operations. The Company paid $5,000,000 during 1995 with the remaining $5,000,000 to be paid over the next four years. 3 ACQUISITIONS In June 1995, Erskine Limited, a U.K. subsidiary of the Company, purchased all of the outstanding shares of Southern Business Group PLC (renamed A:Copy (UK) PLC on October 1, 1995), for approximately $133,800,000. A:Copy (UK) sells, leases, services and remanufactures copiers and other office equipment in Southern England. Total assets acquired were $163,359,000, which includes goodwill of $119,556,000. In addition, 111 other acquisitions were made in fiscal 1995 for an aggregate purchase price of $266,773,000 in cash, notes and stock. Total assets related to these 111 acquisitions were $368,836,000, including goodwill of $244,668,000. The Company also issued 675,106 common shares for two acquisitions accounted for as poolings-of-interests and their results of operations were included from the beginning of the fiscal year. $4,998,000 of additional cash was paid and capitalized in fiscal 1995 relating to prior-years' acquisitions. In fiscal 1994, the Company issued 1,397,350 common shares from treasury for three acquisitions accounted for as poolings-of-interests and their results of operations were included from the beginning of the fiscal year. Also during fiscal 1994, 47 other acquisitions were made for an aggregate purchase price of $62,009,000 in cash, notes and stock. Total assets related to these 47 acquisitions were $111,099,000, including goodwill of $55,165,000. An additional $4,900,000 was paid and capitalized in fiscal 1994 relating to prior-years' acquisitions. In June 1993, the Company acquired over 90% of the outstanding shares of Erskine House Group PLC (Erskine), a United States and European distributor of office products, and the remaining outstanding shares were acquired during the fourth quarter of fiscal 1993. The purchase price was approximately $103,000,000, plus the assumption of approximately $101,000,000 of debt and redeemable preferred stock. Total assets acquired were $278,975,000, including goodwill of $180,408,000. In July 1993, the Company acquired the paper distribution businesses of Butler Paper Company for a purchase price of $140,000,000. Total assets acquired were $277,843,000 and negative goodwill (excess of acquired equity over cost) of approximately $37,157,000 was allocated to fixed assets. During fiscal 1993, 21 other acquisitions were made for an aggregate purchase price of $50,606,000 in cash and stock. Total assets acquired were $68,878,000 including goodwill of $30,645,000. An additional $30,236,000 was paid and capitalized in 1993 relating to prior-years' acquisitions. All acquisitions, unless otherwise noted, are included in results of operations from their dates of acquisition. Had the purchase acquisitions been made at the beginning of the fiscal year prior to their acquisition and the poolings been made on October 1, 1992, pro forma results from continuing operations would have been: Fiscal Year Ended September 30 (in thousands except per share data)
1995 1994 1993 - - -------------------------------------------------------------------------------- Revenues $10,294,905 $8,753,729 $7,754,354 Income from continuing operations 256,452 122,244 25,636 Earnings per share $1.98 $.81 $.13 - - --------------------------------------------------------------------------------
The pro forma results assume that $290,000,000 of the purchase price of 1995 acquisitions was funded by the proceeds from issuance of Series BB conversion preferred stock, while $285,000,000 of the total purchase price of 1994 and 1993 acquisitions was funded by the proceeds from issuance of common stock in December 1993 and $201,250,000 of the purchase price of 1993 acquisitions was funded by the proceeds from issuance of the Series AA convertible preferred stock. 4 LOSS FROM UNCONSOLIDATED AFFILIATE In October 1992, the Company purchased a 49.9% interest in IMM Office Systems GmbH (IMMOS), a European distributor of office products, for $122,500,000 in cash, which included goodwill of $107,478,000. In September 1994, the Company completed the sale of this investment for cash plus a passive interest in any subsequent sale of IMMOS for five years. The Company retains no ongoing liability in the joint venture and the parties exchanged complete mutual releases for past actions. In addition, the Company was relieved of the covenant not to compete in Europe contained in the joint venture agreement, although the parties will not compete with each other for a period expiring on December 31, 1995. As part of the transaction, the Company acquired profitable operations in Denmark and France and retained limited operations in Germany. The Company recognized a loss on the sale of its investment in IMMOS in the quarter ended June 30, 1994, recording a pretax loss of $115,300,000 ($95,100,000, net of tax) equating to a loss per share of $.87 in the quarter ended June 30, 1994 and $.88 for the fiscal year ended September 30, 1994. This loss represents the write-off of the Company's investment in IMMOS, plus certain transactional costs less the cash proceeds from the sale together with related tax benefits. In addition, the Company recorded losses totaling $1,900,000, which represent the Company's share of IMMOS operating losses for the first half of fiscal 1994. ALCO STANDARD CORPORATION AND SUBSIDIARIES 31 5 NOTES PAYABLE AND LONG-TERM DEBT Notes payable consisted of:
September 30 (in thousands) 1995 1994 - - ------------------------------------------------------------------------------- Notes payable to banks at average interest rate: 1995-6.8%; 1994-5.5% $279,496 $ 91,419 Other notes payable at average interest rate: 1995-7.2%; 1994-7.1% 1,336 580 - - ------------------------------------------------------------------------------- $280,832 $ 91,999 ===============================================================================
Long-term debt consisted of:
September 30 (in thousands) 1995 1994 - - ------------------------------------------------------------------------------- Bond issue at interest rate of 8 7/8% due 2001 $150,000 $150,000 Private placement debt at average interest rate: 1995-8.3%; 1994-8.2%; due 1998 50,000 70,000 Notes payable to insurance company at average interest rate of 9.7% due 1997-2005 60,000 60,000 Industrial revenue bonds at average interest rate: 1995-5.1%; 1994-8.4%; due 1996-2001 10,328 10,537 Sundry notes, bonds and mortgages at average interest rate of 7.5% due 1996-2005 51,893 38,341 Present value of capital lease obligations (gross amount: 1995-$45,894; 1994-$40,928) 29,412 24,192 - - ------------------------------------------------------------------------------- 351,633 353,070 Less current maturities 26,319 12,299 - - ------------------------------------------------------------------------------- Long-term debt $325,314 $340,771 ===============================================================================
Long-term debt matures in fiscal years: 1996-$26,319,000; 1997-$17,507,000; 1998-$59,432,000; 1999-$7,791,000; 2000-$5,139,000; 2001-2005-$235,445,000. On December 1, 1994, the Company entered into a credit agreement with 14 banks under which it may borrow up to $500,000,000. The agreement has two parts: $150,000,000 is available for 364 days subject to annual renewal for successive 364-day periods through December 1, 1999; the other $350,000,000 terminates on December 1, 1999. Facility fees of 8 basis points per annum on the 364-day portion and 10 basis points per annum on the five-year portion are charged for these commitments. The agreement provides that loans may be made under either domestic or Eurocurrency notes at rates computed under a selection of rate formulas including prime or Eurocurrency rates. The Company may also borrow up to $100,000,000 or the Canadian dollar equivalent under its amended April 1993 credit agreement with four banks. The agreement has two parts: $50,000,000 is available for 364 days, subject to annual renewal through April 19, 1996; the other $50,000,000 is available through April 21, 1996. Facility fees of 8 basis points per annum on the 364-day portion and 10 basis points per annum for the three-year portion are charged for these commitments. Loans under the agreement may be made under a selection of rate formulas including prime, the Eurodollar rate in the United States or Canada, or the Canadian Bankers Acceptance rate. At September 30, 1995, short-term borrowings supported by the combined lines of credit totaled $252,496,000 leaving $347,504,000 unused and available. The Company has entered into an agreement to borrow $55,000,000 in November 1995 with an interest rate of 7.15% maturing in November 2005. The proceeds will be used to repay short-term notes payable. The Company is in compliance with all covenants, including financial, for all loan agreements. The industrial revenue bonds, capital lease obligations and mortgages are secured by property and equipment that had a net book value of $31,978,000 at September 30, 1995. Interest paid, including finance subsidiaries, approximated $87,000,000, $72,000,000 and $63,500,000 for fiscals 1995, 1994 and 1993, respectively. 32 ALCO STANDARD CORPORATION AND SUBSIDIARIES 6 SHAREHOLDERS' EQUITY On July 25, 1995, the Company sold 3,877,200 depositary shares, each representing 1/100th of a share of Series BB conversion preferred stock, for $77.375 per depositary share totaling $299,998,350, and used the net proceeds to reduce debt. Dividends are cumulative at $5.04 per year per depositary share. This series of preferred stock has one vote per share (equivalent to 1/100 vote per depositary share) and has a liquidation preference of $77.375 per depositary share plus an amount equal to accrued and unpaid dividends. Prior to October 1, 1998, each depositary share is convertible at the option of the holder into 1.6393 shares of common stock of the Company. On October 1, 1998, unless previously converted at the option of the holder, each of the outstanding depositary shares will automatically convert into a number of shares of common stock of the Company equal to (a) 1.6393 shares of common stock per depositary share if the current market price of the Company's common stock is greater than or equal to $47.20 per share, (b) between 1.6393 and two shares, equivalent to the current market price of the common stock if the stock price is between $47.20 and $38.6875, and (c) two shares of common stock per depositary share if the current market price of the Company's common stock is at or below $38.6875 per share. The current market price to be used in the conversion calculation will be the average closing price per share of common stock of the Company on the twenty trading days immediately prior to, but not including, October 1, 1998. At September 30, 1995, 7,754,400 shares of common stock were reserved for conversion of the Series BB conversion preferred stock. In December 1993, the Company issued 11,500,000 shares of common stock in a public offering. The net proceeds from the offering of $293,500,000 were used for repayment of debt. Income and