<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10
FILED PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
UNISOURCE WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 13-5369500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
825 DUPORTAIL ROAD 19087-5589
WAYNE, PENNSYLVANIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (610) 296-8000
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS TO BE REGISTERED NAME OF EACH EXCHANGE ON WHICH EACH
COMMON STOCK, NO PAR VALUE CLASS IS TO BE REGISTERED
NEW YORK STOCK EXCHANGE
PHILADELPHIA STOCK EXCHANGE
CHICAGO STOCK EXCHANGE
Securities to be registered pursuant to Section 12(g) of the Act:
None
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
UNISOURCE WORLDWIDE, INC.
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
---- ------------ ---------------------------------
<C> <S> <C>
1. Business................. "Summary;" "Management's Discussion and
Analysis of Financial Condition and Results
of Operations" and "Business."
2. Financial Information.... "Summary;" "Pro Forma Consolidated Financial
Information;" "Selected Financial Data" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
3. Properties............... "Business."
4. Security Ownership of
Certain Beneficial "Security Ownership of Unisource Common Stock
Owners and Management... By Certain Beneficial Owners, Directors and
Executive Officers."
5. Directors and Executive "Management" and "Description of Capital
Officers................ Stock--Limited Liability and Indemnification
Provisions."
6. Executive Compensation... "Management."
7. Certain Relationships and
Related Transactions.... "Summary;" "The Spin-Off" and "Arrangements
Between Alco and Unisource Relating to the
Spin-Off."
8. Legal Proceedings........ "Business."
9. Market Price of and
Dividends on the
Registrant's Common
Equity and Related "Summary;" "The Spin-Off" and "Dividend
Shareholder Matters..... Policy."
10. Recent Sales of Not Applicable.
Unregistered
Securities..............
11. Description of
Registrant's Securities
to be Registered........ "Description of Capital Stock."
12. Indemnification of "Description of Capital Stock--Limited
Directors and Officers.. Liability and Indemnification Provisions."
13. Financial Statements and
Supplementary Data...... "Summary;" "Pro Forma Consolidated Financial
Information;" "Selected Financial Data;"
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations" and "Index to Consolidated
Financial Statements."
14. Changes in and
Disagreements with
Accountants on
Accounting and Financial
Disclosure.............. Not Applicable.
15. Financial Statements and
Exhibits Financial "Consolidated Financial Statements" and
Statements and "Exhibit List."
Schedules...............
</TABLE>
<PAGE>
ALCO STANDARD CORPORATION'S
SPIN-OFF OF
UNISOURCE WORLDWIDE, INC.
LOGO
THROUGH A 100% COMMON STOCK DISTRIBUTION
Fellow Stockholders,
Earlier this year, the Board of Directors of Alco Standard Corporation
announced that it planned to separate its two principal businesses into two
publicly-owned companies through a Spin-Off by distributing all of the shares
of common stock of Unisource Worldwide, Inc. to Alco shareholders. I am pleased
to announce that the Spin-Off will occur on December 31, 1996.
If you own Alco common stock as of the close of business on December 13,
1996, you will receive one share of Unisource Common Stock for every two shares
of Alco common stock that you own. You should receive these Unisource shares in
January of 1997. The Spin-Off will be tax-free to U.S. shareholders.
No Alco shareholder action is necessary. You do not need to surrender shares
of Alco common stock to receive Unisource Common Stock in the Spin-Off. The
number of shares of Alco common stock you own will not change as a result of
the Spin-Off. Unisource Common Stock will trade on the New York Stock Exchange
under the UWW symbol.
This document provides you with detailed information about Unisource and the
Spin-Off. We are enthusiastic about the Spin-Off and our separate public
status. We encourage you to read this document carefully to learn more about
Unisource, the Spin-Off and our future plans.
Sincerely,
LOGO
Ray B. Mundt
Chairman and Chief Executive Officer
Unisource Worldwide, Inc.
November 26, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................. iii
Introduction........................................................... iii
Questions and Answers About the Spin-Off and Unisource................. iii
What We Have Already Accomplished to Prepare for the Spin-Off.......... vi
Key Terms of the Spin-Off Transaction.................................. viii
Who Can Help Answer Your Questions..................................... ix
Unisource Worldwide, Inc............................................... x
Strategy............................................................... xii
Alco Standard Corporation.............................................. xiii
Summary Consolidated Financial Data.................................... xiv
RISK FACTORS............................................................. 1
Competition............................................................ 1
Quarterly Fluctuations in Operating Results; Sensitivity to Paper Pric-
es.................................................................... 1
Leverage and Debt Service Obligations.................................. 1
Delay in Implementing Information Technology System.................... 2
No Operating History as an Independent Company......................... 2
No Prior Market for Unisource Common Stock; Shares Available for Future
Sale.................................................................. 2
Certain Antitakeover Provisions........................................ 2
FORWARD-LOOKING INFORMATION.............................................. 3
THE SPIN-OFF............................................................. 4
Background and Reasons for the Spin-Off................................ 4
Manner of Effecting the Spin-Off....................................... 4
No Issuance of Fractional Shares....................................... 5
Results of the Spin-Off................................................ 5
Tax Consequences of the Spin-Off....................................... 5
Listing and Trading of Unisource Common Stock.......................... 6
Conditions; Termination................................................ 6
Reasons for Furnishing this Document................................... 7
ARRANGEMENTS BETWEEN ALCO AND UNISOURCE RELATING TO THE SPIN-OFF......... 7
Distribution Agreement................................................. 7
Benefits Agreement..................................................... 8
Tax Sharing Agreement.................................................. 9
CAPITALIZATION........................................................... 10
DIVIDEND POLICY.......................................................... 10
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION............................. 11
SELECTED FINANCIAL DATA.................................................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 15
General................................................................ 15
Results of Operations.................................................. 15
Fiscal 1996 Compared to Fiscal 1995.................................... 15
Fiscal 1995 Compared to Fiscal 1994.................................... 17
Financial Condition and Liquidity...................................... 17
Quarterly Results...................................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.................................................................. 20
Introduction............................................................ 20
Customers and Products.................................................. 20
Strategy................................................................ 21
Sources of Supply....................................................... 22
Competition............................................................. 22
International Operations................................................ 23
Acquisitions............................................................ 23
Business Transformation and Information Technology System............... 24
Employees............................................................... 24
Proprietary Matters..................................................... 24
Environmental Regulation................................................ 25
Legal Proceedings....................................................... 25
Properties.............................................................. 25
MANAGEMENT................................................................ 26
Directors............................................................... 26
Executive Officers...................................................... 27
Summary of Executive Compensation....................................... 28
Option Grants........................................................... 29
Option Exercises........................................................ 30
Long-Term Incentive Compensation Plan Awards............................ 30
William Leith Separation and Consulting Agreement....................... 31
Stock Option Plan....................................................... 31
Long-Term Incentive Compensation Plan Description....................... 32
Annual Bonus Plan....................................................... 33
Pension Plan and Supplemental Retirement Plan........................... 33
Deferred Compensation Plans............................................. 34
Retirement Savings Plan................................................. 35
Partners' Stock Purchase Plan........................................... 35
Director Compensation................................................... 35
Loan Program............................................................ 36
SECURITY OWNERSHIP OF UNISOURCE COMMON STOCK BY CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS OF UNISOURCE............................ 38
DESCRIPTION OF CAPITAL STOCK.............................................. 40
Introduction............................................................ 40
Authorized and Outstanding Capital Stock................................ 40
Unisource Common Stock; Delaware Antitakeover Provisions................ 40
Preferred Stock......................................................... 41
Certain Antitakeover Provisions--Unisource Certificate and By-laws...... 41
Stockholder Rights Plan................................................. 43
Limited Liability and Indemnification Provisions........................ 45
DESCRIPTION OF CREDIT FACILITY............................................ 47
ADDITIONAL INFORMATION.................................................... 49
INDEX TO UNISOURCE WORLDWIDE, INC. CONSOLIDATED FINANCIAL STATEMENTS...... F-1
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this document, but does not
contain all details concerning the Spin-Off or Unisource, including information
that may be important to you. To better understand the Spin-Off and Unisource,
you should carefully review this entire document. References in this document
to "we," "us," "our" or "Unisource" mean Unisource Worldwide, Inc. and its
subsidiaries and divisions. References in this document to "Alco" mean Alco
Standard Corporation and its subsidiaries and divisions. References in this
document to Alco Stock mean Alco common stock.
INTRODUCTION
The Spin-Off culminates a ten-month process in which the Alco Board and
executives and employees of Alco and Unisource worked diligently to separate
Alco and Unisource into two publicly traded companies. We did this in order to
eliminate competitive conflict at the customer level and create direct
investment opportunities in two industry leaders. The Alco Board firmly
believes that this action is in the best interest of shareholders and should
further growth and opportunities for Alco and Unisource. To provide you with a
better understanding of the Spin-Off and Unisource, we have highlighted
information within this Summary to take you through the Spin-Off process and
provide highlighted information about Unisource. We also have included cross-
references in the Summary to other portions of the document to help you find
more detailed information about Unisource and the Spin-Off. We encourage you to
read the entire document.
QUESTIONS AND ANSWERS ABOUT
THE SPIN-OFF AND UNISOURCE
HOW COULD I BENEFIT FROM DIRECT INVESTMENT IN TWO INDUSTRY LEADERS. The
THE SPIN-OFF? Spin-Off will give you a direct investment in two
industry leaders: Alco's IKON Office Solutions,
Inc., which has the largest network of
independent copier and office equipment dealers
in North America and the United Kingdom; and
Unisource, which is the largest marketer and
distributor of printing and imaging and supply
systems products and services in North America.
FOCUSED PERFORMANCE. Alco believes that,
following the Spin-Off, the financial markets
will be able to focus on the individual strengths
of Alco and Unisource and more accurately
evaluate the performance of each distinct
business compared to companies in the same or
similar businesses. Management of each company
will be able to concentrate its attention and
financial resources on its core business. Each
company will be able to pursue market share
growth opportunities without internal competitive
conflict. Separate Alco and Unisource incentive
compensation arrangements for key employees,
directly related to the performance of Alco Stock
and Unisource Common Stock, will provide enhanced
direct incentives for performance.
DIRECT ACCESS TO CAPITAL. The Spin-Off will give
each company direct access to capital markets and
stock-based acquisition currency to finance
expansion and growth opportunities.
iii
<PAGE>
WHY IS ALCO SEPARATING COMPETITIVE CONFLICT. The Alco Board determined
IKON AND UNISOURCE INTO that the Spin-Off is necessary because of a
TWO SEPARATE PUBLIC growing strategic conflict between IKON and
COMPANIES AT THIS TIME? Unisource at the customer level. To capture
opportunities created by the availability of high
volume, high-resolution copiers, IKON expanded
its business to offer facilities management
services, which include copy center, mailroom and
other centralized office services for corporate
customers. IKON's facilities management centers
solicit substantial business from the local
community and compete with commercial printers
and office superstores, which are Unisource
customers. This has produced the threat of lost
Unisource business from large, established
Unisource fine paper accounts and has reduced
Unisource's ability to gain additional market
share in the fine paper market. Therefore, the
Alco Board concluded that the Spin-Off was
necessary to maximize opportunity for both
companies.
WHAT DO I HAVE TO DO TO NOTHING. No proxy or vote is necessary for the
PARTICIPATE IN THE SPIN- Spin-Off. If you own Alco Stock as of the close
OFF? of business on December 13, 1996, Unisource
Common Stock will be mailed to you or credited to
your brokerage account in January 1997. You need
not mail in Alco Stock certificates to receive
Unisource Common Stock certificates. You will not
receive new Alco Stock certificates.
PLEASE EXPLAIN THE ONE-FOR-TWO. One share of Unisource Common Stock
DISTRIBUTION RATIO. will be distributed in the Spin-Off for every two
shares of Alco Stock owned as of December 13,
1996.
Example: If you own 100 shares of Alco Stock as
of the close of business on December 13, 1996,
you will receive 50 shares of Unisource Common
Stock through the Spin-Off.
WILL MY DIVIDENDS CHANGE? NO OVERALL CHANGE IN DIVIDEND POLICY IS
EXPECTED. Before the Spin-Off, Alco paid a $.14
per share quarterly dividend. After the Spin-Off
and after giving effect to the distribution
ratio, there will be no change in the overall
dividend rate. Unisource will declare an initial
quarterly dividend of $.20 per share and Alco
will declare an initial quarterly dividend of
$.04 per share.
Example: If you owned 100 shares of Alco Stock
before the Spin-Off, your last quarterly Alco
dividend would have been $14.00 (or 100 shares x
$.14). Assuming you maintain a constant number of
shares of Alco Stock, after the Spin-Off you will
receive the same $14.00 in two checks: $10.00
from Unisource (50 shares x $.20) and $4.00 from
Alco (100 shares x $.04 ).
iv
<PAGE>
WILL SHARES TRADE ANY YES, DURING PART OF DECEMBER 1996. We expect that
DIFFERENTLY AS A RESULT OF a temporary form of interim trading called "when-
THE SPIN-OFF? issued trading" will occur for Unisource Common
Stock on or before December 13, 1996 and will
continue through December 31, 1996. A when-issued
listing can be identified by the "wi" letters
next to Unisource Common Stock on the New York
Stock Exchange. If when-issued trading develops,
you may buy Unisource Common Stock in advance of
the December 31, 1996 Spin-Off. You may also sell
Unisource Common Stock in advance of such date on
a when-issued basis. During this time, Alco Stock
will continue to trade on a regular basis and may
also trade on a when-issued basis, reflecting an
assumed post-Spin-Off value for Alco Stock. Alco
Stock when-issued trading, if available, could
last from December 11, 1996 through December 31,
1996. If this occurs, an additional listing for
Alco Stock, followed by the "wi" letters, will
appear on the New York Stock Exchange. When-
issued trading occurs in order to develop an
orderly market and trading price for Unisource
Common Stock (and possibly Alco Stock) after the
Spin-Off. There may be temporary slight
differences between the combined value of when-
issued Unisource Common Stock and when-issued
Alco Stock versus the regular price of Alco Stock
during this period.
IS THE SPIN-OFF TAXABLE FOR NO. The IRS has ruled that the Spin-Off will be
U.S. TAX PURPOSES? tax-free, except for taxes on cash received
instead of a fractional share. In January of
1997, Alco will send a letter to shareholders
that will explain the way to allocate tax basis
between Alco Stock and the Unisource Common Stock
distributed in the Spin-Off. The allocation will
be based upon average trading values for Alco
Stock and Unisource Common Stock as of December
31, 1996. To review tax consequences in detail,
see pages 5 to 6.
WHAT ARE THE RISKS INVOLVED The Unisource business is subject to risks
IN OWNING UNISOURCE COMMON related to competition, fluctuations in quarterly
STOCK? results due to changes in paper prices, leverage
and debt service requirements and the delays
associated with the implementation of a large
scale information technology system. Unisource's
separation from Alco presents certain additional
risks because Unisource has never operated
independently, Unisource Common Stock has no
trading history or prior market and a large
number of shares could be sold into the market at
any given time. Unisource also has antitakeover
provisions in place that could discourage or make
more expensive a takeover attempt that is opposed
by the Unisource Board. To review these factors
in greater detail, see pages 1 to 3.
WILL ALCO AND UNISOURCE BE Alco will no longer own any Unisource Common
RELATED IN ANY WAY AFTER Stock after the Spin-Off. Alco and Unisource will
THE SPIN-OFF? not have common Board members after January 1997.
Alco has, however, entered into agreements with
Unisource to define their ongoing relationship,
to cooperate regarding past matters and to
allocate responsibility for past obligations and
certain obligations that might arise in the
future. These agreements are described in greater
detail on pages 7 to 9.
v
<PAGE>
WHAT WE HAVE ALREADY ACCOMPLISHED TO PREPARE FOR THE SPIN-OFF
BOARD APPOINTMENTS Six current members of the Alco Board will serve
exclusively on the Unisource Board in January
1997 and none of these directors will continue
service on the Alco Board after January 1997. See
pages 26 to 27.
SENIOR MANAGEMENTAPPOINTMENTS The Alco Board enthusiastically appointed Ray
Mundt as Chairman and Chief Executive Officer of
Unisource in August of 1996. Ray's prior Alco
positions as President, Chief Executive Officer
and/or Chairman for over 22 years provides an
instant, invaluable wealth of chief executive
experience. Ray will be supported by a management
group which has extensive executive experience,
including former Alco officers and senior
executives previously responsible for Alco's
Unisource subsidiary operations. See page 27.
ARRANGED $1 BILLION CREDIT FACILITY
We have $1 billion available in aggregate
borrowings under a five-year unsecured revolving
credit facility. We expect to use borrowings
under this credit facility prior to December 13,
1996 to repay in full the then-outstanding
intercompany debt payable to Alco. Intercompany
debt as of November 8, 1996 was approximately
$600 million, and this amount could increase or
decrease before repayment based upon normal
interim operating cash receipts and payments and
acquisition funding requirements. See page 10 and
pages 47 to 48.
ALCO CAPITAL CONTRIBUTIONS Immediately prior to September 30, 1996,
Unisource owed Alco approximately $1 billion in
intercompany debt, and Alco had $138 million in
Unisource preferred stock and unpaid fiscal 1996
dividends on the preferred stock. On September
30, 1996, in anticipation of completing the Spin-
Off, Alco forgave $456 million of the
approximately $1 billion Unisource intercompany
debt and returned to Unisource, as a capital
contribution, the $138 million in preferred stock
and related dividends. Unisource will repay Alco,
before December 13, 1996, the remaining $554
million in intercompany debt plus any additional
borrowings from Alco after September 30, 1996.
Intercompany debt was approximately $600 million
as of November 8, 1996. See page 10.
vi
<PAGE>
U.S. TAX RULING Alco filed for and successfully received a tax
ruling from the Internal Revenue Service
concerning the Federal tax consequences of the
Spin-Off. The tax ruling states that the
distribution of Unisource Common Stock in the
Spin-Off generally will be tax-free to Alco
shareholders for Federal income tax purposes.
However, you may have to pay tax on a relatively
limited amount of gain arising from cash that may
be paid to you instead of fractional share
interests. The cash payment and related tax
consequences only apply if you owned an odd
number or fractional number of shares of Alco
Stock on December 13, 1996.
The tax ruling also provides that Alco
shareholders should apportion their tax basis in
Alco Stock held immediately before the Spin-Off
between Alco Stock and the Unisource Common Stock
received in the Spin-Off. We will be sending to
shareholders a letter in January of 1997 that
explains how to allocate your tax basis between
Alco Stock and Unisource Common Stock received in
the Spin-Off based upon their average values on
December 31, 1996. See pages 5 to 6.
APPLIED FOR NEW YORK STOCKEXCHANGE LISTING
We expect that the Unisource Common Stock will
begin trading on the New York Stock Exchange in
December 1996. There is not currently a public
market for Unisource Common Stock, although a
"when-issued" trading market is expected to
develop on or before December 13, 1996. We have
applied to list the Unisource Common Stock on the
New York Stock Exchange under the symbol UWW and
regular trading will begin on January 2, 1997.
See page 6.
vii
<PAGE>
KEY TERMS OF THE SPIN-OFF TRANSACTION
NO SHAREHOLDER No action is required by Alco shareholders to
ACTION REQUIRED receive Unisource Common Stock in the Spin-Off.
You do not need to surrender Alco Stock to
receive Unisource Common Stock in the Spin-Off.
The number of shares of Alco Stock you own will
not change as a result of the Spin-Off.
RECORD DATE You need to own Alco Stock as of close of
business on December 13, 1996 to receive
Unisource Common Stock in the Spin-Off.
DISTRIBUTION RATIO You will receive one share of Unisource Common
Stock for every two shares of Alco Stock you
owned as of the close of business on December 13,
1996.
SHARES TO BE DISTRIBUTED All Unisource Common Stock owned by Alco will be
distributed in the Spin-Off. Based on 132,573,000
shares of Alco Stock outstanding as of November
8, 1996, approximately 66,286,500 shares of
Unisource Common Stock will be distributed in the
Spin-Off.
MAILING DATE The distribution agent will mail Unisource Common
Stock certificates to Alco shareholders on or
about December 31, 1996.
NO FRACTIONAL SHARES Fractional shares will not be distributed.
WILL BE ISSUED Instead they will be aggregated and sold in the
public market by the distribution agent, and the
aggregate net cash proceeds will be distributed
equally to shareholders otherwise entitled to
fractional interests. See page 5.
viii
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
Before the Spin-Off, shareholders of Alco with inquiries relating to the Spin-
Off should contact:
National City Bank Distribution Alco Investor Relations
Agent P.O. Box 92301-N Cleveland, Department 825 Duportail Road
OH 44193-0900 Telephone: (800) 622- Wayne, Pennsylvania 19087-5589
6757 Telephone: (610) 993-3662
After the Spin-Off, stockholders of Unisource with inquiries relating to their
investment in Unisource Common Stock should contact:
Unisource Investor Relations Department
825 Duportail Road Wayne, Pennsylvania 19087-5589
Telephone: (610) 993-3609
The agent responsible for the distribution of Unisource Common Stock in the
Spin-Off and acting as transfer agent and registrar for Unisource Common Stock
after the Spin-Off is:
National City Bank
P.O. Box 92301-N Cleveland, Ohio 44193-0900 Telephone:
(800) 622-6757
ix
<PAGE>
UNISOURCE WORLDWIDE, INC.
DISTRIBUTION STRENGTH Unisource is the largest marketer and distributor
of quality paper products in North America. We
also are a leading North American distributor of
paper and plastic shipping and foodservice
supplies, sanitary maintenance supplies and
equipment and packaging supplies and equipment
(collectively, "Supply Systems"). Our
distribution facilities are located throughout
the United States, Canada and Mexico.
BUSINESSES AND MARKET SHARE We serve a broad customer base by marketing and
distributing products and equipment that are
manufactured by third parties. We distribute
these products through two businesses: a business
which markets and distributes quality papers to
printers, publishers and corporate imaging
customers ("Printing and Imaging"); and a Supply
Systems business, which distributes a wide range
of paper and plastic products, sanitary
maintenance supplies and equipment and packaging
equipment and supplies, principally to
manufacturers, food processors and grocery
stores. We estimate that our Printing and Imaging
business commands a 17% market share in the
United States and a 50% market share in Canada.
We also compete with a large number of local and
regional distributors in the fragmented Supply
Systems market and estimate that we have a 6% and
8% share in our Supply Systems markets in the
United States and Canada.
FINANCIAL HIGHLIGHTS For the fiscal year ended September 30, 1996,
Unisource generated approximately $7 billion in
revenues and $184 million in operating income,
excluding a $50 million restructuring charge. In
fiscal 1996, our Printing and Imaging business
accounted for approximately 68% of total revenues
and our Supply Systems business accounted for
approximately 32% of total revenues.
MARKETING FOCUS Within our two businesses, we focus on five
target customer segments: commercial printers and
publishers; business imaging customers;
manufacturers; food processors; and grocery
stores. Each of the five target customer segments
has dedicated customer service professionals, a
separate sales force and, in some instances,
specialty groups dedicated to satisfying each end
user's specific needs.
PRINTING AND IMAGING Our Printing and Imaging business is the leading
CUSTOMERS North American supplier of printing papers to
commercial printers, publishers and business
forms manufacturers, which produce catalogs,
brochures, advertising supplements, annual
reports, business forms and direct mail
advertising. We also provide a broad array of
specialty and commodity papers and supplies to
imaging customers, such as in-plant print
facilities, quick printers, corporate copy
centers, government institutions and other paper-
intensive businesses.
x
<PAGE>
SUPPLY SYSTEMS CUSTOMERS Our Supply Systems business distributes a wide
variety of paper and plastic supplies, sanitary
maintenance equipment and supplies and packaging
equipment and supplies. While our customer base
is broad, we have focused Supply Systems
acquisition and marketing efforts mainly in the
manufacturing, food processing and retail grocery
markets. The products we distribute to
manufacturers include shipping room supplies
(corrugated boxes, cushioning materials, tapes
and labeling), packaging equipment and supplies,
sanitary maintenance equipment and supplies and
foodservice supplies. Food processing customers
purchase films and food wraps, food containers,
apparel for food service workers, refrigerants
and sanitary maintenance supplies and equipment.
Retail grocery customers purchase food packaging
equipment and supplies, containers and wraps for
food, grocery bags and boxes, meat trays, wraps,
liners and sanitary maintenance supplies and
equipment.
xi
<PAGE>
STRATEGY
We intend to expand beyond our distribution strengths to become a leading
marketing and logistics company that provides a broad array of Printing and
Imaging and Supply Systems products and services to target customer markets.
WHY HOW
TO MINIMIZE OUR EXPOSURE TO THE CYCLICAL PAPERMARKET
ACCELERATE GROWTH IN SUPPLY SYSTEMS BUSINESSES. We want
to expand through acquisitions and internal growth in the
Supply Systems market. We believe we have significant
opportunities to capture additional market share because
the Supply Systems distribution market is now dominated
by many smaller competitors that do not have Unisource's
infrastructure, economies of scale, technological
capability and breadth of product line. Supply Systems
acquisitions and growth will establish greater revenue
balance between our two principal businesses, reduce
exposure to the cyclical business trends associated with
the paper business and enhance overall gross margins. We
will also continue to expand internationally,
particularly in Canada and Mexico.
TO COMPETEBASED ON OURABILITY TO LOWER CUSTOMERS'OVERALL PURCHASECOSTS
ENHANCE OVERALL GROWTH AND EFFICIENCY THROUGH
TRANSFORMATION. We are building an advanced information
system network to track customer supply trends, monitor
customer inventory levels, and determine future inventory
needs at the time orders are placed. These services will
allow customers to realize significant savings through
more efficient management of working capital and work
flow. These services also will encourage customers to
outsource entire purchasing departments to Unisource. At
the same time, we have consolidated numerous regions,
facilities, operations and customer service departments
to provide better service and marketing functions. We
believe that the opportunities for growth arising out of
the transformation program are significant for both of
our businesses. The opportunity to "cross-sell" products
and expertise across markets will present significant
competitive advantages.
INCREASE MARKET SHARE THROUGH SEGMENTATION AND MORE
EFFICIENT DELIVERIES. We intend to increase market share
through aggressive sales and marketing techniques that
focus on specific customer segments and by offering
segment customers valuable procurement solutions through
a combination of products and services. We also are
implementing several software systems that will add both
flexibility and efficiency to our distribution
capabilities, so that we can make timely, accurate and
cost-effective deliveries.
TO EXPAND OUR PRODUCT ANDSERVICE OFFERINGS TO MEET CURRENTAND FUTURE CUSTOMER
NEEDS
EXPAND SALES TO NATIONAL ACCOUNTS. We believe that the
developments in our technology and customer service
capabilities, together with our distribution networks,
will attract large multi-location customers seeking to
consolidate suppliers and procurement activities. These
national accounts should provide a consistent and
profitable revenue stream. In fiscal 1996, Unisource had
approximately $400 million in sales to national accounts.
xii
<PAGE>
ALCO STANDARD CORPORATION
Prior to the Spin-Off, Alco conducted two principal businesses: Unisource's
businesses; and the office solutions business of IKON, which is described below
and was formerly referred to as Alco Office Products, Inc. After Alco announced
that it intended to complete the Spin-Off, Alco began to report the results of
Unisource as discontinued operations. For comparison purposes, based upon prior
presentations before this change in reporting, Alco's fiscal 1996 consolidated
revenues would have been $11.1 billion and fiscal 1996 operating income would
have been $566 million, excluding the Unisource $50 million restructuring
charge. During the following fiscal years, based upon prior presentations
before the change in reporting and excluding restructuring costs, Unisource and
IKON results represented the following percentages of overall Alco results:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Unisource revenues............................................ 72% 71% 63%
IKON revenues................................................. 28% 29% 37%
Unisource operating income.................................... 45% 47% 36%
IKON operating income......................................... 55% 53% 64%
</TABLE>
IKON OFFICE SOLUTIONS, INC.
IKON sells, rents and leases photocopiers, fax machines and other automated
office equipment. These products are used in both traditional and integrated
office environments. IKON also provides equipment service and supplies,
equipment financing and facilities management and specialized document copying
services.
IKON has locations throughout the United States and Canada and in Europe
(primarily in the United Kingdom). IKON operates the largest network of
independent copier and office equipment dealers in North America and in the
United Kingdom. More recently, IKON has built upon these strengths to expand
into outsourcing and networking services, providing one-stop shopping to
customers who seek quality, accessible office productivity solutions.
xiii
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
We are providing the following summary financial information of Unisource to
highlight selected financial information for your benefit. We derived this
information from the audited financial statements of Unisource for each of the
fiscal years shown below and the unaudited pro forma consolidated financial
information as of and for the fiscal year ended September 30, 1996. Because
Unisource did not actually operate as an independent company during the periods
depicted, Unisource may have recorded different results had it been operated
separately. Therefore, the financial information presented below is not
necessarily indicative of the results of operations or financial position that
would have resulted if Unisource had been an independent company during the
periods shown, or of Unisource's future performance as an independent company.
The following information is only a summary and you should read it in
conjunction with Unisource's financial statements and notes (beginning on page
F-1 in the latter portion of this document), and the unaudited pro forma
consolidated financial information and notes (on pages 11 to 13). We have
presented unaudited pro forma financial information as of and for the year
ended September 30, 1996 to give you a better picture of what our financial
statements might have looked like if Unisource was operated independently
during this period. Actual results may have differed from pro forma results if
we were operated independently. You should not rely on the pro forma financial
information as being indicative of results we would have had or future results
after the Spin-Off. For selected historical financial information of Unisource
for the five years ended September 30, 1996, see "Selected Financial Data" (on
page 14). For a more detailed narrative explanation of the following results
and conditions, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" (on pages 15 to 19).
Fiscal 1994 net income includes the cumulative effect of a change in the
method of accounting for income taxes of $14 million upon the adoption of a new
accounting standard. These benefits relate to the additional tax benefit on a
fiscal 1993 restructuring charge which could not be recorded in fiscal 1993
under the accounting rules then in effect.
Fiscal 1996 income from operations includes a $50 million restructuring
charge ($32.5 million net of tax). Excluding the 1996 restructuring charge, pro
forma earnings per share for fiscal 1996 would have been $1.30.
<TABLE>
<CAPTION>
PRO FORMA FISCAL
YEAR ENDED
FISCAL YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ----------------
1994 1995 1996 1996
---------- ---------- ---------- ----------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C>
Consolidated Information
Revenues................... $ 5,756.5 $ 6,987.3 $ 7,022.8 $7,022.8
Income from operations..... 148.5 206.3 134.5 134.5
Income before income tax-
es........................ 122.3 172.7 103.0 93.8
Net income................. 88.5 105.2 60.0 54.4
Pro forma earnings per
share..................... -- -- -- $ .81
Pro forma common and common
equivalent shares......... -- -- -- 67.0
Total assets............... 1,720.0 2,019.0 2,191.7 2,191.7
Long-term debt, including
current portion........... 26.8 25.5 21.9 582.9
Total stockholder's equi-
ty........................ 353.5 415.9 935.5 935.5
</TABLE>
xiv
<PAGE>
RISK FACTORS
COMPETITION
Our businesses operate within highly competitive markets. Our competitors
include the distribution units of large paper manufacturers (e.g.,
International Paper's ResourceNet, Mead Corporation's Zellerbach and Champion
International's Nationwide Paper) and independent distributors. While we are
the largest distributor in this market, certain Printing and Imaging
competitors, principally the distribution units of large paper manufacturers,
may have greater total financial, purchasing and/or sourcing power than
Unisource. In the more fragmented Supply Systems business, we compete with a
large number of local and regional distributors, as well as distribution units
of larger companies, including ResourceNet and Zellerbach. We believe that the
principal competitive factors in these markets are responsiveness to customer
needs, price, quality of customer service and the range of products maintained
in inventory. We are responding to these competitive conditions by bundling
products and services in order to meet all customers' Printing and Imaging and
Supply Systems needs and by using our extensive distribution capabilities to
attract national accounts which provide consistent and profitable revenue
streams.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; SENSITIVITY TO PAPER PRICES
Our revenues and net income have fluctuated from quarter to quarter due to a
combination of factors, including changes in pulp and paper prices (which may
also affect demand for Printing and Imaging products), acquisition activity and
the restructuring program. Changes in pulp and paper prices can significantly
impact our Printing and Imaging business, which accounted for $4.8 billion
(68%) and $666 million (59%) of our total revenues and gross profit during
fiscal 1996. In fiscal 1995, average prices for Printing and Imaging products
that we sold increased by more than 24% over average fiscal 1994 levels. By the
end of fiscal 1996, prices for those same products declined by more than 16%
compared to prices at fiscal 1995 year-end. For the three-year period ended
September 30, 1996, paper prices for uncoated cut size (copy) and coated papers
(our two greatest volume categories) ranged from $670 to $1,160 per ton and
$1,175 to $1,500 per ton.
In general, rising pulp and paper prices produce higher Unisource gross
trading margins and therefore represent favorable market conditions for
Unisource. This is especially true when market conditions allow us to quickly
pass along increased supplier costs to customers and maintain gross trading
margin percentage. When this percentage is maintained over a higher revenue
base that is brought about by increased prices, our results usually improve.
Increases in pulp and paper prices do not usually produce a proportionate
increase in operating expenses except for sales commission expense, which is
based on gross trading margins and therefore increases with higher paper
prices. Declining pulp and paper prices negatively impact Unisource. This is
true even when we maintain gross trading margin percentage and volumes, because
constant volumes and trading margin percentages in a declining price
environment will produce lower revenues and gross trading margins, in absolute
terms, and we also have certain fixed expenses which impact results regardless
of changes in pulp and paper prices. Changes in pulp and paper prices also may
alter purchasing patterns and cause customers to defer paper purchases and/or
deplete inventory levels until long-term price stability occurs.
Although we do not produce paper products and are not directly exposed to
related production and raw materials risks, industry overcapacity and
overproduction by paper suppliers also could adversely affect our revenues and
net income if these factors produce lower paper prices. In addition, while we
have been successful in ultimately passing on the effects of price increases,
there is sometimes a short lag from the time prices are increased by producers
until we are able to effectively pass along these increased costs to our
customers.
LEVERAGE AND DEBT SERVICE OBLIGATIONS
As of September 30, 1996, after giving pro forma effect to the Spin-Off and
an initial borrowing under Unisource's $1 billion unsecured credit facility
(the "Credit Facility") to repay outstanding intercompany debt payable to Alco
(the "Intercompany Debt") and certain other third-party debt as of September
30, 1996, Unisource's consolidated long-term debt would have been approximately
$614 million. Unisource also expects
1
<PAGE>
to use future borrowings under the Credit Facility to, among other things, fund
acquisition activity. While we believe that future operating cash flow,
together with financing arrangements, will be sufficient to finance current
operating requirements and that interest rate protection agreements will
reduce, in part, our exposure to increasing interest rates, it is possible that
our leverage and debt service requirements may make us more vulnerable to
economic downturns.
DELAY IN IMPLEMENTING INFORMATION TECHNOLOGY SYSTEM
We began an ambitious restructuring program in late fiscal 1993 and have made
significant investments in the design, testing and implementation of a new
information technology system. The system was originally scheduled to begin
operating in 1995, but we delayed implementation to allow for additional
enhancements to the system and to better prepare our field operations for
installation. We now expect to complete the system implementation by the end of
fiscal 1999. While the information technology systems we currently use are
adequate to support our current operations, the new system will enable
Unisource to realize cost savings through streamlined operating and financial
functions, to increase responsiveness to customers and to enhance distribution
efficiency. Any significant further delay in implementing this program or any
significant difficulties in realizing the anticipated benefits of this program
could adversely impact our operations and future financial results and
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Business Transformation and Information
Technology System."
NO OPERATING HISTORY AS AN INDEPENDENT COMPANY
We do not have an operating history as an independent public company and have
historically relied on Alco for various financial, administrative and
managerial expertise relevant to operating as an independent, public company.
After the Spin-Off, we will maintain our own lines of credit and banking
relationships, perform our own administrative functions and employ senior
executives, including the former Chairman and Chief Executive Officer of Alco
and other former officers of Alco, to manage Unisource. We believe, based upon
current circumstances, that corporate administrative expenses to be incurred
after the Spin-Off will not differ materially from corporate administrative
expenses that were allocated to Unisource as reflected in our fiscal 1996
financial statements. However, effective October 1, 1996, Unisource will begin
to incur greater interest expense. While we have been profitable as part of
Alco, there can be no assurance that, as a stand-alone company, our future
profits will be comparable to reported historical consolidated results before
the Spin-Off. See "Pro Forma Consolidated Financial Information."
NO PRIOR MARKET FOR UNISOURCE COMMON STOCK; SHARES AVAILABLE FOR FUTURE SALE
There has been no prior trading market for Unisource Common Stock and we
cannot predict, estimate or give assurances about the trading prices for
Unisource Common Stock before or after December 31, 1996. Until the Unisource
Common Stock is fully distributed and an orderly market develops, the trading
prices for Unisource Common Stock may fluctuate significantly. Prices for the
Unisource Common Stock will be determined in the trading markets and may be
influenced by many factors, including the depth and liquidity of the market for
Unisource Common Stock, investor perceptions of Unisource and its business,
changes in pulp and paper prices, Unisource's results, Unisource's dividend
policy and general economic and market conditions. The Unisource Common Stock
distributed to Alco shareholders in the Spin-Off will be freely transferable
under the Securities Act of 1933, as amended (the "Securities Act"), except for
securities received by persons who may be deemed affiliates of Unisource. See
"The Spin-Off--Listing and Trading of Unisource Common Stock." The sale of a
substantial number of shares of Unisource Common Stock after the Spin-Off could
adversely affect the market price of the Unisource Common Stock.
CERTAIN ANTITAKEOVER PROVISIONS
Provisions in the Unisource Certificate of Incorporation, By-laws and
Stockholder Rights Plan and in the General Corporation Law of the State of
Delaware may make more difficult or more expensive or discourage a
2
<PAGE>
tender offer, change in control or takeover attempt that is opposed by our
Board of Directors. See "Description of Capital Stock--Unisource Common Stock;
Delaware Antitakeover Provisions," "--Preferred Stock," "--Certain Antitakeover
Provisions--Unisource Certificate and By-Laws" and "--Stockholder Rights Plan."
In addition, provisions in the Unisource Tax Sharing Agreement with Alco, which
are intended to preserve the tax-free status of the Spin-Off for Federal income
tax purposes, could discourage certain takeover proposals or make them more
expensive. See "Arrangements Between Alco and Unisource Relating to the Spin-
Off--Tax Sharing Agreement."
FORWARD-LOOKING INFORMATION
This document contains, and other materials filed or to be filed by Unisource
with the Securities and Exchange Commission (the "Commission"), as well as
information included in oral statements or other written statements made or to
be made by Unisource, contain or will contain or include, disclosures which are
forward-looking statements. These forward-looking statements address, among
other things, strategic initiatives (including plans for transforming
Unisource's business through new information technology systems, sales
strategies, market growth plans and acquisition and margin enhancement
initiatives, capital expenditure requirements and financing sources). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Strategy," "--Acquisitions" and "--Business
Transformation and Information Technology System." These forward-looking
statements are based upon our current plans or expectations and are subject to
a number of uncertainties and risks that could significantly affect current
plans, anticipated actions and our future financial condition and results.
These uncertainties and risks include, but are not limited to, those relating
to conducting operations in a competitive environment; delays, difficulties and
technological changes associated with a large-scale systems transformation
project; acquisition activities (including uncertainties associated with
projecting the use of Unisource Common Stock as acquisition currency when there
has been no historic trading market for such stock and projecting future cash
flows to finance cash-based acquisitions); leverage and debt service
requirements (including sensitivity to fluctuations in interest rates); general
economic conditions; and changes or volatility in pulp and paper prices. As a
consequence, current plans, anticipated actions and future financial condition
and results may differ from those expressed in any forward-looking statements
made by or on behalf of Unisource.
3
<PAGE>
THE SPIN-OFF
BACKGROUND AND REASONS FOR THE SPIN-OFF
The Alco Board of Directors has determined that the Spin-Off is in the best
interests of Alco shareholders and is necessary because of a growing strategic
conflict between IKON Office Solutions, Inc. ("IKON") and Unisource at the
customer level. To capture opportunities created by the availability of high
volume, high-resolution copiers, IKON expanded its business to offer facilities
management services, which include copy center, mailroom and other centralized
office services for corporate customers. IKON's facilities management centers
solicit substantial business from the local community and compete with
commercial printers and office superstores, which are Unisource customers. This
has produced the threat of lost business from large, established Unisource fine
paper accounts and has reduced Unisource's ability to gain additional market
share in the fine paper market. Therefore, the Alco Board concluded that the
Spin-Off was necessary to maximize opportunity for both companies.
The Alco Board believes that the Spin-Off should be beneficial to each of
Alco's current businesses, because, among other things, it will separate
businesses with distinct financial, investment and operating characteristics so
that each business can adopt strategies and pursue objectives more appropriate
to its specific business plan than is possible under Alco's present combined
structure. The Spin-Off will enable management of each company to concentrate
its attention and financial resources on its core businesses, while also
allowing each company's management to respond to the characteristics and
competitive disciplines of its own industry segment.
Following the Spin-Off, we will be able to more closely tie compensation
incentives for our key employees to the performance of Unisource Common Stock.
The value of Unisource Common Stock will more closely correspond to the
performance of our employees. Consequently, Unisource and its stockholders
should benefit from the positive effects of the closer link between Unisource's
incentive compensation arrangements for key employees and Unisource Common
Stock.
The Spin-Off will also give Unisource direct access to capital markets and
stock-based acquisition currency to finance expansion and growth opportunities.
As part of Alco, Unisource has competed with IKON for capital to finance
expansion and growth opportunities. As a separate entity, Unisource management
will be in a better position to control capital funding and acquisition
initiatives and the implementation of business strategies. Alco also believes
that, following the Spin-Off, the financial markets will be able to focus on
the individual strengths of Alco and Unisource and more accurately evaluate the
performance of each distinct business compared to companies in the same or
similar businesses.
MANNER OF EFFECTING THE SPIN-OFF
The general terms and conditions relating to the Spin-Off are set forth in a
Distribution Agreement between Alco and Unisource. See "Arrangements Between
Alco and Unisource Relating to the Spin-Off--Distribution Agreement."
Alco will effect the Spin-Off by delivering all of the outstanding shares of
Unisource Common Stock to National City Bank, as distribution agent (the
"Distribution Agent") for distribution to the holders of record of Alco Stock
as of the close of business on December 13, 1996. The Spin-Off will be made on
the basis of one share of Unisource Common Stock for every two shares of Alco
Stock held as of the close of business on December 13, 1996 (the "Distribution
Ratio"). The actual total number of shares of Unisource Common Stock to be
distributed will depend on the number of shares of Alco Stock outstanding on
December 13, 1996. The shares of Unisource Common Stock will be fully paid and
nonassessable, and the holders thereof will not be entitled to preemptive
rights. See "Description of Unisource Capital Stock." It is expected that
certificates representing shares of Unisource Common Stock will be mailed to
Alco shareholders on or about December 31, 1996.
4
<PAGE>
NO ISSUANCE OF FRACTIONAL SHARES
No certificates or scrip representing fractional interests in shares of
Unisource Common Stock ("Fractional Shares") will be issued to Alco
shareholders as part of the Spin-Off. The Distribution Agent, acting as agent
for the Alco shareholders otherwise entitled to receive in the Spin-Off
certificates representing Fractional Shares, will aggregate and sell in the
open market all Fractional Shares at then prevailing prices and distribute the
net proceeds to the stockholders who are entitled to payment.
RESULTS OF THE SPIN-OFF
After the Spin-Off, Unisource will be a separate public company. The number
and identity of stockholders of Unisource immediately after the Spin-Off will
be the same as the number and identity of shareholders of Alco on December 13,
1996. Immediately after the Spin-Off, Unisource expects to have approximately
15,000 holders of record of Unisource Common Stock and approximately 66,286,500
shares of Unisource Common Stock outstanding, based on the number of record
shareholders and issued and outstanding shares of Alco Stock as of the close of
business on November 8, 1996 and the Distribution Ratio. The actual number of
shares of Unisource Common Stock to be distributed will be determined as of
December 13, 1996 and could be affected by the conversion of Alco convertible
preferred stock, which as of November 8, 1996 could have been converted into
approximately 6,356,000 shares of Alco Stock. The Spin-Off will not affect the
number of outstanding shares of Alco Stock or the rights of Alco shareholders.
TAX CONSEQUENCES OF THE SPIN-OFF
United States Tax Consequences to Alco Shareholders. Alco has received a
ruling (the "Tax Ruling") from the Internal Revenue Service (the "IRS") to the
effect, among other things, that for Federal income tax purposes:
1. The Spin-Off will qualify as a tax-free spin-off under Section 355 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. No gain or loss will be recognized by the Alco shareholders as a
result of their receipt of Unisource Common Stock in the Spin-Off except
for any cash received in lieu of Fractional Shares.
3. In connection with the Spin-Off, a shareholder's tax basis in Alco
Stock will be apportioned between Alco Stock and Unisource Common Stock
received in the Spin-Off in accordance with relative fair market values of
such shares at the time of the Spin-Off.
4. The holding period of the Unisource Common Stock received in the Spin-
Off will include the holding period of the Alco Stock with respect to which
the Unisource Common Stock will be distributed, provided the Alco Stock is
held as a capital asset on December 13, 1996.
The Tax Ruling was issued based upon the accuracy of factual representations
made by Alco and Unisource.
Canadian Tax Consequences to Alco Shareholders. The Spin-Off will be
considered to be a dividend for Canadian income tax purposes. The Income Tax
Act requires a Canadian resident shareholder to include in income the amount of
a dividend received. The amount of the dividend will be the fair market value
of the shares of Unisource received on the date those shares are received by
the shareholder. This dividend will be subject to the rules in the Income Tax
Act applicable to dividends received from a foreign corporation and will not be
eligible for the gross-up and credit rules applicable to a dividend from a
taxable Canadian corporation.
The Unisource Common Stock received through the Spin-Off will have a cost to
a shareholder equal to the fair market value of the shares on the date those
shares are received. The cost and adjusted cost basis of a shareholder's Alco
shares will not change as a consequence of the Spin-Off.
The foregoing is a general description of the material United States and
Canadian tax consequences associated with the Spin-Off, and is not intended to
address every shareholder's tax consequences and does not purport to address
all tax consequences applying to every Alco shareholder. In particular, this
summary
5
<PAGE>
description does not cover state, local, municipal, provincial or international
tax consequences. Consequently, shareholders are strongly encouraged to consult
their individual tax advisors for relevant particular tax consequences
concerning the Spin-Off. In addition, shareholders residing outside of the
United States or Canada are encouraged to seek tax advice regarding tax
implications of the Spin-Off.
LISTING AND TRADING OF UNISOURCE COMMON STOCK
There is not currently a public market for the Unisource Common Stock.
Application has been made to list the Unisource Common Stock on the New York
Stock Exchange. A when-issued trading market for Unisource Common Stock is
expected to develop on or before about December 13, 1996. The term "when-
issued" means that shares can be traded prior to the time certificates are
actually available or issued. Prices at which the Unisource Common Stock may
trade on a when-issued basis or after such time certificates are actually
available or issued cannot be predicted. Until the Unisource Common Stock is
fully distributed and an orderly market develops, the prices at which trading
in such stock occurs may fluctuate significantly. The prices at which the
Unisource Common Stock trades will be determined by the marketplace and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for Unisource Common Stock, investor perception of Unisource and its
business, changes in pulp and paper prices, Unisource's results, Unisource's
dividend policy and general economic and market conditions. See "Dividend
Policy."
Alco Stock will continue to trade on a regular basis and may also trade on a
when-issued basis, reflecting an assumed post-Spin-Off value for Alco Stock.
Alco Stock when-issued trading, if available, could last from December 11, 1996
through December 31, 1996. Unisource and Alco understand that if Alco Stock
when-issued trading is not available, the New York Stock Exchange will require
that shares of Alco Stock that are sold or purchased from the period beginning
on December 11, 1996, and ending on December 31, 1996, be accompanied by due-
bills representing the Unisource Common Stock distributable with respect to
such shares and that during such period neither the Alco Stock nor the due
bills may be purchased or sold separately.
The Transfer Agent and Registrar for the Unisource Common Stock will be
National City Bank. For certain information regarding options to purchase
Unisource Common Stock that will be granted in connection with the Spin-Off,
see "Management--Stock Option Plan."
Unisource Common Stock distributed to Alco shareholders in the Spin-Off will
be freely transferable under the Securities Act, except for securities received
by persons who may be deemed to be affiliates of Unisource pursuant to Rule 405
under the Securities Act. Persons who may be deemed to be affiliates of
Unisource after the Spin-Off generally include individuals or entities that
control, are controlled by, or are under common control with Unisource, and
such persons include directors of Unisource. Persons who are affiliates of
Unisource will be permitted to sell their shares of Unisource Common Stock
received in the Spin-Off pursuant to Rule 144 under the Securities Act except
for the holding period requirements of Rule 144 which are not applicable in
this instance. As a result, Unisource Common Stock received by Unisource
affiliates pursuant to the Spin-Off may be sold if certain provisions of Rule
144 under the Securities Act are complied with (e.g., the amount sold within a
three-month period does not exceed the greater of one percent of the
outstanding Unisource Common Stock or the average weekly trading volume for
Unisource Common Stock during the preceding four week period and the securities
are sold in "brokers' transactions" and in compliance with certain notice
provisions under Rule 144).
CONDITIONS; TERMINATION
It is expected that the Spin-Off will occur on December 31, 1996, provided
(i) the Registration Statement on Form 10, including this document (the
"Exchange Act Registration Statement"), under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), filed by Unisource with
the Commission has been declared effective;
(ii) a favorable response from the Staff of the Commission is issued with
respect to Alco's no-action request concerning, among other things,
whether the Spin-Off may be effected without registration of the
Unisource Common Stock under the Securities Act;
6
<PAGE>
(iii) Unisource has borrowed under the Credit Facility to repay the
Intercompany Debt; and
(iv) the Tax Ruling shall not have been withdrawn or modified in any
material respect.
See "Arrangements Between Alco and Unisource Relating to the Spin-Off--
Distribution Agreement."
REASONS FOR FURNISHING THIS DOCUMENT
This document is being furnished by Alco solely to provide information to
Alco shareholders who will receive Unisource Common Stock in the Spin-Off. It
is not, and is not to be construed as, an inducement or encouragement to buy or
sell any securities of Alco or Unisource. We believe that the information
contained in this document is accurate as of the date on the cover. Changes may
occur after that date, and neither Alco nor Unisource will update the
information except as is required in the normal course of their respective
public disclosure practices.
ARRANGEMENTS BETWEEN ALCO AND UNISOURCE RELATING TO THE SPIN-OFF
For the purpose of an orderly transition establishing Unisource as an
independent company, Alco and Unisource have entered into certain agreements
described in this section. The agreements summarized below have been filed as
exhibits to the Exchange Act Registration Statement, which includes this
document. The following descriptions include a summary of all material terms of
these agreements but do not purport to be complete and are qualified in their
entirety by reference to the filed agreements.
DISTRIBUTION AGREEMENT
Unisource has entered into a distribution agreement with Alco (the
"Distribution Agreement") providing for, among other things, the principal
corporate transactions required to effect the Spin-Off, the conditions
precedent to the Spin-Off (see "The Spin-Off--Conditions; Termination"), the
allocation between Alco and Unisource of certain assets and liabilities, the
settlement of intercompany accounts between Alco and Unisource, the common use
of the existing Alco headquarters facility and certain equipment for a period
of time after December 31, 1996 and certain other transition arrangements.
ALLOCATION OF ASSETS AND LIABILITIES. The Distribution Agreement provides
generally that all assets and liabilities that are associated exclusively with
the business of Unisource will be transferred to or retained by Unisource. In
addition, certain commonly used equipment will be allocated to Unisource, and
liabilities and potential liabilities that relate to certain sold businesses
formerly associated with the business of Unisource will be assumed by
Unisource.
Under the Distribution Agreement, Alco will retain sole responsibility for
all external debt for borrowed money and other financings with the exception of
the Credit Facility, approximately $9.4 million aggregate principal amount of
industrial development bonds issued to finance the facilities of Unisource and
certain capitalized lease obligations and other financings related to
Unisource.
The Distribution Agreement provides that all assets and liabilities of Alco
that are not identified or described as being the property or responsibility of
Unisource will remain the property or responsibility of Alco.
CROSS-INDEMNIFICATION. Each of Alco and Unisource has agreed to indemnify,
defend and hold harmless the other party and its subsidiaries and their
respective directors, officers, employees and agents from and against any and
all damage, loss, liability and expense arising out of or due to the failure of
the indemnitor or its subsidiaries to pay, perform or otherwise discharge any
of the liabilities or obligations for which it is responsible under the terms
of the Distribution Agreement, which include, subject to certain exceptions,
all liabilities and obligations arising out of the conduct or operation of
their respective businesses before, on or after December 31, 1996. The
Distribution Agreement includes procedures for notice and payment of
7
<PAGE>
indemnification claims and provides that the indemnifying party may assume the
defense of the claim or suit brought by a third party.
HEADQUARTERS FACILITY; MANAGEMENT INFORMATION SYSTEMS. Under the Distribution
Agreement, the land and buildings located at 825 Duportail Road, Wayne,
Pennsylvania, presently owned by Alco and utilized as the corporate
headquarters for Alco and Unisource (the "Headquarters Facility") will be held
for sale, and ownership and responsibility for maintenance will remain with
Alco for so long as Alco occupies the Headquarters Facility. Unisource will
have the right to continue to use the Headquarters Facility until December 31,
1997 but prior to that date, upon notice to Alco, may terminate its occupancy
and obligation to contribute to the costs of operation and maintenance.
For so long as both Alco and Unisource occupy the Headquarters Facility,
Unisource will be obligated to pay a ratable share (initially 40% and adjusted
on April 1, 1997 and monthly thereafter based upon relative numbers of
employees occupying the Headquarters Facility) of the cost of operations and
maintenance of the Headquarters Facility, including real estate taxes and
assessments, maintenance, insurance and normal repairs. If Alco terminates its
occupancy of the Headquarters Facility while Unisource remains, Unisource will
become responsible for 100% of such costs. Following the Spin-Off, Alco and
Unisource will each be responsible for its own management information systems.
Accordingly, the Distribution Agreement does not provide for performance of
specific management information services by one party for the other. The
Distribution Agreement does provide, however, for continued access, cooperation
and support for a period of one year after December 31, 1996 and, in the case
of certain computer equipment, up to two years after December 31, 1996. Under
the Distribution Agreement, Alco will maintain ownership of existing software
licenses. Unisource will be responsible for obtaining its own licenses,
although Alco has agreed to reimburse Unisource up to $200,000 for these costs.
Unisource believes that they can be obtained from existing licensors without
material expense by Unisource. Additionally, Alco will maintain ownership of
certain IBM computer equipment used in common with Unisource. For so long as
both parties utilize the equipment, normal operating costs will be shared
equally. If Alco or Unisource ceases to occupy the Headquarters Facility,
Unisource will continue to have access to the equipment but will bear the cost
of remote access. Unisource will have the right to purchase the equipment at
book value if Alco elects to discontinue its own use and support.
Based upon current circumstances, Unisource believes that the foregoing
expenses to be incurred after September 30, 1996, on an annualized basis, will
not produce a material future additional annual expense when compared to
corporate administrative expenses that were allocated to Unisource in its
fiscal 1996 financial statements. See "Pro Forma Consolidated Financial
Information."
INTERCOMPANY DEBT. The Distribution Agreement also provides for the repayment
by Unisource to Alco of the Intercompany Debt. Outstanding balances shall bear
interest from September 30, 1996 at a rate of 6.75% per annum. In calculating
Intercompany Debt as of September 30, 1996, Unisource received a credit of $4
million in lieu of any interest in the Headquarters Facility or any proceeds of
any sale thereof.
OTHER EXPENSES OF SPIN-OFF. The Distribution Agreement provides that all
costs and expenses incurred in connection with the consummation of the Spin-Off
and the transactions contemplated thereby and in connection with the
preparation, execution, delivery and implementation of the Distribution
Agreement and the related agreements necessary to effectuate the Spin-Off, such
as the Benefits Agreement and Tax Sharing Agreement described below, will be
paid by Alco.
BENEFITS AGREEMENT
Unisource and Alco have entered into an agreement which provides, among other
things, that the wages, salaries and employee benefits of all employees of
Unisource (including present employees and, principally with respect to certain
retiree health and life insurance liabilities, past employees) will be the
responsibility of Unisource (the "Benefits Agreement"). Generally, Unisource's
obligation to provide benefits will include all obligations with respect to
Unisource employees under pension plans, savings plans, multiemployer plans,
8
<PAGE>
welfare plans, retiree medical plans, supplemental benefit plans, certain
deferred compensation plans, incentive plans, stock-based plans and other plans
covering Unisource employees and will include liabilities that arose while the
individuals were employed by Alco. The Benefits Agreement requires Alco to
reimburse Unisource for a portion of any payments made by Unisource to former
Unisource employees under Alco's 1985, 1991 and 1994 deferred compensation
plans. Unisource will assume certain Alco pension plans covering Unisource
employees, and assets and liabilities attributable to Unisource employees under
Alco's Participating Companies Pension Plan and Alco's 401(k) plan will be
transferred to a new Unisource pension plan and a 401(k) plan, respectively.
Unisource employees and directors will be given the opportunity to convert Alco
options into options to purchase Unisource Common Stock. See "Management."
TAX SHARING AGREEMENT
Unisource and Alco have entered into a Tax Sharing and Indemnification
Agreement (the "Tax Sharing Agreement") to allocate pre-Spin-Off tax
liabilities between Unisource and Alco and their respective subsidiaries. Under
the Tax Sharing Agreement, Unisource will bear its share of:
(i) Alco's Federal consolidated income tax liability (or benefit),
(ii) any unitary state income tax liability, and
(iii) Alco's consolidated personal property tax liability for all tax
periods that end before or that include December 31, 1996.
For the taxable year ending September 30, 1996, Unisource's share of Alco's
Federal consolidated tax liability (or benefit) will be 40% of such liability
(or benefit) and Alco's share of such liability (or benefit) will be 60%.
Unisource is responsible for paying any tax liabilities arising from any tax
returns which it files separately. If any tax year ending before or including
December 31, 1996 is subsequently examined by the IRS, and an adjustment
results from such examination, then Unisource's share of Alco's additional
Federal consolidated income tax liability (or benefit for that tax year) shall
be computed and agreed to by the parties. The parties generally assume, for
example, that any adjustment would be readily attributable either to the Alco
group or the Unisource group and that the benefit (or burden) would be computed
and paid by the appropriate party at the highest marginal tax rate. If any
adjustments cannot be readily attributed to the Alco group or the Unisource
group, then Unisource's share of any additional Federal tax liability (or tax
benefit) shall be computed and equal to the difference between the Unisource
Federal "stand-alone" consolidated tax liability without taking the adjustment
into account and the Unisource Federal "stand-alone" consolidated tax liability
after taking the adjustment into account.
The Tax Sharing Agreement generally provides that in the event that either
Alco or Unisource takes any action inconsistent with, or fails to take any
action required by, or in accordance with, the qualification of the Spin-Off as
tax-free, then Alco or Unisource, as the case may be, will be liable for and
indemnify and hold the other harmless from any tax liability resulting from
such action or inaction. If within two years after December 31, 1996, either
party engages in any transaction involving its stock or assets, and as a
result, the Spin-Off is treated as a taxable event, then the party engaging in
such transaction shall hold the other party harmless from any tax liabilities
that result from the treatment of the Spin-Off as a taxable event. Alco is also
responsible for any tax liability resulting from any action necessary to
implement the Spin-Off and its associated events, including, for example,
intercompany sales, liquidations, and mergers.
Furthermore, whenever Alco or Unisource receives a notice of adjustment for
any prior tax liability which may require payment from the other party, certain
procedures are required to be followed under the Tax Sharing Agreement, subject
to certain limitations, to ensure that the party that may ultimately be
responsible for payment is in control of the matter.
9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Unisource as of
September 30, 1996 (actual) and after giving pro forma effect to the Spin-Off
and related transactions. Immediately prior to September 30, 1996, Unisource
had notes and advances payable to Alco of approximately $1.0 billion,
principally as a result of borrowings to finance acquisition activity ($910
million). As of September 30, 1996 in preparation for the Spin-Off, Alco
contributed to the capital of Unisource $456 million of such outstanding debt
payable to Alco and $138 million in preferred stock and the related fiscal 1996
cumulative dividends. Unisource is expected to use borrowings under the Credit
Facility prior to December 13, 1996 to repay in full the then-outstanding
Intercompany Debt (approximately $554 million as of September 30, 1996).
Intercompany Debt as of November 8, 1996 was approximately $600 million, and
this amount could increase or decrease before repayment based upon normal
interim operating cash receipts and payments and acquisition funding
requirements.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
-----------------------
ACTUAL PRO FORMA (1)
-------- -------------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Long-term debt, excluding current portion(2)........... $ 21.1 $ 582.1
Notes and advances payable to Alco (2)................. 553.7 --
Stockholders' Equity:
Preferred stock, 10,000,000 shares authorized, no par
value; no shares issued and outstanding............. -- --
Common stock, 200,000 shares authorized, $.01 par
value per share (actual), 250,000,000 shares
authorized, no par value (pro forma); 100,000 shares
issued and outstanding (actual), 65,965,000 shares
issued and outstanding
(pro forma) (3)(4).................................. -- 778.4
Additional paid-in capital........................... 778.4 --
Retained earnings.................................... 181.5 181.5
Foreign currency translation adjustments............. (24.4) (24.4)
-------- --------
Total stockholder's equity......................... 935.5 935.5
-------- --------
Total Capitalization................................... $1,510.3 $1,517.6
======== ========
</TABLE>
- - --------
(1) See the Pro Forma Consolidated Financial Information and notes thereto
included elsewhere herein.
(2) See Note 2(a) to the Pro Forma Consolidated Financial Information.
(3) See Note 2(c) to the Pro Forma Consolidated Financial Information.
(4) The number of shares outstanding after giving effect to the Spin-Off was
determined based upon the number of shares of Alco Stock outstanding at
September 30, 1996 and reflects the assumed distribution of one share of
Unisource Common Stock for every two shares of Alco Stock. The actual
number of shares distributed will depend on the number of shares of Alco
Stock outstanding on December 13, 1996.
DIVIDEND POLICY
Unisource anticipates paying a quarterly cash dividend of $.20 per share with
respect to the Unisource Common Stock during the first fiscal quarter following
the Spin-Off. The decision as to whether to declare any dividend and the amount
thereof, if any, will be in the sole discretion of the Unisource Board of
Directors. Any additional future payment of dividends will depend upon the
financial condition, capital requirements and earnings of Unisource, and such
other factors that the Unisource Board of Directors may deem relevant.
10
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited Pro Forma Consolidated Statement of Income for the
year ended September 30, 1996 and the unaudited Pro Forma Consolidated Balance
Sheet as of September 30, 1996 present the results of operations and
consolidated financial position of Unisource assuming that the transactions
contemplated by the Spin-Off had been completed as of the beginning of fiscal
1996 and as of September 30, 1996. In the opinion of management, they include
all material adjustments necessary to reflect, on a pro forma basis, the impact
of transactions contemplated by the Spin-Off on Unisource's historical
financial information. The adjustments are described in Note 2 of the Notes to
the Pro Forma Consolidated Financial Information (Unaudited) and are set forth
in the "Pro Forma Adjustments" columns. No pro forma adjustments have been made
to selling and administrative expenses because expenses reflected in the
historical statements include an allocation of corporate administrative
expenses which Unisource believes, based upon current circumstances, will not
differ materially from actual selling and administrative expenses to be
incurred following the Spin-Off.
The unaudited Pro Forma Consolidated Financial Information of Unisource
should be read in conjunction with the historical financial statements of
Unisource (beginning on page F-1 in the latter portion of this document). We
have presented unaudited pro forma financial information as of and for the year
ended September 30, 1996 to give you a better picture of what our financial
statements might have looked like if Unisource was operated independently
during this period. Actual results may have differed from pro forma results if
we were operated independently. You should not rely on the pro forma financial
information as being indicative of results we would have had or future results
after the Spin-Off.
UNISOURCE WORLDWIDE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996
------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ------------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Revenues.................. $ 7,022.8 $ 7,022.8
Costs and expenses:
Cost of goods sold...... 5,896.2 5,896.2
Selling and administra-
tive................... 942.1 942.1
Restructuring charge.... 50.0 50.0
------------- -------------
6,888.3 6,888.3
------------- -------------
Income from operations.... 134.5 134.5
Interest expense........ 31.5 $ 9.2(2a) 40.7
------------- ----------- -------------
Income before income tax-
es....................... 103.0 (9.2) 93.8
Provision for income tax-
es....................... 43.0 (3.6)(2b) 39.4
------------- ----------- -------------
Net income................ $ 60.0 $ (5.6) $ 54.4
============= =========== =============
Pro forma net income per
common and common equiva-
lent share............... $ .81(3)
=============
</TABLE>
See Notes to the Pro Forma Consolidated Financial Information (Unaudited).
11
<PAGE>
UNISOURCE WORLDWIDE, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash...................................... $ 14.6 $ 14.6
Accounts receivable, net.................. 790.8 790.8
Inventories............................... 470.2 470.2
Prepaid expenses and deferred taxes....... 54.9 54.9
-------- --------
Total current assets...................... 1,330.5 1,330.5
Long-term receivables..................... 21.9 21.9
Property and equipment, net............... 224.2 224.2
Goodwill.................................. 509.8 509.8
Deferred costs and other assets........... 105.3 105.3
-------- --------
Total assets............................ $2,191.7 $2,191.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt......... $ .8 $ .8
Notes payable............................. 38.4 $ (7.3)(2a) 31.1
Trade accounts payable.................... 438.9 438.9
Accrued salaries, wages and commissions... 27.0 27.0
Restructuring costs....................... 15.6 15.6
Other accrued expenses.................... 59.0 59.0
-------- ------ --------
Total current liabilities............... 579.7 (7.3) 572.4
Long-term debt............................ 21.1 561.0 (2a) 582.1
Notes and advances payable to Alco........ 553.7 (553.7)(2a) --
Deferred taxes and other liabilities
Deferred taxes.......................... 54.4 54.4
Restructuring costs..................... 13.9 13.9
Other long-term liabilities............. 33.4 33.4
Stockholders equity
Common Stock............................ -- 778.4 (2c) 778.4
Additional paid-in capital.............. 778.4 (778.4)(2c) --
Retained Earnings....................... 181.5 181.5
Foreign currency translation adjust-
ments.................................... (24.4) (24.4)
-------- --------
Total stockholders' equity.............. 935.5 935.5
-------- ------ --------
Total liabilities and stockholders' eq-
uity..................................... $2,191.7 -- $2,191.7
======== ====== ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Information (Unaudited).
12
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1.
The accompanying unaudited Pro Forma Consolidated Financial Information
reflects all adjustments which, in the opinion of management, are necessary to
present fairly the pro forma financial position and pro forma results of
operations. This information should be read in conjunction with Unisource's
historical financial statements and notes thereto (beginning on page F-1 in the
latter portion of this document).
NOTE 2.
The pro forma adjustments to the accompanying financial information as of and
for the year ended September 30, 1996, are described below:
(a) To record the expected repayment of $554 million of Intercompany Debt
to Alco and notes payable to banks of $7 million and the associated
increase in debt and interest expense from the borrowings incurred to fund
the repayment. An interest rate of 7% is assumed on the borrowings. The pro
forma adjustments are net of the corporate interest expense allocation
reflected in the historical amounts. Borrowings under the Credit Facility
will have a variable interest rate and each 1% change in the annual
interest rate would have impacted pro forma interest expense by $5.5
million for the year ended September 30, 1996. See "Capitalization" and
"Description of Credit Facility."
(b) To record the estimated income tax benefit on the income effect of
pro forma adjustment (a) above.
(c) To reflect the distribution of Alco's 100% equity interest in
Unisource to Alco's shareholders. See "Capitalization."
NOTE 3.
Net income per share information is based upon 67 million common and common
equivalent shares for the fiscal year ended September 30, 1996. This amount was
determined assuming the Distribution Ratio of one share of Unisource Common
Stock for every two shares of Alco Stock reflected in Alco's Consolidated
Balance Sheet at September 30, 1996, and adding the estimated dilutive effect
of Unisource stock options expected to be issued to replace Alco stock options
held by Unisource officers and employees. The number of shares under option
will depend upon the extent to which existing stock options to purchase Alco
Stock are converted into stock options to purchase Unisource Common Stock. The
number of Unisource stock options granted in respect of converted Alco stock
options and their exercise prices will be set in a manner that will maintain in
the aggregate the excess of market value over exercise price of the Alco stock
options after taking into account such excess amount before December 11, 1996
and the fair market value of Unisource Common Stock on and after December 11,
1996. See "Management--Stock Option Plan" and "--Director Compensation." The
number of common and common equivalent shares used to compute earnings per
share after the Spin-Off will depend on the number of shares of Unisource
Common Stock and Unisource stock options outstanding and the market price of
Unisource Common Stock. Excluding the restructuring charge, pro forma net
income per share for fiscal 1996 would have been $1.30.
13
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected historical financial
information of Unisource that has been derived from the audited financial
statements of Unisource for each of the five years in the period ended
September 30, 1996. The historical financial information may not be indicative
of Unisource's future performance as a stand-alone company. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Unisource's
Consolidated Financial Statements and notes thereto included elsewhere in this
document. Per share data has not been presented because Unisource was a wholly-
owned subsidiary of Alco during the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues........................ $3,667.9 $4,864.1 $5,756.5 $6,987.3 $7,022.8
Costs and expenses:
Cost of goods sold............ 3,079.5 4,077.1 4,825.7 5,925.2 5,896.2
Selling and administrative.... 475.7 661.0 782.3 855.8 942.1
Restructuring charge.......... -- 175.0 -- -- 50.0
-------- -------- -------- -------- --------
3,555.2 4,913.1 5,608.0 6,781.0 6,888.3
-------- -------- -------- -------- --------
Income from operations.......... 112.7 (49.0) 148.5 206.3 134.5
Interest expense.............. 20.0 23.8 26.2 33.6 31.5
-------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of accounting
change......................... 92.7 (72.8) 122.3 172.7 103.0
Provision for income taxes...... 36.7 (7.7) 47.8 67.5 43.0
-------- -------- -------- -------- --------
Income before cumulative effect
of accounting change........... 56.0 (65.1) 74.5 105.2 60.0
Cumulative effect of change in
method of accounting for income
taxes.......................... -- -- 14.0 -- --
-------- -------- -------- -------- --------
Net income (loss)............... $ 56.0 $ (65.1) $ 88.5 $ 105.2 $ 60.0
======== ======== ======== ======== ========
Capital expenditures............ $ 20.2 $ 21.7 $ 33.9 $ 50.1 $ 35.8
Depreciation and amortization... 20.6 28.7 32.5 33.4 40.0
Working capital................. 310.4 551.0 549.8 815.1 750.8
Total assets.................... 1,284.4 1,633.9 1,720.0 2,019.0 2,191.7
Long-term debt, including cur-
rent portion................... 30.5 29.5 26.8 25.5 21.9
Total stockholder's equity...... 372.5 280.3 353.5 415.9 935.5
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction with
the "Pro Forma Consolidated Financial Information," "Selected Financial Data"
and Unisource's Consolidated Financial Statements, including the notes thereto,
included elsewhere in this document.
GENERAL
Unisource is the largest marketer and distributor of Printing and Imaging and
Supply Systems products in North America. These products are primarily paper or
paper-based products. Consequently, our revenues, gross profit and net income
are affected by fluctuations in pulp and paper prices. Volatility in pulp and
paper prices may also alter purchasing patterns and cause customers to defer
paper purchases and/or deplete inventory levels until long-term price stability
occurs, which can cause fluctuations in quarterly results. See "Risk Factors--
Quarterly Fluctuations in Operating Results; Sensitivity to Paper Prices" and
"--Quarterly Results."
Following the Spin-Off, our results are expected to be impacted by an
increase in interest expense resulting from expected higher borrowing costs as
a stand alone entity and the refinancing of the Intercompany Debt payable to
Alco. While such borrowing costs are expected to fluctuate as interest rates
change, we expect to enter into interest rate protection arrangements to
minimize the impact of such fluctuations. As a result, based upon anticipated
average borrowings under the Credit Facility during fiscal 1997 and interest
rate protection arrangements that will be entered into coincident with the
Spin-Off, it is anticipated that a 1% increase in average interest rates
throughout fiscal 1997 would not result in a material change in annual interest
expense.
Future results also may be impacted by the degree of success encountered in
implementing our acquisition strategy and in realizing growth and efficiency
through our transformation program. See "Risk Factors--Delay in Implementing
Information Technology System," "Business--Strategy," "--Acquisitions" and "--
Business Transformation and Information Technology System."
RESULTS OF OPERATIONS
Revenues and operating income for the fiscal years ended September 30, 1994,
1995 and 1996 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1994 1995 1996
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues..................................... $ 5,757 $ 6,987 $ 7,023
========= ========== ==========
Gross profit................................. $ 930.8 $ 1,062.1 1,126.6
Selling and administrative expense........... (782.3) (855.8) (942.1)
Restructuring charge......................... -- -- (50.0)
--------- ---------- ----------
Operating income............................. $ 148.5 $ 206.3 $ 134.5
========= ========== ==========
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues increased $36 million, or .5% to $7 billion in fiscal 1996. This
change is principally due to increases associated with current and prior year
acquisitions of $528 million, which were offset by revenue declines of $383
million in base operations and $109 million related to an operation sold in
September 1995. Revenues of base operations were down as a result of paper
price and volume declines. Gross margin percentages rose from 15.2% in fiscal
1995 to 16.0% in fiscal 1996 due to lower costs from suppliers for many
products, higher margin percentages generated by acquired companies and a
higher proportion of Unisource
15
<PAGE>
warehouse delivered (versus mill direct) sales. Warehouse delivered sales
generally result in higher gross margins, as compared to mill direct sales, but
also have higher associated operating expenses due to related warehouse
handling and delivery costs. See "Business--Customers and Products." Selling
and administrative expense increased by $86.3 million due to additional
operating costs associated with current and prior year acquisitions, net of
reductions related to the operation that was sold in September of 1995.
Excluding the effects of the restructuring charge, operating income decreased
$21.8 million, or 10.6%. Current and prior year acquisitions, net of the
divestiture, provided $19.6 million of operating income. Operating income from
base operations declined $41.4 million as a result of price and volume declines
during fiscal 1996 partially offset by improvement in gross margin percentages,
restructuring benefits and operating efficiencies. Operating margins, excluding
the restructuring charge, were 2.6% in fiscal 1996, compared to 3.0% in fiscal
1995. The overall decrease in operating income of 34.8% is primarily
attributable to the $50 million of restructuring costs recorded in the third
quarter of fiscal 1996 and operating income decreases described above.
Foreign Operations
Revenues from foreign operations increased $44 million, from $877 million in
fiscal 1995 to $921 million in fiscal 1996. Revenues from Canadian operations
decreased $30 million to $774 million, net of $13 million contributed by a
fourth quarter 1995 acquisition, while revenues from Mexican operations
increased $61 million to $73 million as a result of acquisitions and revenues
from foreign sales offices (Vienna and Hong Kong) increased $13 million.
Operating income from foreign operations, excluding $12 million of the
restructuring charge that relates to Canadian operations, decreased $4.6
million to $33.6 million in fiscal 1996 compared to $38.2 million in fiscal
1995. Canadian operating income decreased $9 million to $27.3 million, while
Mexican operating income increased $3.7 million to $4.8 million and the foreign
sales offices contributed an increase of $.7 million to $1.5 million in
operating income. The decrease in Canadian operating income reflects paper
price decreases while the increase in the Mexican operating income is the
result of acquisitions. There was no material effect of foreign currency
exchange rate fluctuations on the results of operations in fiscal 1996 compared
to fiscal 1995.
We believe that our foreign operations do not expose us to material foreign
currency risk and, therefore, we only engage in limited currency hedging. We
believe that economic risk is minimized because we source locally in excess of
90% of the products we distribute within our foreign markets and consistent
with our growth plans, we reinvest profits in the country where the profits are
derived, except for a limited amount of dividends and interest.
Restructuring
We recorded a restructuring charge of $50 million during the third quarter of
fiscal 1996, which included the cost of facility closures ($33 million) and
severance costs ($17 million) associated with the regional realignment from ten
to five regions in the United States and facilities mergers in the United
States and Canada. Our information technology ("IT") system is expected to be
fully implemented by the end of fiscal 1999 and is significant to our plans to
realize cost savings through streamlined operating and financial functions and
to our plans to increase responsiveness to customers and enhance distribution
efficiency. At September 30, 1996, the remaining restructuring reserve was
$29.5 million.
Acquisitions
In fiscal 1996, we completed 41 acquisitions with annualized revenues of $854
million. Almost all of the U.S.-based acquisitions are Supply Systems
companies, reflecting our goal of moving toward a balanced revenue contribution
between our Printing and Imaging and Supply Systems businesses. Fifteen of the
acquisitions are located in Mexico, further expanding the group's presence in
the Mexican market. The 41
16
<PAGE>
acquisitions were financed with cash ($185 million), Alco Stock ($104 million)
and promissory notes ($45 million). See "--Financial Condition and Liquidity."