earnings per share from continuing operations for fiscal 1993 would have been $13,288,000 and $.03, respectively, if the offering had occurred on October 1, 1992. Income from continuing operations for fiscal 1994 would have been $71,896,000 and earnings per share would have been unchanged if the offering had occurred on October 1, 1993. On December 22, 1992, the Company sold 4,025,000 depositary shares, each representing 1/100th of a share of Series AA convertible preferred stock at $50.00 per depositary share totaling $201,250,000, and used the net proceeds to reduce debt. Dividends are cumulative at $2.375 per year per depositary share through January 2, 1996 and $3.25 per depositary share per year thereafter. The dividend is accrued on a straight-line basis ($2.875 per depositary share) and accretion for the difference between the accrued and cash dividend amounting to $5,589,000 at September 30, 1995 has been credited to Series AA convertible preferred stock. This series of preferred stock has one vote per share (equivalent to 1/100 vote per depositary share) and is convertible at a rate of 2.2402 shares of the Company's common stock per depositary share at any time. The Series AA convertible preferred stock, unless previously converted into common stock, is redeemable by issuance of common stock at the Company's option at the rate of 2.2402 shares of common stock per depositary share (with certain limitations) on or after January 9, 1996 through January 9, 2000. On or after January 9, 2000, this series of preferred stock is redeemable at the Company's option at $50.00 per depositary share. Upon liquidation, the Series AA convertible preferred stock has preference equivalent to $50.00 per depositary share plus an amount equal to accrued and unpaid dividends. At September 30, 1995, 9,016,806 shares of common stock were reserved for conversion of the Series AA convertible preferred stock. Employee stock options are granted at the market price at dates of grant and expire in ten years. The proceeds of options exercised are credited to shareholders' equity. There are no charges or credits to income in connection with these options. A 1989 plan for the Company's directors enables participants to receive their annual directors' fees in the form of options to purchase shares of common stock at a discount. The discount is equivalent to the annual directors' fees and is charged to expense. Changes in common shares under option were:
Directors Employees - - ---------------------------------------------------------------------------------------------------------------- Shares Option Price Range Shares Option Price Range - - ---------------------------------------------------------------------------------------------------------------- September 30, 1992 173,366 $ 9.78 to $14.34 4,511,194 $ 8.06 to $19.13 Granted 49,338 15.09 to 20.13 1,135,634 17.63 to 20.13 Exercised (34,448) 9.78 to 13.17 (775,832) 8.06 to 19.13 Cancelled (423,434) 11.44 to 20.13 - - ---------------------------------------------------------------------------------------------------------------- September 30, 1993 188,256 9.78 to 20.13 4,447,562 8.06 to 20.13 Granted 34,832 21.14 to 28.19 924,670 24.50 to 31.00 Exercised (42,630) 9.78 to 20.13 (865,482) 8.06 to 20.13 Cancelled (1,520) 15.09 (21,102) 8.06 to 28.81 - - ---------------------------------------------------------------------------------------------------------------- September 30, 1994 178,938 9.78 to 28.19 4,485,648 9.09 to 31.00 Granted 32,604 24.56 to 32.75 789,632 28.62 to 40.31 Exercised (39,852) 9.78 to 15.09 (814,398) 9.09 to 28.19 Cancelled (46,214) 14.31 to 32.81 - - ---------------------------------------------------------------------------------------------------------------- September 30, 1995 171,690 $ 9.78 to $32.75 4,414,668 $ 9.09 to $40.31 ================================================================================================================
ALCO STANDARD CORPORATION AND SUBSIDIARIES 33 6. SHAREHOLDERS' EQUITY (CONTINUED) At September 30, 1995, options to purchase 2,291,248 shares were exercisable (1995: employees - 2,144,162, directors - 147,086; 1994: employees - 2,199,040, directors - 144,106) and 6,028,870 shares were available for grant (1995: employees - 5,131,744, directors - 897,126; 1994: employees - 367,534, directors - 929,730). In fiscal 1995, with Board of Director and shareholder approvals, the Company amended and restated its Long Term Incentive Compensation Plan (LTIP). The plan is intended to motivate, recognize and reward key management employees for long-term performance at the corporate or group level. Under the plan, key management employees are granted stock awards to receive company stock, which are earned upon achieving predetermined performance objectives during three-year intervals. The value of these awards is charged to expense over the related plan period. In fiscal 1995, the Company granted 602,530 stock awards under the plan, including 403,824 to replace stock options granted under the original LTIP. At September 30, 1995, 128,818 of these awards had been earned. One preferred share purchase right (Right) exists for each outstanding share of common stock (the Shares). The Rights become exercisable ten days after the earlier of a public announcement by another entity that it has acquired beneficial ownership of 20% or more of the Shares or a public announcement of another entity's intention to commence a tender offer to acquire beneficial ownership of 30% or more of the Shares. When the Rights become exercisable, each Right will entitle a holder to purchase 1/100th of a share of Series 12 preferred stock for an exercise price of $75. If the Company consolidates or merges with another entity, or sells assets that aggregate 50% of its consolidated assets, or generates more than 50% of its consolidated operating income or cash flow, then each Right holder will have the right to purchase, for the exercise price, a number of shares of the other entity having a then-current market value equal to twice the exercise price. If another entity owning 20% or more of the Shares (a) engages in certain transactions with the Company, or (b) causes the Company to forgo or reduce quarterly dividends or take an action that would result in a more than 2% increase in the other entity's proportionate share of the outstanding shares; or if another entity becomes the beneficial owner of 30% or more of the outstanding shares; then each Right holder (other than the other entity) will have the right to purchase, for the exercise price, a number of shares of the Company having a then-current market value equal to twice the exercise price. The Rights are redeemable by the Company prior to becoming exercisable at $.05 per Right and expire on February 10, 1998. 7 TAXES ON INCOME - CONTINUING OPERATIONS Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 permitted the Company to recognize the benefit of certain deferred tax assets that could not be recognized under the previous standard, SFAS No. 96, which the Company adopted in fiscal 1988. The cumulative effect of adopting SFAS No. 109 as of October 1, 1993 was to increase net income by $1,421,000 or $.01 per share in fiscal 1994. As permitted under SFAS No. 109, prior-years' financial statements have not been restated. Provision for income taxes: Fiscal Year Ended September 30 (in thousands)
1995 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------- Current Deferred Current Deferred Current Deferred - - -------------------------------------------------------------------------------------------------------------------------- Federal $38,904 $66,793 $46,349 $29,421 $57,200 $(48,149) Foreign 10,869 9,911 11,862 (7,855) 6,602 (948) State 15,470 (1,317) 5,505 921 3,706 (1,427) - - -------------------------------------------------------------------------------------------------------------------------- Taxes on income $65,243 $75,387 $63,716 $22,487 $67,508 $(50,524) ==========================================================================================================================
34 ALCO STANDARD CORPORATION AND SUBSIDIARIES 7. TAXES ON INCOME - CONTINUING OPERATIONS (CONTINUED) The components of deferred income tax assets and liabilities, including finance subsidiaries, were as follows:
September 30 (in thousands) 1995 1994 - - ------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation and amortization $ 74,118 $ 62,487 Lease income recognition 119,783 82,837 Total deferred tax liabilities 193,901 145,324 - - ------------------------------------------------------------------------------- Deferred tax assets: Nondeductible reserves 143,257 145,067 Net operating loss carryforwards 29,516 29,510 Other-net 1,511 12,092 - - ------------------------------------------------------------------------------- Total deferred tax assets 174,284 186,669 Valuation allowance (31,048) (28,587) - - ------------------------------------------------------------------------------- Net deferred tax assets 143,236 158,082 - - ------------------------------------------------------------------------------- Net deferred tax liabilities (assets) $ 50,665 $(12,758) ===============================================================================
Net operating loss carryforwards consist primarily of foreign carryforwards of $50,858,000 principally expiring in years 1996 through 2000. Deferred taxes resulting from temporary differences between financial and tax accounting, which have not been restated for SFAS No.109 as of September 30, 1993, were as follows (in thousands): Depreciation $4,741 Lease income recognition 11,993 Nondeductible reserves (67,115) Other (143) - - ------------------------------------------------------------------------------- Deferred taxes $(50,524) ===============================================================================
Components of the effective income tax rate: Fiscal Year Ended September 30
1995 1994 1993 - - ------------------------------------------------------------------------------- Federal 35.0% 35.0% 34.8% State 2.6 2.3 6.1 Goodwill 1.8 3.5 16.1 Foreign .2 1.0 8.2 Effect of sale of IMMOS 12.9 Other (.5) .3 3.8 - - ------------------------------------------------------------------------------- Effective income tax rate 39.1% 55.0% 69.0% ===============================================================================
The effective tax rate for the fiscal year ended September 30, 1994, excluding the effects of the loss on the sale of the investment in IMMOS, is 39.1%. The effective tax rate for the fiscal year ended September 30, 1993, excluding the effects of the restructuring costs, is 39.6%. Net income tax payments for all operations amounted to $30,436,000, net of $30,000,000 refund, in 1995, $62,270,000 in 1994 and $77,487,000 in 1993. Undistributed earnings of the Company's foreign subsidiaries were approximately $45,656,000 at September 30, 1995. Those earnings are considered to be indefinitely reinvested and, therefore, no provision has been recorded for U.S. federal and state income taxes. 8 PENSION AND STOCK PURCHASE PLANS The Company sponsors defined benefit pension plans for the majority of its employees. The benefits generally are based on years of service and compensation. The Company funds at least the minimum amount required by government regulations. The cost of these plans, together with contributions to multiemployer and defined contribution pension plans ($4,915,000 in 1995, $6,880,000 in 1994 and $5,134,000 in 1993) charged to continuing operations amounted to $25,396,000 for 1995, $18,283,000 for 1994 and $12,684,000 for 1993. The components of net periodic pension cost for the Company-sponsored defined benefit pension plans are: Fiscal Year Ended September 30 (in thousands)