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues increased $1.2 billion, or 21.4% from $5.8 billion to $7.0 billion,
which includes current and prior year acquisitions that had an additive revenue
impact of $74 million. Increased revenues of base operations is primarily
related to substantial price increases experienced in the paper industry during
fiscal 1995, as well as volume increases. Gross margin percentages declined to
15.2% in fiscal 1995 compared to 16.2% in fiscal 1994. Gross margin percentages
in fiscal 1995 were negatively impacted by higher costs from suppliers for many
products, in addition to a higher proportion of mill direct (versus warehouse)
sales that was caused largely by rapidly increasing prices.
Operating income increased $57.8 million, or 38.9%, in fiscal 1995 compared
to fiscal 1994. Current and prior year acquisitions provided $3.9 million of
operating income. The remaining $53.9 million was from internal growth,
reflecting the impact of price and volume increases along with net benefits
realized from the restructuring program initiated in 1993. Operating margins
were 3.0% in fiscal 1995, compared to 2.6% in fiscal 1994.
Foreign Operations
Revenues from foreign operations increased by $228 million, from $649 million
in fiscal 1994 to $877 million in fiscal 1995. Revenues from Canadian
operations increased $155 million to $804 million, which is net of a negative
impact of approximately $12 million relating to foreign currency rate
fluctuations, while acquisitions in Mexico in fiscal 1995 added $12 million and
foreign sales offices (opened in 1995) added $61 million. Operating income of
foreign operations increased $27.1 million in fiscal 1995 compared to fiscal
1994. Canadian operating income increased $25.2 million to $36.3 million, while
Mexican acquisitions contributed $1.1 million in operating income and foreign
sales offices contributed $.8 million in operating income. Operating income
increases in Canada reflect price increases, growth in the fine paper
distribution business and restructuring benefits.
Acquisitions and Divestitures
We completed 12 acquisitions with annualized revenues of approximately $152
million in fiscal 1995. Most of the acquisitions were Supply Systems companies,
reflecting our goal of a balanced revenue contribution between the Printing and
Imaging and Supply Systems businesses. Two acquisitions were in Canada, and
four acquisitions led to our entrance into the Mexican market, further
expanding our presence in North America.
In September 1995, we divested Central Products Company for $80 million in
cash and notes and recorded a gain of approximately $4 million on the sale.
Also included in operations, and related to Central Products Company, are
fiscal 1995 revenues of approximately $109 million and income before taxes of
$7.9 million.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities in fiscal 1996 was $206 million.
During the same period, we used $210 million in cash for investing activities,
which included acquisition activity (at a cash cost of $191 million, including
cash earn-out payments relating to pre-fiscal 1996 acquisitions and net of cash
acquired associated with fiscal 1996 acquisitions), deferred cost expenditures
of $52 million principally associated with the IT system and capital
expenditures of $36 million. These investing activities were primarily funded
through cash flow from operations. Cash used in financing activities included
$53 million advanced from Alco less $58 million that was used for debt
repayment.
17
<PAGE>
On September 30, 1996, total third party debt of Unisource was $60.3 million
and outstanding Intercompany Debt was $554 million. See "Summary--What We Have
Already Accomplished to Prepare for the Spin-Off--Arranged $1 Billion Credit
Facility," "Capitalization" and "Pro Forma Consolidated Financial Information."
Intercompany Debt as of November 8, 1996 was approximately $600 million. The
amount of Intercompany Debt to be repaid prior to December 13, 1996 will be
dependent upon the normal interim operating cash receipts and payments and
acquisition funding requirements. We intend to borrow funds under an available
$1 billion Credit Facility to finance the repayment of such Intercompany Debt
and approximately $7.3 million (at September 30, 1996) in borrowings under an
existing credit facility for Canadian operations. See Notes 8 and 9 to the
Consolidated Financial Statements. See "Description of Credit Facility." We
have historically used Alco's centralized cash management system for all of our
domestic operations. Cash reflected on the consolidated balance sheets are
primarily the balances maintained by Unisource's foreign subsidiaries.
We presently expect to pursue acquisitions during fiscal 1997 at a slightly
less aggressive pace compared to fiscal 1996 activity. See "--Fiscal 1996
Compared to Fiscal 1995; Acquisitions." Such acquisitions will be funded with a
combination of Unisource Common Stock, cash flow from operations and available
borrowings under the Credit Facility.
Total cash expenditures in connection with the Unisource restructuring plans
amounted to $35 million in fiscal 1996. Remaining cash expenditures are
estimated at $29 million. We are party to a long-term technology outsourcing
agreement and related amendments, which is expected to continue through
September 30, 2005. The remaining commitment under this agreement and related
amendments was $194 million at September 30, 1996. During fiscal 1996, we spent
$43 million under this agreement, and cash outlays of approximately $39 million
are projected under this outsourcing arrangement during fiscal 1997. See
"Business--Business Transformation and Information Technology System." These
restructuring and outsourcing expenditures are anticipated to be funded from
our operating cash flow.
We periodically sell Canadian accounts receivable pursuant to a limited
recourse, bank sponsored program which provides a cost-effective source of
financing for Canadian operations. These arrangements are not material to
overall liquidity, and we could readily replace this funding source if
necessary.
We anticipate paying a quarterly dividend of $.20 per share with respect to
the Unisource Common Stock during the first fiscal quarter following the Spin-
Off. See "Dividend Policy."
At the end of fiscal 1996, our commitments for capital expenditures were
approximately $7.2 million, all of which are expected to be expended during
fiscal 1997.
We believe that our operating cash flow, together with financing
arrangements, will be sufficient to finance current operating requirements
including capital expenditures, acquisitions, cash requirements under the
restructuring program and future dividends.
18
<PAGE>
QUARTERLY RESULTS
The following table reflects Unisource's selected quarterly results for the
last eight fiscal quarters.
UNAUDITED QUARTERLY STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC. 31, MAR. 31, JUNE 30, SEP. 30 DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,547 $1,750 $1,833 $1,857 $1,716 $1,747 $1,749 $1,811
Gross profit............ 242 269 274 277 269 290 292 276
Income (loss) before
taxes.................. 32 38 48 55 43 47 (5)(1) 18
Net income (loss)....... 20 23 29 33 26 29 (6)(1) 11
Pro forma net income
(loss)(2).............. 25 27 (7)(1) 10
Pro forma earnings
(loss) per share(2).... $ .37 $ .41 $ (.11)(1) $ .14
</TABLE>
- - --------
(1) Includes $50 million restructuring charge ($32.5 million net of tax).
(2) See Pro Forma Consolidated Financial Information, which presents pro forma
financial information for fiscal 1996.
We have experienced fluctuations in quarterly revenues, gross profits and net
income due to a variety of factors, including volatility in pulp and paper
prices (which may also affect customer demand for Printing and Imaging
products), restructuring efforts and the timing and magnitude of acquisition
activities and the implementation of our restructuring program. Results of
operations for any previous fiscal quarter are not necessarily indicative of
results for any future periods, and future quarterly results could be adversely
impacted by these, and other, factors. See "Risk Factors--Quarterly
Fluctuations in Operating Results; Sensitivity to Paper Prices."
19
<PAGE>
BUSINESS
INTRODUCTION
Unisource is the largest marketer and distributor of quality paper products
in North America. We also are a leading North American distributor of paper and
plastic shipping and foodservice supplies, sanitary maintenance supplies and
equipment and packaging supplies and equipment. Our distribution facilities are
located throughout the United States, Canada and Mexico.
We serve a broad customer base by marketing and distributing products and
equipment that are manufactured by third parties. We distribute these products
through two businesses: a Printing and Imaging business which markets and
distributes quality papers to printers, publishers and corporate imaging
customers; and a Supply Systems business, which distributes a wide range of
paper and plastic products, sanitary maintenance supplies and equipment and
packaging equipment and supplies, principally to manufacturers, food processors
and grocery stores. We estimate that our Printing and Imaging business commands
a 17% market share in the United States and a 50% market share in Canada. We
also compete with a large number of local and regional distributors in the
fragmented Supply Systems market and estimate that we have a 6% and 8% share in
our Supply Systems markets in the United States and Canada.
In fiscal 1996, Unisource generated approximately $7 billion in revenues and
$184 million in operating income, excluding a $50 million restructuring charge.
In fiscal 1996, our Printing and Imaging business accounted for approximately
68% of total revenues and the Supply Systems business accounted for
approximately 32% of total revenues.
CUSTOMERS AND PRODUCTS
Within our two businesses, we focus on five target customer segments:
commercial printers and publishers; business imaging customers; manufacturers;
food processors; and grocery stores. Each of the five target customer segments
has dedicated customer service professionals, a separate sales force and, in
some instances, specialty groups dedicated to satisfying each end user's
specific needs.
Our Printing and Imaging business is the leading North American supplier of
printing papers to commercial printers, publishers and business forms
manufacturers, which produce catalogs, brochures, advertising supplements,
annual reports, business forms and direct mail advertising. We also provide a
broad array of specialty and commodity papers and supplies to imaging
customers, such as in-plant print facilities, quick printers, corporate copy
centers, government institutions and other paper-intensive businesses.
Products sold by Unisource's Printing and Imaging business are distributed
both by Unisource (i.e., through Unisource's distribution facilities) and
through mill direct deliveries (i.e., direct deliveries from paper mills to
Unisource customers). In fiscal 1996, the Printing and Imaging business
represented approximately $4.8 billion or 68% of Unisource's total revenues.
Approximately 48% of fiscal 1996 sales in this business were effected through
Unisource's distribution facilities and 52% of such sales were effected through
mill direct deliveries. The quantity of goods ordered and delivery lead times
are the primary factors involved in determining whether an order will be filled
from the warehouse or directly shipped from a mill. In periods of rapidly
falling paper prices, customers may purchase smaller quantities with short
delivery lead times in anticipation of further price declines. These factors
could result in a shift to a greater proportion of warehouse, versus mill
direct, deliveries.
Our Supply Systems business distributes a wide variety of paper and plastic
supplies, sanitary maintenance equipment and supplies and packaging equipment
and supplies. While our customer base is broad, we have focused Supply Systems
acquisition and marketing efforts mainly in the manufacturing, food processing
and retail grocery markets. The products we distribute to manufacturers include
shipping room supplies (corrugated boxes, cushioning materials, tapes and
labeling), packaging equipment and supplies, sanitary maintenance equipment and
supplies and foodservice supplies. Food processing customers purchase films and
food wraps, food containers, apparel for food service workers, refrigerants and
sanitary supplies and equipment. Retail
20
<PAGE>
grocery customers purchase food packaging equipment and supplies, containers
and wraps for food, grocery bags and boxes, meat trays, wraps, liners and
sanitary maintenance supplies. In fiscal 1996, the Supply Systems business
comprised approximately $2.2 billion or 32% of our revenues.
We believe that the critical factors for success in our businesses include
prompt and accurate delivery of orders, close contact with customers and a full
array of products and services. We offer daily delivery to certain customer
locations and have the capability of delivering special orders on short notice.
Our more than 2,800 sales and marketing representatives fulfill customers'
requirements and actively market new product offerings. Our extensive
distribution network and national presence in both the United States and Canada
enable us to service national accounts, and our large size gives us important
economies of scale in purchasing and other functions. The percentage of paper
products sold through distributors such as Unisource has increased over the
past several years, and we expect this trend to continue.
No single customer accounted for more than 2% of Unisource's sales for its
fiscal year ended September 30, 1996. There are no material long-term contracts
with any customer that may not be canceled by either party at its option.
STRATEGY
We intend to expand beyond our distribution strengths to become a leading
marketing and logistics company which provides a broad array of Printing and
Imaging and Supply Systems products and services to target customer markets. We
are implementing this strategy in order to
(i) minimize our exposure to the cyclical paper market,
(ii) position Unisource to compete based on our ability to lower customers'
overall cost of procurement rather than on individual product cost and
(iii) expand our product and service offerings to meet current and future
customer needs.
We are pursuing our objective through the following means:
Accelerate Growth in Supply Systems Businesses
We want to expand through acquisitions and internal growth in the Supply
Systems market. We believe we have significant opportunities to capture
additional market share because the Supply Systems distribution market is now
dominated by many smaller competitors that do not have Unisource's
infrastructure, economies of scale, technological capability and breadth of
product line. Supply Systems acquisitions and growth will establish greater
revenue balance between our two principal businesses, reduce exposure to the
cyclical business trends associated with the paper business and enhance overall
gross margins. We will also continue to expand internationally, particularly in
Canada and Mexico.
Enhance Overall Growth and Efficiency Through Transformation
We are building an advanced information system network to track customer
supply trends, monitor customer inventory levels, and determine future
inventory needs at the time orders are placed. These services will allow
customers to realize significant savings through more efficient management of
working capital and work flow. These services also will encourage customers to
outsource entire purchasing departments to Unisource. At the same time, we have
consolidated numerous regions, facilities, operations and customer service
departments to provide better service and marketing functions. We believe that
the opportunities for growth arising out of the transformation program are
significant for both of our businesses. The opportunity to "cross-sell"
products and expertise across markets will present significant competitive
advantages.
21
<PAGE>
Increase Market Share Through Segmentation and More Efficient Deliveries
We intend to increase market share through aggressive sales and marketing
techniques that focus on specific customer segments and by offering segment
customers valuable procurement solutions through a combination of products and
services. We are also implementing several software systems which will add both
flexibility and efficiency to our distribution capabilities, so that we can
make timely, accurate and cost-effective deliveries. The software systems that
will maximize efficiency in deliveries include a truck-routing system which
maps optimal delivery routes and estimates delivery times and an on-board
computer terminal which tracks mileage in order to ensure driver productivity.
Expand Sales to National Accounts
We believe that the developments in our technology and customer service
capabilities, together with our distribution networks, will attract large
multi-location customers seeking to consolidate suppliers and procurement
activities. These national accounts should provide a consistent and profitable
revenue stream. In fiscal 1996, Unisource had approximately $400 million in
sales to national accounts.
SOURCES OF SUPPLY
Our Printing and Imaging business suppliers include all of the major North
American paper producers, which accounted for over 80% of Unisource's Printing
and Imaging purchases. We do not anticipate the termination of any significant
Printing and Imaging supply relationship and, in any case, any such termination
would not have a material adverse effect because we would be able to arrange
comparable alternative supply arrangements. Unisource represents no less than
10% of the estimated sales to distributors by each of its ten largest
suppliers. Typically, distribution arrangements involve exclusive or semi-
exclusive arrangements to sell a manufacturer's product in a given market.
Our Supply Systems business has 31 core suppliers. Currently, the ten largest
suppliers represent approximately 30% of Supply System product purchases.
Unisource is one of the leading Supply Systems customers for each of its ten
largest suppliers. Unisource does not anticipate the termination of any
significant Supply Systems relationships with any of its ten largest suppliers
and, in any case, any such termination would not have a material adverse effect
because we would be able to arrange comparable alternative supply arrangements.
Supplier relationships are good and such relationships are expected to
continue.
COMPETITION
Our Printing and Imaging competitors include the distribution units of large
paper manufacturers (e.g., International Paper's ResourceNet, Mead
Corporation's Zellerbach and Champion International's Nationwide Paper) and
independent distributors. While we are the largest distributor in this market,
certain Printing and Imaging competitors, principally the distribution units of
large paper manufacturers, may have greater total financial, purchasing and/or
sourcing power than Unisource. We estimate, based upon 1995 data, that we have
an approximate 17% share of the United States Printing and Imaging market and
an approximate 50% share of the Canadian Printing and Imaging market.
In the more fragmented Supply Systems business, we compete with a large
number of local and regional distributors, as well as larger companies,
including ResourceNet and Zellerbach. We are the largest North American
distributor of, and a leading consolidator in, Supply Systems. We estimate
that, in the Supply Systems markets in which we compete, we have an approximate
6% share of the United States Supply Systems market and an approximate 8%
market share in the Canadian Supply Systems market.
During 1995, we entered the Mexican Printing and Imaging and Supply Systems
distribution markets. These markets are highly fragmented and are not dominated
by any individual distributor. We plan to aggressively pursue market share in
these markets, principally through acquisitions. See "--International
Operations."
22
<PAGE>
Although our businesses are highly competitive, we believe that our size,
strategic supply relationships and unique distribution and servicing
capabilities have resulted in a strong competitive position in all of the
markets in which we compete. We compete principally on the basis of
responsiveness to customer needs, price, quality customer service and the range
of products maintained in inventory.
INTERNATIONAL OPERATIONS
Unisource has operations in every major province of Canada and throughout
Mexico. During fiscal 1996, our international revenues were $921 million,
including $774 million attributable to Canadian operations, $73 million
attributable to Mexican operations and $74 million in revenues derived from our
two foreign sales offices in Vienna and Hong Kong. In fiscal 1996, foreign
operations represented approximately 13% of our revenues and 18% of our
operating income, excluding the restructuring charge. At September 30, 1996,
approximately 18% of our total assets were attributable to these operations.
For further information regarding our international operations, see Note 18 to
the Consolidated Financial Statements. There are certain risks attendant to
foreign operations, including, but not limited to, risks with respect to
currency fluctuations and unsettled political conditions.
Our international strategy is to acquire Supply Systems companies in Canada
and small and medium-sized companies in both the Printing and Imaging and
Supply Systems markets in Mexico. We have established acquisition targets
which, if successfully executed, could add up to $700 million in annual
revenues in these markets by the year 2000.
We currently are the leading Printing and Imaging and Supply Systems
distributor in Canada. Consistent with our overall acquisition strategy, we are
targeting substantial growth in the Supply Systems business through selective
acquisitions over the next three years.
Unisource entered the Mexican market in 1995 through the acquisition of a
distributor which had approximately $8 million in annualized revenues and
focused primarily on Supply Systems products. Our Mexican operations have grown
substantially through successive acquisitions of Printing and Imaging and
Supply Systems distributors and generated $73 million in revenues in fiscal
1996. These acquisitions have had a positive impact on operating results.
ACQUISITIONS
We have a full-time staff of professionals dedicated to evaluating,
negotiating and completing acquisitions. In fiscal 1995, Unisource acquired 12
companies with $152 million in annualized revenues, including four acquisitions
in Mexico with a total of $52 million in annualized revenues. In fiscal 1996,
Unisource acquired 41 companies with $854 million in annualized revenues,
consisting predominantly of Supply Systems companies with approximately $750
million in annualized revenues.
Unisource's current acquisition strategy includes a long-term commitment to
building market share in the North American Supply Systems market, primarily
through acquisitions. Unisource also will continue to expand in the Mexican
markets through strategic acquisitions of Printing and Imaging companies. In
the event Unisource's current acquisition plans are successfully executed, such
acquisitions could have a cumulative additive effect on annual Supply Systems
revenues by up to $2 billion by September 30, 2000. Supply Systems acquisitions
are being pursued aggressively in order to:
(i) achieve greater balance in total revenues between our two businesses;
(ii) reduce our exposure to the cyclical paper market; and
(iii) enhance overall margins.
23
<PAGE>
BUSINESS TRANSFORMATION AND INFORMATION TECHNOLOGY SYSTEM
Beginning in late fiscal 1993, Unisource embarked on an ambitious
restructuring program to transform itself from a distributor, focused
principally in the Paper and Imaging products markets, to a leading marketing
and logistics company which provides a broad array of products and services to
target customer markets. Unisource's transformation program is focused on:
(i) unifying its business under one name--Unisource;
(ii) re-engineering business processes;
(iii) consolidating administrative and operational functions;
(iv) implementing a common IT system; and
(v) realigning our organization to focus on target market segments.
These changes should allow Unisource to pursue growth in market share,
improve customer convenience and service, facilitate electronic communication
with suppliers and customers, increase operating efficiency and reduce
expenses.
To date, the restructuring effort has resulted in the following operating
improvements:
(i) the consolidation of 23 autonomous United States companies into a new
streamlined structure consisting of five regional units;
(ii) the consolidation of approximately 100 operating divisions; and
(iii) the consolidation of over 200 customer service departments into 11
customer service centers in the United States.
An integral part of Unisource's transformation program is the North American
Distribution System, an IT transformation program which will effectively
centralize administrative functions and electronically link Unisource to both
suppliers and customers, to allow for automatic inventory replenishment and
just-in-time delivery capabilities. These electronic links will allow suppliers
and customers to manage their operations more efficiently. We anticipate that
as this system is implemented, numerous financial and accounting centers will
be consolidated into one financial processing center, which has already been
established in Jacksonville, Florida. Unisource has entered into a long-term
systems alliance with Integrated Systems Solutions Corp. ("ISSC"), a unit of
IBM. ISSC is assisting Unisource in managing and consolidating our existing
operations and in implementing an SAP software system, which has been
customized to accommodate our changing needs and our customers' needs. We
expect the new IT system to be fully implemented by the end of fiscal 1999.
EMPLOYEES
Unisource employs approximately 12,000 people, of whom approximately 10% are
unionized. In the United States, there are 36 separate collective bargaining
agreements with a total of six unions, covering 1,018 employees, with 83% of
these unionized employees covered under agreements with the International
Brotherhood of Teamsters. In Canada, approximately 15% of the employees are
unionized under agreements with the Communications, Energy and Paperworkers
Union, the National Automobile, Aerospace and Agricultural Implement Workers of
Canada, and two other unions. Approximately 80% of Unisource's total workforce
is employed in the United States, 15% of the workforce is in Canada and the
remaining 5% is in Mexico. There have been no work stoppages or threatened work
stoppages in recent years. Unisource believes its relations with its employees
and unions are good.
PROPRIETARY MATTERS
Unisource has a number of trademarks and tradenames, which Unisource believes
to be important to its business. However, except for the Unisource trademark,
Unisource is not dependent upon any single trademark or tradename, or group of
trademarks or tradenames. The trademark on the Unisource name is registered
24
<PAGE>
throughout North America. The current duration for such registration ranges
from seven years to 15 years, but each registration may be renewed an unlimited
number of times. Other trademarks and tradenames used in the Unisource business
are registered and maintained on a worldwide basis.
ENVIRONMENTAL REGULATION
Unisource is engaged in distribution businesses which do not generate
significant hazardous wastes. Unisource's distribution facilities have tanks
for storage of diesel fuel and other petroleum products which are subject to
laws regulating such storage tanks. Federal, state and local provisions
relating to the protection of the environment or the discharge of hazardous
materials have not had, and are not expected to have, a material adverse effect
on Unisource's capital expenditures, liquidity, earnings or competitive
position.
LEGAL PROCEEDINGS
A number of ordinary course legal proceedings against Unisource are pending,
the outcome of which is not expected to have a material adverse effect on
Unisource or its operations as a whole.
PROPERTIES
Unisource's current principal executive office, located in Wayne,
Pennsylvania, occupies a portion of Alco's 110,000 square foot facility.
Unisource uses this space pursuant to a lease with Alco. See "Arrangements
Between Alco and Unisource Relating to the Spin-Off--Distribution Agreement."
In the event Alco sells this facility, which is presently under consideration,
Unisource will lease alternative facilities. We anticipate that the cost of any
new leased facility will not exceed amounts currently being spent under the
Alco lease.
Unisource has approximately 190 warehouses, distribution centers, sales
offices and other facilities. Of this total, 135 facilities are located in the
United States, 35 are located in Canada and 20 are located in Mexico. As of
September 30, 1996, leased facilities comprised approximately 12 million square
feet of space and owned facilities comprised approximately 6 million square
feet of space. When we complete the transformation program in 1999, we expect
the total number of facilities to be reduced from 190 to approximately 150,
excluding the impact of acquisitions.
Unisource's properties described above are generally well maintained,
suitable for present operations and adequate for current requirements.
Productive capacity and extent of utilization of Unisource's facilities are
difficult to quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the product that is
being distributed, the degree of automation and the utilization of the labor
force in the facility. In this context, Unisource estimates that its overall
facilities were effectively utilized during fiscal 1996, and Unisource believes
that its facilities have the capacity, if necessary, to expand distribution
capabilities to meet customer demand.
25
<PAGE>
MANAGEMENT
DIRECTORS
Effective January 1, 1997, the directors of Unisource and the organization of
the Unisource Board of Directors will consist of the persons named below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE
NAME YEARS AGE
---- ------------------------------------------------ ---
<C> <S> <C>
Paul J. Darling, II.. Chairman, President and Chief Executive Officer, 58
Corey Steel Company (1984-Present) (also a
director of Liberty Mutual Insurance Company,
Liberty Mutual Fire Insurance Company and Liberty
Financial Companies, Inc.)
James J. Forese...... Executive Vice President, IKON and President, IKON 61
International (November 1996-Present); Executive
Vice President and Chief Operating Officer, Alco
(January 1996-November 1996); General Manager, IBM
Customer Financing, and Chairman, IBM Credit
Corporation (1993-1995); IBM Vice President,
Finance (1990-1993); IBM Vice President and Group
Executive (1988-1990) (also a director of Lexmark
International, Inc., IBM Latin America, American
Management Systems, Inc. and NUI Corporation)
Dana G. Mead......... Chairman and Chief Executive Officer (1994- 60
Present), President and Chief Operating Officer
(1992-1994) and a director (1992-Present),
Tenneco, Inc.; Chairman (1992-Present), Case
Corporation; Chairman (1995-Present) and a
director, National Association of Manufacturers;
Executive Vice President (1989-1992), Senior Vice
President (1986-1989), International Paper Company
(also a director of National Westminster Bancorp,
Cummins Engine Company, Inc. and Baker Hughes
Incorporated)
Ray B. Mundt......... Chairman and Chief Executive Officer (August 1996- 68
Present), Unisource; Director (1971-Present),
Chairman of the Board of Directors (1986-1995),
Chief Executive Officer (1980-1993) and President
(1974-1988), Alco (also a director of Liberty
Mutual Insurance Company, Liberty Mutual Fire
Insurance Company, Liberty Financial Companies,
Inc. and Nocopi Technologies, Inc.)
Rogelio G. Sada...... Private investor; Mayor, San Pedro, N.L., Mexico 61
(1992-1994); Director, International Advisory
Board of Security Pacific National Bank (1980-
1991); Director General, VITRO, a glass and glass-
related products manufacturer in Mexico (1972-
1985)
James W. Stratton.... President, Stratton Management Company (1972- 60
Present); Chairman (1993-Present) and a director,
Stratton Small-Cap Yield Fund; Chairman
(1981-Present) and a director, Stratton Monthly
Dividend Shares; Chairman (1972-Present) and a
director, Stratton Growth Fund (also a director of
UGI Corporation, Gilbert Associates and Teleflex)
</TABLE>
Each of the foregoing prospective Unisource directors is serving on the Alco
Board of Directors as of November 26, 1996, but will not stand for re-election
at the Alco January 1997 annual meeting of shareholders.
The Certificate of Incorporation, as amended, and By-laws of Unisource,
provide that our Board of Directors will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible and
that, of the initial Unisource directors following the Spin-Off, one-third will
continue to serve until the 1997 Annual Meeting of Stockholders, one-third will
continue to serve until the 1998 Annual Meeting of Stockholders, and one-third
will continue to serve until the 1999 Annual Meeting of Stockholders. Of the
initial directors, Messrs. Sada and Forese will serve until the 1997 Annual
Meeting of Stockholders; Messrs. Darling and Mead will serve until the 1998
Annual Meeting of Stockholders; and Messrs. Stratton and Mundt will serve until
the 1999 Annual Meeting of Stockholders. Starting with the 1997 Annual Meeting
of Stockholders,
26
<PAGE>
one class of directors will be elected each year for a three-year term. See
"Description of Capital Stock--Certain Antitakeover Provisions--Unisource
Certificate and By-laws; Classified Board of Directors."
The Unisource Board has a number of standing committees, including an Audit
Committee and a Human Resources Committee. The Unisource Board does not
currently have a Nominating Committee, but such functions will be performed by
the Human Resources Committee. See "Description of Capital Stock--Certain
Antitakeover Provisions--Unisource Certificate and By-laws."
The Audit Committee recommends the selection and retention of independent
accountants; reviews auditing and financial accounting and reporting matters,
the adequacy of internal accounting controls and asset security, audit fees and
expenses; and counsels regarding auditing and financial accounting and
reporting matters. Messrs. Darling (Chairman), Stratton and Sada are expected
to serve on the Audit Committee.
The Human Resources Committee reviews and recommends compensation of officers
and directors; administers supplementary retirement, performance incentive and
stock option plans; and counsels regarding compensation of other key employees,
management development and succession, and major personnel matters. Messrs.
Mead (Chairman), Stratton and Sada are expected to serve on the Human Resources
Committee.
EXECUTIVE OFFICERS
The executive officers of Unisource are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND PROFESSIONAL EXPERIENCE
---- --- ------------------------------------
<C> <C> <S>
Ray B. Mundt............ 68 Chairman and Chief Executive Officer (August
1996-Present), Unisource; Chairman (1986-1995),
Chief Executive Officer (1980-1993), President
(1974-1988), Alco
Charles F. White........ 50 President and Chief Operating Officer (August
1996-Present), Unisource; President, Unisource
Southeast Region (August 1994-1996); President,
Unijax-Sloan (a Unisource company) (1993-1994);
President, Monarch Paper (a Unisource company)
(1986-1993)
Hugh G. Moulton......... 63 Executive Vice President--Chief Administrative
Officer (effective January 1, 1997), Unisource;
Executive Vice President (1992-1996), General
Counsel (1979-1994), Senior Vice President--
Administration (1983-1992), Alco
Kathleen M. Burns....... 44 Vice President and Treasurer (effective January
1, 1997), Unisource; Vice President (1994-1996)
and Treasurer (1989-1996), Alco
Jack H. Keeney.......... 44 Vice President--Finance, Unisource (1995-
Present), Vice President--Finance, Unisource U.S.
Operations (1994-1995); Vice President--Finance,
Unisource Central Region (1992-1994)
David L. Rhodes, Jr..... 43 Senior Vice President--Printing and Imaging,
Unisource (1994--Present); President, Unisource
South (1993-1994); Vice President--Marketing,
Unisource West (1992-1993); President--Western
Area, Zellerbach Paper Company (1986-1992)
L. Bruce Williams....... 54 Senior Vice President--Supply Systems (1994-
Present), Unisource; Region President (1994),
Unisource; President (1993-1994), Butler Paper (a
Unisource company); President (1991-1993), Seneca
Paper (a Unisource company)
</TABLE>
27
<PAGE>
SUMMARY OF EXECUTIVE COMPENSATION
The following table shows, for fiscal 1996, compensation awarded to, earned
by or paid to the Unisource Chief Executive Officer during fiscal 1996 and the
five most highly compensated executive officers of Unisource other than the
Unisource Chief Executive Officer who were serving at September 30, 1996
(collectively, the "Named Officers"). During the periods depicted below, all
cash compensation was paid by Unisource except for the retirement and
consulting income of Mr. Mundt and the cash compensation of Mr. Moulton, which
were paid by Alco.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------- --------------------------------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL FISCAL UNDERLYING COMPENSATION LTIP
POSITION YEAR SALARY($) BONUS($) OPTIONS(1) ($)(2) PAYOUTS($)(3)
--------- ------ ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ray B. Mundt............ 1996 $ 850,000(4) -- 2,243 $539,916 --
Chairman and Chief
Executive Officer
Charles F. White........ 1996 400,000(5) -- 24,600 59,076 $155,760
President and Chief
Operating Officer
Hugh G. Moulton(6)...... 1996 250,000 $ 250,000 2,000 98,211 453,414
Executive Vice
President--Chief
Administrative Officer
(effective January 1,
1997)
L. Bruce Williams....... 1996 218,400 -- 2,700 42,715 198,353
Senior Vice President--
Supply Systems
David L. Rhodes, Jr..... 1996 200,000 -- 2,700 30,451 --
Senior Vice President--
Printing and Imaging
William T. Leith(7)..... 1996 400,000 100,000 9,000(7) 74,725 319,699
Former President and
Chief Executive Officer
</TABLE>
- - --------
(1) Does not include LTIP awards, which will only vest if certain performance
goals are met. See "--Long Term Incentive Compensation Plan Description."
(2) Amounts reflected with respect to Mr. Mundt include retirement income paid
pursuant to Alco's pension plans ($315,618), consulting income ($200,000)
and certain compensation described in the next sentence. For Messrs. Mundt,
White, Moulton, Williams, Rhodes and Leith, amounts include the value of
shares of Alco Stock purchased with matching contributions under Alco's
stock purchase plans, calculated as of the date of purchase, as follows:
$24,298, $54,343, $71,727, $42,715, $30,451 and $74,725; the remaining
amounts for Messrs. White and Moulton represent above-market interest
earned on deferred compensation.
(3) Represents the earned LTIP payouts for the 1994-1996 plan period that were
paid in October 1996, in the form of Alco Stock based on the fair market
value of Alco Stock on September 30, 1996, the last day of the 1994-1996
plan period.
(4) Mr. Mundt, the former Chief Executive Officer of Alco, retired from Alco in
December 1994, and assumed his current responsibilities as Chairman and
Chief Executive Officer of Unisource on August 1, 1996. The amount
reflected under the Salary column does not reflect actual salary paid
during fiscal 1996 ($141,667), but instead reflects annualized salary for
his services as Unisource Chairman and Chief Executive Officer under his
current compensation arrangement.
(5) Reflects annualized salary payable to Mr. White for the Unisource President
and Chief Operating Officer position he assumed effective August 1, 1996,
not actual salary paid during fiscal 1996 ($254,175).
(6) At all times during fiscal 1996, Mr. Moulton served as Executive Vice
President of Alco, and will continue in that capacity until January 1,
1997, at which time he will assume the position shown above.
(7) Mr. Leith served as Unisource's President and Chief Executive Officer for
the first nine months of fiscal 1996, and resigned all positions with
Unisource in July 1996. Mr. Leith surrendered stock options he was granted
in fiscal 1996 after he resigned. See "--William Leith Separation and
Consulting Agreement."
28
<PAGE>
OPTION GRANTS
The following table shows option grants by Alco to the Named Officers during
the 1996 fiscal year:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
(1)
------------------------------------
% OF TOTAL
NUMBER OPTIONS
OF SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT
NAME GRANTED(#) YEAR (%) ($/SH) DATE VALUE ($)(2)
- - ---- ------------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Ray B. Mundt............ 800(3) .05% $38.875 1/25/2006 $ 8,776
1,443(3) .09 29.156 1/25/2016 21,890
Charles White........... 2,500 .16 42.312 10/2/2005 25,150
2,100(4) .14 38.875 1/25/2006 19,572
20,000 1.31 45.250 8/5/2006 308,400
Hugh G. Moulton......... 2,000(4) .13 38.875 1/25/2006 21,940
L. Bruce Williams....... 2,700(4) .18 38.875 1/25/2006 29,619
David L. Rhodes, Jr..... 2,700(4) .18 38.875 1/25/2006 29,619
William T. Leith........ 9,000(4)(5) .59 38.875 1/25/2006 98,730
</TABLE>
- - --------
(1) Except as described in Note 3, all stock options were granted at an
exercise price equal to the fair market value of Alco Stock on the date of
grant. Except as described in Notes 3 and 4, all stock options become
exercisable 20% per year from the date of grant.
(2) The option grant present value was calculated using Black-Scholes option
valuation methodology, based on the following assumptions: (a) options
remain outstanding for the maximum stated option term and become
exercisable in accordance with the relevant option vesting period; (b)
6.19% expected weighted average risk-free rate of return; and (c) 25.26%
expected weighted average volatility.
(3) Represents option grants made to Mr. Mundt in his capacity as a director of
Alco under Alco's directors stock option plans. The option to purchase 800
shares of Alco Stock was granted at an exercise price equal to the fair
market value of Alco Stock on the date of grant and was fully exercisable
on the option grant date. The option to purchase 1,443 shares of Alco Stock
was granted at an exercise price equal to 75% of the fair market value of
Alco Stock on the date of grant and becomes exercisable in full on January
25, 1997.
(4) Represents options which are scheduled to vest in three equal installments
on the third, fourth and fifth anniversaries of the date of grant;
provided, however, such scheduled vesting shall be accelerated to the third
anniversary of the date of grant if certain performance targets are
satisfied.
(5) These options were surrendered after Mr. Leith resigned from Unisource in
July 1996.
29
<PAGE>
OPTION EXERCISES
The following table shows Alco stock option exercises for Named Officers
during fiscal 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF
UNDERLYING UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
ACQUIRED VALUE FY-END FY-END FY-END FY-END
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($)(1) ($)(1)
---- ----------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ray B. Mundt............ -- $ -- 6,160 1,443 $ 149,103 $ 29,897.08
Charles White........... 9,600 479,550 21,000 33,400 715,488 341,806.25
Hugh G. Moulton......... 15,400 512,938 67,400 22,000 2,259,500 674,500.00
L. Bruce Williams....... 8,860 282,177 240 13,300 8,280 282,425.00
David L. Rhodes, Jr..... -- -- 2,760 12,040 61,485 226,086.25
William T. Leith........ -- -- 42,900 80,200 984,188 1,391,200.00
</TABLE>
- - --------
(1) Value of unexercised options equals fair market value of Alco Stock as of
September 30, 1996 ($49.875), less the exercise price, multiplied by the
number of shares underlying the stock options.
LONG-TERM INCENTIVE COMPENSATION PLAN AWARDS
The following table shows the dollar value of awards granted to Named
Officers under Alco's long-term incentive compensation plan (the "LTIP") during
fiscal 1996 and the dollar amount which will become payable under the LTIP
after fiscal 1998 upon attainment of threshold, target and maximum performance
levels:
LONG TERM INCENTIVE COMPENSATION PLANS--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
DOLLAR VALUE OF PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS
SHARES, UNITS PERIOD UNTIL (IN DOLLARS) (#)(2)
OR OTHER MATURATION --------------------------
NAME RIGHTS (#)(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- --------------- --------------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Ray B. Mundt............ $ -- -- $-- $ -- $ --
Charles White........... 81,638 10/1/95-9/30/98 -- 40,819 81,638
Hugh G. Moulton......... 77,750 10/1/95-9/30/98 -- 38,875 77,750
L. Bruce Williams....... 104,962 10/1/94-9/30/97 -- 52,481 104,962
David L. Rhodes, Jr..... 104,962 10/1/95-9/30/98 -- 52,481 104,962
William T. Leith........ 349,875(3) 10/1/95-9/30/98 -- 174,938 349,875
</TABLE>
- - --------
(1) Represents the number of cash awards granted, which, if vested, will
entitle the participant to receive cash. The foregoing awards were made
under Alco's LTIP and will be paid under Unisource's LTIP. See "--Long Term
Incentive Compensation Plan Description." The LTIP awards are based on a
comparison of total stockholder return (stock price appreciation and
dividends) versus the total stockholder return of the Standard & Poor's 500
Stock Index and Unisource's internal financial measurements of total
stockholder return. A portion of stockholder return is based on Alco Stock
for the period before the Spin-Off and a portion of stockholder return is
based on Unisource Common Stock for the period thereafter. The awards (or
pro rated portions thereof), if vested, will be paid at the end of the
three-year period.
(2) Represents the cash amount which will be received upon attainment of
threshold, target and maximum performance. For performance between
threshold and maximum, the cash amount to be received will be prorated on a
straight-line basis.