1995 1994 1993 - - ------------------------------------------------------------------------------- Service cost $ 21,506 $ 16,991 $ 11,123 Interest cost on projected benefit obligation 22,620 18,507 13,416 Actual return on plan assets (60,170) (11,020) (34,238) Net amortization and deferral 36,525 (13,075) 17,249 - - ------------------------------------------------------------------------------- Net pension cost $ 20,481 $ 11,403 $ 7,550 ===============================================================================
Assumptions used in accounting for the Company-sponsored defined benefit pension plans were:
1995 1994 1993 - - ------------------------------------------------------------------------------- Weighted average discount rates 7.50% 7.75% 7.25% Rates of increase in compensation levels 6.00% 6.25% 5.75% Expected long-term rate of return on assets 10.00% 10.00% 10.00%
ALCO STANDARD CORPORATION AND SUBSIDIARIES 35 8. PENSION AND STOCK PURCHASE PLANS (CONTINUED) The funded status and amounts recognized in the Consolidated Balance Sheets for the Company-sponsored defined benefit pension plans are:
September 30 (in thousands) 1995 1994 - - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested $260,292 $237,874 =============================================================================== Accumulated $266,176 $241,069 =============================================================================== Projected $325,210 $277,500 Plan assets at fair value 285,788 256,610 - - ------------------------------------------------------------------------------- Plan assets less than projected benefits (39,422) (20,890) Items not yet recognized Net gain (12,432) (3,873) Prior service cost 19,409 11,657 Net asset existing at transition date (14,424) (16,397) Adjustment required to recognize minimum liability (7,406) (8,385) - - ------------------------------------------------------------------------------- Net pension liability $(54,275) $(37,888) ===============================================================================
Substantially all of the plan assets at September 30, 1995 are invested in listed stocks, bonds and government securities including common stock of the Company of $67,800,000. The Company increased its net pension liability by $1,048,000 and $5,949,000 in fiscal 1995 and 1994, respectively, due to early retirement benefits granted to employees in connection with the Unisource restructuring program (note 15). The majority of the Company's employees were eligible to participate in the Company's Stock Participation Plan, under which they were permitted to invest 2% to 6% of regular compensation before taxes. The Company contributed an amount equal to two-thirds of the employees' investments and all amounts were invested in the Company's common shares. Effective October 2, 1995, the Stock Participation Plan was replaced by a Retirement Savings Plan (RSP). The RSP will allow employees to invest 1% to 16% of regular compensation before taxes in six different investment funds. The Company will contribute an amount equal to two- thirds of the employees' investments, up to 4% of the employees' regular compensation. All Company contributions are invested in the Company's common shares. Employees vest in a percentage of the Company's contribution after two years of service, with full vesting at the completion of five years of service. There is a similar plan for eligible management employees. The cost of the stock participation plans charged to continuing operations amounted to $26,885,000 in 1995, $23,484,000 in 1994 and $16,174,000 in 1993. 9 SEGMENT REPORTING A description of each of the Company's industry segments appears elsewhere in this report. Dollar amounts for revenues, income before taxes, assets, capital expenditures, and depreciation and amortization for each segment for 1995, 1994 and 1993 are reported on page 46. Revenues, income before taxes and identifiable assets by geographic area from continuing operations for the fiscal years ended September 30 are as follows:
(in millions) 1995 1994 1993 - - ------------------------------------------------------------------------------ REVENUES Domestic $8,805.6 $7,153.8 $5,649.8 Foreign 1,093.4 843.1 799.9 - - ------------------------------------------------------------------------------ Operating 9,899.0 7,996.9 6,449.7 Eliminations and nonallocated (7.2) (.9) (5.1) - - ------------------------------------------------------------------------------ Total $9,891.8 $7,996.0 $6,444.6 ============================================================================== INCOME BEFORE TAXES Domestic $ 407.9 $ 332.6 $ 73.5 Foreign 69.0 29.1 27.3 - - ------------------------------------------------------------------------------ Operating 476.9 361.7 100.8 Unconsolidated affiliate (117.2) (2.5) Nonallocated (117.0)* (87.7)* (73.7)* - - ------------------------------------------------------------------------------ Total $359.9 $156.8 $24.6 ============================================================================== ASSETS Domestic $3,775.1 $2,787.7 $2,547.5 Foreign 792.3 572.5 536.4 - - ------------------------------------------------------------------------------ Operating 4,567.4 3,360.2 3,083.9 Unconsolidated affiliate 118.1 Nonallocated 170.2 142.1 146.9 - - ------------------------------------------------------------------------------ Total $4,737.6 $3,502.3 $3,348.9 ==============================================================================
* Includes interest costs and net corporate expenses. Included in income before taxes for fiscal 1993 are restructuring costs of $171,500,000 for domestic operations and $3,500,000 for foreign operations. 36 ALCO STANDARD CORPORATION AND SUBSIDIARIES 10 LEASES Equipment acquired under capital leases is included in property and equipment in the amount of $38,171,000 in 1995 and $37,160,000 in 1994 and the related amounts of accumulated amortization are $15,657,000 in 1995 and $15,888,000 in 1994. Related obligations are in long-term debt and related amortization is included in depreciation. At September 30, 1995, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year were: 1996-$88,430,000; 1997-$76,041,000; 1998-$61,576,000; 1999-$47,943,000; 2000- $33,192,000; thereafter-$75,175,000. Total rental expense was $103,891,000 in 1995, $89,998,000 in 1994 and $68,293,000 in 1993. 11 CONTINGENCIES There are contingent liabilities for taxes, guarantees, lawsuits, environmental remediation claims relating to continuing and discontinued operations (see note 2) and various other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, management believes that none of these contingencies will materially affect the Company. 12 FINANCE SUBSIDIARIES The Company's wholly owned finance subsidiaries are engaged in purchasing office equipment from Company dealers and leasing the equipment to customers under direct financing leases. Summarized financial information of the finance subsidiaries is as follows:
September 30 (in thousands) 1995 1994 - - ------------------------------------------------------------------------------- Future minimum lease payments receivable $1,084,967 $ 645,083 Less: Unearned income (165,492) (109,416) - - ------------------------------------------------------------------------------- Lease receivables 919,475 535,667 Accounts receivable and other assets 63,847 26,736 - - ------------------------------------------------------------------------------- Finance subsidiaries assets $ 983,322 $ 562,403 =============================================================================== Debt at average interest rate: 1995-6.8%; 1994-5.8% due 1996-2000 $ 817,585 $ 464,882 Other liabilities 55,198 33,828 - - ------------------------------------------------------------------------------- Finance subsidiaries liabilities $ 872,783 $ 498,710 ===============================================================================
Net income of the finance subsidiaries included in the Company's consolidated results of operations was $14,472,000 in 1995, $13,347,000 in 1994, and $8,180,000 in 1993. At September 30, 1995, future minimum payments to be received under direct financing leases were: 1996-$396,931,000; 1997-$334,613,000; 1998-$206,212,000; 1999-$103,880,000; 2000-$42,248,000; thereafter-$1,083,000. On June 30, 1995, Alco Capital Resource, Inc. (Alco Capital), a wholly owned finance subsidiary of the Company, increased the amount available to be offered under its medium term notes program by $1,000,000,000 or the equivalent thereof in foreign currency. The medium term note program effective July 1, 1994 of $500,000,000 was fully subscribed as of July 1995. The program allows Alco Capital to offer to the public from time to time medium term notes having an aggregate initial offering price not exceeding the total program amount. These notes will be offered at varying maturities of nine months or more from their dates of issue and may be subject to redemption at the option of Alco Capital or repayment at the option of the holder, in whole or in part, prior to the maturity date in conjunction with meeting specified provisions. Interest rates are determined based on market conditions at the time of issuance. As of September 30, 1995, $602,000,000 of medium term notes are outstanding with a weighted average interest rate of 7.0%. Alco Capital has followed a policy of matching the maturities of borrowed funds to the underlying direct financing leases in order to minimize the impact of interest rate changes on its operations. Alco Capital has therefore entered into interest rate swap agreements to eliminate the impact of interest rate changes on its variable rate notes payable. The interest rate swap agreements effectively convert the variable rate notes into fixed rate obligations. During fiscal 1995, there were two variable rate notes outstanding and two related interest rate swap agreements on a principal/notional amount of $57,000,000. The weighted average interest rate on these variable rate notes and related interest rate swap agreements was 6.58% and 4.76%, respectively, during 1995. In September 1994, Alco Capital entered into an agreement to sell, under an asset securitization program, an undivided ownership interest in $125,000,000 of eligible direct financing lease receivables. The agreement, which expires in September 1996, contains limited recourse provisions that require Alco Capital to assign an additional undivided interest in leases to cover any potential losses to the purchaser due to uncollectible leases. As collections reduce previously sold interests, new leases can be sold up to $125,000,000. The weighted average interest rate on the agreement, which is partially fixed by three interest rate swap agreements totaling a principal/notional amount of $90,000,000 is 7.0% at September 30, 1995. In fiscal 1995, Alco Capital sold $67,000,000 in leases, replacing leases liquidated during the year. ALCO STANDARD CORPORATION AND SUBSIDIARIES 37 13 SALE OF ACCOUNTS RECEIVABLE The Company entered into an agreement to sell, with limited recourse, up to CN$95,000,000 of certain eligible Canadian accounts receivable through December 1, 1995. The agreement, which is expected to be extended, provides limited recourse to the Company in the event that any of the previously sold receivables become uncollectible. As collections reduce previously sold interests, new receivables will be sold up to CN$95,000,000. The amount of receivables sold under the agreement was CN$95,000,000 (US$71,000,000) and CN$80,000,000 (US$60,000,000) at September 30, 1995 and 1994, respectively. 14 FINANCIAL INSTRUMENTS The Company uses financial instruments in the normal course of its business. These financial instruments include debt, commitments to extend credit and interest rate swap agreements. The notional or contractual amounts of these commitments and other financial instruments are discussed below. Concentration of Credit Risk The Company is subject to credit risk through trade receivables and short-term cash investments. Credit risk with respect to trade receivables is minimized because of a large customer base and its geographic dispersion. Short-term cash investments are placed with high credit quality financial institutions and in short duration corporate and government debt securities funds. By policy, the Company limits the amount of credit exposure in any one type of investment instrument. Interest Rate Swap Agreements In addition to the interest rate swap agreements related to finance subsidiaries financial instruments discussed in note 12, the Company has several other interest rate swap agreements. These agreements have a total principal/notional amount of $47,000,000 and have fixed rates from 6.99% to 7.855%. The Company is required to make payments to the counterparties at the fixed rate stated in the agreements and in return the Company receives payments at variable rates (LIBOR). The Company is exposed to credit loss in the event of nonperformance by the counterparties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. Cash, Notes Payable and Long-Term Receivables The carrying amounts reported in the consolidated balance sheets approximate fair value. Long-Term Debt The fair value of long-term debt instruments is estimated using a discounted cash flow analysis. For more information on these instruments, refer to note 5. Off-Balance-Sheet Instruments Fair values for the Company's off-balance-sheet instruments (interest rate swaps) are based on the termination of the agreements. The carrying amounts and fair values of the Company's financial instruments are as follows:
1995 1994 - - ------------------------------------------------------------------------------------------------------------------ September 30 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value - - ------------------------------------------------------------------------------------------------------------------ Long-term debt: Bond issue $150,000 $165,311 $150,000 $156,833 Private placement debt 50,000 52,043 70,000 71,837 Notes payable to insurance company 60,000 65,286 60,000 62,614 Industrial revenue bonds 10,328 9,765 10,537 11,442 Sundry notes, bonds and mortgages 51,893 53,160 38,341 36,786 Finance subsidiaries debt 817,585 824,989 464,882 455,674 Interest rate swaps (3,671) 1,426
38 ALCO STANDARD CORPORATION AND SUBSIDIARIES 15 RESTRUCTURING COSTS On September 29, 1993, the Company adopted a plan to restructure paper distribution business including the following: installation of a customer- focused information system, redesigning of warehouse and transportation management functions, regionalization of management and administrative support functions and consolidation of service center locations. In connection with certain elements of the restructuring plan, the Company recorded a charge to earnings of $175,000,000 ($112,875,000 net of taxes or $1.19 per share) in the fourth quarter of fiscal 1993. The charge provided for facility consolidation ($60,700,000), severance costs ($48,000,000) and related organizational and system redesign ($22,000,000). At September 30, 1995, the remaining restructuring reserve is $39,302,000, which management believes is adequate to complete the restructuring plan by mid- fiscal 1997. As of September 30, 1995, 84 facility consolidations had been substantially completed. The estimated cost to complete the facility consolidations is $17,000,000 of which a significant portion relates to costs to dispose and maintain facilities that have been or will be vacated. Severance costs have been incurred during 1995 and 1994 in accordance with the plan and $10,000,000 is the estimated balance for severance costs. The related organizational and system redesign is estimated to have a remaining cost of $6,000,000. The Company estimates the remaining cash expenditures for the restructuring plan will be $31,000,000 and will be spent in fiscal 1996 and early fiscal 1997. 16 COMMITMENTS Effective January 1, 1994, the Company entered into an outsourcing agreement that will provide the information technology system to be implemented as part of the Unisource restructuring plan (note 15). This agreement calls for the payment of $300,000,000 over a ten-year period. At September 30, 1995, the remaining commitment under the agreement is $217,000,000. ALCO STANDARD CORPORATION AND SUBSIDIARIES 39 FINANCIAL REVIEW The discussion of the results of operations for the three years ended September 30, 1995 reviews the continuing operations of the Company as contained in the Consolidated Statements of Income. RESULTS OF OPERATIONS - 1995 Revenues and income before taxes by segment for fiscal years ended September 30, 1995 and September 30, 1994 and the percentage change for 1995 versus 1994 were:
Revenues Income Before Taxes - - ----------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 %Change 1995 1994 %Change - - ----------------------------------------------------------------------------------------------------------------------- Alco Office Products $2,912 $2,240 30.0% $251.8 $199.4 26.3% Unisource United States 6,183 5,108 21.0 184.1 148.8 23.7 Canada 804 649 23.9 41.0 13.5 203.7 - - ----------------------------------------------------------------------------------------------------------------------- Total Unisource 6,987 5,757 21.4 225.1 162.3 38.7 - - ----------------------------------------------------------------------------------------------------------------------- Operating 9,899 7,997 23.8 476.9 361.7 31.8 Unconsolidated affiliate (117.2) Eliminations and nonallocated (7) (1) (117.0)* (87.7)* - - ----------------------------------------------------------------------------------------------------------------------- $9,892 $7,996 23.7 $359.9 $156.8 =======================================================================================================================
* Includes interest costs and net corporate expenses. FISCAL 1995 COMPARED TO FISCAL 1994 The Company increased revenues $1.9 billion to $9.9 billion in fiscal 1995 from $8 billion in fiscal 1994. Income before taxes increased from $156.8 million in fiscal 1994 to $359.9 million in fiscal 1995. Earnings per share increased from $.55 to $1.67. Earnings per share from continuing operations in fiscal 1995 were $1.81, a 26.6% increase over $1.43 per share in 1994, excluding the loss on the sale of IMM Office Systems (IMMOS). Alco Office Products (AOP) generated $672 million in increased revenues of which $387 million is related to AOP's base companies, while $68 million relates to fiscal 1994 acquisitions and $217 million to current-year acquisitions. Internal growth in AOP's base companies continues to be across all revenue segments but primarily in equipment sales, outsourcing and supplies. Revenues from Unisource's US operations increased $1.1 billion, of which $74 million relates to current- and prior-year acquisitions. Unisource's Canadian operations increased revenues $155 million, which is net of a negative impact of approximately $12 million relating to foreign currency rate fluctuations. Increased revenue at Unisource is primarily related to substantial price increases experienced in the paper industry during fiscal 1995, as well as sales volume increases. AOP's operating income increase of $52.4 million includes $6.1 million from fiscal 1994 acquisitions and $20.2 million from current-year acquisitions. The remaining $26.1 million increase from its base companies is primarily the result of higher operating contributions from the equipment, outsourcing and supply areas of AOP's businesses, along with increased operating income relating to its leasing activities through Alco Capital Resource, Inc. (Alco Capital), net of transformation program costs. Operating margins were 8.6% in 1995 compared to 8.9% in 1994. Excluding costs related to the AOP transformation program, the operating margin for 1995 was 9.0%. Operating income for Unisource's US operations increased $35.3 million. This increase includes $3.9 million contributed by current- and prior-year acquisitions. The remaining $31.4 million is from base companies, reflecting the impact of price and volume increases along with the net benefits realized from its restructuring program. Operating income for the Canadian paper operations increased $27.5 million primarily as a result of price increases and growth in the fine paper distribution business and restructuring benefits. Unisource's operating margins increased to 3.2% in fiscal 1995, from 2.8% in the prior year. The Company's foreign operations of AOP and Unisource generated $1.1 billion in revenues for fiscal 1995 compared with $843 million for the same period of the prior fiscal year. The Canadian paper distribution business represents $155 million or 62% of the total increase. The increase also includes $78 million from AOP's European operations and $17 million from AOP's Canadian operations. Operating income from foreign operations was $69 million for 1995, up $40 million from the prior year primarily as a result of the increase in operating income of the Canadian paper distribution business. In fiscal 1994, the Company recorded a total pretax loss of $117.2 million from its investment in IMMOS. In September 1995, the Company divested Central Products Company for $80 million in cash and notes and recorded a continuing operations pretax gain of approximately $4 million on the sale. Also included in the Company's continuing operations, and related to Central 40 ALCO STANDARD CORPORATION AND SUBSIDIARIES Products Company, are fiscal 1995 revenues of approximately $120 million and net income of $2.7 million. Interest expense increased $12 million from the comparable period in fiscal 1994, as a result of higher interest rates and borrowing levels during the year to fund acquisitions and working capital requirements, offset by the effect of the debt reductions resulting from the Company's conversion preferred stock offering in July 1995. The increase in income from continuing operations before taxes of $203.1 million consists of $85.9 million relating to the combined effect of improved operations from base companies and earnings contributed by acquisitions, net of increased interest costs and other corporate items and the $117.2 million loss on the investment in IMMOS recorded in 1994. The effective income tax rate for the current period is 39.1%. The effective tax rate for 1994 was 55%; however, excluding the IMMOS loss, the effective rate was 39.1%. Fiscal 1995 weighted average shares were 5.1 million shares greater than the 107.5 million shares for fiscal 1994, primarily the result of issuance of shares for acquisitions. The Company has owned several manufacturing and industrial businesses, all of which have been sold. There are currently environmental remediation claims, pending for manufacturing or landfill sites in the United States that relate to these discontinued operations. As a result of several recent environmental remediation claims and increased estimated costs associated with existing environmental remediation sites, primarily related to discontinued manufacturing operations divested by the Company in 1991 and prior, the Company took a fourth quarter charge in fiscal 1995 to increase its liabilities for environmental remediation. The discontinued operations charge was $24 million ($17 million net of tax), or $.14 per share. The adjustment is management's best estimate, based on information currently available, of costs to be incurred for existing and probable environmental claims of discontinued operations. The Company presently does not expect that additional environmental remediation charges for these sites will be required in the future. The major components of the Unisource restructuring plan are proceeding as planned. Unisource management has reduced the pace at which certain changes are being made in order to better control the transformation process, thereby affecting the pace of planned headcount reductions and the timing of originally anticipated net benefits. Unisource expects to achieve the full benefit of the projected $100 million net annual benefits resulting from the completion of the restructuring in fiscal 1997. The restructuring reserve at September 30, 1995 is $39.3 million, which management believes is adequate to complete the restructuring plan. AOP has initiated a three-year transformation program to change its organization into a more cohesive and efficient network by building a uniform information technology system and implementing best practices for critically important management functions throughout the AOP companies. The initiative will include the exploration of new vendor alliances, the establishment of a national identity for the group and a targeted national accounts program. The Company was in arbitration with a former subsidiary, which had asserted that the Company was liable for certain employee liabilities. During the second quarter of fiscal 1995, the Company agreed to pay $10 million to the former subsidiary to settle this claim, which primarily has been charged against existing reserves for discontinued operations. The Company paid $5 million during the second quarter with the remaining $5 million to be paid over the next four years. In fiscal 1996, the Company plans to early adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The effect on earnings of this accounting change is expected to be immaterial. RESULTS OF OPERATIONS - 1994 Revenues and income before taxes by segment for fiscal years ended September 30, 1994 and September 30, 1993 and the percentage change for 1994 versus 1993 were:
Revenues Income Before Taxes - - --------------------------------------------------------------------------------------------------------------------- (in millions) 1994 1993 %Change 1994 1993 %Change - - --------------------------------------------------------------------------------------------------------------------- Alco Office Products $2,240 $1,586 41.2% $199.4 $138.8 43.7% Unisource United States 5,108 4,174 22.4 148.8 118.7 25.4 Canada 649 690 (5.9) 13.5 18.3 (26.2) Restructuring costs (175.0) - - --------------------------------------------------------------------------------------------------------------------- Total Unisource 5,757 4,864 18.4 162.3 (38.0) - - --------------------------------------------------------------------------------------------------------------------- Operating 7,997 6,450 24.0 361.7 100.8 Unconsolidated affiliate (117.2) (2.5) Eliminations and nonallocated (1) (5) (87.7)* (73.7)* - - --------------------------------------------------------------------------------------------------------------------- $7,996 $6,445 24.1 $156.8 $ 24.6 =====================================================================================================================
* Includes interest costs and net corporate expenses. ALCO STANDARD CORPORATION AND SUBSIDIARIES 41 FISCAL 1994 COMPARED WITH FISCAL 1993 The Company's revenues for fiscal 1994 were $8 billion, an increase of $1.5 billion over fiscal 1993 revenues of $6.5 billion. Income before taxes from operations increased to $361.7 million from $100.8 million in fiscal 1993, which included a restructuring charge of $175 million related to the Unisource operations. Earnings per share from continuing operations for fiscal 1994 were $.55 compared to $(.02) for fiscal 1993 which included a loss of $1.19 per share resulting from the Unisource restructuring charge. Earnings per share excluding the loss on the sale of the investment in IMMOS in fiscal 1994 and the effect of the restructuring charge in fiscal 1993 were $1.43 and $1.17, respectively. AOP generated $654 million in increased revenues, of which $288 million relates to fiscal 1993 acquisitions and $134 million to fiscal 1994 acquisitions. The remaining $232 million increase reflects continued internal growth in all revenue areas of AOP's base companies, particularly in its equipment, service and outsourcing businesses. The $934 million increase in revenues from Unisource's US operations includes $764 million from acquisitions (primarily Butler Paper) and $170 million of internal growth from its base companies. The $41 million revenue decrease in the Unisource Canadian paper businesses is primarily attributable to a 5.9% decrease in the average foreign exchange rate. AOP's operating income increase of $60.6 million includes $16.4 million from prior-year acquisitions and $10.2 million from current-year acquisitions. The remaining $34 million increase reflects continued internal growth from its base companies, which is primarily the result of higher operating contributions from the service, supply and outsourcing areas of AOP's businesses, along with increased operating income related to its leasing activities through Alco Capital. Operating income from Unisource's US paper operations increased $30.1 million. This increase represents a contribution of $17.6 million from prior- year acquisitions and $12.5 million from its base companies. The internal growth is attributable to improved gross margins and expense reductions realized in the last half of the fiscal year offset primarily by lower comparable margins experienced in the first half of the year. The Canadian paper distribution business decrease in operating income of $4.8 million is the result of the carryover of certain incremental merger costs related to the Canadian merger plan implemented in fiscal 1993, gross margin erosion in the first half of the fiscal year and the effects of the declining foreign exchange rates. Geographically, revenues from the Company's paper and office products operations outside the U.S. were $843 million for fiscal 1994 compared to $800 million for the prior fiscal year. The increase reflects $77 million from the European operations of Erskine acquired in fiscal 1993 along with $7 million from AOP internal growth, offset by a decrease of $41 million from the Canadian paper distribution business. Operating income from foreign operations was $29.1 million for fiscal 1994, an increase of $1.8 million from the prior year, the result of increased AOP foreign operations, offset by the decrease in operating income of the Canadian paper distribution business. The 49.9% investment in IMMOS in October 1992 marked the entry of the Company into the European market, and it was to serve as a base for further expansion in Europe. The venture agreement provided the Company with the option of acquiring the remaining shares of IMMOS over a three-year period beginning in 1996 if IMMOS achieved certain operating goals. However, the capital structure and organizational complexities of IMMOS, exacerbated by the distressed European economy and operational differences among the venture partners, had prevented IMMOS from progressing toward those goals. As a result, in September 1994, the Company sold its 49.9% interest in IMMOS for cash plus a passive interest in any subsequent sale of IMMOS for five years. The Company retains no ongoing liability in the joint venture and the parties exchanged complete mutual releases for past actions. In addition, the Company was relieved of the covenant not to compete in Europe contained in the joint venture agreement, although the parties will not compete with each other for a period expiring on December 31, 1995. As part of the transaction, the Company acquired profitable operations in Denmark and France and retained limited operations in Germany. The Company recognized a loss on the sale of its interest in IMMOS in the quarter ended June 30, 1994, and recorded a pretax loss of $115.3 million ($95.1 million, net of tax) equating to a loss per share of $.87 for the quarter ($.88 for fiscal 1994). This charge represents the write-off of the Company's investment in IMMOS plus certain transactional costs less cash proceeds from the sale together with related tax benefits. For the fiscal year ended September 30, 1994, the Company recorded a total pretax loss of $117.2 million from its investment in an unconsolidated affiliate. This includes a pretax loss of $115.3 million relating to the sale previously discussed and a $1.9 million operating loss on its investment through March 31, 1994. Interest expense increased by $3.6 million from fiscal 1993, a result of higher interest rates and borrowing levels during the year. Income before taxes from continuing operations increased by $132.2 million, which reflects the net effect of the $115.3 million loss on the sale of IMMOS in fiscal 1994 and the $175 million charge for restructuring costs in fiscal 1993. Income before taxes from continuing operations also includes improved operating results from base companies and earnings contributed by current- and prior-year acquisitions