(3) Mr. Leith surrendered this award after he resigned in July 1996.
30
<PAGE>
WILLIAM LEITH SEPARATION AND CONSULTING AGREEMENT
In July 1996, William Leith resigned as President and Chief Executive Officer
of Unisource and subsequently entered into a separation and consulting
agreement with Alco and Unisource (the "Consulting Agreement"). The Consulting
Agreement provides that during the period from August 31, 1996 to August 31,
1999, Mr. Leith will render advice and consulting services to Unisource and
Unisource will pay Mr. Leith $1.66 million in cash and benefits through August
1999, subject to reduction if Mr. Leith finds new employment. The Consulting
Agreement provides that all stock options provided to Mr. Leith prior to
January 1, 1996, shall continue to vest during the period Mr. Leith receives
the foregoing payments and shall become fully vested on the earlier of the date
when Mr. Leith's payments cease or January 1, 1999. Mr. Leith will continue to
have the right to exercise all vested options until August 31, 1999. Mr. Leith
and Unisource have agreed that 50% of Mr. Leith's existing Alco stock options
will be converted into Unisource stock options and the remaining 50% will
continue as Alco options after the Spin-Off.
STOCK OPTION PLAN
We have adopted a stock option plan (the "Stock Option Plan"), which is
intended to provide an incentive to employees and other persons who will be
responsible for Unisource's future growth and continued success. The Stock
Option Plan authorizes grants of options for an aggregate of 10 million shares
of Unisource Common Stock (subject to adjustment for subsequent stock splits,
stock dividends and in certain other circumstances). This aggregate number
includes shares to be issued as a result of the conversion of Alco options held
by Unisource employees as of December 31, 1996 into options to purchase
Unisource Common Stock. Options may be granted to persons who are employees of
Unisource or its subsidiaries, including employee directors and officers, or
who provide services as independent contractors to Unisource or its
subsidiaries. Members of the Board of Directors who are not employees of
Unisource or a Subsidiary are not eligible to participate in the Stock Option
Plan. See "--Director Compensation." The Stock Option Plan authorizes grants at
per share option prices equal to, less than or greater than the fair market
value of shares of Unisource Common Stock on the date of grant. No one person
may receive more than 500,000 options pursuant to the Stock Option Plan in any
fiscal year. We estimate that there may be approximately 200 persons (including
employee directors and officers) in the category of key employees to whom
options may be granted under the Stock Option Plan.
The Human Resources Committee will determine the persons to whom options will
be granted, the dates of grant, the number of shares to be subject to each
option, the option prices, the duration, and the other terms and conditions of
the options, including any restrictions to be placed on transferability of
shares upon exercise of options. Options will be granted for various terms, but
unless the particular option award provides otherwise, they will generally
terminate 90 days following the optionee's termination of employment or service
or, in the case of death or disability, within one year thereafter. Options
generally are not transferable except by will or the laws of descent and
distribution. The Human Resources Committee will determine whether to grant
options qualifying as "incentive stock options" under Section 422 of the Code
(hereinafter referred to as "ISOs"), or options which do not so qualify
(hereinafter referred to as "non-ISOs"), or a combination of both. Only
employees of Unisource or its majority owned subsidiaries are eligible to
receive ISOs.
The Human Resources Committee may establish conditions precedent to the
vesting of the right to exercise options, including continued employment with
Unisource. Our obligation to sell, issue and deliver shares under options
granted under the Stock Option Plan will be subject to all applicable laws,
rules and regulations, and to such approvals as may be required by any
governmental agencies. Shares subject to an option which expired or was
terminated will again be available for option grant under the Stock Option
Plan.
The Board of Directors may amend or terminate the Stock Option Plan in any
manner and at any time, except that, with certain exceptions, no such amendment
or termination may adversely affect the rights of the holders of then
outstanding options, without such holders' consent.
31
<PAGE>
Unisource employees will be given the opportunity to convert outstanding Alco
options into options to purchase Unisource Common Stock. Pursuant to such
election, Alco options will be converted into Unisource stock options based on
a formula that preserves the economic value inherent in the converted option
after taking into account the fair market value of Alco Stock before December
11, 1996 and the fair market value of Unisource Common Stock on and after
December 11, 1996. Such Unisource stock options will become vested and may be
exercised in accordance with terms comparable to those in effect under the
corresponding Alco options.
The Federal income tax consequences of the grant and exercise of options
under the Stock Option Plan will depend upon the terms and conditions of
particular options as determined by the Human Resources Committee, and upon the
provisions of law as then in effect. Under the Code as currently in effect, an
optionee will not recognize taxable income upon the grant or exercise of an
ISO, except that the excess of the fair market value of the shares at the time
of exercise over the option price is a tax preference item. As an item of tax
preference, such excess would be included in the alternative minimum tax
calculation for the year in which the ISO is exercised. If the optionee holds
the shares for at least two years after the date of grant and one year after
the date the shares are transferred to the optionee, any difference between the
option price and amount received upon sale is treated as capital gain or loss.
If the optionee does not comply with such holding periods, ordinary income is
recognized in the year of disposition of the shares in an amount equal to the
sale price (or, for other transfers, the fair market value on the date of
transfer) or the fair market value on the date of exercise (whichever is less)
less the option price. In such event, any item of tax preference otherwise
generated upon the exercise of the option is disregarded. Unisource will not be
allowed a deduction for federal income tax purposes in connection with the
grant or exercise of any ISO. If the shares acquired are disposed of during the
one-year or two-year holding periods described above, Unisource will generally
be entitled to a tax deduction with respect to the ordinary income recognized
by the optionee.
As to non-ISOs, the optionee will recognize ordinary income upon the exercise
of the option to the extent that the fair market value of the shares at the
time of exercise exceeds the option price. Unisource is generally entitled to a
deduction for Federal income tax purposes with respect to the optionee's
ordinary income. For the purpose of subsequent disposition of the stock (which
would be treated as any other sale of stock), the optionee's cost basis is
equal to the option price plus any amount recognized as ordinary income, and
the holding period for the stock commences with the exercise of the option.
LONG-TERM INCENTIVE COMPENSATION PLAN DESCRIPTION
We have adopted an LTIP to provide long-term incentives to selected
employees. The LTIP is intended to motivate and reward growth in stockholder
value by granting to eligible employees awards which vest only if certain
performance criteria are met. The LTIP will be administered for executives by
the Human Resources Committee, which has the authority to select the employees
to whom awards will be made. The Committee also will determine the number of
shares of Unisource Common Stock subject to each award and will set the
objective performance goals that must be met within a specified time period in
order for the employee to receive the shares. All management personnel,
including the Named Officers, are eligible for selection to participate in the
LTIP.
The performance goals specified by the Human Resources Committee generally
relate to the performance of the employee's business unit or the performance of
Unisource as a whole. Measurements of performance may include stock price,
sales, earnings per share, return on equity, return on assets, growth in
assets, total stockholder return or such other objective performance goals as
may be established by the Human Resources Committee. If the applicable
performance goals are met within the specified time period and the Human
Resources Committee so certifies, the employee will receive the earned LTIP
award (or pro rated portion thereof). The employee may elect to have up to one-
half of the value of the award withheld by Unisource to satisfy tax
obligations. If the Human Resources Committee does not certify that the
applicable performance goals have been met within the specified time period,
the award will be forfeited.
32
<PAGE>
We will be responsible for paying Unisource employees' LTIP awards for
periods that end after December 31, 1996. Outstanding awards held by our
employees under Alco's long term incentive compensation plan as of December 31,
1996 will be converted into awards payable in Unisource Common Stock under the
Unisource LTIP.
A maximum of 6,000,000 shares of Unisource Common Stock may be issued under
the LTIP (subject to adjustment in certain cases). Shares subject to awards
which are forfeited under the LTIP will be available to be awarded again under
the LTIP. The Board of Directors may amend or terminate the LTIP in any manner
and at any time, except that, with certain exceptions, no such amendment or
termination shall adversely affect the rights of employees with respect to
outstanding awards without such employees' consent.
ANNUAL BONUS PLAN
We have adopted an annual bonus plan (the "Bonus Plan") that will provide for
the payment of annual cash bonuses following the close of each fiscal year,
based upon the achievement of objective performance goals. The Bonus Plan will
be administered by the Human Resources Committee. The Human Resources Committee
will designate employees eligible to receive bonuses and will determine
performance objectives, types of bonuses to be paid, bonus amounts, and how and
when bonuses will be paid. Participation is generally limited to management
employees. Bonuses paid to individuals other than the Named Officers will be
paid at the discretion of the Human Resources Committee.
For each Named Officer, the Human Resources Committee will establish
objective performance goals under which a bonus can be paid to the employee.
The Human Resources Committee will establish, in writing, for each fiscal year,
the bonus opportunity for each Named Officer, the performance goals, the
specific performance criteria and the appropriate weight of each performance
criteria and the performance target or range of targets to measure
satisfaction, in whole or in part, of the performance goals. Bonuses for the
Named Officers may not exceed 100% of the individual's annual base compensation
for the year.
At the end of the performance period, the Human Resources Committee will
evaluate Unisource's performance based upon the achievement of the pre-
established performance goals and certify, in writing, the extent to which the
specific performance criteria were attained. Individual awards will be
determined based on performance against the pre-established goals. The Board
may amend or terminate the Bonus Plan in any manner and at any time.
PENSION PLAN AND SUPPLEMENTAL RETIREMENT PLAN
We have adopted a pension plan for salaried employees (the "Pension Plan").
The Pension Plan provides to each eligible employee retiring at age 65 annual
pension benefits equal to the number of the employee's years of credited
service multiplied by 1% of the employee's average annual compensation earned
during the three consecutive years within the employee's last ten years of
participation in the Pension Plan which yield the highest average. Employees
will receive credit for their covered service with Alco to the extent that they
received such credit under Alco's retirement plan, and past participation in
the Alco plan will be taken into account for purposes of computing benefits
under the Unisource Pension Plan. Assets attributable to Unisource employees'
benefits under the corresponding Alco retirement plan will be transferred from
the Alco plan to the Pension Plan, and Unisource employees' benefits under the
Pension Plan will include benefits previously accrued under the Alco plan. All
Pension Plan costs are paid by Unisource and the Pension Plan benefits are
funded on an actuarial basis. The years of credited service as of September 30,
1996 for the Named Officers were: Ray B. Mundt--24.7 years; Charles F. White--
31.3 years; Hugh G. Moulton--25.9 years; L. Bruce Williams--7.0 years; David L.
Rhodes, Jr.--4.4 years; and William T. Leith--4.6 years. In addition, Mr. Leith
earned a past service benefit from his former company (which was acquired by
Alco in 1990) which entitles him to receive a single life annuity of $1,738 per
month beginning at age 65.
33
<PAGE>
We have adopted a supplemental executive retirement plan ("SERP"). Coverage
under the SERP is limited to participants in Unisource's Pension Plan who are
not commissioned sales employees and whose benefits under the Pension Plan are
limited because of (a) restrictions imposed by the Code on the amount of
benefits which may be paid from a tax-qualified plan, (b) restrictions imposed
by the Code on the amount of an employee's compensation that may be taken into
account in calculating benefits to be paid from a tax-qualified plan, or (c)
any reductions in the amount of compensation taken into account under the
Pension Plan because of an employee's participation in certain deferred
compensation plans sponsored by Unisource or a Subsidiary. The SERP provides
for a supplement to the annual pension paid under the Pension Plan to
participants who attain early or normal retirement under the Pension Plan or
who suffer a total and permanent disability while employed by Unisource or a
subsidiary and a supplement to the pre-retirement death benefits payable under
the Pension Plan on behalf of such participants who die with a vested interest
in the Pension Plan. The amount of the supplement will be the difference, if
any, between the pension or pre-retirement death benefit paid under the Pension
Plan and the benefit that would otherwise have been payable but for the
restrictions imposed by the Code and any reduction in the participant's
compensation for purposes of the Pension Plan resulting from his or her
participation in certain deferred compensation plans of Unisource or a
subsidiary. The maximum amount of annual compensation upon which the supplement
may be based is $500,000 per participant.
Employees will receive credit for their covered service with Alco for
purposes of the SERP, to the extent that they received such credit under Alco's
supplemental executive retirement plan. The benefits provided under Unisource's
SERP will include benefits previously accrued by Unisource employees under
Alco's supplemental executive retirement plan.
The following table shows estimated annual retirement benefits that would be
payable to participants under Unisource's Pension Plan and, if applicable, the
SERP, upon normal retirement at age 65 under various assumptions as to final
average annual compensation and years of credited service and on the assumption
that benefits will be paid in the form of a single life annuity. The benefits
are not subject to any reduction for Social Security benefits.
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------
FINAL AVERAGE
COMPENSATION 5 10 20 30 35
- - ------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$200,000............................. $10,000 $20,000 $ 40,000 $ 60,000 $ 70,000
250,000.............................. 12,500 25,000 50,000 75,000 87,500
300,000.............................. 15,000 30,000 60,000 90,000 105,000
400,000.............................. 20,000 40,000 80,000 120,000 140,000
500,000 or above..................... 25,000 50,000 100,000 150,000 175,000
</TABLE>
Covered compensation under the Pension Plan and SERP of each of the Named
Officers includes salary and bonus as set forth in the Summary Compensation
Table.
DEFERRED COMPENSATION PLANS
Alco and Unisource have historically maintained deferred compensation plans
for their employees. The Company will provide the benefits related to past
deferrals made by Unisource employees under certain of these plans. We have
implemented a new deferred compensation plan that will allow certain Unisource
employees to defer all or a portion of their annual salary, bonus and LTIP
payouts. A participant's deferred compensation will be invested in one or more
hypothetical investment funds selected by the participant under the plan.
34
<PAGE>
RETIREMENT SAVINGS PLAN
We have adopted a 401(k) retirement savings plan (the "RSP"), under which
eligible Company employees may contribute up to 16% of their compensation.
Under federal law, not more than $150,000 of an employee's annual compensation
may be taken into account for purposes of the RSP. Unisource would make
matching contributions in the form of Unisource Common Stock equal to two-
thirds of the first 6% of an employee's contributions. Employee contributions
would be invested in one or more of six available investment funds, including a
Unisource stock fund. Matching contributions would be invested in the Unisource
stock fund, except that after an employee attains age 55, the employee may
invest matching contributions in any of the other available investment funds.
Employees generally would earn a vested interest in their matching
contributions accounts over a five-year period, based on the employees' service
with Unisource and past service with Alco. Employees' accounts attributable to
their contributions are fully vested. Employees' vested accounts are payable
upon retirement or other termination of employment. Withdrawals and plan loans
are permitted under certain circumstances. Unisource may amend or terminate the
RSP at any time in accordance with its terms and applicable law.
Assets of Alco's retirement savings plan that are attributable to the
accounts of Unisource employees will be transferred to Unisource's RSP and will
be held for the benefit of such employees. Unisource employees will have an
opportunity to direct that their investment in the Alco stock fund be
liquidated and that the proceeds be invested in a Unisource stock fund or, in
the case of employee contributions and accounts of employees over age 55, any
of the other available investment funds.
PARTNERS' STOCK PURCHASE PLAN
We have adopted a partners' stock purchase plan ("PSPP") to encourage
ownership of Unisource Common Stock by employees and directors who are
designated as "partners." As of January 1, 1997, it is expected that
participation in the PSPP will be made available to 163 key management persons
(including independent directors) who have been designated as "partners." All
of Unisource's directors and executive officers have been designated as
"partners." Participants may contribute to the PSPP between 2% and 15% of their
annual compensation, including any annual bonus. Unisource will contribute to
the PSPP an amount equal to two-thirds of the participant's investments.
Additionally, Unisource will make an annual contribution to the PSPP after the
end of each fiscal year in an amount equal to one-third of the participant's
investments in the PSPP during the preceding fiscal year, if Unisource achieves
its financial performance goals for that fiscal year. The PSPP is administered
by trustees who will invest contributions to the PSPP in Unisource Common
Stock.
A participant's interest in shares purchased with the participant's
contributions to the PSPP vest immediately. Shares purchased with Unisource's
contributions to the PSPP will vest over a period of five years beginning
approximately one year following the year for which the contribution is made.
Shares purchased under the PSPP are distributed as the participant's interest
in the shares vests.
The Board of Directors may amend the PSPP in any respect, provided that no
such amendment shall affect the right of a participant to receive his or her
proportionate interest in amounts which have vested under the PSPP.
Shares of Alco Stock and Unisource Common Stock that are held under Alco's
partners' stock purchase plan for persons who are "partners" of Unisource will
be transferred to the PSPP. The shares will continue to vest based on the
participant's service with Unisource and past service with Alco. Participants
will have an opportunity to direct that their Alco Stock be sold and the
proceeds invested in Unisource Common Stock.
DIRECTOR COMPENSATION
All independent directors are entitled to receive fees of $25,000 per year
for service on the Board of Directors and committees thereof, and attendance
fees of $1,000 for each Board and committee meeting
35
<PAGE>
attended. Committee members also receive $3,000 per committee per year and
committee chairmen receive $3,000 per chairmanship per year. In addition,
independent directors who serve as trustees for Unisource's employee benefit
plans receive $3,000 per year for services rendered to the plans, $3,000 per
year for trustee chairmanship, and attendance fees of $1,000 for each trustees'
meeting attended.
We have adopted a stock option plan for directors (the "Directors' Plan")
which would enable directors of Unisource to receive all or a portion of their
directors' fees (excluding attendance fees) in the form of options to purchase
Unisource Common Stock at exercise prices equal to 75% of the fair market value
on the date such options are granted. The Directors' Plan provides for an
automatic annual grant of stock options to each director who has filed with
Unisource an election to receive such options in lieu of all or a portion of
his or her Board, committee and trustee fees. The options are exercisable for
twenty years and will not terminate upon the director's termination as a
director (except in the case of death), but generally may not be exercised
prior to the twelve-month anniversary of the date of grant. An option which is
outstanding on the date of a director's death may be exercised by such
director's legal representative for a twelve-month period following the date of
death.
In addition to the foregoing amounts, each independent director will receive
an annual grant of options to purchase 800 shares of Unisource's Common Stock
pursuant to the Directors' Plan. These options are granted at an exercise price
equal to the fair market value of Unisource's Common Stock on the date of
grant. Options are exercisable six months after the date of grant and remain
exercisable for a period of ten years from the date of grant. The right of a
director in such options will not terminate upon the director's termination as
a director, except that an option which is outstanding on the date of a
director's death may be exercised by such director's legal representative for a
twelve-month period following the date of death.
A total of 250,000 shares of Unisource Common Stock (subject to adjustment in
certain cases) are reserved for issuance under the Directors' Plan. If an
option issued under the Directors' Plan is terminated or canceled without being
exercised, the shares which were not purchased thereunder will again become
available for issuance under the Directors' Plan. The Board of Directors has
the power to amend, modify or terminate the Directors' Plan, provided that no
amendment, modification or termination may adversely affect the rights of an
option holder without such holder's consent. The Federal income tax
consequences of the grant and exercise of options under the Directors' Plan are
as described with respect to non-ISOs under "--Stock Option Plan." Before the
Spin-Off, Unisource directors may elect to have their outstanding Alco options
converted into options to purchase Unisource Common Stock. The Alco options
will be converted into Unisource stock options based on a formula that
preserves the economic value inherent in the converted option after taking into
account the fair market value of Alco Stock before December 11, 1996 and the
fair market value of Unisource Common Stock on and after December 11, 1996.
Unisource stock options so issued may be exercised according to terms
comparable to those in effect under the corresponding Alco options.
Independent directors who complete at least five full years of service as a
member of the Unisource Board of Directors and who are not otherwise entitled
to receive a pension benefit from Unisource are entitled to receive a monthly
retirement benefit after retiring from Unisource's Board of Directors. Payment
of such benefit begins upon the later of the director's 70th birthday or his or
her separation from service on the Board of Directors. The amount of such
monthly benefit is equal to one-twelfth of the annual retainer in effect for
such director (excluding committee fees, chairmanship fees, trustee fees and
attendance fees) immediately preceding his or her separation from service on
the Board of Directors. Payment of the monthly retirement benefit ceases upon
the director's death. Unisource directors who were members of Alco's Board of
Directors immediately before the Spin-Off will receive credit for their service
as a director of Alco, and the benefits provided under Unisource's retirement
plan for directors will include benefits previously accrued by such directors
under Alco's retirement plan for directors.
LOAN PROGRAM
We have adopted a loan program which would encourage persons designated as
"partners" to purchase and retain Unisource Common Stock. Such loans would be
expected to carry a requirement that the loan be
36
<PAGE>
secured by the borrower's pledge of Unisource Common Stock having a value at
the time of the loan of not less than twice the amount of the loan. Such loans
would be payable upon demand and bear interest at an annual rate of 6%. Alco
had a similar loan program for its "partners." Unisource will assume
responsibility for all outstanding loans made by Alco to persons who are
"partners" of Unisource, and such loans may be secured by the borrower's pledge
of Unisource Common Stock or Alco Stock. As of September 30, 1996, loans were
outstanding to 17 Unisource partners in an aggregate amount of approximately
$1.25 million. From October 1, 1995 to September 30, 1996, the indebtedness of
the following Named Officers and group under Alco's loan program was as
follows:
<TABLE>
<CAPTION>
LARGEST AMOUNT OUTSTANDING AMOUNT OUTSTANDING AT
NAME OR GROUP DURING PERIOD($) SEPTEMBER 30, 1996($)
------------- -------------------------- ---------------------
<S> <C> <C>
Ray B. Mundt.............. $ -- $ --
Charles White............. -- --
Hugh G. Moulton........... 530,000 300,000
L. Bruce Williams......... -- --
David L. Rhodes, Jr....... -- --
William T. Leith.......... 224,000 224,000
All Unisource directors
and executive officers as
a group.................. 904,000 674,000
</TABLE>
37
<PAGE>
SECURITY OWNERSHIP OF UNISOURCE COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF UNISOURCE
The table below sets forth certain projected information as of December 13,
1996 regarding the direct beneficial ownership of shares of Unisource Common
Stock and the indirect beneficial ownership of Unisource Common Stock,
associated with the potential conversion of exercisable Alco stock options for
Unisource stock options in connection with the Spin-Off, by: (i) each person we
estimate will beneficially own more than five percent of the outstanding shares
of Unisource Common Stock; (ii) each prospective director of Unisource as of
January 1, 1997; (iii) each Named Officer; and (iv) the prospective directors
and executive officers of Unisource, as a group. See "Management--Stock Option
Plan." The ownership information presented below with respect to all persons
and organizations:
(a) is based on record ownership of Alco Stock at September 30, 1996 and
the number of Alco stock options exercisable as of November 29, 1996;
(b) reflects the Distribution Ratio of one share of Unisource Common
Stock for every two shares of Alco Stock; and
(c) assumes no change in record ownership of Alco Stock or beneficial
ownership of Alco options between such dates and December 13, 1996.
<TABLE>
<CAPTION>
PROJECTED
NUMBER OF DIRECT PERCENTAGE OF
SHARES NUMBER OF OUTSTANDING
BENEFICIALLY EXERCISABLE UNISOURCE
OWNED(1) OPTIONS(2) COMMON STOCK
---------------- ----------- -------------
<S> <C> <C> <C>
5% STOCKHOLDERS:
American Express Company........... 4,479,951 -- 6.8%
DIRECTORS AND EXECUTIVE OFFICERS:
Paul J. Darling, II................ 390 8,322 *
James J. Forese.................... 38,119 -- *
Dana G. Mead....................... 347 8,322 *
Ray B. Mundt....................... 135,458(3) -- *
Rogelio G. Sada.................... 6,939 34,916 *
James W. Stratton.................. 2,569 9,910 *
Charles F. White................... 21,383 23,500 *
Hugh G. Moulton.................... 51,848(4) 59,400 *
L. Bruce Williams.................. 3,850 3,440 *
David L. Rhodes, Jr................ 2,588 4,880 *
William T. Leith................... 14,931 42,900 *
All directors and executive offi-
cers as a group (13 persons)...... 291,856(5) 206,450 *
</TABLE>
- - --------
* Less than one percent.
(1) Includes Alco Stock owned of record and shares of Alco Stock that are
beneficially owned in Alco's Retirement Savings Plan (The "Alco RSP") and
Alco's Partners' Stock Purchase Plan (the "Alco PSPP"); assumes all shares
of Alco Stock that are owned of record are converted into shares of
Unisource Common Stock pursuant to the Spin-Off and that shares
beneficially owned in the Alco RSP and Alco PSPP are converted into
Unisource Common Stock in Unisource's RSP and PSPP, respectively, in
accordance with the Distribution Ratio. See "Management--Retirement Savings
Plan" and "--Partners' Stock Purchase Plan."
(2) Reflects number of Alco stock options exercisable as of November 29, 1996.
The actual number of Unisource stock options which each director and
executive officer will own as of December 31, 1996 will be dependent upon,
among other things, the Distribution Ratio, exercise activity concerning
Alco stock options, the inherent value of such options and the prevailing
trading prices for Alco Stock and Unisource
38
<PAGE>
Common Stock. See "Management--Stock Option Plan" for more information
concerning Unisource employees' conversion of Alco stock options to
Unisource stock options in connection with the Spin-Off.
(3) Includes 26,572 shares owned by family members, the beneficial ownership of
which Mr. Mundt disclaims.
(4) Includes 6,400 shares owned by family members, the beneficial ownership of
which Mr. Moulton disclaims.
(5) Includes 32,972 shares owned by family members of directors and executive
officers.
As of September 30, 1996, Alco employees, through direct ownership or
employee benefit plans, owned approximately 11.6% of the outstanding Alco
Stock. Unisource estimates that, after giving effect to the Spin-Off, Unisource
employees will beneficially own approximately 4.5% of the Unisource Common
Stock.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
INTRODUCTION
We presently expect that we will have the following capital stock
authorization and terms and antitakeover provisions in place on December 31,
1996.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of Unisource consists of 250 million shares of
Unisource Common Stock, no par value, and 10 million shares of Preferred Stock,
no par value (the "Preferred Stock").
Following December 31, 1996 there are expected to be approximately 66,286,500
shares of Unisource Common Stock outstanding held of record by approximately
15,000 persons, excluding shares of Unisource Common Stock issuable upon the
exercise of Unisource stock options granted in connection with the Spin-Off.
See "The Spin-Off--Results of the Spin-Off" and "Management--Stock Option
Plan." No shares of Preferred Stock have been issued by Unisource, and there is
no present intention to issue any shares of Preferred Stock.
UNISOURCE COMMON STOCK; DELAWARE ANTITAKEOVER PROVISIONS
Holders of shares of Unisource Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders and are not entitled
to cumulate votes for the election of directors. Subject to preferences that
may be applicable to any outstanding Preferred Stock, holders of shares of
Unisource Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Unisource Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Unisource, the holders of shares of Unisource Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of Preferred Stock, if any, then
outstanding. Holders of Unisource Common Stock have no preemptive, conversion
or other subscription rights and there are no redemption or sinking fund
provisions applicable to the Unisource Common Stock.
Unisource is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("DGCL"). Subject to certain exceptions, Section 203 of the
DGCL prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock. A
"business combination" includes a merger, consolidation, sale or other
disposition of assets having an aggregate value in excess of 10% of either the
aggregate market value of the consolidated assets of the corporation or the
aggregate market value of all the outstanding stock of the corporation, and
certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation or which provide the
interested stockholder with a financial benefit. These restrictions do not
apply where:
(i) the business combination or the transaction in which the stockholder
becomes interested is approved by the corporation's board of directors
prior to the date the interested stockholder acquired its shares;
(ii) the interested stockholder acquired at least 85% of the outstanding
voting stock of the corporation in the transaction in which the stockholder
became an interested stockholder excluding, for determining the number of
shares outstanding, shares owned by persons who are directors as well as
officers and by employee stock plans in which participants do not have the
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
(iii) the business combination is approved by the board of directors and
the affirmative vote of two-thirds of the outstanding voting stock not
owned by the interested stockholder at an annual or special meeting.
40
<PAGE>
The business combinations provisions of Section 203 of the DGCL may have the
effect of deterring merger proposals, tender offers or other attempts to effect
changes in control of Unisource that are not negotiated with and approved by
the Board of Directors.
PREFERRED STOCK
The Amended and Restated Certificate of Incorporation of Unisource (the
"Unisource Certificate") provides that Unisource may issue up to 10 million
shares of Preferred Stock. The Unisource Board has the authority to issue
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend, conversion, voting,
redemption (including sinking fund provisions), and other rights, liquidation
preferences, and the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders of Unisource. Because the terms of the Preferred Stock may be
fixed by the Unisource Board without stockholder action, the Preferred Stock
could be issued quickly with terms calculated to defeat a proposed takeover of
Unisource or to make the removal of management of Unisource more difficult.
Under certain circumstances this could have the effect of decreasing the market
price of the Unisource Common Stock. Unisource has authorized a class of series
Preferred Stock in connection with the authorization of its Stockholder Rights
Plan. See "--Stockholder Rights Plan."
CERTAIN ANTITAKEOVER PROVISIONS--UNISOURCE CERTIFICATE AND BY-LAWS
Certain provisions of the Unisource Certificate and our by-laws (the "By-
laws") may have the effect, either alone or in combination with each other, of
making more difficult or discouraging a tender offer, takeover attempt or
change in control that is opposed by Unisource's Board of Directors but that a
stockholder might consider to be in its best interest. Unisource believes that
such provisions are necessary to enable Unisource to develop its business in a
manner that will foster its long-term growth without disruption caused by the
threat of a takeover not deemed by the Board of Directors to be in the best
interests of Unisource and its stockholders. These provisions are summarized in
the following paragraphs.
Classified Board of Directors. The Unisource Certificate and By-laws provide
that the Board will be divided into three classes of directors, with the
classes to be as nearly equal in number as possible. The Board consists of the
persons referred to in "Management--Directors." The Certificate and By-laws
provide that of the initial directors of Unisource, one-third will continue to
serve until the 1997 Annual Meeting of Stockholders, one-third will continue to
serve until the 1998 Annual Meeting of Stockholders, and one-third will
continue to serve until the 1999 Annual Meeting of Stockholders. Of the initial
directors, Messrs. Sada and Forese will serve until the 1997 Annual Meeting of
Stockholders; Messrs. Darling and Mead will serve until the 1998 Annual Meeting
of Stockholders; and Messrs. Stratton and Mundt will serve until the 1999
Annual Meeting of Stockholders. Starting with the 1997 Annual Meeting of
Stockholders, one class of directors will be elected each year for a three-year
term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board of Directors.
At least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Such a
delay may help ensure that Unisource's directors, if confronted by a holder
attempting to force a proxy contest, a tender or exchange offer, or an
extraordinary corporate transaction, would have sufficient time to review the
proposal as well as any available alternatives to the proposal and to act in
what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the Board would be
beneficial to Unisource and its stockholders and whether or not a majority of
Unisource's stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of Unisource, even through such an attempt might
be beneficial to Unisource and its stockholders. The classification of the
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification
41
<PAGE>
provisions may discourage accumulations of large blocks of the Unisource Common
Stock by purchasers whose objective is to take control of Unisource and remove
a majority of the Board, the classification of the Board could tend to reduce
the likelihood of fluctuations in the market price of the Unisource Common
Stock that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of Unisource Common Stock at a higher market price than might
otherwise be the case.
Number of Directors; Removal of Directors; Vacancies. The By-laws provide
that the number of directors of Unisource shall be a number between six and
seventeen which shall be fixed by resolution adopted by either a majority of
the entire Board of Directors or the affirmative vote of the holders of at
least 66 2/3% of the voting power of all of the shares of Unisource entitled to
vote generally in the election of directors voting together as a single class.
The Unisource Certificate and By-laws also provide that, subject to the
rights of holders of any Preferred Stock then outstanding and any requirements
of law, directors may be removed only for cause by the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Unisource then
entitled to vote generally in the election of directors, voting as a single
voting group. Subject to the rights of holders of any outstanding Preferred
Stock issued by Unisource, vacancies on the Board of Directors may be filled
only by the Board of Directors, the stockholders acting at an annual meeting
or, if the vacancy is with respect to a director elected by a voting group, by
action of any other directors elected by such voting group or such voting
group.
Business Conducted at Meetings; Director Nominations. The By-laws provide
that in order to bring matters before the annual meetings of stockholders,
stockholders must give notice to Unisource containing certain information
within 60 to 90 days prior to the anniversary date of the previous year's
annual meeting or, if the date of the annual meeting is not within 30 days of
the anniversary date of the previous year's annual meeting, no earlier than 90
days prior to such annual meeting and no later than the close of business on
the tenth day following the day on which notice of the date of such meeting was
mailed or the tenth day following the day on which public disclosure of the
date of the meeting of stockholders was made, whichever first occurs. In order
to nominate candidates for directors of Unisource, stockholders must give
notice to Unisource containing certain information within 60 to 90 days prior
to the anniversary date of the previous year's annual meeting or, if the date
of an annual meeting is not within 30 days of the anniversary of the previous
year's annual meeting, not later than the close of business on the tenth day
following the day on which notice of the date of such meeting was mailed or
public disclosure of the date of the meeting of stockholders was made,
whichever first occurs.
Special Meeting of Stockholders. The DGCL provides that special meetings of
stockholders may be called by the Board of Directors of Unisource or any person
authorized by the Unisource Certificate or By-laws to call a special meeting.
The By-laws provide that special meetings may be called by the Board of
Directors or any person authorized by the Board of Directors to call a special
meeting. Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of special meeting by or at the direction
of the Board of Directors. In order to nominate candidates for directors of
Unisource at a special meeting, stockholders must give notice to Unisource
containing certain information not earlier than the close of business on the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
No Stockholder Action by Written Consent; Stockholder Action at Meetings. The
Unisource Certificate and By-Laws provide that stockholder action can be taken
only at an annual or special meeting of stockholders, and prohibit stockholder
action by written consent in lieu of a meeting.
Supermajority Voting. The Unisource Certificate requires the approval of the
holders of at least 66 2/3% of the voting power of all of the shares entitled
to vote to alter, amend, repeal or adopt any provision inconsistent with or
limiting the effect of provisions of certain enumerated antitakeover provisions
in the Unisource
42
<PAGE>
Certificate and By-laws, including the anti-takeover provisions listed above.
The Board of Directors may amend, supplement or repeal the By-laws at any time,
except as limited by law.
STOCKHOLDER RIGHTS PLAN
Unisource's Board of Directors has adopted a Stockholder Rights Plan (the
"Stockholder Rights Plan") and has declared a dividend of one right (a "Right")
for each outstanding share of Unisource Common Stock, which Rights will attach
to and trade with Unisource Common Stock, except as described below.
Rights Distribution Date. The Rights will separate from the Unisource Common
Stock and a distribution date ("Rights Distribution Date") will occur upon the
earlier of:
(i) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding Unisource Common Stock (the "Stock Acquisition Date") or
(ii) the close of business on such date as may be fixed by the Board of
Directors, which date shall not be more than ten days following the
commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 20% or more of the outstanding
Unisource Common Stock.
The surrender for transfer of any certificates of Unisource Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Unisource Common Stock represented by such certificates.
Exercise of Rights; Term of Plan. The Rights are not exercisable until the
Rights Distribution Date and will expire at the close of business on November
8, 2006, unless earlier redeemed by the Company as described below or unless
certain transactions set forth in the Stockholder Rights Plan have occurred.
Except in the circumstances described below, after the Rights Distribution
Date, each Right will be exercisable into one one-hundredth of a Series A
Preferred Share (a "Series A Preferred Share Fraction"). The voting and
dividend rights of the Series A Preferred Shares are subject to adjustment in
the event of dividends, subdivisions and combinations with respect to the
Unisource Common Stock. In lieu of issuing certificates for Series A Preferred
Share Fractions which are less than an integral multiple of one Series A
Preferred Share (i.e., 100 Series A Preferred Share Fractions), Unisource may
pay cash representing the current market value of the Series A Preferred Share
Fractions.
Flip-In Rights. In the event that at any time following the Stock Acquisition
Date:
(i) Unisource is the surviving corporation in a merger with an Acquiring
Person and Unisource Common Stock remains outstanding;
(ii) a person, including affiliates and associates, becomes the
beneficial owner of more than 20% of the then outstanding Unisource Common
Stock (unless such acquisition is made pursuant to a tender or exchange
offer for all outstanding shares of Unisource, upon terms and conditions
determined by a majority of the Continuing Directors (as defined below) to
be in the best interest of Unisource and its stockholders (a "Qualifying
Offer"));
(iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Stockholder Rights Plan; or
(iv) during such time as there is an Acquiring Person an event occurs
that results in such Acquiring Person's ownership interest being increased
by more than one percent (e.g., a reverse stock split), each holder of a
Right will thereafter have the right to receive, upon exercise, Unisource
Common Stock (or, in certain circumstances, cash, property or other
securities of Unisource) having a value equal to approximately two times
the exercise price of the Right.
In lieu of requiring payment of the purchase price upon exercise of the Rights
following any such event, Unisource, by action of a majority of the Continuing
Directors in office at the time, may permit the holders simply to surrender the
Rights, in which event they would be entitled to receive Unisource Common Stock
(and
43
<PAGE>
other property, as the case may be) with a value of 50% of what could otherwise
be purchased by payment of the full Purchase Price. Notwithstanding any of the
foregoing, following the occurrence of any of the events set forth in clauses
(i), (ii), (iii) or (iv) of this paragraph, all Rights that are, or (under
certain circumstances specified in the Stockholder Rights Plan) were,
beneficially owned by any Acquiring Person who was involved in the transaction
giving rise to any such event will be null and void. However, Rights are not
exercisable following the occurrence of any of the events set forth above until
such time as the Rights are no longer redeemable by Unisource as set forth
below.
Flip-Over Rights. In the event that, at any time following the Stock
Acquisition Date:
(i) Unisource is acquired in a merger or other business combination
transaction in which Unisource is not the surviving corporation (other than
a merger that is described in, or that follows a tender offer or exchange
offer described in, the preceding paragraph) or
(ii) 50% or more of Unisource's assets or earning power is sold or
transferred,
each holder of a Right (except Rights that previously have been voided as set
forth above) shall thereafter have the right to receive, upon exercise, common
shares of the acquiring company having a value equal to approximately two times
the exercise price of the Rights. Again, provision is made to permit, at the
option of the Continuing Directors, surrender of the Rights in exchange for
one-half of the value otherwise purchasable. The events set forth in this
paragraph and in the preceding paragraph are referred to as the "Triggering
Events."
Antidilution Adjustments. The Purchase Price payable and/or the number of
units of Series A Preferred Shares or other securities or property issuable
upon exercise of the Rights are subject to adjustment from time to time to
prevent dilution:
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Unisource Common Stock;
(ii) if holders of the Unisource Common Stock are granted certain rights
or warrants to subscribe for Series A Preferred Shares or convertible
securities at less than the current market price of the Series A Preferred
Shares; or
(iii) upon the distribution to holders of the Unisource Common Stock of
evidences of indebtedness or assets (excluding regular quarterly dividends)
or of subscription rights or warrants (other than those referred to above).
Redemption. At any time until ten days following the Stock Acquisition Date,
Unisource may redeem the Rights in whole, but not in part, at a price of $.01
per Right. That ten day redemption period may be extended by the Board of
Directors so long as the Rights are still redeemable. Under certain
circumstances set forth in the Stockholder Rights Plan, the decision to redeem
will require the concurrence of the Continuing Directors (as defined below).
Immediately upon the action of the Board of Directors ordering redemption of
the Rights, with, where required, the concurrence of the Continuing Directors,
the Rights will terminate and the only rights of the holders of Rights will be
to the right to receive the $.01 per Right redemption price.
The term "Continuing Directors" means any member of the Board of Directors of
Unisource who was a member of the Board on January 1, 1997, and any person who
is subsequently elected to the Board if such person is recommended or approved
by a majority of the Continuing Directors, but shall not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or any
representative of the foregoing entities.
No Stockholder Rights Associated with Rights Before Exercise; Tax
Consequences. Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Unisource, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to Unisource, stockholders may,
depending upon the circumstances, recognize taxable income
44
<PAGE>
in the event that the Rights become exercisable for Series A Preferred Shares
(or other consideration) of the Company or for common shares of the acquiring
company as set forth above. See "--Flip-Over Rights."
Amendment. Other than those provisions relating to the principal economic
terms of the Rights, any of the provisions of the Stockholder Rights Plan may
be amended by the Board of Directors of Unisource prior to the Rights
Distribution Date. After the Rights Distribution Date, the provisions of the
Stockholder Rights Plan may be amended by the Board (in certain circumstances,
with the concurrence of a majority of the Continuing Directors) in order to
cure any ambiguity, to make changes that do not adversely affect the interests
of the holders of Rights (excluding the interests of any Acquiring Person), or
to shorten or lengthen any time period under the Stockholder Rights Plan;
provided, however, that no amendment to adjust the time period governing
redemption shall be made at such time as the Rights are not redeemable.
Effect of Stockholders Rights Plan. The Rights have certain defensive
effects. The Rights will cause substantial dilution to a person or group that
attempts to acquire Unisource without conditioning the offer on a substantial
number of Rights being acquired or redeemed. The Rights should not interfere
with any merger or other business combination approved by the Board of
Directors of Unisource because:
(i) the Board of Directors (under certain circumstances, with the
concurrence of the Continuing Directors) may, at its option, at any time
prior to the close of business on the earlier of
(a) the tenth day following the Stock Acquisition Date or
(b) November 8, 2006, redeem all of the then outstanding Rights at
$.01 per Right; and
(ii) in any event, the Stockholder Rights Plan does not apply to a tender
or exchange offer for all outstanding shares of Unisource which is
determined by a majority of the Continuing Directors to be a Qualifying
Offer.
The Board of Directors may, as discussed above, extend the ten day redemption
period so long as the Rights are still redeemable. See "--Redemption."
LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
The Unisource Certificate eliminates to the fullest extent now or hereafter
permitted by Delaware law, liability of a director to Unisource or its
stockholders for monetary damages for any action taken, or failure to take any
action, as a director, except for liability:
(i) for any breach of the director's duty of loyalty to Unisource or its
stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL, relating to prohibited dividends,
distributions and repurchases or redemptions of stock; or
(iv) for any transaction for which the director derives an improper
personal benefit (the "Exculpatory Provision").
The Exculpatory Provision is intended to afford directors additional
protection from, and limit their potential liability for, suits alleging a
breach of duty by a director. Unisource believes this provision will assist it
in maintaining and securing the services of directors who are not employees of
Unisource. As a result of the inclusion of the Exculpatory Provision,
stockholders may be unable to recover monetary damages from directors for
actions taken by them that constitute negligence or gross negligence or that
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions, such
as an injunction or rescission based on a director's breach of the duty of
care, as a practical matter, equitable remedies may not be available (e.g.
after a transaction has already been effected). If equitable remedies are found
not to be available to stockholders for any particular case, stockholders may
not have any effective remedy against the challenged conduct.
45
<PAGE>
Section 145 of the DGCL ("Section 145") permits indemnification of directors,
officers, agents and controlling persons of a corporation under certain
conditions and subject to certain limitations. Section 145 empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer or agent of the
corporation or another enterprise if serving at the request of the corporation.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a
manner such person reasonably believed to be in or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of an action by or in the right of Unisource, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a director or officer of Unisource has been
successful in the defense of any action, suit or proceeding referred to above
or in the defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Unisource's By-laws contain provisions for indemnification of directors,
officers, employees and agents to the fullest extent permitted by Section 145
and Delaware law which, in general, presently requires that the individual act
in good faith and in a manner he or she reasonably believed to be in or not
opposed to Unisource's best interests and, in the case of any criminal
proceedings, that the individual has no reason to believe his or her conduct
was unlawful. Unisource's By-laws also permit Unisource to purchase insurance
and Unisource has purchased and maintains insurance on behalf of Unisource
directors, officers, employees and agents against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not Unisource would
have the power to indemnify such person against such liability under the
foregoing provision of the By-laws.
46
<PAGE>
DESCRIPTION OF CREDIT FACILITY
Unisource has a $1 billion unsecured Credit Facility with a syndicate of
banks, including The Chase Manhattan Bank ("Chase"), the administrative agent
for the Credit Facility. The information set forth herein relating to the
Credit Facility summarizes all material terms of the Credit Facility, but is
qualified in its entirety by reference to the complete text of the documents
which are exhibits to the Exchange Act Registration Statement.
The Credit Facility is available to Unisource, Unisource Capital
Corporation, a wholly-owned Delaware subsidiary of Unisource ("Delaware
Borrower"), and Unisource Canada, Inc. (the "Canadian Borrower" and, together
with Unisource and the Delaware Borrower, the "Borrowers"). All obligations of
the Delaware Borrower and the Canadian Borrower are unconditionally guaranteed
by Unisource. The Credit Facility will be used to repay the Intercompany Debt
and for general corporate purposes of the Borrowers. The commitment
termination and the final maturity of the Credit Facility will occur on
November 22, 2001.
The Credit Facility incorporates two borrowing options: (i) an unsecured
Revolving Credit Facility (the "Revolver") and (ii) an unsecured Competitive
Advance Facility (the "CAF"). Availability under each such borrowing option
will be reduced by usage under the other option on a dollar-for-dollar basis.
The Revolver will be provided on a committed basis and will include (i) a
multi-currency option pursuant to which Unisource and the Delaware Borrower
may borrow up to the equivalent of U.S. $100,000,000 in Pounds Sterling,
Deutsche Marks and French Francs, (ii) a Canadian Dollar subfacility pursuant
to which the Canadian Borrower may borrow up to the equivalent of U.S.
$100,000,000 in Canadian Dollars from certain lenders and (iii) a swingline
borrowing option under which certain lenders will commit to make up to
$100,000,000 in swingline loans to Unisource and the Delaware Borrower. The
swingline loans will be made on short notice on a same-day basis, will be
payable no later than the fifth business day after the borrowing date and will
be denominated in U.S. Dollars only.
Borrowings under the Revolver (other than swingline loans and loans under
the Canadian Dollar subfacility) shall bear interest at either the Alternate
Base Rate or LIBOR plus a spread equal to 18.5 basis points during the initial
six months of the Credit Facility. After the initial six month period of the
Credit Facility, the LIBOR spread will range from 14.5 to 30 basis points
based initially on Unisource's consolidated ratio of funded debt to
capitalization and subsequently on S&P and Moody's ratings of Unisource's
senior, unsecured, non-credit enhanced long-term debt after such ratings are
in effect. "Alternate Base Rate" means the highest of:
(i) the publicly announced Chase prime rate of interest;
(ii) an adjusted three-month certificate of deposit rate plus 1.0%; and
(iii) the prevailing federal funds rate plus 0.5%.
"LIBOR" means the London interbank offered rate (adjusted for statutory
reserve requirements for eurocurrency liabilities) for eurodollar deposits of
one, two, three or six (or, with the consent of each lender, nine or twelve)
months determined two business days prior to the relevant interest period.
Borrowings under the swingline loan option of the Revolver shall bear interest
at the overnight money market rate of the swingline lender determined in good
faith, unless the relevant swingline lender requires the other lenders to
acquire participations in such swingline loan, in which case the loan shall
bear interest at the Alternate Base Rate. Borrowings under the Canadian Dollar
subfacility shall bear interest at the Canadian Prime Rate. The "Canadian
Prime Rate" means the higher of the rate announced by Toronto Dominion Bank
(the "Canadian Agent") as its prime rate and the average 30-day bankers'
acceptance rate as quoted on the Reuters Service CDOR Page plus 0.625%.
Bankers' acceptances under the Canadian Dollar subfacility shall be discounted
at the Reference Rate. The Canadian Borrower is also required to pay a
stamping fee equal to 18.5 basis points during the initial six month period of
the Credit Facility. After the initial six month period of the Credit
Facility, the stamping fee will range from 14.5 to 30 basis points, determined
in a manner consistent with the determination of the LIBOR
47
<PAGE>
spread described above. "Reference Rate" means the average of the discount rate
applicable to acceptances under the Canadian Dollar subfacility to be accepted
by the Canadian lenders on the date of acceptance, as determined by the
Canadian Agent. Borrowings under the Revolver may be prepaid at any time
subject to reimbursement for redeployment costs in the case of LIBOR
borrowings.
The CAF will be provided on an uncommitted competitive advance basis through
an auction mechanism. Unisource and the Delaware Borrower may borrow in U.S.
Dollars up to the full Credit Facility amount under the CAF option, less the
sum of all existing Revolver and CAF loans outstanding. Unisource and the
Delaware Borrower shall have the option to request that the lenders bid for CAF
loans bearing interest at an absolute rate with specified maturities ranging
from 7 to 360 days or bearing interest at a margin over LIBOR for interest
periods up to 12 months. Each lender shall have the right, but not the
obligation, to submit CAF bids at its discretion.
The Credit Facility provides for certain ongoing fees, including a facility
fee and a utilization fee. The facility fee will be based on the full amount of
the Credit Facility, regardless of usage, and will range from 8 to 15 basis
points per annum determined in a manner consistent with the determination of
the LIBOR spread described earlier. A utilization fee equal to 5 basis points
per annum will accrue on the aggregate amount of all loans outstanding under
the Credit Facility during the initial six month period of the Credit Facility.
Thereafter, a utilization fee of 5 basis points per annum will accrue on each
day when the aggregate amount of all loans outstanding under the Credit
Facility exceeds two-thirds of the aggregate Credit Facility commitments.
The principal amount of any Credit Facility loans not paid when due shall
bear interest at 2% above rate otherwise applicable thereto. Overdue interest,
fees and other amounts shall bear interest at 2% above the rate applicable to
Alternate Base Rate loans.
The conditions precedent to the initial borrowing under the Credit Facility
shall include, in addition to the customary conditions, the requirements that:
(i) the proceeds of the initial borrowing be applied to repay the
Intercompany Debt;
(ii) all material assets to be transferred by Alco to Unisource in
connection with the Spin-Off shall have been transferred; and
(iii) all governmental and third party approvals necessary or advisable
in connection with the Spin-Off, the Credit Facility and the
continuing operation of Unisource and its subsidiaries shall have
been obtained.
The Credit Facility includes customary covenants and provisions and contains
covenants and provisions customary for facilities of this type that will
restrict, among other things, Unisource's (and its subsidiaries') ability to:
(i) merge, consolidate or engage in certain assets sales or
dispositions (provided that an existing Canadian securitization
program and additional U.S. and Canadian securitization programs,
subject to certain dollar limits, shall not be prohibited),
(ii) incur indebtedness and enter into guarantees;
(iii) incur liens and enter into sale leaseback transactions; and
(iv) engage in transactions with affiliates.
The Credit Facility requires the satisfaction of certain financial
performance criteria, including the requirements that:
(i) the consolidated ratio of funded debt to capitalization not equal
or exceed 55%; and
(ii) minimum consolidated Net Worth (as defined therein) shall not be
less than the sum of
(a)$745,000,000 plus
(b) 50% of consolidated net income (without deduction for losses)
after the date of the Credit Facility.
48
<PAGE>
ADDITIONAL INFORMATION
Unisource has filed the Exchange Act Registration Statement with the
Commission concerning the shares of Unisource Common Stock being received by
Alco shareholders in the Spin-Off. This document does not contain all of the
information set forth in the Exchange Act Registration Statement and the
exhibits and schedules thereto. Statements made in this document concerning the
contents of any contract, agreement or other document referred to herein are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Exchange Act Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Exchange Act Registration Statement and the exhibits and schedules
thereto filed by Unisource may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 5th Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such material can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 or accessed electronically
by means of the Commission's home page on the Internet (http://www.sec.gov).
Following the Spin-Off, Unisource will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. Unisource will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders.
No person is authorized by Alco or Unisource to give any information or to
make any representations other than those contained in this document, and if
given or made, such information or representations must not be relied upon as
having been authorized.
49
<PAGE>
INDEX TO UNISOURCE WORLDWIDE, INC. CONSOLIDATED FINANCIAL
STATEMENTS
<TABLE>
<S> <C>
Unisource Worldwide, Inc.
Report of Independent Auditors............................................ F-2
Consolidated Statements of Income......................................... F-3
Consolidated Balance Sheets............................................... F-4
Consolidated Statements of Cash Flows..................................... F-5
Consolidated Statements of Changes in Stockholder's Equity................ F-6
Notes to the Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder
Unisource Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Unisource
Worldwide, Inc. (a wholly owned subsidiary of Alco Standard Corporation) as of
September 30, 1995 and 1996, and the related consolidated statements of income,
changes in stockholder's equity and cash flows for each of the three years in
the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Unisource
Worldwide, Inc. at September 30, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 10 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective October 1, 1993.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 16, 1996, except for
notes 1 and 9, as to which the date
is November 22, 1996
F-2
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................ $ 5,756,519 $ 6,987,274 $ 7,022,808
Costs and expenses
Cost of goods sold.................... 4,825,712 5,925,174 5,896,251
Selling and administrative............ 782,281 855,818 942,088
Restructuring charge.................. -- -- 50,000
------------ ------------ ------------
5,607,993 6,780,992 6,888,339
Income from operations.................. 148,526 206,282 134,469
Interest expense........................ 26,233 33,537 31,466
------------ ------------ ------------
Income before income taxes and
cumulative effect of accounting
change................................. 122,293 172,745 103,003
Provision for income taxes.............. 47,817 67,543 43,005
------------ ------------ ------------
Income before cumulative effect of
accounting change...................... 74,476 105,202 59,998
Cumulative effect of change in method of
accounting for income taxes............ 14,000 -- --
------------ ------------ ------------
Net income.............................. $ 88,476 $ 105,202 $ 59,998
============ ============ ============
Pro forma net income per common and
common equivalent share (unaudited).
See Note 2............................. $ .81
============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................. $ 23,657 $ 14,596
Accounts receivable, less allowances for doubtful
accounts;
1995--$15,772; 1996--$19,927.................... 859,168 790,818
Inventories...................................... 492,396 470,217
Prepaid expenses and deferred taxes.............. 48,972 54,853
---------- ----------
Total current assets........................... 1,424,193 1,330,484
---------- ----------
Long-Term Receivables.............................. 8,901 21,890
Property and Equipment, net........................ 227,137 224,168
Goodwill........................................... 268,287 509,850
Deferred costs and other assets.................... 90,506 105,322
---------- ----------
Total Assets....................................... $2,019,024 $2,191,714
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current portion of long-term debt................ $ 935 $ 840
Notes payable.................................... 45,519 38,367
Trade accounts payable........................... 443,077 438,899
Accrued salaries, wages and commissions.......... 38,000 27,011
Restructuring costs.............................. 33,302 15,575
Other accrued expenses........................... 48,258 59,000
---------- ----------
Total current liabilities...................... 609,091 579,692
---------- ----------
Long-Term Debt..................................... 24,515 21,097
Notes and Advances Payable to Alco................. 919,089 553,700
Deferred Taxes and Other Liabilities
Deferred taxes................................... 25,126 54,462
Restructuring costs.............................. 6,000 13,896
Other long-term liabilities...................... 19,316 33,366
---------- ----------
50,442 101,724
---------- ----------
Stockholder's Equity
Series A Preferred Stock, par value $.01,
authorized 200,000 shares; issued and
outstanding 122,884 shares at $1 stated face
value (liquidation preference $122,884) in
1995............................................ 122,884 --
Common Stock, $.01 par value, authorized 200,000
shares, issued and outstanding 100,000 shares... 1 1
Additional paid-in capital....................... 184,394 778,444
Retained earnings................................ 127,892 181,458
Foreign currency translation adjustments......... (19,284) (24,402)
---------- ----------
Total stockholder's equity..................... 415,887 935,501
---------- ----------
Total Liabilities and Stockholder's Equity......... $2,019,024 $2,191,714
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income................................. $ 88,476 $ 105,202 $ 59,998
Additions (deductions) to reconcile net
income to net cash (used) provided by
operating activities
Cumulative effect of change in
accounting............................... (14,000) -- --
Depreciation.............................. 23,970 24,435 27,248
Amortization.............................. 8,577 8,973 12,771
Provisions for losses on accounts
receivable............................... 12,855 12,960 17,204
Provision for deferred income taxes....... 16,381 33,281 32,314
Restructuring costs, net.................. (46,588) (60,364) 14,703
Changes in operating assets and
liabilities net of effects from
acquisitions and divestiture:
Decrease (increase) in accounts
receivable............................. (27,607) (122,744) 46,492
Decrease (increase) in inventories...... (9,063) (70,671) 71,347
Decrease (increase) in prepaid
expenses............................... (7,177) 5,245 (877)
Increase (decrease) in accounts payable
and accrued expenses................... 47,322 (9,352) (70,949)
Miscellaneous............................. 1,392 6,417 (4,337)
--------- ---------- ----------
Net cash provided (used)................. 94,538 (66,618) 205,914
--------- ---------- ----------
Investing Activities
Cost of companies acquired, net of cash
acquired.................................. (593) (38,865) (191,196)
Collection of notes receivable............. -- -- 59,500
Proceeds from the sale of property and
equipment................................. 4,735 7,499 9,327
Expenditures for property and equipment.... (33,934) (50,054) (35,758)
Deferred cost expenditures................. (18,005) (57,337) (52,290)
--------- ---------- ----------
Net cash used............................ (47,797) (138,757) (210,417)
--------- ---------- ----------
Financing Activities
Short-term debt repayments, net............ (4,195) (3,245) (30,521)
Long-term debt repayments.................. (3,062) (1,461) (27,407)
Dividend payments to Alco.................. (14,746) (43,299) --
Proceeds (repayments) to Alco.............. (12,981) 260,872 53,370
--------- ---------- ----------
Net cash provided (used)................. (34,984) 212,867 (4,558)
--------- ---------- ----------
Net (decrease) increase in cash............. 11,757 7,492 (9,061)
Cash at beginning of year................... 4,408 16,165 23,657
--------- ---------- ----------
Cash at end of year......................... $ 16,165 $ 23,657 $ 14,596
========= ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNISOURCE WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
SERIES A ADDITIONAL CURRENCY
PREFERRED COMMON PAID IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30,
1993................... $ 122,884 $ 1 $184,394 $ (8,508) $(18,434) $280,337
Net income.............. 88,476 88,476
Translation
adjustments............ (1,360) (1,360)
Preferred stock dividend
to Alco................ (14,746) (14,746)
Other................... 767 767
--------- --- -------- -------- -------- --------
Balance September 30,
1994................... 122,884 1 184,394 65,989 (19,794) 353,474
Net income.............. 105,202 105,202
Translation
adjustments............ 510 510
Preferred stock dividend
to Alco................ (14,746) (14,746)
Common stock dividend to
Alco................... (28,553) (28,553)
--------- --- -------- -------- -------- --------
Balance September 30,
1995................... 122,884 1 184,394 127,892 (19,284) 415,887
Equity of company pooled
by Alco................ 8,314 8,314
Net income.............. 59,998 59,998
Translation
adjustments............ (5,118) (5,118)
Preferred stock dividend
to Alco................ 14,746 (14,746)
Contribution of Series A
Preferred Stock to
capital................ (122,884) 122,884
Contribution of Alco
intercompany notes and
advances to capital.... 456,420 456,420
--------- --- -------- -------- -------- --------
Balance September 30,
1996................... -- $ 1 $778,444 $181,458 $(24,402) $935,501
========= === ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SPIN-OFF AND BASIS OF PRESENTATION
Alco Standard Corporation ("Alco") will separate its printing and imaging and
supply systems business from its office solutions business, with each business
operating as a stand-alone publicly traded company. In order to effect the
separation of these businesses, Alco has declared a dividend (the "Spin-Off")
payable to holders of record of Alco common stock at the close of business on
December 13, 1996 (the "Record Date") of one share of common stock, no par
value, of Unisource Worldwide, Inc. ("Unisource Common Stock"), for every two
shares of Alco stock owned on December 13, 1996 ("Exchange Ratio"). The actual
number of shares of Unisource Common Stock to be distributed will be determined
as of December 13, 1996. As a result of the distribution, 100% of the
outstanding shares of Unisource Common Stock will be distributed to Alco
shareholders.
The consolidated financial statements of Unisource Worldwide, Inc.
("Unisource" or the "Company") include substantially all of the assets,
liabilities, revenues and expenses of the printing and imaging and supply
systems businesses of Alco. The Company is engaged in the marketing and
distribution of quality printing papers, paper and imaging products for office
and reprographic use, and supply systems products--disposable paper and plastic
products, packaging equipment and supplies and sanitary maintenance supplies
and equipment. Such consolidated financial statements include the assets,
liabilities, revenues and expenses of Alco's wholly owned subsidiary, Unisource
Worldwide, Inc., and the assets, liabilities, revenues and expenses of certain
operations which were contributed to Unisource by Alco on October 1, 1995. All
transactions between entities included in the consolidated financial statements
have been eliminated. The consolidated financial statements have been prepared
on the historical cost basis, and present the Company's financial position,
results of operations and cash flows as derived from Alco's historical
financial statements, except that the method of allocation of general corporate
expenses and corporate interest expense has been changed to more appropriately
reflect the Company's actual use of corporate services, and to allocate Alco's
interest expense on consolidated borrowings to Unisource based on the
relationship of its net assets to consolidated Alco net assets.
In conjunction with the separation of their businesses, Unisource and Alco
entered into various agreements that address the allocation of assets and
liabilities between them and define their relationship after the separation,
including a Distribution Agreement ("Distribution Agreement"), a Benefits
Agreement ("Benefits Agreement") and a Tax Sharing and Indemnification
Agreement ("Tax Sharing Agreement").
The Distribution Agreement provides for, among other things, the principal
transactions required to effect the Spin-Off, the conditions to the Spin-Off,
the allocation between Alco and Unisource of certain assets and liabilities,
and cooperation by Alco and Unisource in the provision of information and
certain facilities necessary to perform the administrative functions incident
to their respective businesses. The Distribution Agreement includes cross-
indemnification provisions pursuant to which Unisource and Alco indemnify each
other for damages that may arise out of a breach of their respective
obligations under the agreement, which include, subject to certain exceptions,
all liabilities and obligations arising out of the conduct or operation of
their respective businesses before, on or after the Spin-Off. The Distribution
Agreement also provides that the premises located at 825 Duportail Road, Wayne,
Pennsylvania, presently owned by Alco and used as the corporate headquarters of
Alco and Unisource (the "Headquarters Facility") will be held for sale and
ownership and responsibility for maintenance will remain with Alco. Unisource
will have the right to continue to use the Headquarters Facility until December
31, 1997 but prior to that date, upon notice to Alco, may terminate its
occupancy and obligation to contribute to the cost of operating and maintaining
the premises.
Unisource will be obligated to pay a ratable share of the cost of operations
and maintenance of the Headquarters Facility, including real estate taxes,
utilities, maintenance, insurance and normal repairs. Following the Spin-Off,
Alco and Unisource will each be responsible for its own management systems. The
Distribution
F-7
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement does provide, however, for continued access, cooperation and support
for a period of one year after December 31, 1996 and, in the case of certain
computer equipment, up to two years after December 31, 1996.
Under the Benefits Agreement, the wages, salaries and employee benefits of
all employees of the Company will be the responsibility of the Company.
Generally, the Company's obligation to provide benefits will include all
obligations with respect to Company employees under pension plans, savings
plans, multiemployer plans, welfare plans (retiree medical plans),
supplemental benefit plans, certain deferred compensation plans, incentive
plans, stock-based plans and other plans covering Company employees and will
include liabilities that arose while the individuals were employed by Alco.
The Benefits Agreement requires Alco to reimburse Unisource for a portion of
any payments made by Unisource to former Unisource employees under Alco's
1985, 1991 and 1994 deferred compensation plans. The Company will assume
certain Alco pension plans covering Company employees, and assets and
liabilities attributable to Company employees under Alco's participating
companies pension plan and Alco's 401(k) plan will be transferred to a new
Company pension plan and 401(k) plan, respectively. Unisource employees and
directors will be given the opportunity to convert Alco options into options
to purchase Unisource Common Stock.
Under the Tax Sharing Agreement, Unisource will bear its respective share of
(i) Alco's Federal consolidated income tax liability (or benefit), (ii) any
unitary state income tax liability, and (iii) Alco's consolidated personal
property tax liability for all tax periods that end before or that include
December 31, 1996. For the taxable year ended September 30, 1996, Unisource's
share of Alco's Federal consolidated tax liability (or benefit) will be 40% of
such liability (or benefit) and Alco's share of such liability (or benefit)
will be 60%. Unisource is responsible for paying any tax liabilities arising
from any tax returns that it files separately. If any tax year ending before
or including December 31, 1996 is subsequently examined by the IRS, and an
adjustment results from such examination, then Unisource's share of Alco's
additional Federal consolidated income tax liability (or benefit for that tax
year) shall be computed and agreed to by the parties. The Tax Sharing
Agreement generally provides that in the event that either Alco or Unisource
takes any action inconsistent with, or fails to take any action required by,
or in accordance with, the qualification of the Spin-Off as tax-free then Alco
or Unisource, as the case may be, will be liable for and indemnify and hold
the other harmless from any tax liability resulting from such action or
inaction. If, within two years after December 31, 1996, either party engages
in any transaction involving its assets or stock, and as a result, the Spin-
Off is treated as a taxable event, then the party engaging in such transaction
shall hold the other party harmless from any tax liability that results from
the treatment of the Spin-Off as a taxable event. Alco is also responsible for
any tax liability resulting from any action necessary to implement the Spin-
Off and its associated events, including, for example, intercompany sales,
liquidations and mergers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. 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 equity.
F-8
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. The Company uses the
last-in, first-out ("LIFO") method of determining cost for approximately 87%
of its inventories and the first-in, first-out ("FIFO") method for the
balance.
Depreciation and Amortization
Property and equipment are depreciated over their useful lives by the
straight-line method. Amortization of capital lease assets is included in
depreciation expense.
Goodwill
Substantially all goodwill (excess of purchase price over net assets
acquired) 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.
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 a portion of the Company's expected variable rate borrowings to
fixed rate borrowings. Net amounts paid or received will be reflected as
adjustments to interest expense.
Cash Management
Alco uses a centralized cash management system for all of its domestic
operations, including those of Unisource. Cash reflected in the Consolidated
Balance Sheets are primarily the balances maintained by Unisource's foreign
subsidiaries.
Accounting Changes
During fiscal 1994, the Company changed its methods of accounting for income
taxes and retiree health benefits. The cumulative effect of adopting Financial
Accounting Standards Board ("FASB") Statement No. 109 ("FAS 109"), "Accounting
for Income Taxes," (Note 10) was to increase net income by $14,000,000. The
cumulative effect of adopting the new method of accounting for retiree health
benefits was immaterial.
Reclassifications
Certain prior-year amounts have been reclassified to conform to current year
presentation.
Pending Accounting Changes
In March 1995, the FASB issued Statement No. 121 ("FAS 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. FAS 121 also
F-9
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt FAS 121 in the first quarter of fiscal
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
In October 1995, the FASB issued Statement No. 123 ("FAS 123"), "Accounting
for Stock-Based Compensation." This statement establishes a fair value method
of accounting for stock-based compensation plans. Adoption of the fair value
method is encouraged; however, entities may elect to continue to account for
stock-based compensation plans according to the provisions of Accounting
Principles Board Statement No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees," but provide the disclosures related to FAS 123. The Company is
required to adopt FAS 123 in the first quarter of fiscal 1997, and at this
time intends to account for stock-based compensation according to APB 25 and
provide FAS 123 disclosures as required.
In June 1996, the FASB issued Statement No. 125 ("FAS 125"), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" which establishes accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on the consistent application of a financial components approach that
focuses on control. FAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. The Company does not believe the effect of adoption will be
material.
Pro forma Net Income Per Common and Common Equivalent Share (unaudited)
Historical net income per share has been omitted since Unisource was a
wholly owned subsidiary of Alco during the periods presented and will be
recapitalized as part of the Spin-Off.
Unaudited pro forma net income per common and common equivalent share is
calculated as if the Spin-Off had occurred on October 1, 1995 and assumes
Unisource borrowed to fund the $553,700,000 intercompany notes repayment. See
Note 5. Net income used in determining the pro forma amount is based on
historical net income adjusted for $9,187,000 of additional interest expense
and $3,638,000 of related tax benefits. These adjustments relate to the
assumed borrowings of $553,700,000 at an assumed weighted average interest
rate of 7%, less corporate interest previously allocated by Alco. The assumed
number of weighted average common and common equivalent shares (67 million) is
based on actual Alco Common Shares outstanding as of September 30, 1996, the
issuance of one Unisource share for every two Alco shares, and the estimated
dilutive effect of Unisource stock options expected to be issued to replace
Alco stock options held by Unisource employees. The actual number of common
and common equivalent shares used to compute earnings per share after the
Spin-Off will depend upon the number of shares of Unisource Common Stock that
are outstanding at such time as well as the market price of the Unisource
Common Stock. Excluding the $50 million restructuring charge in 1996, pro
forma net income per common and common equivalent share would be $1.30.
3. ACQUISITIONS AND DIVESTITURE
In fiscal 1994, the Company made one acquisition for $3,550,000 in Alco
common stock. Total assets relating to this acquisition amounted to
$5,456,000, including goodwill of $2,120,000. An additional $600,000 was paid
and capitalized in fiscal 1994 relating to prior years' acquisitions.
In fiscal 1995, the Company made 12 acquisitions for $38,515,000 in cash.
Total assets relating to these 12 acquisitions totaled $54,870,000, including
goodwill of $26,119,000. An additional $350,000 was paid and capitalized in
fiscal 1995 relating to prior years' acquisitions.
In September 1995, Central Products Company was sold for $2,000,000 in cash
and $78,000,000 in notes, and a pre-tax gain of $3,867,000 was realized.
F-10
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In fiscal 1996, the Company made 40 acquisitions for an aggregate purchase
price of $305,615,000 in cash, notes and Alco common stock. Total assets
related to these 40 acquisitions were $359,717,000, including goodwill of
$241,272,000. Alco also issued 651,175 common shares for an additional
acquisition accounted for as a pooling-of-interests and results of operations
of that acquisition have been included from the beginning of the fiscal year.
An additional $10,315,000 was paid and capitalized in fiscal 1996 relating to
prior-years' acquisitions.
All purchase acquisitions are included in results of operations from their
dates of acquisition.
Adjusted for the effects of the divestiture, had the purchase acquisitions
been made at the beginning of the fiscal year prior to their acquisition,
unaudited pro forma results of operations would have been:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
1994 1995 1996
---------- ---------- ----------
(IN MILLIONS EXCEPT PER SHARE
AMOUNT)
<S> <C> <C> <C>
Revenues................................... $ 5,843.3 $ 7,675.7 $ 7,438.7
Net income................................. 89.1 122.3 69.8
Pro forma earnings per share--See Note 2... .96
</TABLE>
The divestiture had the impact of decreasing pro forma net income by
$3,679,000 and $4,793,000 respectively, in fiscal 1994 and fiscal 1995.
4. 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, 1996. The agreement 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$90,000,000 (US$66,100,000) at September
30, 1995 and 1996, respectively.
5. TRANSACTIONS WITH ALCO
Prior to the Spin-Off, Unisource is expected to borrow $553,700,000 under a
credit facility (see note 9) to repay the outstanding intercompany notes and
advances payable. The balance of the intercompany notes and advances in excess
of $553,700,000 was contributed to Unisource's common stockholder equity as of
September 30, 1996. Effective September 30, 1996, the $553,700,000 amount plus
any additional advances to Unisource subsequent to September 30, 1996 will bear
interest at 6.75% per annum.
The Series A Preferred Stock, all of which was owned by Alco, and the related
fiscal 1996 cumulative dividends were contributed to common equity by Alco on
September 30, 1996.
There are no material intercompany purchase or sale transactions between Alco
and Unisource. Under Alco's centralized cash management system, short-term
advances from Alco and excess cash sent to Alco are reflected as intercompany
advances. Notes payable to Alco reflect borrowings by the Company to finance
acquisitions. Unisource has been charged corporate interest expense based on
the relationship of its net assets to total Alco net assets, excluding
corporate debt, in amounts of $19,813,000 in 1994, $26,586,000 in 1995 and
$29,572,000 in 1996.
F-11
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in the Consolidated Statements of Income is an allocation of general
corporate expenses related to services provided for Unisource by Alco in the
amounts of $11,347,000 in 1994, $14,168,000 in 1995 and $18,014,000 in 1996.
This allocation was based on an estimate of the proportion of corporate
expenses related to the Unisource business for the periods presented and, in
the opinion of management, has been made on a reasonable basis and approximates
the incremental costs that would have been incurred had Unisource been
operating on a stand-alone basis.
6. INVENTORIES
If the FIFO method of accounting had been used exclusively, inventories would
have been $92,590,000 and $68,463,000 higher at September 30, 1995 and 1996,
respectively. See Note 2. Inventories consist principally of finished goods.
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Land...................................................... $ 26,798 $ 24,937
Buildings and improvements................................ 171,740 177,289
Machinery and equipment................................... 162,687 194,455
-------- --------
361,225 396,681
Less: accumulated depreciation............................ 134,088 172,513
-------- --------
$227,137 $224,168
======== ========
</TABLE>
8. NOTES PAYABLE
The Company may borrow up to $100,000,000 or the Canadian dollar equivalent
under a credit agreement with four banks. Facility fees of 9 basis points per
annum are charged for this commitment. 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 and 1996, the Company had borrowed $45,519,000 and $7,345,000
respectively, under this agreement. The average interest rate at September 30,
1995 and 1996, was 6.73% and 4.3%, respectively. This credit agreement, which
is guaranteed by Alco, will be canceled and amounts outstanding thereunder will
be repaid after Unisource enters into the Credit Facility. At September 30,
1996, the Company also borrowed $8,658,000 at 5.75% under an overdraft line of
credit with a Canadian Bank. Notes payable also includes $22,364,000 related to
acquisitions at an average interest rate of 6%.
Interest paid on the above notes was $2,937,000, $3,799,000 and $2,295,000 in
1994, 1995 and 1996, respectively.
F-12
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Industrial revenue bonds at average interest rate of 5.1%
in 1995 and 4.4% in 1996.................................. $10,328 $ 9,424
Capital lease obligations.................................. 14,444 12,322
Sundry notes, bonds and mortgages at average interest rate
of 10% in 1995 and 6.7% in 1996........................... 678 191
------- -------
25,450 21,937
Less current maturities.................................... 935 840
------- -------
$24,515 $21,097
======= =======
</TABLE>
The industrial revenue bonds, capital lease obligations and mortgages are
secured by related property and equipment with a net book value of
approximately $17,937,000 and $14,962,000 at September 30, 1995 and 1996,
respectively.
Long-term debt matures in fiscal years as follows: 1997--$840,000; 1998--
$565,000; 1999--$609,000; 2000--$648,000; 2001--$696,000; 2002-2012--
$18,579,000.
On November 22, 1996, the Company entered into a $1,000,000,000 five-year
unsecured competitive advance and revolving credit facility. The credit
facility includes multicurrency options for up to $100,000,000 in Pounds
Sterling, Deutsche Marks and French Francs and a $100,000,000 Canadian dollar
subfacility. Borrowings under the revolver shall bear interest at either the
Alternate Base Rate (as defined) or LIBOR plus a spread equal to 18.5 basis
points during the initial six months of the credit facility. After the initial
six month period, the LIBOR spread will range from 14.5 to 30 basis points,
depending on certain financial ratios and credit ratings. The credit facility
provides for certain fees, including a facility fee and utilization fee. The
facility fee will range from 8 to 15 basis points per annum on the full amount
of the credit facility, determined in a manner consistent with the LIBOR spread
described above. A utilization fee of 5 basis points per annum will accrue on
the aggregate amount of all loans outstanding during the initial six months of
the credit facility and 5 basis points per annum thereafter each day the
aggregate amount of all loans under the credit facility exceeds two-thirds of
the aggregate commitment. The credit facility includes financial covenants
requiring a ratio of funded debt to capitalization of less than 55% and a
minimum net worth of $745,000,000 plus 50% of consolidated net income (without
deduction for losses) after the date of the credit facility.
Interest paid on long-term debt, excluding amounts charged by Alco, totaled
$3,830,000, $3,079,000 and $3,213,000 in 1994, 1995 and 1996, respectively.
10. TAXES ON INCOME
Effective October 1, 1993, the Company adopted FAS No. 109, "Accounting for
Income Taxes." FAS 109 permitted the Company to recognize the benefit of
certain deferred tax assets that could not be recognized under the previous
standard, FAS 96. The cumulative effect of adopting FAS 109 as of October 1,
1993 was to increase net income by $14,000,000. As permitted under FAS 109,
prior years' financial statements were not restated.
F-13
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has been included in the consolidated federal income tax return
of Alco. The following provision for income taxes was determined as if the
Company were a separate taxpayer.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision:
Federal................................ $27,913 $32,486 $ 6,093
Foreign................................ 3,277 1,946 2,728
State and local........................ 246 (170) 1,870
---------- ---------- ----------
31,436 34,262 10,691
Deferred provision (benefit):
Federal................................ 21,878 25,070 26,265
Foreign................................ (5,392) 8,258 3,801
State and local........................ (105) (47) 2,248
---------- ---------- ----------
16,381 33,281 32,314
---------- ---------- ----------
$ 47,817 $ 67,543 $ 43,005
========== ========== ==========
</TABLE>
The components of deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization.......................... $ 30,359 $ 32,917
Long-Term contract..................................... 16,039 37,868
Other.................................................. -- 1,021
-------- --------
Total deferred tax liabilities....................... 46,398 71,806
-------- --------
Deferred tax assets:
Nondeductible accruals................................. 30,400 30,292
Net operating loss carryforwards....................... 20,955 20,408
Other.................................................. 3,688 --
-------- --------
Total deferred tax assets............................ 55,043 50,700
Valuation allowance.................................... (11,420) (12,736)
-------- --------
Deferred tax assets, net of valuation allowance........ 43,623 37,964
-------- --------
Net deferred tax liabilities............................. $ 2,775 $ 33,842
======== ========
</TABLE>
The net operating loss deferred tax asset at September 30, 1996 consists
primarily of foreign carryforwards of $26,017,000 principally expiring in years
1997 through 2000 and domestic state carryforwards expiring in years 1997
through 2011.