net of increased interest costs and other corporate items. The effective income tax rate for fiscal 1994 was 55% com- 42 ALCO STANDARD CORPORATION AND SUBSIDIARIES pared to 69% in fiscal 1993. The effective income tax rate for fiscal 1994, excluding the effect of the sale of IMMOS, was 39.1% compared with 39.6% in fiscal 1993, excluding the effect of the restructuring costs. Fiscal 1994 weighted average shares were 12.7 million shares greater than the 94.8 million shares for fiscal 1993, primarily the result of a public offering of common stock in December 1993. During the first quarter of fiscal 1994, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes"; the individual and combined effect on earnings of these accounting changes was immaterial. FINANCIAL CONDITION AND LIQUIDITY Debt, excluding finance subsidiaries, was $632 million at September 30, 1995, an increase of $187 million from the Company's debt balance at September 30, 1994 of $445 million. This increase in borrowing levels was primarily to satisfy the Company's working capital and acquisition requirements, net of the proceeds from the July 1995 conversion preferred stock offering described below. On December 1, 1994, the Company entered into a credit agreement under which it may borrow up to $500 million. The Company may also borrow up to $100 million under another credit agreement. At September 30, 1995, short-term borrowings supported by these two facilities totaled $252.5 million, leaving $347.5 million unused and available. Debt as a percentage of capitalization was 25.3%, while the current ratio was 1.6 to 1. In July 1995, Moody's Investor Services upgraded the Company's debt rating to A3, from Baa1. At the end of fiscal 1995, the Company's commitments for capital expenditures were approximately $23 million, all of which are expected to be expended during fiscal 1996. In July 1995, the Company completed a public offering of approximately 3.9 million depositary shares, each representing 1/100 of a share of Series BB Conversion Preferred Stock. The Series BB Preferred Stock carries a dividend yield of 6.5% and automatically converts into the Company's common stock on October 1, 1998, unless previously converted at the option of the holder. The purpose of the offering is to fund the Company's ongoing acquisition program. Net proceeds of approximately $290 million were used to repay short-term borrowings incurred to fund working capital requirements and acquisitions. The Company recorded a pretax charge of approximately $24 million for environmental claims associated with discontinued manufacturing operations during the fourth quarter of fiscal 1995. Since most environmental claims are paid over a period of years, the impact on annual cash flow is expected to be minimal. The Company's change in cash from operating activities during fiscal 1995 primarily relates to working capital requirements. Unisource's working capital primarily reflects the effects of substantial price increases experienced in the paper business along with the increased sales volume. Changes in AOP's working capital primarily relate to inventory from growth in the business along with supplier price increases. The Company estimates that total cash expenditures in connection with the Unisource restructuring plan will amount to $143 million, of which approximately $112 million has been spent to date, with the $31 million balance anticipated to be paid in fiscal 1996 and early fiscal 1997. Effective January 1, 1994, Unisource entered into a ten-year agreement with ISSC for $300 million, to provide the information technology system to be implemented as part of the restructuring plan. At September 30, 1995, the remaining commitment under the agreement is $217 million. The foregoing commitments are anticipated to be funded from Unisource's operating cash flow. Finance subsidiaries debt grew by $352.7 million from September 30, 1994, a result of increased leasing activity. On June 30, 1995, Alco Capital increased the amount available to be offered under its medium term note program by $1 billion or the equivalent thereof in foreign currency, of which $898 million is unused and available. The program allows Alco Capital to offer to the public from time to time medium term notes having an aggregate initial offering price not exceeding the total program amount. These notes are offered at varying maturities of nine months or more from their dates of issue and may be subject to redemption at the option of Alco Capital or repayment at the option of the holder, in whole or in part, prior to the maturity date in conjunction with meeting specified provisions. Interest rates are determined based on market conditions at the time of issuance. As of September 30, 1995, $602 million of medium term notes bearing a weighted average interest rate of 7.0% were outstanding. In addition, Alco Capital entered into an agreement in September 1994 to sell under an asset securitization program, an undivided ownership interest in $125 million of eligible direct financing lease receivables. The agreement, which expires in September 1996, contains limited recourse provisions that require Alco Capital to assign an additional undivided interest in leases to cover any potential losses to the purchaser due to uncollectible leases. As collections reduce previously sold interests, new lease receivables can be sold up to $125 million. During fiscal 1995, Alco Capital sold $67 million in direct financing leases, replacing those leases liquidated and leaving the total amount of contracts sold unchanged at $125 million. The Company believes that its operating cash flow together with unused lines of credit and other financing arrangements will be sufficient to finance current operating requirements including capital expenditures, acquisitions and restructuring and transformation programs. ALCO STANDARD CORPORATION AND SUBSIDIARIES 43 CORPORATE FINANCIAL SUMMARY (in millions except per share data, shareholders of record, employees)
Eight-Year Compound Growth 1995 1994 1993 - - --------------------------------------------------------------------------------------------------------------------------- CONTINUING OPERATIONS Revenues 15.3% $9,891.8 $7,996.0 $6,444.6 Gross profit 18.6 2,524.9 2,083.3 1,621.1 % of revenues 25.5 26.1 25.2 Selling and administrative 18.2 2,109.1 1,765.5 1,378.8 % of gross profit 83.5 84.7 85.1 Operating income 22.3 476.9 361.7 100.8 % of revenues 4.8 4.5 1.6 Income before taxes 19.8 359.9 156.8 24.6 % of revenues 3.6 2.0 .4 Effective income tax rate (%) 39.1 55.0 69.0 Income 20.4 219.3 70.6 7.6 % of revenues 2.2 .9 .1 Earnings (loss) per share Primary 1.81 .55 (.02) Fully diluted (e) (e) (e) Capital expenditures 13.5 99.2 108.0 78.8 Depreciation and amortization 14.8 109.7 96.8 76.1 - - --------------------------------------------------------------------------------------------------------------------------- DISCONTINUED OPERATIONS Income (loss) $ (16.6) $ (7.5) Earnings (loss) per share Primary (.14) (.08) Fully diluted (e) (e) - - --------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATIONS Net income 12.3% $ 202.7 $ 70.6 $ .1 Earnings (loss) per share Primary 1.67 .55 (.10) Fully diluted (e) (e) (e) - - --------------------------------------------------------------------------------------------------------------------------- SHARE ACTIVITY Dividends per share 6.2% $ .52 $ .50 $ .48 Per share book value 8.9 12.28 10.72 8.76 Return on shareholders' equity (a) 16.0 14.8(b) 11.5(b) Average common and common equivalent shares 112.5 107.5 94.8 Shareholders of record 15,099 14,348 13,999 - - --------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTARY INFORMATION Days sales outstanding 36.8 37.8 38.9 Inventory turns (FIFO basis) 6.1 6.3 6.3 Current ratio 1.6 1.6 1.5 Pretax return on capital employed 17.2 17.1(b) 14.7(b) Pretax return on capital employed with finance subsidiaries on equity method 21.3 18.4(b) 15.7(b) Working capital 6.6% $ 770.5 $ 653.5 $ 556.6 Total assets 16.6 4,737.6 3,502.3 3,348.9 Total debt 25.9 1,450.1 910.0 1,207.4 % of capitalization 43.7 40.0 53.6 Total debt excluding finance subsidiaries 15.1 632.5 445.1 794.3 % of capitalization 25.3 24.6 43.2 Serial preferred stock .3 Employees 36,500 30,600 28,500 - - ---------------------------------------------------------------------------------------------------------------------------
(a) From continuing operations. (b) Excludes the effect of the sale of IMMOS (note 4) in fiscal 1994 and restructuring costs (note 15) in fiscal 1993. (c) Includes the sale of an automobile leasing subsidiary that resulted in a pretax gain of $17,637,000. (d) Includes unusual pretax charges relating to the Hillman Companies of $10,323,000. (e) Dilution is immaterial after 1987; therefore no disclosure. (f) Excludes gain on sale of Alco Health Services Corporation of pretax - $96,800,000; net income - $61,900,000. Note: All share and per share amounts are post-stock split. 44 ALCO STANDARD CORPORATION AND SUBSIDIARIES
1992 1991 1990 1989 1988 1987 - - -------------------------------------------------------------------------------------------------------------------------------- CONTINUING OPERATIONS Revenues $4,925.1 $4,516.0 $4,293.4 $3,783.6 $3,379.4 $3,173.7 Gross profit 1,267.1 1,110.0 1,022.4 841.9 690.3 646.8 % of revenues 25.7 24.6 23.8 22.3 20.4 20.4 Selling and administrative 1,069.6 946.8 864.4 711.1 584.7 552.1 % of gross profit 84.4 85.3 84.5 84.5 84.7 85.4 Operating income 225.7 195.3 190.0 153.0 128.4 95.2 % of revenues 4.6 4.3 4.4 4.0 3.8 3.0 Income before taxes 172.5 125.8 111.5(d) 97.8 90.2 84.7(c) % of revenues 3.5 2.8 2.6 2.6 2.7 2.7 Effective income tax rate (%) 39.6 39.1 42.3 17.1 18.2 38.3 Income 104.2 76.7 64.3(d) 81.1 72.5 49.7(c) % of revenues 2.1 1.7 1.5 2.1 2.1 1.6 Earnings (loss) per share Primary 1.11 .85 .72(d) .90 .74 .55(c) Fully diluted (e) (e) (e) (e) (e) .52(c) Capital expenditures 54.8 47.4 57.9 57.1 38.3 35.9 Depreciation and amortization 59.3 58.2 49.5 43.8 37.3 36.4 - - -------------------------------------------------------------------------------------------------------------------------------- DISCONTINUED OPERATIONS Income (loss) $ (8.4) $ 40.9 $ 29.2 $ 85.5 $ 37.0 $ 30.5 Earnings (loss) per share Primary (.09) .45 .33 .94 .38 .34 Fully diluted (e) (e) (e) (e) (e) .31 - - -------------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATIONS Net income $ 95.8 $ 117.6 $ 93.5(d) $ 166.6 $ 109.5 $ 80.2(c) Earnings (loss) per share Primary 1.02 1.30 1.05(d) 1.84 1.12 .89(c) Fully diluted (e) (e) (e) (e) (e) .83(c) - - -------------------------------------------------------------------------------------------------------------------------------- SHARE ACTIVITY Dividends per share $ .46 $ .44 $ .42 $ .38 $ .34 $ .32 Per share book value 9.36 9.20 8.47 7.48 7.04 6.21 Return on shareholders' equity (a) 11.4 15.0 13.5 16.9(f) 16.9 15.8 Average common and common equivalent shares 93.8 90.1 89.1 90.4 97.5 90.3 Shareholders of record 13,726 14,096 14,152 13,410 14,103 12,875 - - -------------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTARY INFORMATION Days sales outstanding 37.8 38.6 39.7 39.3 38.5 38.9 Inventory turns (FIFO basis) 5.9 5.7 5.7 5.7 5.6 5.3 Current ratio 1.7 1.9 1.7 1.6 1.9 2.1 Pretax return on capital employed 15.3 20.8 20.1 20.8(f) 19.9 21.3 Pretax return on capital employed with finance subsidiaries on equity method 16.2 22.5 21.6 21.7(f) 20.3 21.3 Working capital $ 496.0 $ 516.0 $ 404.3 $ 342.8 $ 412.3 $ 462.5 Total assets 2,444.8 2,020.6 1,916.5 1,623.9 1,512.4 1,389.3 Total debt 782.2 524.9 450.6 378.0 253.6 229.4 % of capitalization 47.6 38.9 37.4 36.9 26.6 26.3 Total debt excluding finance subsidiaries 481.7 304.2 291.0 283.5 201.4 205.8 % of capitalization 35.8 27.0 27.8 30.5 22.4 24.2 Serial preferred stock 1.6 2.9 4.9 7.4 9.9 11.4 Employees 23,500 18,800 20,900 19,800 17,300 17,300 - - --------------------------------------------------------------------------------------------------------------------------------