F-14
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Components of the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Federal................................................. 35.0% 35.0% 35.0%
State................................................... .1 (.1) 2.5
Goodwill................................................ 1.3 .9 1.4
Foreign, including credits.............................. 1.0 2.0 4.2
Other................................................... 1.7 1.3 (1.3)
----- ----- -----
39.1% 39.1% 41.8%
===== ===== =====
</TABLE>
Tax provisions are settled through the intercompany account and Alco made
payments (refunds) on behalf of the Company, which approximated $(4,124,000),
$12,610,000 and $(14,070,000) in fiscal years 1994, 1995 and 1996,
respectively.
Undistributed earnings of the Company's foreign subsidiaries were
approximately $5,216,000 at September 30, 1996. Those earnings are considered
to be indefinitely reinvested and, therefore, no provision has been recorded
for U.S. federal and state income taxes.
11. 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 average
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 ($4,806,000 in 1994,
$2,619,000 in 1995 and $3,748,000 in 1996), is charged to operations, and
amounted to $12,035,000, $11,600,000 and $14,552,000 in 1994, 1995 and 1996,
respectively.
The components of net periodic pension cost for Company-sponsored defined
benefit pension plans are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................ $ 11,661 $ 10,896 $ 12,850
Interest cost on projected benefit obli-
gation................................. 12,974 15,191 17,611
Actual return on plan assets............ (7,675) (41,761) (42,193)
Net amortization and deferral........... (9,731) 24,655 22,536
--------- ---------- ----------
$ 7,229 $ 8,981 $ 10,804
========= ========== ==========
</TABLE>
Assumptions used in accounting for the Company-sponsored defined benefit
pension plans were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average discount rates........ 7.75% 7.50% 7.75%
Rates of increase in compensation lev-
els................................... 6.25% 6.00% 6.25%
Expected long-term rate of return on
assets................................ 10.00% 10.00% 10.00%
</TABLE>
F-15
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status and amounts recognized in the consolidated balance sheets
for the Company-sponsored defined benefit pension plans are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested................................................ $180,307 $112,041
======== ========
Accumulated........................................... $183,830 $115,707
======== ========
Projected............................................. $221,274 $138,033
Plan assets at fair value............................... 200,051 132,644
-------- --------
Plan assets less than projected benefits................ (21,223) (5,389)
Items not yet recognized:
Net gain.............................................. (5,976) (14,541)
Prior service cost.................................... 4,761 7,496
Transition asset, net of amortization................. (9,955) (4,487)
Adjustment required to recognize minimum liability...... (285) (3,831)
-------- --------
Net pension liability................................... $(32,678) $(20,752)
======== ========
</TABLE>
Under the Benefits Agreement, Alco will assume certain benefit obligations
and related assets for retirees and terminated vested employees of the Company,
which are estimated to be $101,000,000 and have been removed from the September
30, 1996 balances reflected in the table above.
Substantially all of the Alco and Unisource plan assets totaling $346,721,000
at September 30, 1996 are invested in listed stocks, bonds, and government
securities, including common stock of Alco having a fair value of $59,850,000.
The majority of the Company's employees were eligible to participate in
Alco's Stock Participation Plan through fiscal 1995, under which they were
permitted to invest 2% to 6% of regular compensation before taxes. The Company
contributed an amount equal to two-thirds the employee's investment and all
amounts were invested in Alco's common shares. Effective October 2, 1995, the
Stock Participation Plan was replaced by a Retirement Savings Plan ("RSP"). The
RSP allows employees to invest 1% to 16% of regular compensation before taxes
in multiple investment funds. The Company contributes an amount equal to two-
thirds of the employees' investments, up to 6% of regular compensation, for a
maximum company match of 4%. Prior to the Spin-Off, Company contributions are
invested in Alco common stock. Following the Spin-Off, Company contributions
will be invested in Unisource Common Stock. 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 purchase plans charged to
operations amounted to $9,359,000, $9,902,000 and $13,307,000 in 1994, 1995 and
1996, respectively.
The Company increased its net pension liability by $1,048,000 in fiscal 1995
due to early retirement benefits granted to employees in connection with the
1993 restructuring program.
As a result of the divestiture of Central Products Company, the Company
realized and recorded a curtailment loss of $446,000 in 1995.
F-16
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. LEASES
Capital leases are included in property and equipment in the amount of
$17,430,000 and $15,596,000 at September 30, 1995 and 1996, respectively.
Accumulated amortization of $8,973,000 and $8,508,000 is included in
accumulated depreciation at September 30, 1995 and 1996, respectively. Related
obligations are in long-term debt (See Note 9).
Future minimum lease payments under noncancelable leases with remaining terms
of more than one year are due as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
1997....................................... $ 1,872 $ 43,422
1998....................................... 1,817 38,103
1999....................................... 1,772 31,356
2000....................................... 1,737 26,092
2001....................................... 1,683 19,847
2002 and thereafter........................ 14,319 57,091
-------- --------
Total minimum lease payments............... 23,200 $215,911
========
Amount representing interest and executory
costs..................................... (10,878)
--------
Present value of net minimum lease pay-
ments..................................... $ 12,322
========
</TABLE>
Rental expense under operating leases for the years ended September 30, 1994,
1995 and 1996 totaled $46,938,000, $51,090,000 and $61,907,000, respectively.
13. STOCK OPTIONS
Alco has certain Stock Option Plans (the "Plans") under which incentive stock
options and non-qualified stock options may be granted to officers, key
employees and directors of Alco. In connection with the separation of Unisource
from Alco, stock options under the Plans that are not exercised prior to the
effective date of the Spin-Off will be adjusted. Optionholders who remain
employees of Alco will retain their options to purchase Alco shares, while
optionholders who become employees of Unisource after the Spin-Off will be
given the opportunity to receive options to purchase shares of Unisource Common
Stock in lieu of their Alco options. The number of shares subject to, and the
exercise price of, each Alco option that is converted to a Unisource option
will be converted based upon a formula that preserves the inherent economic
value and vesting and term provisions of such Alco options. The Exchange Ratio
and the fair market value of the Unisource Common Stock, upon active trading,
will also impact the number of options issued to Unisource employees. The
number of Alco stock options held by optionholders expected to become Unisource
employees at September 30, 1996 was 1,287,683 with a range of exercise price
from $9.69 to $57.50. The ultimate number of Alco stock options to be held by
Unisource employees at December 13, 1996 and the number and exercise price of
the Unisource stock options to be issued, subject to the above calculation,
cannot yet be determined.
Unisource intends to establish its own Stock Option Plan in order to grant
incentive stock options and non-qualified stock options to officers, key
employees and directors of the Company. This plan will permit Unisource to
determine the option price and other terms and conditions of the options.
F-17
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. FINANCIAL INSTRUMENTS
Concentration of Credit Risk
The Company is subject to credit risk through trade accounts receivable.
Credit risk with respect to trade accounts receivable is minimized because of a
large customer base and its geographic dispersion.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Interest Rate Swap Agreements
The Company has entered into four interest rate swap agreements with terms
beginning December 2, 1996 and expiring annually through December 1, 2000.
These agreements have a total principal/notional amount of $200,000,000 and
have fixed rates from 6.18% to 6.83%. The Company is required to make payments
to the counterparties at the fixed rates stated in the agreements and in return
the Company receives payments at variable rates (LIBOR), effectively hedging a
portion of the expected borrowings under the variable rate Credit Facility. At
September 30, 1996, these interest rate swap agreements had a fair value of
($1,150,000).
Cash, Notes Payable and Long-Term Receivables
The carrying amounts reported in the balance sheet approximate fair value.
Long-Term Debt
The fair value of long-term debt instruments is estimated using a discounted
cash flow analysis.
The fair value of the Company's long-term debt (excluding capital leases) was
$10,500,000 and $8,550,000 at September 30, 1995 and 1996, respectively as
compared to the carrying amounts of $11,006,000 and $9,615,000, respectively.
15. RESTRUCTURING
On September 29, 1993, the Company adopted a plan to restructure its 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 pre-tax charge to earnings of
$175,000,000 in the fourth quarter of fiscal 1993. The charge provided for
facility consolidation ($60,700,000), severance costs ($48,000,000), and the
related organizational and system redesign ($22,000,000). The remaining balance
at September 30, 1995 was $39,302,000 which consisted principally of
$17,000,000 for facilities consolidation costs, $10,000,000 for severance
costs, and $6,000,000 for system redesign costs.
In June 1996, the Company recorded a restructuring charge of $50,000,000
associated with the regional realignment from ten to five regions in the United
States and facility mergers in the United States and Canada. The $50,000,000
charge includes facility closure costs of $33,000,000 and severance costs for
approximately 900 employees of $17,000,000. At September 30, 1996, the
remaining restructuring reserves are approximately $29,500,000, which consists
of $14,800,000 for facilities consolidation and $14,700,000 for severance
costs.
16. CONTINGENCIES
There are contingent liabilities for taxes, guarantees, lawsuits,
environmental remediation claims 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.
17. COMMITMENTS
Effective January 1, 1994, the Company entered into an outsourcing agreement
that provided for the information technology system to be implemented as part
of its 1993 restructuring plan. This agreement calls
F-18
<PAGE>
UNISOURCE WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the payment of $300,000,000 over a ten-year period. Supplemental amendments
to the contract for additional services will require additional payments of
$30,000,000 over the remaining contract period expected to extend through
fiscal 2005. At September 30, 1996, the remaining commitment under the
agreement and related amendments is $194,000,000. Included in deferred costs
and other assets is $90,940,000 of costs associated with the information
technology outsourcing agreement, which will be amortized over the remaining
contract life upon implementation of the system. The information technology
system is expected to be fully implemented by the end of fiscal 1999.
18. GEOGRAPHIC INFORMATION
Revenues, income before taxes and identifiable assets by geographic area for
fiscal years ended September 30 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Domestic...................................... $5,107.6 $6,110.5 $6,101.9
Canada........................................ 648.9 804.0 774.0
Other Foreign................................. -- 72.8 146.9
-------- -------- --------
Total....................................... $5,756.5 $6,987.3 $7,022.8
======== ======== ========
Income before taxes and cumulative effect of ac-
counting change
Domestic...................................... $ 113.9 $ 138.3 $ 81.9
Canada........................................ 8.4 32.5 13.2
Other Foreign................................. 1.9 7.9
-------- -------- --------
Total....................................... $ 122.3 $ 172.7 $ 103.0
======== ======== ========
Assets
Domestic...................................... $1,423.5 $1,665.3 $1,804.0
Canada........................................ 296.5 330.3 280.6
Other Foreign................................. 23.4 107.1
-------- -------- --------
Total....................................... $1,720.0 $2,019.0 $2,191.7
======== ======== ========
</TABLE>
Included in income before taxes for fiscal 1996 are restructuring costs of
$38,000,000 for domestic operations and $12,000,000 for Canadian operations.
Other foreign consists of operations in Mexico and sales offices in Vienna
and Hong Kong.
19. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
Following is a summary of the unaudited interim results of operations for
each quarter in the years ended September 30, 1995 and September 30, 1996.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Year ended September 30,
1995
Revenues................ $1,547 $1,750 $1,833 $1,857 $6,987
Gross profit............ 242 269 274 277 1,062
Net income.............. 20 23 29 33 105
Year Ended September 30,
1996
Revenues................ 1,716 1,747 1,749 1,811 7,023
Gross Profit............ 269 290 292 276 1,127
Net income.............. 26 29 (6)(1) 11 60(1)
</TABLE>
- - --------
(1) Includes $50,000,000 restructuring charges; $32,500,000 net of tax.
F-19
<PAGE>
INDEX OF INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- - ----------- ----
<S> <C>
Signature Page............................................................. II-1
Report of Independent Auditors on Schedule................................. II-2
Schedule II................................................................ II-3
Exhibit Index.............................................................. II-4
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its behalf
by the undersigned, thereunto duly authorized.
Unisource Worldwide, Inc.
/s/ Ray B. Mundt
By: _________________________________
Name: Ray B. Mundt
Title: Chairman and Chief
Executive Officer
Date: November 26, 1996
II-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
To the Board of Directors and Stockholder
Unisource Worldwide, Inc.
We have audited the consolidated financial statements of Unisource Worldwide,
Inc. as of September 30, 1995 and 1996, and for each of the three years in the
period ended September 30, 1996, and have issued our report thereon dated
October 16, 1996, except for notes 1 and 9, as to which the date is November
22, 1996 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule of Valuation and Qualifying Accounts
included in this Registration Statement. 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.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 16, 1996
II- 2
<PAGE>
UNISOURCE WORLDWIDE, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
----------------------------
COL. A COL. B ADDITIONS COL. D COL. E
------ ------------ ---------------------------- ------------ --------------
BALANCES AT CHARGED TO CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ----------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1994
Allowance for doubtful
accounts............... $15,680,000 $12,855,000 $ 232,000(1) $12,833,000(2) $15,934,000
YEAR ENDED SEPTEMBER 30,
1995
Allowance for doubtful
accounts............... $15,934,000 $12,960,000 $ 187,000(1) $13,309,000(2) $15,772,000
YEAR ENDED SEPTEMBER 30,
1996
Allowance for doubtful
accounts............... $15,772,000 $17,204,000 $4,009,000(1) $17,058,000(2) $19,927,000
</TABLE>
- - --------
(1) Represents beginning balances of acquired companies.
(2) Accounts written off during year, net of recoveries.
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Distribution Agreement between Alco Standard Corporation and Unisource
Worldwide, Inc. and certain of its subsidiaries.
2.2 Form of Rights Agreement (to be in effect upon the effectiveness of
the Spin-Off).
3.1 Form of Restated Certificate of Incorporation, as amended, including
form of amendment to be in effect upon the effectiveness of the Spin-
Off of Unisource Worldwide, Inc.
3.2 Form of Amended and Restated By-laws of Unisource Worldwide, Inc. (to
be in effect upon the effectiveness of the Spin-Off).
10.1 Tax Sharing Agreement between Alco Standard Corporation and Unisource
Worldwide, Inc. and certain of its subsidiaries.
10.2 The Unisource Worldwide, Inc. 1996 Directors' Stock Option Plan.
10.3 The Unisource Worldwide, Inc. Supplemental Employee Retirement Plan.
10.4 Information Technology Services Agreement between Unisource Worldwide,
Inc. and Integrated Systems Solutions Corporation, incorporated by
reference to Alco Standard Corporation Form 10-K for fiscal year ended
1995, Exhibit 10.19 (File No. 1-05964).
10.5 Benefits Agreement between Alco Standard Corporation and Unisource
Worldwide, Inc.
10.6 Long Term Incentive Compensation Plan.
10.7 Partners' Stock Purchase Plan.
10.8 Stock Award Plan.
10.9 1997 Deferred Compensation Plan.
10.10 Credit Agreement among Unisource Worldwide, Inc., Unisource Capital
Corporation, Unisource Canada, Inc., The Chase Manhattan Bank, as
Administrative Agent and the Toronto-Dominion Bank, as Canadian Agent,
Toronto Dominion (Texas), Inc., as Documentation Agent and Chase
Securities Inc., as Arranger.
10.11 Partners' Loan Program.
10.12 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 Form 10-K, is
incorporated herein by reference (File No. 1-05964).
10.13 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 Form 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 Form 10-K, is
incorporated herein by reference (File No. 1-05964).
21.0 List of Subsidiaries of Unisource Worldwide, Inc.
</TABLE>
II-4
<PAGE>
Conformed Copy
DISTRIBUTION AGREEMENT
dated as of
November 20, 1996
between
ALCO STANDARD CORPORATION
and
UNISOURCE WORLDWIDE, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
DEFINITIONS.....................................................................1
Section 1.01. Definitions........................................................................................1
-----------
ARTICLE II
THE DISTRIBUTION..................................................................5
Section 2.01. Cooperation Prior to the Distribution..............................................................5
-------------------------------------
Section 2.02. Alco Board Action; Conditions Precedent to the Distribution........................................6
-----------------------------------------------------------
Section 2.03. The Distribution...................................................................................7
----------------
Section 2.04. Fractional Shares..................................................................................7
-----------------
ARTICLE III
CONVEYANCE OF CERTAIN ASSETS; ASSUMPTION OF CERTAIN
LIABILITIES; CERTAIN PAYMENTS; AND TRANSITION ARRANGEMENTS.............................................7
Section 3.01. Conveyance of Assets; Discharge of Liabilities.....................................................7
----------------------------------------------
Section 3.02. Conduct of Unisource Pending Distribution..........................................................9
-----------------------------------------
Section 3.03. Revolving Credit Agreement.........................................................................9
--------------------------
Section 3.04. Unisource Payment..................................................................................9
-----------------
Section 3.05. Cash Management System.............................................................................9
----------------------
Section 3.06. Unisource Foundation...............................................................................9
--------------------
Section 3.07. Insurance.........................................................................................10
---------
Section 3.08. Certain Intellectual Property Matters.............................................................10
-------------------------------------
ARTICLE IV
INDEMNIFICATION.................................................................11
Section 4.01. Unisource Indemnification of the Alco Group.......................................................11
-------------------------------------------
Section 4.02. Alco Indemnification of Unisource Group...........................................................11
---------------------------------------
Section 4.03. Insurance and Third Party Obligations.............................................................11
-------------------------------------
ARTICLE V
INDEMNIFICATION PROCEDURES...........................................................12
Section 5.01. Notice and Payment of Claims......................................................................12
----------------------------
Section 5.02. Notice and Defense of Third-Party Claims..........................................................12
----------------------------------------
ARTICLE VI
INFORMATION SYSTEMS; TELECOMMUNICATIONS.....................................................13
Section 6.01 Ownership of Computer Systems......................................................................13
-----------------------------
Section 6.02 Separation of Data.................................................................................13
------------------
Section 6.03 Access; Systems Support............................................................................14
-----------------------
Section 6.04 IBM AS400..........................................................................................14
---------
Section 6.05 Telecommunications.................................................................................15
------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII
HEADQUARTERS FACILITY...............................................16
Section 7.01. Continued Occupation of Headquarters Facility.....................................................16
---------------------------------------------
Section 7.02. Proposed Sale.....................................................................................16
-------------
Section 7.03. Occupation by Unisource...........................................................................16
-----------------------
Section 7.04. Sharing of Costs of Operation.....................................................................16
-----------------------------
Section 7.05. Responsibility for Oversight; Services to be Provided.............................................17
-----------------------------------------------------
Section 7.06. Termination of Occupancy..........................................................................17
------------------------
Section 7.07. Insurance; Release; Waiver of Subrogation.........................................................18
-----------------------------------------
Section 7.08. General Cooperation...............................................................................18
-------------------
ARTICLE VIII
EMPLOYEE MATTERS................................................18
Section 8.01. Assignment of Employees...........................................................................18
-----------------------
Section 8.02. Benefits Agreement................................................................................19
------------------
ARTICLE IX
TAX MATTERS..................................................19
ARTICLE X
ACCOUNTING MATTERS...............................................19
Section 10.01. Allocation of Prepaid Items and Reserves.........................................................19
----------------------------------------
Section 10.02. Accounting Treatment of Assets Transferred and Liabilities Assumed...............................19
------------------------------------------------------------------
Section 10.03. Intercompany Accounts............................................................................19
---------------------
ARTICLE XI
INFORMATION..................................................20
Section 11.01. Provision of Corporate Records...................................................................20
------------------------------
Section 11.02. Access to Information............................................................................20
---------------------
Section 11.03. Litigation Cooperation...........................................................................20
----------------------
Section 11.04. Reimbursement....................................................................................20
-------------
Section 11.05. Retention of Records.............................................................................20
--------------------
Section 11.06. Confidentiality..................................................................................20
---------------
ARTICLE XII
INTEREST ON PAYMENTS..............................................21
ARTICLE XIII
MISCELLANEOUS.................................................21
Section 13.01. Expenses.........................................................................................21
--------
Section 13.02. Notices..........................................................................................21
-------
Section 13.03. Amendment and Waiver.............................................................................22
--------------------
Section 13.04. Entire Agreement.................................................................................22
----------------
Section 13.05. Parties in Interest..............................................................................22
-------------------
Section 13.06. Guaranteed Unisource Liabilities.................................................................23
--------------------------------
</TABLE>
ii
<PAGE>
Section 13.07. Further Assurances and Consents............................23
-------------------------------
Section 13.08. Severability...............................................23
------------
Section 13.09. Governing Law..............................................23
-------------
Section 13.10. Counterparts...............................................24
------------
Section 13.11. Disputes...................................................24
--------
Exhibit A - Sites Giving Rise to Environmental Site Liabilities
Exhibit B - Certain Guaranteed Unisource Liabilities
Exhibit C - Sold Businesses
Exhibit D - Other Unisource Assets
Exhibit E - Unisource Consolidated Balance Sheet
iii
<PAGE>
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT ("Agreement") dated as of November 20, 1996 by
and between Alco Standard Corporation, an Ohio corporation (together with its
successors and permitted assigns, "Alco"), and Unisource Worldwide, Inc, a
Delaware corporation (together with its successors and permitted assigns,
"Unisource").
RECITALS
--------
A. Unisource is presently a wholly-owned subsidiary of Alco.
B. The Board of Directors of Alco has determined that it is in
the best interest of Alco and the stockholders of Alco to make a distribution
(the "Distribution") to the holders of Alco Common Stock (as defined herein) of
all of the outstanding shares of Unisource Common Stock (as defined herein) at
the rate of one share of Unisource Common Stock for every two shares of Alco
Common Stock outstanding as of the Record Date (as defined herein).
C. It is the intention of the parties that the Distribution will
not be taxable to the stockholders of Alco pursuant to Section 355 of the Code
(as defined herein).
D. The parties have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters following such Distribution.
E. In connection with the Distribution, Alco and Unisource
intend to enter into the Benefits Agreement and the Tax Agreement (as such terms
are defined herein).
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements and covenants contained in this Agreement, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used herein, the following terms have
-----------
the following meaning:
"Action" means any claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
<PAGE>
"Alco Business" means the business now or formerly conducted by Alco
and its present and former subsidiaries, other than the Unisource Business.
"Alco Common Stock" means the outstanding shares of common stock, no
par value, of Alco.
"Alco Group" means Alco and its subsidiaries, excluding any member of
the Unisource Group.
"Alco Headquarters Computer Assets" has the meaning specified in
Section 6.01.
"Alco Liabilities" means (i) Liabilities of Alco under this Agreement
or any Ancillary Agreement, (ii) Liabilities, other than Unisource Liabilities,
incurred in connection with the operation of the Alco Business, whether arising
before, on or after the Distribution Date and (iii) Liabilities arising in
respect of the Waste Disposal Engineering Superfund Site involving the Brown &
Bigelow Division of Saxon Industries, Inc.
"Ancillary Agreements" means all of the written agreements,
instruments, understandings, assignments and other arrangements entered into in
connection with the transactions contemplated hereby, including, without
limitation, the Benefits Agreement and the Tax Agreement.
"Assets" means all properties, rights, contracts, leases and claims,
of every kind and description, wherever located, whether tangible or intangible,
and whether real, personal or mixed.
"Benefits Agreement" means the Benefits Agreement entered into on or
prior to the Distribution Date between Alco and Unisource, as amended from time
to time.
"Cash Management System" means the consolidated cash management system
maintained by Alco for itself and its subsidiaries.
"Code" means the Internal Revenue Code of' 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Distribution" is defined in the recitals to this Agreement.
"Distribution Agent" means National City Bank, Cleveland, Ohio, in its
capacity as agent for Alco in connection with the Distribution.
"Distribution Date" means December 31, 1996 or such other business day
as of which the Distribution shall be effective, as determined by the Board of
Directors of Alco.
2
<PAGE>
"Environmental Site Liabilities" means all Liabilities of the Alco
Group or the Unisource Group arising under any environmental law (including
common law claims) or regulation with respect to the sites listed on Exhibit A
---------
attached hereto and made a part hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 10" means the registration statement on Form 10 filed by
Unisource with the Commission to effect the registration of the Unisource Common
Stock pursuant to the Exchange Act, as such registration statement may be
amended from time to time.
"Group" means the Alco Group or the Unisource Group.
"Guaranteed Unisource Liabilities" means the IRB Debt and all other
Unisource Liabilities on which any member of the Alco Group is an obligor by
reason of any guarantee or contractual commitment, including, without
limitation, those Unisource Liabilities set forth on Exhibit B attached hereto
---------
and made a part hereof.
"Headquarters Facility" means the land, buildings and improvements
owned by Alco located at 825 Duportail Road, Wayne, Pennsylvania.
"Information Statement" means the information statement to be sent
to each holder of Alco Common Stock in connection with the Distribution.
"IRB Debt" means the outstanding industrial development revenue bonds
issued to finance facilities of the Unisource Group reflected on the Unisource
Balance Sheet.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, action, order or consent decree of any
governmental entity or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Record Date" means December 13, 1996 or such other date as is
designated by Alco's Board of Directors as the record date for determining the
stockholders of Alco entitled to receive the Distribution.
"Revolving Credit Agreement" shall have the meaning set forth in
Section 3.03
"Securities Act" means the Securities Act of 1933, as amended.
3
<PAGE>
"Sold Business" means any of the assets or businesses described on
Exhibit C attached hereto and made a part hereof formerly owned, directly or
- - ---------
indirectly, by Alco or Unisource and heretofore sold.
"Tax" shall have the meaning given to such term in the Tax Agreement.
"Tax Agreement" means the Tax Sharing and Indemnification Agreement
entered into on or before the Distribution Date between Alco and Unisource, as
amended from time to time.
"Tradenames" shall have the meaning set forth in Section 3.06.
"Unisource Assets" means all Assets that are (i) owned of record or
held in the name of a member of the Unisource Group, (ii) treated for internal
financial reporting purposes of Alco prior to the Distribution or on the
Unisource Balance Sheet as owned by a member of the Unisource Group, subject to
acquisitions, dispositions and adjustments in the operation of the Unisource
Business after September 30, 1996, (iii) on the Distribution Date used
exclusively by one or more members of the Unisource Group or (iv) described on
Exhibit D attached hereto and made a part hereof. Notwithstanding the
- - ---------
foregoing, Unisource Assets shall not include any life insurance policies owned
by Alco on the lives of any persons who are or will be employees of the
Unisource Group or any amounts receivable from any person or entity by way of
contribution or otherwise in respect of the Waste Disposal Engineering Superfund
Site involving the Brown & Bigelow Division of Saxon Industries, Inc., all of
which shall remain Assets of the Alco Group.
"Unisource Balance Sheet" means the consolidated balance sheet of
Unisource as of September 30, 1996 set forth on Exhibit E attached hereto and
---------
made a part hereof.
"Unisource Business" means the business now or formerly conducted by
the Unisource and its present or former subsidiaries or any other member of the
Unisource Group.
"Unisource By-laws" means the By-laws of Unisource in the form filed
as an exhibit to the Form 10 at the time it becomes effective.
"Unisource Certificate" means the certificate of incorporation of
Unisource in the form filed as an exhibit to the Form 10 at the time it becomes
effective.
"Unisource Common Stock" means the outstanding shares of common stock,
no par value, of Unisource.
"Unisource Group" shall mean Unisource, its subsidiaries and any
subsidiary or division of any member of the Alco Group that is operated under
the control of Unisource and is included in the results of Unisource for
internal financial reporting purposes.
4
<PAGE>
"Unisource Headquarters Computer Assets" has the meaning specified in
Section 6.01.
"Unisource Liabilities" means (i) Liabilities of Unisource under this
Agreement or any Ancillary Agreement, (ii) except as otherwise expressly
provided in this Agreement or any Ancillary Agreement, Liabilities incurred in
connection with the conduct or operation of the Unisource Business or the
ownership or use of the Unisource Assets, whether arising before, on or after
the Distribution Date, (iii) Liabilities arising under or in connection with the
Form 10, (iv) except as otherwise expressly provided in this Agreement or any
Ancillary Agreement, Liabilities set forth on the Unisource Balance Sheet as
increased or reduced in the operation of the Unisource Business after
September 30, 1996, (v) except as otherwise provided in this Agreement or any
Ancillary Agreement, Liabilities of the Alco Group or the Unisource Group
relating to a Sold Business or arising out of the sale thereof and (vi)
Environmental Site Liabilities. Notwithstanding the foregoing, the Unisource
Liabilities shall not include (x) any debt of the Alco Group for money borrowed
or evidenced by a note, debenture or other instrument, except the IRB Debt and
other long-term debt and notes payable set forth in the Unisource Balance Sheet,
(y) Liabilities arising in respect of (1) any workmen's compensation claim if
(or to the extent that, in the case of injuries or conditions that relate to
periods both before and after September 30, 1996) the injury or condition giving
rise to the claim was incurred on or before September 30, 1996 and (2) any
automobile and general liability claim covered by insurance maintained by Alco
(or that would be covered but for any self-insured retention or deductible
maintained by Alco) if the occurrence giving rise to the claim occurred on or
before September 30, 1996 or (z) any Liabilities expressly assumed or retained
by Alco in this Agreement or any Ancillary Agreement.
"Unisource Payment" means a cash payment in an amount equal to, and to
be applied against, the amount of the Notes and Advances Payable to Alco and
Affiliates set forth on the Unisource Balance Sheet plus interest thereon
accrued from September 30, 1996 to the date of payment at the rate of 6.75% per
annum.
ARTICLE II
THE DISTRIBUTION
Section 2.01. Cooperation Prior to the Distribution.
-------------------------------------
(a) Alco and Unisource shall prepare, and Alco shall mail to the
holders of Alco Common Stock as of the Record Date, the Information Statement,
which shall set forth appropriate disclosure concerning Unisource, the
Distribution and any other appropriate matters. Alco and Unisource shall also
prepare, and Unisource shall file with the Commission, the Form 10, which shall
include the Information Statement. Alco and Unisource shall use all reasonable
efforts to cause the Form 10 to become effective under the Exchange Act.
5
<PAGE>
(b) Alco and Unisource shall cooperate in preparing, filing with the
Commission under the Securities Act and causing to become effective any
registration statements or amendments thereto that are appropriate to reflect
the establishment of or amendments to any employee benefit plan contemplated by
the Benefits Agreement.
(c) Alco and Unisource shall by means of a stock split or stock
distribution cause the number of outstanding shares of Unisource Common Stock
held by Alco to be equal to the number of shares to be distributed in the
Distribution.
(d) Alco and Unisource shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement or any Ancillary Agreement.
(e) Unisource shall prepare, file and pursue an application to permit
listing of the Unisource Common Stock on the New York Stock Exchange.
Section 2.02. Alco Board Action; Conditions Precedent to the
----------------------------------------------
Distribution. Alco's Board of Directors shall, in its discretion, establish the
- - ------------
Record Date and the Distribution Date and any appropriate procedures in
connection with the Distribution. In no event shall the Distribution occur
unless the following conditions shall have been satisfied:
(a) any necessary regulatory approvals shall have been received;
(b) the Form 10 shall have become effective under the Exchange Act;
(c) a favorable response shall have been received from the staff of
the Commission with respect to Alco's no-action request concerning, among other
things, whether the Distribution may be effected without registration of the
Unisource Common Stock under the Securities Act;
(d) Unisource shall have made the Unisource Payment;
(e) Unisource's Board of Directors, as named in the Form 10, shall
have been elected by Alco, as sole stockholder of Unisource, and the Unisource
Certificate and Unisource By-laws shall be in effect;
(f) the Unisource Common Stock shall have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance; and
(g) Alco shall have received a favorable ruling from the Internal
Revenue Service that the Distribution will not be taxable to the stockholders of
Alco pursuant to Section 355 of the Code.
6
<PAGE>
Section 2.03. The Distribution. On or before the Distribution Date,
----------------
subject to satisfaction or waiver of the conditions set forth in this Agreement,
Alco shall deliver to the Distribution Agent a certificate or certificates
representing all of the then outstanding shares of Unisource Common Stock held
by the Alco Group, endorsed in blank, and shall instruct the Distribution Agent,
except as otherwise provided in Section 2.04, to distribute to each holder of
record of Alco Common Stock on the Record Date a certificate or certificates
representing one share of Unisource Common Stock for each two shares of Alco
Common Stock so held. Unisource agrees to provide all certificates for shares of
Unisource Common Stock that the Distribution Agent shall require in order to
effect the Distribution.
Section 2.04. Fractional Shares. The Distribution Agent shall not
-----------------
distribute any fractional share of Unisource Common Stock to any holder. The
Distribution Agent shall aggregate all such fractional shares and sell them in
an orderly manner after the Distribution Date in the open market and, after
completion of such sales, distribute a pro rata portion of the proceeds from
such sales, based upon the average gross selling price of all such Unisource
Common Stock, less a pro rata portion of the aggregate brokerage commissions
payable in connection with such sales, to each holder of Alco Common Stock who
would otherwise have received a fractional share of Unisource Common Stock.
ARTICLE III
CONVEYANCE OF CERTAIN ASSETS; ASSUMPTION OF CERTAIN
LIABILITIES; CERTAIN PAYMENTS; AND TRANSITION ARRANGEMENTS
Section 3.01. Conveyance of Assets; Discharge of Liabilities.
----------------------------------------------
(a) Except as otherwise expressly provided herein or in any of the
Ancillary Agreements, on the Distribution Date (i) all Unisource Assets are
intended to be and shall become Assets of the Unisource Group, (ii) all
Unisource Liabilities are intended to be and shall become exclusively the
Liabilities of the Unisource Group and (iii) all other Assets and Liabilities of
Alco and its subsidiaries are intended to be and shall remain exclusively the
Assets or Liabilities of the Alco Group.
(b) On or before the Distribution Date, Alco agrees to transfer or
cause to be transferred to Unisource or to such other members of the Unisource
Group as Unisource may designate, free and clear of all liens, mortgages, deeds
of trust, security interests, charges, claims or encumbrances of any kind other
than (i) easements, rights of way, zoning restrictions and other similar
encumbrances affecting real property and (ii) those constituting or securing
Unisource Liabilities, all right, title and interest of the Alco Group in and to
any of the Unisource Assets.
(c) On or before the Distribution Date, Unisource agrees to transfer
or cause to be transferred to Alco or to such other member of the Alco Group as
Alco may designate, free
7
<PAGE>
and clear of all liens, mortgages, deeds of trust, security interests, charges,
claims or encumbrances of any kind other than (i) easements, rights of way,
zoning restrictions and other similar encumbrances affecting real property and
(ii) those constituting or securing Alco Liabilities, all right, title and
interest of the Unisource Group in and to any Assets that are not Unisource
Assets.
(d) Unisource agrees that on and after the Distribution Date it will
pay, perform and discharge, or cause to be paid, performed or discharged, all of
the Unisource Liabilities.
(e) Alco agrees that on and after the Distribution Date it will pay,
perform and discharge, or cause to be paid, performed and discharged, all of the
Alco Liabilities. In connection therewith, without limiting the duties of the
parties specified in Article XI of this Agreement, Unisource agrees that it will
provide at its own expense all reasonable cooperation and assistance to Alco in
connection with the investigation and resolution of claims specified in clause
(y) of the last sentence of the definition of Unisource Liabilities (including
facilitating a return to work of personnel capable of doing so in the case of
workmen's compensation claims).
(f) In the event that any conveyance of an Asset required hereby is
not effected on or before the Distribution Date, the obligation to transfer such
Asset shall continue past the Distribution Date and shall be accomplished as
soon thereafter as practicable.
(g) If any Asset may not be transferred by reason of the requirement
to obtain the consent of any third party and such consent has not been obtained
by the Distribution Date, then such Asset shall not be transferred until such
consent has been obtained, and Alco or Unisource, as the case may be, shall
cause the owner of such Asset to use all reasonable efforts to provide to the
appropriate member of the other Group all the rights and benefits under such
Asset and cause such owner to enforce such Asset for the benefit of such member.
Both parties shall otherwise cooperate and use all reasonable efforts to provide
the economic and operational equivalent of an assignment or transfer of the
Asset.
(h) From and after the Distribution Date, each party shall promptly
transfer or cause the members of its Group promptly to transfer to the other
party or the appropriate member of the other party's Group, from time to time,
any property received that is an Asset of the other party or a member of its
Group. Without limiting the foregoing, funds received by a member of one Group
upon the payment of accounts receivable that belongs to a member of the other
Group shall be transferred to the other Group by wire transfer not more than
five business days after receipt of such payment.
Section 3.02. Conduct of Unisource Pending Distribution.
-----------------------------------------
8
<PAGE>
(a) Prior to the Distribution Date, Unisource shall not, without the
prior consent in writing of Alco, make any public announcement concerning the
Distribution and shall use its best efforts not to take any action which may
prejudice or delay the consummation of the Distribution.
(b) Prior to the Distribution Date, the business of Unisource shall be
operated for the sole benefit of Alco as its sole stockholder.
Section 3.03. Revolving Credit Agreement. Unisource shall use all
--------------------------
reasonable efforts promptly to obtain, and to satisfy all conditions for
borrowing under, a revolving credit agreement with one or more lenders (the
"Revolving Credit Agreement") in an amount sufficient to allow Unisource to make
the Unisource Payment and to conduct the business of Unisource after the
Distribution Date.
Section 3.04. Unisource Payment. Upon satisfying the conditions to
-----------------
the first borrowing under the Revolving Credit Agreement, and in no event later
than the Distribution Date, Unisource shall pay to Alco the Unisource Payment.
Section 3.05. Cash Management System.
----------------------
(a) Until Unisource obtains, and satisfies the conditions to the first
borrowing under, the Revolving Credit Agreement, the Unisource Group shall
continue to participate in the Cash Management System, which shall be operated
in accordance with past practice.
(b) As soon as reasonably practicable after Unisource satisfies the
conditions to the first borrowing under the Revolving Credit Agreement, but in
no event later than 30 days after the Distribution Date, Unisource shall cease
using the Cash Management Systems and Alco and Unisource shall calculate the
balance owed to or by the Unisource Group in order to bring to zero the
intercompany account arising from participation by the Unisource Group in the
Cash Management System after September 30, 1996. In making such calculation,
(i) intercompany balances shall earn or accrue interest at the rate of 6.75% per
annum and (ii) on or before the Distribution Date the Unisource Group shall be
entitled to a $4,000,000 credit in lieu of any interest in the Headquarters
Facility.
(c) Promptly after completing the calculation described in Section
3.05(b), Alco or Unisource, as the case may be, shall pay the amount due to the
other.