Note: Unless otherwise noted, ratios and operating results include the effect of: fiscal 1994 - loss on sale of investment in IMMOS (note 4), pretax income ($115,265,000), net income ($95,086,000), earnings per share ($.88); fiscal 1993 - restructuring costs (note 15), operating income ($175,000,000), net income ($112,875,000), earnings per share ($1.19). ALCO STANDARD CORPORATION AND SUBSIDIARIES 45 SEGMENT DATA (continuing operations, in millions)
Depreciation Income Capital and Revenues Before Taxes Assets Expenditures Amortization - - -------------------------------------------------------------------------------------------------------------------------------- EIGHT-YEAR COMPOUND GROWTH 1987-1995 Alco Office Products 32.7% 39.5% 40.3% 14.0% 22.0% Unisource 15.0 14.2 18.1 22.9 15.3 ================================================================================================================================ 1995 Alco Office Products $2,911.7 $ 251.8 $2,570.4 $ 48.4 $ 74.4 Unisource United States 6,183.3 184.1 1,666.7 48.5 27.1 Canada 804.0 41.0 330.3 1.5 6.2 - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 6,987.3 225.1 1,997.0 50.0 33.3 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 9,899.0 476.9 4,567.4 98.4 107.7 Eliminations and nonallocated (7.2) (117.0)* 170.2 .8 2.0 - - -------------------------------------------------------------------------------------------------------------------------------- $9,891.8 $ 359.9 $4,737.6 $ 99.2 $109.7 ================================================================================================================================ 1994 Alco Office Products $2,240.4 $ 199.4 $1,672.2 $ 72.5 $ 62.7 Unisource United States 5,107.6 148.8 1,391.5 30.5 26.1 Canada 648.9 13.5 296.5 3.4 6.4 - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 5,756.5 162.3 1,688.0 33.9 32.5 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 7,996.9 361.7 3,360.2 106.4 95.2 Unconsolidated affiliate (117.2) Eliminations and nonallocated (.9) (87.7)* 142.1 1.6 1.6 - - -------------------------------------------------------------------------------------------------------------------------------- $7,996.0 $ 156.8 $3,502.3 $108.0 $ 96.8 ================================================================================================================================ 1993 Alco Office Products $1,585.6 $ 138.8 $1,450.0 $ 55.9 $ 45.4 Unisource United States 4,173.7 118.7 1,319.6 18.8 22.3 Canada 690.4 18.3 314.3 2.9 6.9 Restructuring costs (175.0) - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 4,864.1 (38.0) 1,633.9 21.7 29.2 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 6,449.7 100.8 3,083.9 77.6 74.6 Unconsolidated affiliate (2.5) 118.1 Eliminations and nonallocated (5.1) (73.7)* 146.9 1.2 1.5 - - -------------------------------------------------------------------------------------------------------------------------------- $6,444.6 $ 24.6 $3,348.9 $ 78.8 $ 76.1 ================================================================================================================================ 1992 Alco Office Products $1,259.2 $ 105.2 $967.5 $ 33.8 $ 37.0 Unisource United States 3,585.1 118.2 988.7 19.1 20.0 Canada 82.8 2.3 295.8 1.1 .6 - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 3,667.9 120.5 1,284.5 20.2 20.6 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 4,927.1 225.7 2,252.0 54.0 57.6 Investment gain, net 6.7 Eliminations and nonallocated (2.0) (59.9)* 69.2 .8 1.7 - - -------------------------------------------------------------------------------------------------------------------------------- $4,925.1 $ 172.5 $2,321.2 $ 54.8 $ 59.3 ================================================================================================================================
46 ALCO STANDARD CORPORATION AND SUBSIDIARIES
Depreciation Income Capital and Revenues Before Taxes Assets Expenditures Amortization - - -------------------------------------------------------------------------------------------------------------------------------- 1991 Alco Office Products $1,047.1 $ 79.6 $ 781.3 $ 28.6 $ 36.3 Unisource United States 3,441.1 113.8 897.3 16.1 18.4 Canada 35.8 1.9 8.2 .2 .4 - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 3,476.9 115.7 905.5 16.3 18.8 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 4,524.0 195.3 1,686.8 44.9 55.1 Eliminations and nonallocated (8.0) (69.5)* 177.8 2.5 3.1 - - -------------------------------------------------------------------------------------------------------------------------------- $4,516.0 $125.8 $1,864.6 $ 47.4 $ 58.2 ================================================================================================================================ 1990 Alco Office Products $ 951.7 $ 58.9 $ 680.5 $ 32.3 $ 33.2 Unisource United States 3,316.3 129.4 843.9 24.6 14.9 Canada 22.2 1.7 8.5 .1 .2 - - -------------------------------------------------------------------------------------------------------------------------------- Total Unisource 3,338.5 131.1 852.4 24.7 15.1 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 4,290.2 190.0 1,532.9 57.0 48.3 Investment gain 5.6 Unusual charges (AOP) (10.3) Eliminations and nonallocated 3.2 (73.8)* 88.8 .9 1.2 - - -------------------------------------------------------------------------------------------------------------------------------- $4,293.4 $111.5 $1,621.7 $ 57.9 $ 49.5 ================================================================================================================================ 1989 Alco Office Products $ 729.5 $ 41.3 $ 540.4 $ 26.5 $ 26.7 Unisource - United States 3,047.3 111.7 692.7 27.5 14.5 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 3,776.8 153.0 1,233.1 54.0 41.2 Eliminations and nonallocated 6.8 (55.2)* 108.3 3.1 2.6 - - -------------------------------------------------------------------------------------------------------------------------------- $3,783.6 $ 97.8 $1,341.4 $ 57.1 $ 43.8 ================================================================================================================================ 1988 Alco Office Products $ 484.8 $ 28.9 $ 328.7 $ 19.6 $ 19.4 Unisource - United States 2,755.5 99.5 670.9 15.9 13.9 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 3,240.3 128.4 999.6 35.5 33.3 Gains, net of losses, from divestitures 7.9 Eliminations and nonallocated 139.1 (46.1)* 140.0 2.8 4.0 - - -------------------------------------------------------------------------------------------------------------------------------- $3,379.4 $ 90.2 $1,139.6 $ 38.3 $ 37.3 ================================================================================================================================ 1987 Alco Office Products $ 303.7 $ 17.6 $ 171.0 $ 17.0 $ 15.2 Unisource - United States 2,281.7 77.6 528.8 9.6 10.7 - - -------------------------------------------------------------------------------------------------------------------------------- Operating 2,585.4 95.2 699.8 26.6 25.9 Gains, net of losses, from divestitures 17.6 Eliminations and nonallocated 588.3 (28.1)* 348.5 9.3 10.5 - - -------------------------------------------------------------------------------------------------------------------------------- $3,173.7 $ 84.7 $1,048.3 $ 35.9 $ 36.4 ================================================================================================================================
* Includes interest costs and net corporate expenses. ALCO STANDARD CORPORATION AND SUBSIDIARIES 47 QUARTERLY DATA (unaudited, in millions except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter Total - - ----------------------------------------------------------------------------------------------------------------------------- 1995 Revenues $2,181.6 $2,445.8 $2,595.9 $2,668.5 $9,891.8 Gross profit 565.8 619.6 658.0 681.5 2,524.9 Income before taxes 74.5 81.9 97.1 106.4 359.9 Income (loss) Continuing operations 45.5 49.1 58.9 65.8 219.3 Discontinued operations (16.6)(a) (16.6)(a) - - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 45.5 $ 49.1 $ 58.9 $ 49.2 $ 202.7 ============================================================================================================================= Earnings (loss) per share Continuing operations $ .38 $ .41 $ .50 $ .52 $ 1.81 Discontinued operations (.14)(a) (.14)(a) - - ----------------------------------------------------------------------------------------------------------------------------- $ .38 $ .41 $ .50 $ .38 $ 1.67 ============================================================================================================================= Dividends per share $ .13 $ .13 $ .13 $ .13 $ .52 Common stock price High/Low 31 7/8-26 1/2 36 7/8-30 7/8 40 1/8-34 3/8 43 5/8-38 1/4 43 5/8-26 1/2 - - ----------------------------------------------------------------------------------------------------------------------------- 1994 Revenues $1,921.8 $1,969.4 $2,001.3 $2,103.5 $7,996.0 Gross profit 485.4 511.7 535.4 550.8 2,083.3 Income (loss) before taxes 53.4 63.0 (38.9)(b) 79.3 156.8(b) Net income (loss) 31.9 38.0 (48.3)(b) 49.0 70.6(b) ============================================================================================================================= Earnings (loss) per share .30 .32 (.48)(b) .42 .55(b) ============================================================================================================================= Dividends per share $ .125 $ .125 $ .125 $ .125 $ .50 Common stock price High/Low 27 3/8-21 3/4 29 3/8-25 3/4 30 1/8-24 3/4 32 3/4-28 1/2 32 3/4-21 3/4
(a) The Company recorded a pretax charge of $23,630,000 ($16,541,000 net of taxes or $.14 per share) for environmental liabilities of discontinued operations. (b) Includes a pretax charge of $115,265,000 ($95,086,000 net of taxes or $.87 per share for the third quarter and $.88 for the fiscal year) for the sale of the investment in IMMOS. Note: All share and per share amounts are post-stock split. 48 ALCO STANDARD CORPORATION AND SUBSIDIARIES EX-21 19 SUBSIDIARIES EXHIBIT 21 ---------- SUBSIDIARIES OF REGISTRANT -------------------------- The registrant is Alco Standard Corporation ("Alco"), an Ohio corporation, which has no parent. The following sets forth information with respect to Alco's subsidiaries as of September 30, 1995.
State or other jurisdiction of % Voting Securities incorporation or Subsidiary Owned (by whom) organization - - ---------- ------------------- ---------------- Alco Realty, Inc. (ARI) 100% Alco Delaware Alco Canada Realty, Inc. 100% ARI Canada 375347 British Columbia Ltd. 100% ARI Canada Alco Cash Management Company 100% Alco Delaware The Alco Standard Foundation 100% Alco Pennsylvania Alco-Texas Realty, Inc. 100% Alco Texas Chesterbrook Insurance Limited 100% Alco Bermuda MDR Corporation (MDR) 100% Alco Delaware AOP Brands, Inc. 100% AOS Delaware Alco Office Systems, Inc. (AOS) 100% MDR Delaware AOS North America, Inc. 100% AOS Delaware Alco Office Systems-Canada, Inc. 100% AOS North America, Inc. Canada Alco Capital Resource, Inc. 100% AOS Georgia Alco Office Products (UK) Plc (AOPUK) 100% AOS England Erskine House Group PLC (EHGPLC) 100% AOPUK England Erskine Limited 100% EHGPLC England Office Group, Inc. 100% AOS Delaware Office Products, Inc. 100% AOS Delaware Office World Trade, Inc. 100% AOS Florida Alco Standard Acquisition Capital Corporation 100% MDR Delaware Alco Standard Ltd. 100% MDR Delaware Alco Standard Petroleum Corporation 100% MDR Delaware Alco Venture Capital Company 100% MDR Delaware Unisource Worldwide, Inc. (UWI) 100% MDR Delaware Paper Corporation of North America (PCNA) 100% UWI Delaware Unisource Distribuidora, S.A. de C.V. 99% PCNA and 1% UWI Mexico 3813 Holdings, Ltd. 100% PCNA Canada Unisource Canada, Inc. 100% PCNA Canada Unisource Brands, Inc. 100% UWI Delaware Unisource Direct, Inc. 100% UWI Delaware Unisource International, Inc. 100% UWI Delaware Unisource Realty, Inc. 100% UWI Delaware Unisource Sales Corporation 100% UWI Delaware Partners Securities Company 100% Alco Delaware TDFC Corporation 100% Alco Delaware Upshur Coals Corporation 100% Alco West Virginia 1148189 Onatario Inc. 100% Alco Canada
EX-23 20 CONSENT AUDITORS EXHIBIT 23 ---------- Alco Standard Corporation Form 10-K - Fiscal Year Ended September 30, 1995 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS -------------------------------------------------- We consent to the incorporation by reference in this Annual Report (Form 10-K) of Alco Standard Corporation of our report dated October 17, 1995, (except for the stock split described in Note 1, as to which the date is November 9, 1995), included in the 1995 Annual Report to the Shareholders of Alco Standard Corporation. Our audits also included the financial statement schedule of Alco Standard Corporation listed in item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the incorporation by reference in the following registration statements on Form S-8 and Form S-3 of Alco Standard Corporation and in the related Prospectuses of our report dated October 17, 1995, (except for the stock split described in Note 1, as to which the date is November 9, 1995), with respect to the consolidated financial statements of Alco Standard Corporation incorporated by reference in its Annual Report (Form 10-K) for the fiscal year ended September 30, 1995 filed with the Securities and Exchange Commission and the related financial statement schedule included therein.
Registration Filing Number Date Description ------------ ------ ----------- 2-66880 March 10, 1980 Alco Standard Corporation 1980 Deferred Compensation Plan 2-75296 December 11, 1982 Alco Standard Corporation 1982 Deferred Compensation Plan 2-70630 December 30, 1982 Alco Standard Corporation 1981 Stock Option Plan 33-00120 September 6, 1985 Alco Standard Corporation 1985 Deferred Compensation Plan 33-3046 February 10, 1987 Alco Standard Corporation 1986 Stock Option Plan 33-26732 January 27, 1989 Alco Standard Corporation 1989 Directors' Stock Option Plan 33-36745 September 10, 1990 Alco Standard Corporation 1991 Deferred Compensation Plan 33-38192 December 10, 1990 Alco Standard Corporation Partners' Stock Purchase Plan 33-38193 December 10, 1990 Alco Standard Corporation 1986 Stock Option Plan
33-41689 July 12, 1991 Alco Standard Corporation 292,864 Shares of Common Stock 33-41690 July 12, 1991 Alco Standard Corporation 3,300,001 Shares of Common Stock 33-84376 June 4, 1992 Alco Standard Corporation Stock Award Plan 33-50974 August 17, 1992 Alco Standard Corporation 1,034,061 Shares of Common Stock 33-50976 August 17, 1992 Alco Standard Corporation 382,250 Shares of Common Stock 33-55004 November 24, 1992 Alco Standard Corporation Stock Participation Plan 33-55096 November 24, 1992 Alco Standard Corporation Stock Option Plan for Non- Employee Directors 33-49863 July 30, 1993 Alco Standard Corporation 42,200 Shares of Common Stock 33-51183 November 24, 1993 Alco Standard Corporation Partners' Stock Purchase Plan 33-53711 May 19, 1994 Alco Standard Corporation 496,090 Shares of Common Stock 33-54779 July 28, 1994 Alco Standard Corporation 365,871 Shares of Common Stock 33-54781 July 28, 1994 Alco Standard Corporation Stock Award Plan 33-55947 October 7, 1994 Alco Standard Corporation 122,409 Shares of Common Stock 33-56455 November 14, 1994 Alco Standard Corporation 25,655 Shares of Common Stock 33-56457 November 14, 1994 Alco Standard Corporation 46,774 Shares of Common Stock 33-56469 November 15, 1994 Alco Standard Corporation 1995 Stock Option Plan 33-56471 November 15, 1994 Alco Standard Corporation Long Term Incentive Compensation Plan
33-_____ November 14, 1995 Alco Standard Corporation $750,000,000 Debt Securities, Preferred Stock or Common Stock /s/ Ernst & Young LLP --------------------- Philadelphia, Pennsylvania Ernst & Young LLP November 14, 1995
EX-24 21 POWER OF ATTORNEY POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ J. MAHLON BUCK, JR. ------------------------ POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /S/ PAUL J. DARLING, II ------------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is Chief Financial Officer of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ KURT E. DINKELACKER ------------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ WILLIAM F. DRAKE, JR. --------------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ JAMES J. FORESE ----------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with he Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ FREDERICK S. HAMMER --------------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that she is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as her attorneys-in-fact, each with the power of substitution, to execute, on her behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995 SIGNED: /s/ BARBARA BARNES HAUPTFUHRER -------------------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ DANA G. MEAD ------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and EXchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ RAY B. MUNDT ------------------- POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ PAUL C. O'NEILL ----------------------- POWER ATTORNEY -------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ ROGELIO G. SADA ------------------------ POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ JAMES W. STRATTON ------------------------ POWER OF ATTORNEY ----------------- The undersigned certifies that he is a Director of Alco Standard Corporation ("Alco"). The undersigned hereby appoints each of Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his attorneys-in-fact, each with the power of substitution, to execute, on his behalf the foregoing Report on Form 10-K, and any and all amendments thereto, for filing with the Securities and Exchange Commission ("SEC"), and to do all such other acts and execute all such other documents which said attorney may deem necessary or desirable. Dated this 14th day of November 1995. SIGNED: /s/ JOHN E. STUART --------------------- EX-24.1 22 CERTIFICATION Exhibit 24.1 CERTIFICATION I, J. Kenneth Croney, Secretary of Alco Standard Corporation do hereby certify that the following resolutions were duly passed by the Board of Directors of the Corporation on November 10, 1995, and that such resolutions are, as of the date hereof, in full force and effect: RESOLVED, that each of the officers and directors of the corporation is hereby authorized to appoint Hugh G. Moulton, J. Kenneth Croney and Michael J. Dillon as his or her attorneys-in-fact on behalf of each of them each attorney-in-fact with the power of substitution, to execute on such officer's or director's behalf, one or more registration statements and annual reports of the corporation for filing with the Securities and Exchange Commission ("SEC"), and any and all amendments to said documents which said attorney may deem necessary or desirable to enable the corporation to register the offering of (i) serial preferred stock; (ii) common stock; (iii) debt securities; and/or (iv) participation interest in employee benefit plans under the Federal securities law, and to further enable the corporation to file such reports as are necessary under Section 13 or 15(d) of the Securities Exchange Act of 1934 and such other documents as are necessary to comply with all rules, regulations or requirements of the SEC in respect thereto; and FURTHER RESOLVED, that any officer of the corporation is hereby authorized to do and perform, or cause to be done or performed, any and all things and to execute and deliver any and all agreements, certificates, undertakings, documents or instruments necessary or appropriate in order to carry out the purpose and intent of the foregoing resolutions. IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of November, 1995. /s/ J. KENNETH CRONEY --------------------------------- (J. Kenneth Croney) EX-27 23 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from consolidated financial statements of Alco Standard Corporation and subsidiaries and is qualified in its entirety by reference to such financial statements. 12-MOS SEP-30-1995 SEP-30-1995 90,106,000 0 1,224,327,000 48,628,000 747,895,000 2,160,567,000 745,235,000 375,285,000 4,737,575,000 1,390,077,000 325,314,000 637,414,000 0 492,076,000 739,047,000 4,737,575,000 9,794,186,000 9,891,826,000 7,326,721,000 7,366,937,000 2,109,148,000 21,900,000 55,838,000 359,903,000 140,630,000 219,273,000 (16,541,000) 0 0 202,732,000 1.67 1.63 Redeemable solely at the Company's option. Includes Finance Subsidiaries assets (primarily lease receivables) of $983,322,000 Includes Finance Subsidiaries liabilities (primarily debt) of $872,783,000 Includes Finance Subsidiaries interest of $40,216,000 Represents selling, general, and administrative expenses. Represents loss on discontinued operations net of income tax benefit of $7,089,000. Primary earnings per share from continuing operations is $1.81, from discontinued operations ($0.14). Fully diluted earnings per share from continuing operations is $1.77, from discontinued operations ($0.14).
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