Section 3.06. Unisource Foundation. On or before the Distribution
--------------------
Date, Unisource shall establish a charitable foundation and shall apply for its
tax-exempt status under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended. Subject to Unisource complying with the preceding sentence, on the
Distribution Date Alco shall cause the Alco Standard Foundation to make a
contribution to such charitable foundation in the amount of $1,000,000. If,
however, for any reason the contribution cannot be made on the Distribution
9
<PAGE>
Date, it shall be made as soon as practicable thereafter. Pending the making of
such contribution, Alco shall cooperate with Unisource to assure that matching
contributions in respect of charitable donations by employees of the Unisource
Group are made in accordance with the past practice of the Alco Standard
Foundation. When the contribution by the Alco Standard Foundation to the
foundation established by Unisource is made, such contribution shall include a
pro rata share of the income and expenses of the Alco Standard Foundation since
the Distribution Date and be net of any matching contributions made on behalf of
Unisource Group employees after the Distribution Date.
Section 3.07. Insurance.
---------
(a) Prior to the Distribution Date, Alco and Unisource will cooperate
in obtaining insurance (or binders therefor) providing coverage to the Unisource
Group similar to the coverage provided by insurance in place prior to the
Distribution Date.
(b) Alco will use all reasonable efforts to maintain directors' and
officers' liability insurance at substantially the level of Alco's current
directors' and officers' liability insurance policy for a period of five years
with respect to the directors and officers of Alco who will become directors and
officers of Unisource as of the Distribution Date for acts as directors and
officers of members of the Alco Group during periods prior to the Distribution
Date.
(c) Alco will pay or reimburse the Unisource Group for the amount of
any deductible or self-insured retention maintained by Alco in respect of any
loss or damage in excess of normal intercompany deductibles to any Unisource
Assets incurred on or before September 30, 1996 that would be covered by
insurance maintained by Alco but for such deductible or self-insured retention.
Unisource shall submit to Alco such evidence of the loss as Alco may reasonably
require.
Section 3.08. Certain Intellectual Property Matters.
-------------------------------------
(a) Except as otherwise set forth herein, after the Distribution
Date neither party shall, directly or indirectly, use any name or any other
trademark or tradename (collectively, the "Tradenames") (e.g., as to Alco, "Alco
Standard" or "Ikon" and, as to Unisource, "Unisource") of the other party or its
Group or any tradename or trademark likely to cause confusion with the
Tradenames of the other party or its Group; provided, however, that either party
shall be entitled to use the term "the corporate partnership."
(b) After the Distribution Date, each party shall have the right to
sell existing inventory and to use existing brochures, packaging, labeling,
containers, supplies, advertising materials, technical data sheets and any
similar materials bearing any Tradenames until the earlier of (i) one year after
the Distribution Date and (ii) the date existing stocks are exhausted.
Each party shall comply with all applicable laws or regulations in any use of
packaging or labeling containing the Tradenames.
10
<PAGE>
(c) Neither party shall be obligated to change the Tradenames on
finished goods in inventory and other materials in the hands of dealers,
distributors and customers at the time of expiration of a time period set forth
in (b) above.
(d) Each party agrees to use reasonable efforts to cease using the
Tradenames of the other party on buildings, cars, trucks and other fixed assets
as soon as possible but in any event within a period not to exceed one year
after the Distribution Date.
ARTICLE IV
INDEMNIFICATION
Section 4.01. Unisource Indemnification of the Alco Group. On and
-------------------------------------------
after the Distribution Date, Unisource shall indemnify, defend and hold harmless
each member of the Alco Group, and each of their respective directors, officers,
employees and agents (the "Alco Indemnitees") from and against any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys, fees and expenses in
connection with any and all Actions or threatened Actions) (collectively,
"Indemnifiable Losses") incurred or suffered by any of the Alco Indemnitees and
arising out of, or due to the failure of Unisource or any member of the
Unisource Group to pay, perform or otherwise discharge, any of the Unisource
Liabilities.
Section 4.02. Alco Indemnification of Unisource Group. On and after
---------------------------------------
the Distribution Date, Alco shall indemnify, defend and hold harmless each
member of the Unisource Group and each of their respective directors, officers,
employees and agents (the "Unisource Indemnitees") from and against any and all
Indemnifiable Losses incurred or suffered by any of the Unisource Indemnitees
and arising out of, or due to the failure of Alco or any member of the Alco
Group to pay, perform or otherwise discharge, any of the Alco Liabilities.
Section 4.03. Insurance and Third Party Obligations. No insurer or
-------------------------------------
any other third party shall be (a) entitled to a benefit it would not be
entitled to receive in the absence of the foregoing indemnification provisions,
(b) relieved of the responsibility to pay any claims to which it is obligated or
(c) entitled to any subrogation rights with respect to any obligation hereunder.
ARTICLE V
INDEMNIFICATION PROCEDURES
Section 5.01. Notice and Payment of Claims. If any Alco or Unisource
----------------------------
Indemnitee (the "Indemnified Party") determines that it is or may be entitled to
indemnification
11
<PAGE>
by a party (the "Indemnifying Party") under Article IV (other than in connection
with any Action or claim subject to Section 5.02), the Indemnified Party shall
deliver to the Indemnifying Party a written notice specifying, to the extent
reasonably practicable, the basis for its claim for indemnification and the
amount for which the Indemnified Party reasonably believes it is entitled to be
indemnified. After the Indemnifying Party shall have been notified of the amount
for which the Indemnified Party seeks indemnification, the Indemnifying Party
shall, within 90 days after receipt of such notice, pay the Indemnified Party
such amount in cash or other immediately available funds (or reach agreement
with the Indemnified Party as to a mutually agreeable alternative payment
schedule) unless the Indemnifying Party objects to the claim for indemnification
or the amount thereof. If the Indemnifying Party does not give the Indemnified
Party written notice objecting to such claim and setting forth the grounds
therefor within the same 90 day period, the Indemnifying Party shall be deemed
to have acknowledged its liability for such claim and the Indemnified Party may
exercise any and all of its rights under applicable law to collect such amount.
Section 5.02. Notice and Defense of Third-Party Claims. Promptly
----------------------------------------
following the earlier of (a) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (b)
receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the Indemnified Party to give notice as provided in
this Section 5.02 shall not relieve the Indemnifying Party of its obligations
under this Agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Within 90 days after receipt of such
notice, the Indemnifying Party may by giving written notice thereof to the
Indemnified Party, (a) acknowledge, as between the parties hereto, liability for
and at its option elect to assume the defense of such Third-Party Claim at its
sole cost and expense or (b) object to the claim of indemnification set forth in
the notice delivered by the Indemnified Party pursuant to the first sentence of
this Section 5.02; provided that if the Indemnifying Party does not within the
--------
same 90 day period give the Indemnified Party written notice objecting to such
claim and setting forth the grounds therefor or electing to assume the defense,
the Indemnifying Party shall be deemed to have acknowledged, as between the
parties hereto, its liability for such Third-Party Claim. Any contest of a
Third Party Claim as to which the Indemnifying Party has elected to assume the
defense shall be conducted by attorneys employed by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party; provided that the Indemnified
--------
Party shall have the right to participate in such proceedings and to be
represented by attorneys of its own choosing at the Indemnified Party's sole
cost and expense. If the Indemnifying Party assumes the defense of a Third-Party
Claim, the Indemnifying Party may settle or compromise the claim without the
prior written consent of the Indemnified Party; provided that the Indemnifying
--------
Party may not agree to any such settlement pursuant to which any such remedy or
relief, other than monetary damages for which the Indemnifying Party shall be
responsible hereunder, shall be applied to or against the Indemnified Party,
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld. If the Indemnifying Party does not assume the
12
<PAGE>
defense of a Third-Party Claim for which it has acknowledged liability for
indemnification under Article IV, the Indemnified Party may require the
Indemnifying Party to reimburse it on a current basis for its reasonable
expenses of investigation, reasonable attorney's fees and reasonable out-of-
pocket expenses incurred in defending against such Third-Party Claim and the
Indemnifying Party shall be bound by the result obtained with respect thereto by
the Indemnified Party; provided that the Indemnifying Party shall not be liable
--------
for any settlement effected without its consent, which consent shall not be
unreasonably withheld. The Indemnifying Party shall pay to the Indemnified Party
in cash the amount for which the Indemnified Party is entitled to be indemnified
(if any) within 15 days after the final resolution of such Third-Party Claim
(whether by the final nonappealable judgment of a court of competent
jurisdiction or otherwise) or, in the case of any Third-Party Claim as to which
the Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection has been resolved by settlement, compromise or
the final nonappealable judgment of a court of competent jurisdiction.
ARTICLE VI
INFORMATION SYSTEMS; TELECOMMUNICATIONS
Section 6.01 Ownership of Computer Systems. On or before the
-----------------------------
Distribution Date, Alco shall transfer to Unisource ownership of the computer
hardware and software identified on Exhibit D attached hereto and made a part
---------
hereof (the "Unisource Headquarters Computer Assets"). Alco shall retain
ownership of all other computer hardware and software at the Headquarters
Facility used in common by each Group (the "Alco Headquarters Computer Assets"),
except that any hardware or software not appropriate for use in Alco's new
headquarters facility or otherwise intended to be discarded by Alco shall be
transferred without charge to Unisource and become Unisource Headquarters
Computer Assets. Alco shall also retain all hardware and software licenses in
effect prior to the Distribution Date that relate to management information
systems ("MIS") functions performed by Alco corporate departments, including
Tax, Treasury, Accounting and Personnel. Unisource shall be responsible for
obtaining such duplicate or alternative licenses as it may require, and Alco
shall reimburse Unisource up to an aggregate maximum of $200,000 to obtain such
licenses.
Section 6.02 Separation of Data. As of the Distribution Date, or as
------------------
soon thereafter as reasonably possible, Alco and Unisource shall create and
maintain separate management information data systems for all functions
heretofore supported by the Alco corporate MIS personnel.
Section 6.03 Access; Systems Support. For so long as the Alco Group
-----------------------
and the Unisource Group both occupy the Headquarters Facility, MIS employees of
each Group shall have such access to the equipment and systems of the other
Group as may be reasonably required. Alco and Unisource shall each cause the
former corporate MIS personnel, whether employed by the Alco Group or the
Unisource Group after the Distribution Date, to continue to
13
<PAGE>
support both the Alco Headquarters Computer Equipment and the Unisource
Headquarters Computer Equipment for so long as both Groups remain at the
Headquarters Facility. After the Distribution Date, however, Alco and Unisource
shall use all reasonable efforts to effect the transition of support of the Alco
Headquarters Computer Assets to employees of the Alco Group and support of the
Unisource Headquarters Computer Assets to employees of the Unisource Group. At
the time that the first of Alco or Unisource terminates its occupancy of the
Headquarters Facility, support by employees of one Group for all systems of the
other Group shall cease, except as provided in Section 6.04 and except where the
failure to provide support by one Group will cause a material adverse impact on
the business of the other Group. In no event, however, shall such computer
system support extend beyond December 31, 1997.
Section 6.04 IBM AS400.
---------
(a) Alco shall retain ownership of the existing IBM AS400 ("AS400")
after the Distribution Date. Unisource will have access to the AS400 and may
continue to process those systems currently running on the AS400 on the terms
provided in this Section 6.04.
(b) For so long as Alco and Unisource both utilize the AS400, Alco
will dedicate one support person to the AS400 and will in general use all
reasonable efforts to provide the same level of support as existed prior to the
date of this Agreement. Alco and Unisource shall share all normal operating
costs associated with the AS400 on an equal basis. Such costs include, but are
not limited to: salary and benefits of the dedicated Alco support person,
annual maintenance fees paid to J.D. Edwards and IBM, service fees paid to IBM
for requested maintenance to the AS400 and software upgrade fees necessary to
maintain support for the AS400 and/or the J.D. Edwards software. Each of Alco
and Unisource shall be responsible for its own costs associated with
telecommunications and hardware and software modifications required by the move
of its Group to a new site, as well as for all costs of programming changes that
apply only to its Group.
(c) Any exceptions required by Unisource to normal processing hours
and support must be approved by Alco. Every reasonable effort shall be made by
Alco in accordance with past practice to honor reasonable requests by Unisource.
(d) Any software changes requested by Unisource shall be submitted in
writing to Alco for approval. Expenses related to the programming changes
required by Unisource only shall be billed to Unisource at Alco's AS400
programmer's actual hourly rate and completed by Alco at agreed upon costs and
time. Every reasonable effort shall be made by Unisource to limit the scope and
amount of requested changes to the AS400.
(e) For so long as Alco and Unisource both use the AS400, all hardware
and software problems relating to the AS400 shall be handled by Alco with the
respective vendors. Unisource shall not contact these vendors directly. Alco
shall use all reasonable efforts to cause
14
<PAGE>
the vendors to address hardware and software problems brought to Alco's
attention by Unisource.
(f) Either Alco or Unisource may terminate its use and support of the
AS400 upon at least 90 days' prior written notice to the other. In the event
that Alco gives such a notice, Unisource shall have the option exercisable by
notice to Alco on or before the date of termination to purchase the AS400, with
or without any related software license (to the extent assignable), at a price
payable in cash equal to the remaining book value on the date of termination.
Such sale will be without any warranty by Alco as to the condition of the goods
transferred. Unisource shall be solely responsible for the removal of the
equipment and payment of the costs thereof. If Unisource fails to exercise its
option to purchase the AS400, its right of access thereto shall terminate.
(f) Alco may remove the AS400 at Alco's sole expense when Alco
terminates its occupancy of the Headquarters Facility. Access by Unisource to
the AS400 shall continue after Alco or Unisource ceases to occupy the
Headquarters Facility, but Unisource shall be responsible for the installation,
cost and maintenance of necessary communication lines and any corresponding
hardware or software changes required to the AS400 to support Unisource as a
remote user.
(g) Unless earlier terminated as herein provided, access by Unisource
to the AS400 will terminate on December 31, 1998.
Section 6.05 Telecommunications. Alco shall retain ownership of the
------------------
telephone system at the Headquarters Facility. Alco and Unisource shall
continue to share the telephone system while both Groups continue to occupy the
Headquarters Facility. As of October 1, 1996, Alco shall pay 60% of the ongoing
costs of the telephone system and Unisource shall pay the remaining 40%. Such
percentages shall be adjusted in accordance with any adjustments of the
percentages under Section 7.04. The costs include but are not limited to:
annual maintenance fees, service calls to Bell Atlantic, Rolm and AT&T, trunk
usage charges and phone mail software charges. After Alco terminates its
occupancy of the Headquarters Facility, and, for so long as Unisource occupies
the Headquarters Facility, Unisource shall have the option to continue using the
telephone system but shall pay for 100% of such costs. At such time Unisource
shall also have the option to purchase the telephone system from Alco at its
book value on that date. Such a sale will be without any warranty by Alco as to
the condition of the goods transferred.
15
<PAGE>
ARTICLE VII
HEADQUARTERS FACILITY
Section 7.01. Continued Occupation of Headquarters Facility. On and
---------------------------------------------
after the Distribution Date, the Alco Group and the Unisource Group shall
continue to occupy and use the Headquarters Facility in substantially the same
manner as prior to the Distribution Date, subject to the provisions of this
Article VII.
Section 7.02. Proposed Sale. The parties acknowledge that the
-------------
Headquarters Facility is being held by Alco for sale. Unisource shall make
portions of the Headquarters Facility used or occupied by the Unisource Group
available for inspection by prospective buyers and shall cooperate with Alco in
all other respects in connection with the proposed sale of the Headquarters
Facility.
Section 7.03. Occupation by Unisource. The Unisource Group shall
-----------------------
have the right for a period ending not later than December 31, 1997 to use and
occupy, in accordance with past practice, those portions of the Headquarters
Facility as are occupied by the Unisource Group on the Distribution Date and to
continue to use in common with members of the Alco Group those portions of the
Headquarters Facility as are used in common by the Alco Group and the Unisource
Group. Each of Alco and Unisource shall cause the members of its Group to
comply with all applicable laws and regulations relating to its use and
occupancy of the Headquarters Facility.
Section 7.04. Sharing of Costs of Operation. Subject to Section
-----------------------------
7.06, from October 1, 1996 until the earlier of April 1, 1997 or the date that
the Alco Group ceases to occupy the Headquarters Facility, Unisource shall pay
40% of the costs of operation and maintenance of the Headquarters Facility, and
Alco shall pay the remaining 60%. Such percentages are based upon the
approximate numbers of employees of the Unisource Group and the Alco Group,
respectively, expected to occupy the Headquarters Facility as of the
Distribution Date. As of April 1, 1997 and at the beginning of each month
thereafter for so long as the Alco Group and the Unisource Group both occupy the
Headquarters Facility, the parties will adjust the foregoing percentages to
reflect the relative numbers of employees at that time. Subject to Section
7.06, after the Alco Group ceases to occupy the Headquarters Facility, Unisource
shall pay 100% of the costs of operation and maintenance. "Costs of operation
and maintenance" shall include the following costs relating to the Headquarters
Facility attributable to such period: rent payable to any new owner, real
estate taxes and assessments, utilities, lawn care, snow and trash removal,
janitorial services, the cost of salaries and benefits of employees engaged in
operation or maintenance, such as receptionists, cafeteria personnel and
maintenance staff members, cost of casualty insurance and costs of repairs not
exceeding $5,000 for any individual items. The cost of all capital expenditures
and all repairs exceeding $5,000 for any individual item shall be the sole
responsibility of Alco.
16
<PAGE>
Section 7.05. Responsibility for Oversight; Services to be Provided.
-----------------------------------------------------
For so long as the Alco Group occupies the Headquarters Facility, Alco shall be
responsible for supervision of the operation and maintenance of the premises,
including operation and maintenance of the cafeteria, and shall use all
reasonable efforts to keep and maintain the Headquarters Facility clean and
neat, reasonably free of accumulations of ice and snow and in good working
order. Personnel heretofore engaged in such activities but assigned to the
Unisource Group in accordance with Article VIII hereof shall be made available
to Alco to continue such activities for so long as both the Alco Group and the
Unisource Group occupy the Headquarters Facility. Hours of access and provision
of utilities shall be in accordance with the past practice of the parties.
Section 7.04 and this Section 7.05 are subject to the following limitations:
(a) Alco shall provide cafeteria services at the Headquarters Facility
in accordance with past practice until such time as substantially all of the
Alco employees vacate the Headquarters Facility. At that time Unisource shall
have the right to continue operations of the cafeteria at its sole cost and
expense and using its own personnel or an outside contractor. If Unisource
elects to continue to provide cafeteria service, Alco shall make available its
cafeteria equipment and furniture without cost for so long as the Unisource
Group occupies the Headquarters Facility.
(b) The full-time building-service employees of Alco shall provide
building services at the Headquarters Facility until such time as other Alco
employees leave the Headquarters Facility. At that time Unisource shall be
solely responsible for the costs of its own employees engaged in building
services (including cleaning).
(c) After Alco ceases to occupy the Headquarters Facility, if
Unisource so requests Alco will make Alco's cleaning staff available to perform
cleaning services for Unisource at its sole cost and expense.
(d) Alco shall provide main lobby receptionist service until such time
as the Alco Group terminates its occupancy of the Headquarters Facility.
Unisource shall have the option at that time to assume responsibility for this
function using its own employees and at its sole cost and expense. Alco shall
provide training to designated Unisource employees if requested by Unisource.
Section 7.06. Termination of Occupancy. Prior to December 31, 1997
------------------------
Unisource may terminate its occupancy of the Headquarters Facility at any time
and may terminate its obligation to pay its share of the cost of operation and
maintenance as provided in Section 7.04 upon at least 30 days' prior written
notice to Alco. Upon the effective date of termination specified in such notice,
both all rights of occupancy of the Headquarters Facility by any member of the
Unisource Group and Unisource's obligation to pay any share of the cost of
operations and maintenance of the Headquarters Facility shall cease.
17
<PAGE>
Section 7.07. Insurance; Release; Waiver of Subrogation.
-----------------------------------------
(a) Casualty insurance on the Headquarters Facility shall be the sole
responsibility of Alco, and, in the event of any fire or other casualty, Alco
shall be entitled to receive and retain all insurance proceeds and shall have no
obligation to rebuild or repair any damaged parts of the Headquarters Facility.
In the event of such a fire or other casualty, the obligation of Unisource to
contribute to the cost of operation and maintenance of the Headquarters Facility
shall terminate (in the case of a fire or other casualty that effectively
prevents occupancy by the Unisource Group) or equitably adjusted (in the event
of a fire or other casualty that interferes with or effectively prevents
occupancy by the Unisource Group in part only).
(b) Alco hereby waives any and all right of recovery which it might
otherwise have against any member of the Unisource Group and their agents and
employees for loss or damage occurring to the Headquarters Facility
notwithstanding that such loss or damage may result from the negligence or fault
of a member of the Unisource Group or its agent or employees.
(c) Alco shall cause its insurance companies to waive all rights of
subrogation against any member of the Unisource Group with respect to losses
under such policies.
Section 7.08. General Cooperation. For so long as both the Alco
-------------------
Group and the Unisource Group occupy the Headquarters Facility, Alco and
Unisource shall each cause its respective Group to provide to the other Group
such access to libraries and similar formerly-common facilities as may
reasonably be requested. Each of Alco and Unisource shall generally cooperate
in all reasonable respects in the operation, maintenance and occupancy of the
Headquarters Facility.
ARTICLE VIII
EMPLOYEE MATTERS
Section 8.01. Assignment of Employees. Employees of either party who
-----------------------
have previously provided services for both the Alco Group and the Unisource
Group have been assigned as of October 1, 1996 to the Alco Group or the
Unisource Group in the manner heretofore mutually agreed by the parties. The
cost of salaries and benefits for the Alco Group employees assigned to the
Unisource Group will be assumed by Unisource beginning on October 1, 1996.
Section 8.02. Benefits Agreement. All matters relating to or arising
------------------
out of any employee benefit, compensation or welfare arrangement in respect of
any present and former
18
<PAGE>
employee of the Alco Group or the Unisource Group shall be governed by the
Benefits Agreement.
ARTICLE IX
TAX MATTERS
All matters relating to Taxes shall be governed exclusively by the Tax
Agreement, except as may be expressly stated herein. In the event of any
inconsistency between the Tax Agreement and this Agreement, the Tax Agreement
shall govern.
ARTICLE X
ACCOUNTING MATTERS
Section 10.01. Allocation of Prepaid Items and Reserves. All prepaid
----------------------------------------
items and reserves that have been maintained by Alco on a consolidated basis but
that relate in part to assets or liabilities of the Unisource Group shall be
allocated between Alco and Unisource in such reasonable manner as they shall
mutually agree.
Section 10.02. Accounting Treatment of Assets Transferred and
----------------------------------------------
Liabilities Assumed. All transfers of Assets of the Alco Group to the Unisource
- - -------------------
Group pursuant to this Agreement shall constitute contributions by Alco to the
capital of Unisource. All transfers of Assets of the Unisource Group to the
Alco Group, and the assumption by the Unisource Group of Liabilities of the Alco
Group, net of Assets received, shall be treated as a distribution by Unisource
to Alco.
Section 10.03. Intercompany Accounts. All intercompany accounts
---------------------
between members of the Alco Group and members of the Unisource Group existing as
of September 30, 1996, other than the Notes and Advances Payable to Alco and its
Affiliates set forth on the Unisource Balance Sheet, shall be canceled as of
September 30, 1996. Intercompany accounts arising in the ordinary course of
business on or after October 1, 1996 (other than those customarily included as
part of the Cash Management System and treated in accordance with Section 3.05)
shall be paid in accordance with their respective terms.
19
<PAGE>
ARTICLE XI
INFORMATION
Section 11.01. Provision of Corporate Records. Alco and Unisource
------------------------------
shall each arrange as soon as practicable following the Distribution Date for
the provision to the other of existing corporate documents (e.g. minute books,
stock registers, stock certificates, documents of title, contracts, etc.) in its
possession relating to the other or its business and affairs.
Section 11.02. Access to Information. From and after the
---------------------
Distribution Date, Alco and Unisource shall each afford the other and its
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contacts, instruments, computer data and other data and
information in its possession relating to the business and affairs of the other
(other than data and information subject to an attorney/client or other
privilege), insofar as such access is reasonably required by the other
including, without limitation, for audit, accounting and litigation purposes.
Section 11.03. Litigation Cooperation. Alco and Unisource shall each
----------------------
use reasonable efforts to make available to the other, upon written request, its
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any legal, administrative
or other proceedings arising out of the business of the other prior to the
Distribution Date in which the requesting party may from time to time be
involved.
Section 11.04. Reimbursement. Alco and Unisource, each providing
-------------
information or witnesses under Sections 11.01, 11.02 or 11.03 to the other,
shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payment for all out-of-pocket costs and expenses as may be
reasonably incurred in providing such information or witnesses.
Section 11.05. Retention of Records. Except as otherwise required by
--------------------
law or agreed to in writing, each party shall, and shall cause the members of
its Group to, retain all information relating to the other's business in
accordance with the past practice of such party. Notwithstanding the foregoing,
except as otherwise provided in Section VII of the Tax Agreement, either party
may destroy or otherwise dispose of any information at any time in accordance
with the corporate record retention policy maintained by such party with respect
to its own records.
Section 11.06. Confidentiality. Each party shall, and shall cause
---------------
each member of its Group to, hold and cause its directors, officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless compelled
to disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all information concerning the other
party (except to the extent that such information can be shown to have been (a)
in the public
20
<PAGE>
domain through no fault of such party or (b) later lawfully acquired after the
Distribution on a non-confidential basis from other sources by the party to
which it was furnished), and neither party shall release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors who shall be advised of and
agree in writing to comply with the provisions of this Section 11.06. Each party
shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the same
care as it takes to preserve confidentiality for its own similar information.
ARTICLE XII
INTEREST ON PAYMENTS
Except as otherwise expressly provided in this Agreement, all payments
by one party to the other under this Agreement or any Ancillary Agreement shall
be paid, by wire transfer of immediately available funds to an account in the
United States designated by the recipient, within 30 days after receipt of an
invoice or other written request for payment setting forth the specific amount
due and a description of the basis therefor in reasonable detail. Any amount
remaining unpaid beyond its due date, including disputed amounts that are
ultimately determined to be payable, shall bear interest at a floating rate of
interest equal to the prime commercial lending rate publicly announced by
CoreStates Bank, N.A. or any successor thereto at its principal office (or any
alternative rate substituted therefor by such Bank).
ARTICLE XIII
MISCELLANEOUS
Section 13.01. Expenses. Except as specifically provided in this
--------
Agreement or any Ancillary Agreement, all costs and expenses incurred in
connection with the preparation, execution, delivery and implementation of this
Agreement and the Ancillary Agreements and with the consummation of the
transactions contemplated by this Agreement (including transfer taxes and the
fees and expenses of the Distribution Agent and of all counsel, accountants and
financial and other advisors) shall be paid by Alco. Without limiting the
foregoing, Alco shall pay the legal, filing, accounting, printing and other
expenses in connection with the preparation, printing and filing of the Form 10.
Section 13.02. Notices. All notices and communications under this
-------
Agreement shall be in writing and any communication or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
21
<PAGE>
If to Alco, to:
Alco Standard Corporation
825 Duportail Road
Wayne, Pennsylvania 19087
Attention: Corporate Secretary
If to Unisource, to:
Unisource Worldwide, Inc.
825 Duportail Road
Wayne, Pennsylvania 19087
Attention: Corporate Secretary
Either party may, by written notice so delivered to the other party, change the
address to which delivery of any notice shall thereafter be made.
Section 13.03. Amendment and Waiver. This Agreement may not be
--------------------
altered or amended, nor may rights hereunder be waived, except by an instrument
in writing executed by the party or parties to be charged with such amendment or
waiver. No waiver of any terms, provision or condition of or failure to
exercise or delay in exercising any rights or remedies under this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, provision, condition, right or remedy or as
a waiver of any other term, provision or condition of this Agreement.
Section 13.04. Entire Agreement. This Agreement, together with the
----------------
Ancillary Agreements, constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings relating to such subject
matter. To the extent that the provisions of this Agreement are inconsistent
with the provisions of any Ancillary Agreement, the provisions of such Ancillary
Agreement shall prevail.
Section 13.05. Parties in Interest. Neither of the parties hereto
-------------------
may assign its rights or delegate any of its duties under this Agreement without
the prior written consent of each other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than members of the Alco Group and the Unisource Group
and the Alco Indemnitees and Unisource Indemnitees under Articles IV and V
hereof.
22
<PAGE>
Section 13.06. Guaranteed Unisource Liabilities.
--------------------------------
(a) Unisource shall use all reasonable efforts (excluding payment of
money or other significant consideration) to obtain as promptly as practicable
after the Distribution Date the release of Alco from its obligations with
respect to Guaranteed Unisource Liabilities identified on Exhibit B attached
---------
hereto and made a part hereof. In no event shall any member of the Unisource
Group extend the term of any Guaranteed Unisource Liabilities (such as by
exercising an option to renew a lease) unless the guarantee of Alco is released
as to any future obligations under such Guaranteed Unisource Liabilities or Alco
otherwise consents in writing.
(b) In the event that Alco is required to pay any Guaranteed Unisource
Liabilities, without limiting any of Alco's rights and remedies against
Unisource under this Agreement or otherwise, in order to secure Unisource's
indemnity obligations to Alco hereunder in respect of such Guaranteed Unisource
Liabilities, Alco shall be entitled to all the rights of the payee in any
property of any member of the Unisource Group pledged as security for such
Guaranteed Unisource Liabilities.
Section 13.07. Further Assurances and Consents. In addition to the
-------------------------------
actions specifically provided for elsewhere in this Agreement, each of the
parties hereto will use its reasonable efforts to (i) execute and deliver such
further instruments and documents and take such other actions as any other party
may reasonably request in order to effectuate the purposes of this Agreement and
to carry out the terms hereof and (ii) take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no party hereto shall be obligated to pay any
--------
consideration therefor (except for filing fees and other similar charges) to any
third party from whom such consents, approvals and amendments are requested or
to take any action or omit to take any action if the taking of or the omission
to take such action would be unreasonably burdensome to the party or its Group
or the business thereof.
Section 13.08. Severability. The provisions of this Agreement are
------------
severable and should any provision hereof be void, voidable or unenforceable
under any applicable law, such provision shall not affect or invalidate any
other provision of this Agreement, which shall continue to govern the relative
rights and duties of the parties as though such void, voidable or unenforceable
provision were not a part hereof.
Section 13.09. Governing Law. This Agreement shall be construed in
-------------
accordance with, and governed by, the laws of the Commonwealth of Pennsylvania,
without regard to the conflicts of law rules of such state.
23
<PAGE>
Section 13.10. Counterparts. This Agreement may be executed in one
------------
or more counterparts each of which shall be deemed an original instrument, but
all of which together shall constitute but one and the same Agreement.
Section 13.11. Disputes.
--------
(a) Resolution of any and all disputes arising from or in connection
with this Agreement, whether based on contract, tort, statute or otherwise,
including, but not limited to, disputes in connection with claims by third
parties (collectively, "Disputes"), shall be subject to the provisions of this
Section 13.11; provided, however, that nothing contained herein shall preclude
either party from seeking or obtaining (i) injunctive relief or (ii) equitable
or other judicial relief to enforce the provisions hereof or to preserve the
status quo pending resolution of Disputes hereunder.
(b) Either party may give the other party written notice of any
Dispute not resolved in the normal course of business. The parties shall
thereupon attempt in good faith to resolve any Dispute promptly by negotiation
between executives who have authority to settle the controversy and who are at a
higher level of management than the persons with direct responsibility for
administration of this Agreement. Within 20 days after delivery of the notice,
the receiving party shall submit to the other a written response. The notice
and the response shall include a statement of such party's position and a
summary of arguments supporting that position and the name and title of the
executive who will represent that party and of any other person who will
accompany such executive. Within 45 days after delivery of the first notice,
the executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to attempt to
resolve the Dispute. All reasonable requests for information made by one party
to the other will be honored.
(c) If the Dispute has not been resolved by negotiation within 60 days
of the first party's notice, or if the parties failed to meet within 45 days,
the parties shall endeavor to settle the Dispute by mediation under the then
current Commercial Mediation Rules of the American Arbitration Association.
(d) If the Dispute has not been resolved within 180 days after
delivery of the first notice under Section 13.11(b), either party may commence
any litigation or other procedure allowed by law.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
ALCO STANDARD CORPORATION
By /s/ John E. Stuart
--------------------------------------
John E. Stuart
Chairman and Chief Executive Officer
UNISOURCE WORLDWIDE, INC.
By /s/ Ray B. Mundt
-----------------------------------------
Ray B. Mundt
Chairman and Chief Executive Officer
25
<PAGE>
EXHIBIT A
---------
Sites Giving Rise to Environmental Site Liabilities
---------------------------------------------------
Any site or facility owned or utilized before, on, or after the Distribution
Date by any member of the Unisource Group including, without limitation,
businesses or companies formerly part of the Unisource Group as listed on
Exhibit C, excluding, however, sites or facilities primarily utilized by any
- - ---------
member of the Alco Group.
The following is a current list describing known environmental claims in process
relating to the Unisource Group:
1. Granville, OH Site - Copco Papers
---------------------------------
2. Marshall St., Milwaukee, WIS -- Butler
--------------------------------------
3. Hansrob Road, Orlando, FLA -- Unijax
------------------------------------
4. Livonia, MI -- Butler
---------------------
5. Glen Burnie, MD -- Butler
-------------------------
6. St. Louis, MO -- Butler
-----------------------
7. Union Chemical Superfund Site, South Hope, ME (Fonda) Saxon Bankruptcy
----------------------------------------------------------------------
8. Berks Landfill, PA Site - Wyomissing Corp.
------------------------------------------
9. Elkton, MD Spectron Superfund Site - Wyomissing Corp.
-----------------------------------------------------
<PAGE>
EXHIBIT B
---------
Certain Guaranteed Unisource Liabilities
----------------------------------------
A. Customer Financing Programs
---------------------------
Bank: Maximum Liability - 9/30/96
1. Bank One, Columbus, N.A. $4,215,500
2. SunTrust Banks, Inc. 1,600,000
3. Toronto Dominion Bank 2,340,300
B. Asset Securitization Program
----------------------------
Bank of Montreal - $95,000,000 CDN
C. Industrial Revenue Bond Financings
----------------------------------
Location:
1. 7575 Brewster Avenue
Philadelphia, PA
2. 2 Birchmont Drive
Reading, PA
D. LIBOR Leases
------------
Location: Landlord: Expiration Date:
4225-A Hacienda Drive Pitcairn Properties 9/30/00
Pleasanton, CA
8195 Lackland Road Pitcairn Properties 10/31/00
St. Louis, MO
4414 Hollister Avenue Pitcairn Properties 10/31/00
Houston, TX
E. Other Real Estate Leases
------------------------
Location: Landlord: Expiration Date:
6650 Top Gun Street Western Devcon 10/31/02
San Diego, CA
1095 S. Fourth Avenue Pitcairn Properties 1/31/14
Brighton, CO
315 Post Road West Skyler L.P. 4/30/98
161 Avenue of the
Americas Earl Kazis Associates 12/31/07
New York, NY
<PAGE>
EXHIBIT C
---------
Sold Businesses
---------------
Business Buyer Date of Sale
-------- ----- ------------
Minerva Paper James River Corp. 4/29/81
A.E. MacAdam & Co. George W. Millar & Co., Inc. 5/13/83
Harold Paper Company Lombardi Food Co. 6/13/83
Narrow Fabric Division of assets to management group 9/30/85
Wyomissing Corp.
Wyomissing Corp. James River Corp. 3/31/89
Coastal Plastics BBC Acquisitions Corp. 6/30/89
American Warehouses, Inc. Larry Chandler 2/13/91
American Warehouses, Inc.
Central Products, Inc. Spinnaker Industries, Inc. 9/29/95
Former units of Saxon Industries, Inc.*
Brown & Bigelow Division B&B Communications 1983
Chuckerman Company, a Division Swarz Paper Company 1982
Fonda Cup and Container Division DMS Acquisition Company 1984
Missisquoi Division Boise Cascade Corporation 1983
National Metallizing Division NMD, Inc. 1982
Saxon Business Products Division Copystatics, Inc. 1982
Saxon Export Corporation Saxport International, Inc. 1982
- - ------------------
* Alco has disclosed to Unisource all claims known to Alco relating to these
former units of Saxon Industries, Inc.
<PAGE>
EXHIBIT D
---------
Other Unisource Assets
----------------------
1. Real Estate
-----------
Properties still in the name of Alco to be transferred to Unisource:
Carpenter Paper Company of Nebraska
5220 "F" Street
Omaha, NE
Garrett Buchanan Company
8261 Preston Court
Jessup, MD
Garrett Buchanan Company (IRB)
7575 Brewster Avenue
Philadelphia, PA
Garrett Buchanan Company (IRB)
2 Birchmont Drive
Reading, PA
Rourke-Eno Company
11 Almeida Avenue
E. Providence, RI
2. Equipment, Furniture and Other Personal Property
------------------------------------------------
A. Computer Equipment and Software
-------------------------------
50 personal computers with standard software
4 network servers
4 Netware 4.1
1 DiscPort
1 Shiva Rover
B. Other. Certain other equipment, furniture, libraries and other
-----
personal property located in the Headquarters Facility (to be identified by
representatives of the parties) that may not presently be used exclusively by
Unisource but are intended to be transferred to Unisource. Additionally, all
furniture and equipment at the Headquarters Facility currently used on an
individual basis by employees assigned to the Unisource Group will be
transferred to Unisource.
<PAGE>
EXHIBIT E
---------
UNISOURCE WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
September 30,
1996
--------------
<S> <C>
Assets
Current Assets
Cash $ 14,596
Accounts receivable, less allowance for
doubtful accounts of $19,927 790,818
Inventories 470,217
Prepaid expenses and deferred taxes 54,853
----------
Total current assets 1,330,484
----------
Long-Term Receivables 21,890
Property and Equipment, net 224,168
Goodwill 509,850
Deferred Costs and Other Assets 105,322
----------
Total Assets $2,191,714
==========
Liabilities and Stockholder's Equity
Current Liabilities
Current portion of long-term debt $ 840
Notes payable 38,367
Trade accounts payable 438,899
Accrued salaries, wages and commissions 27,011
Restructuring costs 15,575
Other accrued expenses 59,000
----------
Total current liabilities 579,692
----------
Long-Term Debt 21,097
Notes and Advances Payable to Alco and Affiliates 553,700
Deferred Taxes and Other Liabilities
Deferred taxes 54,462
Restructuring costs 13,896
Other long-term liabilities 33,366
----------
101,724
----------
Stockholder's Equity
Series A Preferred Stock, par value $.01, authorized
200,000 shares; issued and outstanding 122,884 shares
at $1 stated face value
(liquidation preference $122,884) -
Common Stock, $.01 par value, authorized 200,000 shares,
issued and outstanding 100,000 shares 1
Additional paid-in capital 778,444
Retained earnings 181,458
Foreign currency translation adjustments (24,402)
----------
Total stockholder's equity 935,501
----------
Total Liabilities and Stockholder's Equity $2,191,714
==========
</TABLE>
<PAGE>
================================================================================
UNISOURCE WORLDWIDE, INC.
and
[NAME OF RIGHTS AGENT],
as Rights Agent
RIGHTS AGREEMENT
Dated as of November __, 1996
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Page
<S> <C>
1. Certain Definitions....................................................... 2
2. Appointment of Rights Agent............................................... 5
3. Issue of Rights Certificates.............................................. 6
4. Form of Rights Certificates............................................... 8
5. Countersignature and Registration......................................... 9
6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates............... 9
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.............10
8. Cancellation and Destruction of Rights Certificates.......................13
9. Reservation and Availability of Capital Stock; Registration of
Securities.............................................................13
10. Capital Stock Record Date................................................14
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
Rights................................................................15
12. Certificate of Adjusted Purchase Price or Number of Shares...............25
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.....26
14. Fractional Rights and Fractional Shares..................................29
15. Rights of Action.........................................................30
16. Agreement of Rights Holders..............................................30
17. Rights Certificate Holder Not Deemed a Shareholder.......................31
18. Concerning the Rights Agent..............................................32
19. Merger or Consolidation or Change of Name of Rights Agent................32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
20. Duties of Rights Agent...................................................33
21. Change of Rights Agent...................................................35
23. Redemption and Termination...............................................37
24. Notice of Certain Events.................................................39
25. Notices..................................................................39
26. Supplements and Amendments...............................................40
27. Successors...............................................................41
28. Determinations and Actions by the Board of Directors, etc................41
29. Benefits of this Agreement...............................................42
30. Severability.............................................................42
31. Governing Law............................................................43
32. Counterparts.............................................................43
33. Descriptive Headings.....................................................43
</TABLE>
Exhibit A Resolution of the Board of Directors with respect to
Series A Junior Participating Preferred Shares
Exhibit B Form of Rights Certificate
Exhibit C Form of Summary of Rights
<PAGE>
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of November __, 1996 (the "Agreement"),
between UNISOURCE WORLDWIDE, INC., a Delaware corporation (the "Company"), and
[NAME OF RIGHTS AGENT], a national banking association (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the Company is a wholly-owned subsidiary of Alco Standard
Corporation, an Ohio corporation ("Alco"); and
WHEREAS, Alco, which presently has in place a stockholders' rights
plan, has determined to make a dividend distribution of all the outstanding
shares of the Company Common Stock (as hereinafter defined) to the common
stockholders of Alco (the "Spinoff Distribution"); and
WHEREAS, on October 28, 1996 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each Common Share (as hereinafter defined) of the
Company outstanding at the close of business on November 7, 1996 (the "Record
Date") (which for these purposes shall include all Common Shares presently
entitled to receive dividends) and has authorized the issuance of one Right (as
such number may hereafter be adjusted pursuant to the provisions of Section
11(p) hereof) for each Common Share of the Company issued between the Record
Date (whether originally issued or delivered from the Company's treasury) and
the Distribution Date (as hereinafter defined), each Right initially
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined) of the Company having the rights, powers and preferences
set forth in the form of the Resolution of the Board of Directors attached
hereto as Exhibit A, upon the terms and subject to the conditions hereinafter
set forth (the "Rights"); and
WHEREAS, the Rights will be held by the Rights Agent under this
Agreement as trustee for the shareholders of the Company until the Distribution
Date; and
WHEREAS, the Board of Directors of the Company has considered whether
approval of this Agreement and the distribution of the Rights is in the best
interests of the Company and all other pertinent factors; and
WHEREAS, the Board of Directors of the Company has concluded that
approval of this Agreement and the distribution of the Rights is in the best
interests of the Company because the existence of the Rights will help (i)
reduce the risk of coercive two-tiered, front-end loaded or partial offers that
may not offer fair value to all shareholders, (ii) mitigate against market
accumulators who through open market and/or private purchases may achieve a
position of substantial influence or control without paying to selling or
remaining stockholders a fair control premium, (iii) deter market accumulators
who are simply interested in putting the Company into "play," (iv) restrict
self-dealing by a substantial shareholder, and (v) preserve the Board of
Directors' bargaining power and flexibility to deal with third-party acquirors,
to pursue
<PAGE>
the business strategies of the Company and to otherwise seek to maximize values
for all stockholders; and
[WHEREAS, the directors of Alco who will become directors of the
Company following the Spinoff Distribution have been informed of the adoption of
this Agreement and intend to ratify its adoption following their nominations to
the Company Board.]
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and intending to be legally bound hereby, the
parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
-------------------
the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of Common Shares outstanding, increases
the proportionate number of Common Shares beneficially owned by such Person to
20% or more of the Common Shares then outstanding; provided, however, that if a
Person shall become the Beneficial Owner of 20% or more of the then outstanding
Common Shares by reason of Common Shares purchased by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares, then such Person shall be deemed to be an "Acquiring
Person." Notwithstanding the foregoing, if a majority of the Continuing
Directors then in office determines in good faith that a Person who would
otherwise be an "Acquiring Person", as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an Acquiring Person, as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in effect
on the date hereof (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be
-2-
<PAGE>
deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer made by
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for payment, purchase or exchange, or (B)
securities issuable upon exercise of Rights at any time prior to the
occurrence of a Triggering Event, or (C) securities issuable upon exercise
of Rights from and after the occurrence of a Triggering Event which Rights
were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (the "Original Rights") or pursuant to Section 11(i)
hereof in connection with an adjustment made with respect to any Original
Rights;
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including without
limitation pursuant to any agreement, arrangement or understanding, whether
or not in writing; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an oral or written agreement, arrangement
or understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in response
to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act, and (B) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) that are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing), for
the purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to
-3-
<PAGE>
subparagraph (ii) of this paragraph (c)) or disposing of any voting
securities of the Company,
provided, however, that nothing in this paragraph (c) shall cause a person
- - --------
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of, or to "beneficially own," any securities acquired through such person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
(d) "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.
(e) "Close of business" on any given date shall mean 5:00 P.M.,
New York, New York, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York, New York time, on the next
succeeding Business Day.
(f) "Common Share" shall mean a share of Common Stock of the
Company and, to the extent that there are not a sufficient number of Common
Shares authorized to permit the full exercise of the Rights, shares of any other
class or series of the Company designated for such purpose containing terms
substantially similar to the terms of the Common Shares, except that "Common
Share" when used with reference to any Person other than the Company shall mean
the shares of capital stock of such Person with the greatest voting power, or
the equity securities or other equity interest having power to control or direct
the management, of such Person.
(g) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, and was a member of the Board prior to the date of this Agreement, or
(ii) any Person who subsequently becomes a member of the Board, while such
Person is a member of the Board, who is not an Acquiring Person, or an Affiliate
or Associate of an Acquiring Person, or a representative of an Acquiring Person
or of any such Affiliate or Associate, if such Person's nomination for election
or election to the Board is recommended or approved by a majority of the
Continuing Directors.
(h) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(i) "Expiration Date" shall have the meaning set forth in
Section 7(a).
-4-
<PAGE>
(j) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(k) "Preferred Share" shall mean a share of Series A Junior
Participating Preferred Stock, no par value, of the Company and, to the extent
that there are not a sufficient number of shares of Series A Junior
Participating Preferred Stock authorized to permit the full exercise of the
Rights, shares of any other series of Series Preferred Stock of the Company
designated for such purpose containing terms substantially similar to the terms
of the Series A Junior Participating Preferred Stock.
(l) "Preferred Share Fraction" shall mean one one-hundredth of
a Preferred Share.
(m) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii) (A), (B) or (C) hereof.
(n) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(o) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(p) "Subsidiary" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
(q) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(r) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Unless otherwise specified, where reference is made in this
Agreement to sections of, and the General Rules and Regulations under, the
Exchange Act, such reference shall mean such sections and rules as amended from
time to time and any successor provisions thereto.
-5-
<PAGE>
Section 2. Appointment of Rights Agent.
---------------------------
(a) The Company hereby appoints the Rights Agent to act as
agent for the Company and trustee for the beneficial owners of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
(b) On the Record Date, the Company will deliver a Rights
Certificate to the Rights Agent, registered in the name of the Rights Agent as
trustee for the beneficial owners of the Rights represented thereby, for that
number of Rights equal to the number of Common Shares issued and outstanding on
the Record Date, and the Rights Agent shall hold the Rights represented thereby
in trust for the beneficial owners in accordance with the provisions of this
Agreement.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of (i) the close of business on the tenth
Business Day after a Stock Acquisition Date involving an Acquiring Person that
has become such in a transaction as to which the Board of Directors has not made
the determination referred to in Section 11(a)(ii)(B) hereof, or (ii) within ten
(10) Business Days (or such later date as may be determined by action of the
Board of Directors prior to such time any Person becomes an Acquiring Person)
after the date that a tender or exchange offer by any person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would be the Beneficial Owner of 20% or more of the Common
Shares then outstanding (the earlier of (i) and (ii) being herein referred to as
the "Distribution Date"), (x) beneficial interests in the Rights will be
evidenced (subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Shares registered in the names of the holders of the
Common Shares (which certificates for Common Shares shall be deemed also to be
certificates for beneficial interests in the Rights) and not by separate
certificates, and (y) the Rights and beneficial interests therein will be
transferable only in connection with the transfer of the underlying Common
Shares (including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage
prepaid mail, to each record holder of the Common Shares as of the close of
business on the Distribution Date, at the address of such holder shown on the
records of
-6-
<PAGE>
the Company, one or more rights certificates, in substantially the form of
Exhibit B hereto (the "Rights Certificates"), evidencing one Right for each
Common Share so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per Common Share has been made
pursuant to Section 11(p) hereof, at the time of distribution of the Rights
Certificates, the Company shall make the necessary and appropriate rounding
adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates. Upon the
distribution of the Rights Certificates as provided in this subsection (a), the
trust created hereby shall cease.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the form of
Exhibit C hereto (the "Summary of Rights"), by first-class, postage prepaid
mail, to each record holder of the Common Shares as of the close of business on
the Record Date, at the address of such holder shown on the records of the
Company. With respect to certificates for the Common Shares outstanding as of
the Record Date, until the Distribution Date, beneficial interests in the Rights
will be evidenced by such certificates for the Common Shares and the registered
holders of the Common Shares shall also be the registered holders of the
beneficial interests in the associated Rights. Until the earlier of the
Distribution Date or the Expiration Date (as such term is defined in Section 7
hereof), the transfer of any certificates representing Common Shares in respect
of which Rights have been issued shall also constitute the transfer of the
Rights associated with such Common Shares. Certificates issued after the Record
Date upon the transfer of Common Shares outstanding on the Record Date shall
bear the legend set forth in subsection (c).
(c) Except as provided in Section 22 hereof, Rights shall be
issued in respect of all Common Shares that are issued (whether originally
issued or delivered from the Company's treasury) after the Record Date but prior
to the earlier of the Distribution Date or the Expiration Date. Certificates
representing such Common Shares shall also be deemed to be certificates for
beneficial interests in the associated Rights, and shall bear the following
legend:
"This certificate also evidences a beneficial interest in and
entitles the holder hereof to certain Rights as set forth in the Rights
Agreement between Unisource Worldwide, Inc. (the "Company") and [Name of
Rights Agent] (the "Rights Agent") dated as of November __, 1996 (the
"Rights Agreement"), and as the same may be amended from time to time, the
terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and beneficial
-7-
<PAGE>
interests therein will no longer be evidenced by this certificate. The
Company will mail to the holder of this certificate a copy of the Rights
Agreement, as in effect on the date of mailing, without charge promptly
after receipt of a written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or any Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent holder,
may become null and void."
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, beneficial
interests in the Rights associated with the Common Shares represented by such
certificates shall be evidenced by such certificates alone and registered
holders of Common Shares shall also be the registered holders of beneficial
interests in the associated Rights, and the transfer of any of such certificates
shall also constitute the transfer of beneficial interests in the Rights
associated with the Common Shares represented by such certificates.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall
entitle the holders thereof to purchase such number of Preferred Share Fractions
as shall be set forth therein at the price set forth therein (such exercise
price per Preferred Share Fraction, the "Purchase Price"), but the amount and
type of securities purchasable upon the exercise of each Right and the Purchase
Price thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights that the Company knows are beneficially
owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
-8-
<PAGE>
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing oral or written plan, agreement, arrangement
or understanding regarding the transferred Rights or (B) a transfer that the
Board of Directors of the Company has determined is part of an oral or written
plan, agreement, arrangement or understanding that has as a primary purpose or
effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
"The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Rights Certificate and the Rights represented
hereby may become null and void in the circumstances specified in Section
7(e) of such Agreement."
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep
or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
-9-
<PAGE>
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates, the Certificate number and the date of each
of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- - ----------------------------------------------------------------------
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of Preferred Share Fractions (or,
following a Triggering Event, Common Shares or other securities, cash or other
assets, as the case may be, as the Rights Certificate or Certificates
surrendered then entitled such holder or former holder in the case of a transfer
to purchase). Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
-10-
<PAGE>
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- - ------
(a) Subject to subsection (e), the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price (except as
provided in Section 11(q) hereof) with respect to the total number of Preferred
Share Fractions (or Common Shares, other securities, cash or other assets, as
the case may be) as to which such surrendered Rights are then exercisable
(except as provided in Section 11(q) hereof), at or prior to the earliest of (i)
the close of business on November __, 2006 (the "Final Expiration Date"), (ii)
the consummation of a transaction contemplated by Section 13(d) hereof, or (iii)
the time at which the Rights are redeemed or terminated as provided in Section
23 hereof (the earlier of (i), (ii) and (iii) being herein referred to as the
"Expiration Date").
(b) The Purchase Price for each Preferred Share Fraction
pursuant to the exercise of a Right shall initially be $___, and shall be
subject to adjustment from time to time as provided in Sections 11 and 13(a)
hereof and shall be payable in accordance with subsection (c).
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per Preferred Share Fraction (or Common Shares, other
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) and Section 14(b) hereof, thereupon promptly (i)
(A) requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent for such Shares)
certificates for the total number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) if the Company shall have elected to deposit some or all of the
total number of Preferred Shares issuable upon exercise of the Rights hereunder
with a depositary agent, requisition from the depositary agent depositary
receipts representing such number of Preferred Share Fractions as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company will direct the depositary agent to comply with such
request, (ii) requisition from the Company the amount of cash, if any, to be
paid in lieu of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as
-11-
<PAGE>
may be designated by such holder, and (iv) after receipt thereof, deliver such
cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) may be made, at the election of the
holder of the Rights Certificate, (x) in cash or by certified bank check or
money order payable to the order of the Company or (y) delivery of Rights if and
to the extent authorized by Section 11(q) hereof. In the event that the Company
is obligated to issue other securities of the Company (including Common Shares)
pay cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing oral or written plan, agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of an oral or
written plan, agreement, arrangement or understanding which has as a primary
purpose or effect the avoidance of this Section 7(e), shall become null and void
without any further action and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise; provided, however, that the Rights held by an Acquiring
Person, an Affiliate or Associate of an Acquiring Person or the transferees of
such persons referred to above shall not be voided unless the Acquiring Person
in question or an Affiliate or Associate of such Acquiring Person shall be
involved in the transaction giving rise to the Section 11(a)(ii) Event. The
Company shall use all reasonable efforts to insure that the provisions of this
Section 7(e) and Section 4(b) hereof are complied with, but neither the Company
nor the Rights Agent shall have any liability to any holder of Rights
Certificates or other Person as a result of the Company's failure to make any
determinations with respect to an Acquiring Person or its
-12-
<PAGE>
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Rights Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Rights Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock;
----------------------------------------------
Registration of Securities.
- - --------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available for issuance upon the exercise of outstanding Rights
as many of its authorized and unissued Preferred Shares (and, following the
occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities or out of its authorized and issued shares held
in its treasury), which together shall at all times after the Distribution Date
be sufficient to permit the exercise in full of all outstanding Rights.
(b) So long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares and other
securities reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.
-13-
<PAGE>
(c) The Company shall use its best efforts to (i) file, as soon
as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, or as soon as is required by law following the
Distribution Date, as the case may be, a registration statement or statements
under the Securities Act of 1933 (the "Act"), with respect to the securities
purchasable upon exercise of the Rights on an appropriate form or forms, (ii)
cause such registration statement or statements to become effective as soon as
practicable after such filing, and (iii) cause such registration statement or
statements to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
subsection (c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares (and, following a
Triggering Event, Common Shares or other securities) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares or
other securities (subject to payment of the Purchase Price), be duly and validly
authorized and issued and, with respect to Preferred Shares, Common Shares or
other shares of capital stock, fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of Preferred Share Fractions
(or Common Shares or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax that
may be payable in respect of any transfer or delivery of Rights Certificates to
a Person other than, or the issuance or delivery of a number of Preferred Share
Fractions (or Common Shares or other securities, as the case may be) in respect
of a name other than that of the registered holder of the Rights Certificates
evidencing Rights surrendered for exercise or to issue or deliver any
certificates for a number of Preferred Share Fractions (or Common Shares or
other securities, as
-14-
<PAGE>
the case may be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax shall have been paid (any such tax being
payable by the holder of such Rights Certificate at the time of surrender) or
until it has been established to the Company's satisfaction that no such tax is
due.
Section 10. Capital Stock Record Date. Each person in whose name
-------------------------
any certificate for a number of Preferred Share Fractions (or Common Shares or
other securities, as the case may be) is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of such
Preferred Share Fractions (or Common Shares or other securities, as the case may
be) represented thereby on, and such certificate shall be dated, the date upon
which the Rights Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and all applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the applicable transfer books of the Company are closed, such Person shall
be deemed to have become the record holder of such shares (fractional or
otherwise) on, and such certificate shall be dated, the next succeeding Business
Day on which the applicable transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Rights Certificate
shall not be entitled to any rights of a shareholder of the Company with respect
to shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
-------------------------------------------------------
or Number of Rights. The Purchase Price, the number and kind of shares and
- - -------------------
other securities covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on any security of the
Company payable in Preferred Shares, (B) subdivide the outstanding
Preferred Shares, (C) combine the outstanding Preferred Shares into a
smaller number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price
in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and
the number and kind of Preferred Shares or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive,
upon payment of the adjusted Purchase Price, the aggregate
-15-
<PAGE>
number and kind of Preferred Shares or capital stock, as the case may be,
that, if such Right had been exercised immediately prior to such date and
at a time when the Preferred Share transfer books were open, such holder
would have owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or Affiliate
of any Acquiring Person, at any time after the Stock Acquisition Date,
directly or indirectly, (1) shall merge into the Company or otherwise
combine with the Company and the Company shall be the continuing or
surviving corporation of such merger or combination and the Common
Shares of the Company or other equity securities of the Company shall
remain outstanding, (2) shall, in one transaction or a series of
transactions, transfer any assets to the Company or to any of its
Subsidiaries in exchange (in whole or in part) for Common Shares, for
shares of other equity securities of the Company, or for securities
exercisable for or convertible into shares of equity securities of the
Company (Common Shares or otherwise) or otherwise obtain from the
Company, with or without consideration, any additional shares of such
equity securities or securities exercisable for or convertible into
shares of such equity securities (other than pursuant to a pro rata
distribution to all holders of Common Shares), (3) shall sell,
purchase, lease, exchange, mortgage, pledge, transfer or otherwise
acquire or dispose of assets in one transaction or a series of
transactions, to, from or with (as the case may be) the Company or any
of its Subsidiaries, on terms and conditions less favorable to the
Company than the Company would be able to obtain in arm's-length
negotiation with an unaffiliated third party, other than pursuant to a
Section 13 Event, (4) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of assets having an
aggregate fair market value of more than $5,000,000 in one transaction
or a series of transactions, to, from or with (as the case may be) the
Company or any of the Company's Subsidiaries (other than incidental to
the lines of business, if any, engaged in as of the date hereof
between the Company and such Acquiring Person or Associate or
Affiliate), other than pursuant to a Section 13 Event, (5) shall
receive any compensation from the Company or any of the Company's
Subsidiaries other than compensation for full-time employment as a
regular employee at rates in
-16-
<PAGE>
accordance with the Company's (or its Subsidiaries') past practices,
or (6) shall receive the benefit, directly or indirectly (except
proportionately as a shareholder and except if resulting from a
requirement of law or governmental regulation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantage provided by the Company or any of its
Subsidiaries, or
(B) any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms
of any such plan), alone or together with its Affiliates and
Associates, shall, at any time after the Rights Dividend Declaration
Date, become the Beneficial Owner of 20% or more of the Common Shares
then outstanding, unless the event causing the 20% threshold to be
crossed is a Section 13 Event, or is an acquisition of Common Shares
pursuant to a tender offer or an exchange offer for all outstanding
Common Shares at a price and on terms determined by at least a
majority of the Continuing Directors, after receiving advice from one
or more nationally recognized investment banking firms, to be in the
best interests of the Company and its stockholders (a "Qualifying
Offer"), after taking into consideration all factors that such members
of the Board of Directors deem relevant, including, without
limitation, the long-term prospects and value of the Company and the
prices and terms that such members of the Board of Directors believe,
in good faith, could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum
value, or
(C) during such time as there is an Acquiring Person,
there shall be any reclassification of securities (including any
reverse stock split), or recapitalization of the Company, or any
merger or consolidation of the Company with any of its Subsidiaries or
any other transaction or series of transactions involving the Company
or any of its Subsidiaries, other than a Section 13 Event or series of
such Events (whether or not with or into or otherwise involving an
Acquiring Person) that has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding
shares of any class of equity securities of the Company or any of its
Subsidiaries that is directly or indirectly beneficially owned by any
Acquiring Person or any Associate or Affiliate of any Acquiring
Person,
then, promptly following the first occurrence of a Section 11(a)(ii) Event,
proper provision shall be made so that each holder of a Right (except as
provided below and in
-17-
<PAGE>
Section 7(e) hereof) shall thereafter have the right to receive, upon
exercise thereof at the then current Purchase Price in accordance with the
terms of this Agreement, in lieu of a number of Preferred Share Fractions,
such number of Common Shares of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the then
number of Preferred Share Fractions for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and
(y) dividing that product (which, following such first occurrence, shall
thereafter be referred to as the "Purchase Price" for each Right and for
all purposes of this Agreement) by 50% of the current market price
(determined pursuant to Section 11(d) hereof) per Common Share on the date
of such first occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of Common Shares that are
authorized by the Company's Amended and Restated Certificate of
Incorporation but not outstanding or reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company shall: (A) determine
the excess of the value of the Adjustment Shares issuable upon the exercise
of a Right (the "Current Value") over the Purchase Price (such excess, the
"Spread"), and (B) with respect to each Right, make adequate provision to
substitute for the Adjustment Shares, upon payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common
Shares of the same or a different class or other equity securities of the
Company (including, without limitation, preferred shares or units of
preferred shares that a majority of the Continuing Directors in office at
the time has deemed (based, among other things, on the dividend and
liquidation rights of such preferred shares) to have substantially the same
economic value as Common Shares (such preferred shares, hereinafter
referred to as "common share equivalents")), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value
has been determined by a majority of the Continuing Directors in office at
the time after considering the advice of a nationally recognized investment
banking firm selected by the Board of Directors of the Company; provided,
however, if the Company shall not have made adequate provision to deliver
value pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the
date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, Common Shares (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall determine in
good faith that it is likely that sufficient
-18-
<PAGE>
additional Common Shares could be authorized for issuance upon exercise in
full of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days after
the Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareholder approval for the authorization of such additional shares (such
period, as it may be extended, the "Substitution Period"). To the extent
that the Company determines that some action need be taken pursuant to the
first and/or second sentences of this Section 11(a)(iii), the Company shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value thereof. The Company shall make a public announcement
when the exercisability of the Rights has been temporarily suspended, and
again when such suspension is no longer in effect. For purposes of this
Section 11(a)(iii), the value of the Common Shares shall be the current
market price (as determined pursuant to Section 11(d) hereof) per Common
Share on the Section 11(a)(ii) Trigger Date and the value of any "common
share equivalent" shall be deemed to have the same value as the Common
Shares on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to holders of any security of the
Company entitling them to subscribe for or purchase (for a period expiring
within forty-five (45) calendar days after such record date) Preferred Shares
(or shares having the same rights, privileges and preferences as the Preferred
Shares ("equivalent preferred shares")) or securities convertible into Preferred
Shares or equivalent preferred shares at a price per Preferred Share or per
equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per Preferred Share on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of Preferred Shares outstanding on such record date,
plus the number of Preferred Shares that the aggregate offering price of the
total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of Preferred Shares outstanding on
such record date, plus the number of additional Preferred Shares and/or
equivalent preferred shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent
-19-
<PAGE>
and shall be binding on the Company, the Rights Agent and the holders of the
Rights. Preferred Shares owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly dividend out of the earnings or retained earnings of the Company),
assets (other than a regular quarterly dividend referred to above or dividend
payable in Preferred Shares, but including any dividend payable in stock other
than Preferred Shares) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per Preferred Share on such record date, less the then fair market value
(as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a Preferred Share and the denominator of which shall be
such current market price (as determined pursuant to Section 11(d) hereof) per
Preferred Share. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would have
been in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per Common Share on any date shall be deemed to be the
average of the daily closing prices per Common Share for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date, and for purposes of computations made pursuant to
Section 11(a)(iii) hereof, the "current market price" per Common Share on
any date shall be deemed to be the average of the daily closing prices per
Common Share for the ten (10) consecutive Trading Days immediately
following such date; provided, however, that in the event that the current
market price per Common Share is determined during a period following the
announcement by the issuer of such Common Share of (A) a dividend or
distribution on such Common Share payable in Common Shares or securities
convertible into Common Shares (other than the Rights), or (B) any
-20-
<PAGE>
subdivision, combination or reclassification of such Common Shares, and
prior to the expiration of the requisite thirty (30) Trading Day or ten
(10) Trading Day period, as set forth above, after the ex-dividend date for
such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the "current
market price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each Trading Day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, 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 Shares are 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 Shares are
listed or admitted to trading or, if the Common Shares are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked
prices 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 Shares are 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 Common Shares selected by the Board of Directors of
the Company. If on any such date no market maker is making a market in the
Common Shares, the fair value of such shares on such date as determined in
good faith by the Board of Directors of the Company shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Shares are listed or admitted to trading is
open for the transaction of business or, if the Common Shares are not
listed or admitted to trading on any national securities exchange, a
Business Day. If the Common Shares are not publicly held or not so listed
or traded, "current market price" per share shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per Preferred Share shall be determined in the same manner as
set forth above for the Common Shares in clause (i) of this Section 11(d)
(other than the last sentence thereof). If the current market price per
Preferred Share cannot be determined in the manner provided above or if the
Preferred Shares are not publicly held or listed or traded in a manner
described in clause (i) of this Section 11(d), the "current market price"
per Preferred Share shall be conclusively deemed to be an amount equal to
one hundred (as such number may be appropriately adjusted for such events
as stock splits, stock
-21-
<PAGE>
dividends and recapitalization with respect to the Common Shares occurring
after the date of this Agreement) multiplied by the current market price
per Common Share. If neither the Common Shares nor the Preferred Shares are
publicly held or so listed or traded, "current market price" per Preferred
Share shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. For all purposes of this Agreement, the
"current market price" of a Preferred Share Fraction shall be equal to the
"current market price" of one Preferred Share divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-hundredth of a
Common Share or one one-hundred millionth of a Preferred Share, as the case may
be. Notwithstanding the first sentence of this subsection (e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction that mandates such adjustment, or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k), (m) and (q), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Preferred Share
Fractions purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in subsections (b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that
-22-
<PAGE>
number of Preferred Share Fractions (calculated to the nearest one one-hundred
millionth of a Preferred Share) obtained by (i) multiplying (x) the number of
Preferred Share Fractions covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of Preferred Share Fractions purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of Preferred Share
Fractions for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one-
hundredth of a Preferred Share) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the Purchase
Price in effect immediately after adjustment of the Purchase Price. The Company
shall make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. The record date for the adjustment may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Rights Certificates have been issued, shall be at least ten (10) days later
than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Preferred Share Fractions issuable upon the exercise of
the Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per Preferred Share Fraction and the
number of Preferred Share Fractions that were expressed in the initial Rights
Certificates issued hereunder.
-23-
<PAGE>
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated or par value, if any, of the
number of Preferred Share Fractions issuable upon exercise of the Rights, the
Company shall take any corporate action that may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue such number
of fully paid and nonassessable Preferred Share Fractions at such adjusted
Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Preferred Share Fractions and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the number of
Preferred Share Fractions and other capital stock or securities of the Company,
if any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Shares, (ii) issuance wholly for
cash of any Preferred Shares at less than the current market price, (iii)
issuance wholly for cash for Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, (iv) stock dividends
or (v) issuance of rights, options or warrants referred to in this Section 11,
hereafter made by the Company to holders of its Preferred Shares shall not be
taxable to such shareholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other person or persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
-24-
<PAGE>
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary notwithstanding,
in the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares, or (iii) combine the outstanding Common Shares into a
smaller number of shares, the number of Rights associated with each Common Share
then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each Common Share following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each Common Share immediately prior to such event by a fraction the
numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares outstanding immediately following the
occurrence of such event.
(q) In the event that the Rights become exercisable following a
Section 11(a)(ii) Event, the Company, by action of a majority of the Continuing
Directors in office at the time, may authorize that the Rights, subject to
Section 7(e) hereof, either (i) will only be, or (ii) may, at the option of the
holder entitled to exercise the Rights be, exercisable for, in either case 50%
of the Common Shares (or cash or other securities or assets to be substituted
for the Adjustment Shares pursuant to subsection (a)(iii)) that would otherwise
be purchasable under subsection (a), in consideration of the surrender to the
Company of the Rights so exercised and without other payment of the Purchase
Price. Rights exercised under this subsection (q) shall be deemed to have been
exercised in full and shall be cancelled.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
- - ------
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the
-25-
<PAGE>
facts accounting for such adjustment, (b) promptly file with the Rights Agent,
and with each transfer agent for the Preferred Shares and the Common Shares, a
copy of such certificate, and (c) mail a brief summary thereof to each holder of
a Rights Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing Common Shares) in accordance with Section 25 hereof.
The Rights Agent shall be fully protected in relying on any such certificate and
on any adjustment therein contained and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such a certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- - -------------
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding Common Shares shall be
changed into or exchanged for stock or other securities of any other Person or
cash or any other property, or (z) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets, operating income, cash flow or earning
power of the Company and its Subsidiaries (taken as a whole) to any Person or
Persons (other than the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(o) hereof), then, and in
each such case and except as contemplated by subsection (d), proper provision
shall be made so that:
(i) each holder of a Right, except as provided in
Section 7(e) hereof or subsection (e), shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non assessable and freely tradeable
Common Shares of the Principal Party (as such term is hereinafter defined),
not subject to any liens, encumbrances, rights of first refusal or other
adverse claims, as shall be equal to the result obtained by (1) multiplying
the then current Purchase Price by the number of Preferred Share Fractions
for which a Right is exercisable immediately prior to the first occurrence
of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior
to the first occurrence of a Section 13 Event, multiplying the number of
such shares for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event by the Purchase Price in
effect immediately prior to such first occurrence), and
-26-
<PAGE>
dividing that product (which, following the first occurrence of a Section
13 Event, shall be referred to as the "Purchase Price" for each Right and
for all purposes of this Agreement) by (2) 50% of the current market price
(determined pursuant to Section 11(d)(i) hereof) per Common Share of such
Principal Party on the date of consummation of such Section 13 Event,
(ii) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such
transaction as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to
its Common Shares thereafter deliverable upon the exercise of the Rights;
and
(v) the provisions of Section 11(a)(ii) hereof shall be
of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause
(x) or (y) of the first sentence of subsection (a), the Person that is the
issuer of any securities into which Common Shares of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation;
and
(ii) in the case of any transaction described in clause
(z) of the first sentence of subsection (a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Shares of such
Person are not at such time and have not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Exchange Act, and
such Person is a direct or indirect Subsidiary of
-27-
<PAGE>
another Person the Common Shares of which are and have been so registered,
"Principal Party" shall refer to such other Person, and (2) in case such Person
is a Subsidiary, directly or indirectly, of more than one Person, the Common
Shares of two or more of which are and have been so registered, "Principal
Party" shall refer to whichever of such Persons is the issuer of the Common
Shares having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Shares that have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any Section 13 event, the Principal Party will
(i) prepare and file a registration statement under the
Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
that comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights that have not theretofore been exercised shall thereafter become
exercisable solely in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 (other than this subsection (d)) shall not be applicable to, and the
term "Section 13 Event" shall not include, a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person, or Persons who acquired Common Shares pursuant to a
Qualifying Offer (or a wholly owned Subsidiary of any such Person or Persons),
(ii) the price per Common Share offered in such transaction is not less than the
price per Common Share paid to all holders of Common Shares whose shares were
purchased pursuant to such tender offer or exchange offer and (iii) the form of
consideration being offered to the remaining holders of
-28-
<PAGE>
Common Shares pursuant to such transaction is the same as the form of
consideration paid pursuant to such tender or exchange offer. Upon consummation
of any such transaction contemplated by this subsection (d), all Rights
hereunder shall expire.
(e) In the event that the Rights become exercisable under
subsection (a) (except as provided in subsection (d)), the Company, by action of
a majority of the Continuing Directors in office at the time, may authorize that
the Rights either (i) will only be or (ii) may, at the option of the Principal
Party be, exercisable for, 50% of the Common Shares of the Principal Party that
would otherwise be purchasable under subsection (a), in consideration of the
surrender to the Principal Party, as the successor to the Company under
subsection (a) (ii), of the Rights so exercised and without other payment of the
Purchase Price. Rights exercised under this subsection (e) shall be deemed to
have been exercised in full and shall be canceled.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates that evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this subsection (a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, 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 Rights are 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 Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use or, if on any such date
the Rights are 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 Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
-29-
<PAGE>
(b) The Company shall not be required to issue fractions of
Preferred Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Preferred Shares, except in each case for fractions which
are integral multiples of Preferred Shares. In lieu of fractional Preferred
Shares that are not integral multiples of Preferred Shares, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a Preferred Share. For purposes of this subsection (b),
the current market value of one Preferred Share shall be the closing price of a
Preferred Share (as determined pursuant to Section 11(d)(ii) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Company
shall not be required to issue fractions of Common Shares upon exercise of the
Rights or to distribute certificates that evidence fractional Common Shares. In
lieu of fractional Common Shares, the Company may pay to the registered holders
of Rights Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one
Common Share. For purposes of this subsection (c), the current market value of
one Common Share shall be the closing price of one Common Share (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right or a beneficial interest in a Right
by the acceptance thereof expressly waives his right to receive any fractional
Rights or any fractional Common Shares upon exercise of a Right, except as
permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of
----------------
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights or beneficial
interests therein, it is specifically acknowledged that the holders of Rights or
beneficial interests therein would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right or
---------------------------
a beneficial
-30-
<PAGE>
interest in a Right by accepting the same consents and agrees with the Company
and the Rights Agent and with every other such holder that:
(a) prior to the Distribution Date, beneficial interests in the
Rights will be transferable only in connection with the transfer of Common
Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Share certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Share certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or a beneficial interest in a Right or other Person as a result of
its inability to perform any of its obligations under this Agreement by reason
of any preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation; provided,
however, the Company must use its best efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Shareholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Preferred
Share Fractions or any other securities of the Company (including the Common
Shares) that may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
-31-
<PAGE>
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent and its
directors, officers, employees and agents, for and to hold each of them harmless
against, any loss, liability, or expense, incurred without gross negligence, bad
faith or willful misconduct on the part of the Rights Agent, for anything done
or omitted by the Rights Agent or any such indemnified party in connection with
the acceptance or administration of this Agreement or the exercise of its duties
hereunder, including the costs and expenses of defending against any claim of
liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement or in the exercise of its
duties hereunder in reliance upon any Rights Certificate or certificate for
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement, or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
- - -----
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency and trust created by this Agreement, any of
the Rights Certificates shall have been countersigned but not delivered, any
such successor
-32-
<PAGE>
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates
or beneficial interests in the Rights, by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the written opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
the Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
-33-
<PAGE>
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of any provision of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights or any adjustment required under the provisions of
this Agreement or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any Common Shares or
Preferred Shares will, when so issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Agreement and the date on or
after which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not be less
than five Business Days after the date any officer of the Company actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to
-34-
<PAGE>
taking any such action (or the effective date in the case of an omission), the
Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement and none of such actions shall constitute a breach of
trust. Nothing herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights
or powers hereby vested in it or perform any duty hereunder either itself or by
or through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such attorneys
or agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, that the Rights Agent was not grossly
negligent in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent 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 its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
(l) The Rights Agent undertakes only the express duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.
(m) Anything in this Agreement to the contrary notwithstanding,
in no event shall the Rights Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits).
-35-
<PAGE>
Section 21. Change of Rights Agent. The Rights Agent or any
----------------------
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' prior written notice mailed to the Company and
to each transfer agent of the Common Shares and Preferred Shares by registered
or certified mail, and to the holders of the Rights Certificates by first- class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' prior written notice mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Shares and Preferred Shares, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (a) a corporation organized, doing
business and in good standing under the laws of the United States or of any
state, having a principal office in the State of New York or the State of
Delaware, that is authorized by law to exercise corporate trust and stock
transfer powers and is subject to supervision or examination by federal or state
authority and that has at the time of its appointment as Rights Agent a combined
capital and surplus adequate in the judgment of a majority of Continuing
Directors in office at the time to assure the performance of its duties
hereunder and the protection of the interests of the Company and the holders of
Rights or beneficial interests therein, or (b) an Affiliate of a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares and Preferred Shares and mail a
notice thereof in writing to the registered holders of the Rights Certificates
or, prior to the Distribution Date, to the registered holders of the Common
Shares. Failure to give any notice provided for in this Section 21, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding
-----------------------------------
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option,
-36-
<PAGE>
issue new Rights Certificates evidencing Rights in such form as may be approved
by its Board of Directors to reflect any adjustment or change in the Purchase
Price and the number or kind or class of shares or other securities or property
purchasable under the Rights Certificates made in accordance with the provisions
of this Agreement. In addition, in connection with the issuance, sale or
delivery of Common Shares following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company (a) shall, with respect to
Common Shares so issued, sold or delivered pursuant to the exercise of stock
options, stock appreciation rights, grants or awards outstanding on the
Distribution Date under any benefit plan or arrangement for employees or
directors, or upon the exercise, conversion or exchange of securities
outstanding on the Record Date or hereinafter issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
that (i) no such Rights Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
--------------------------
(a) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (i) the close of business on the tenth day
following a Stock Acquisition Date (or, if the Stock Acquisition Date shall have
occurred prior to the Record Date, the close of business on the tenth day
following the Record Date), or (ii) the Final Expiration Date, redeem all but
not less than all the then outstanding Rights at a redemption price of $.01 per
Right, as such amount may be appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price") and
the Company may, at its option, pay the Redemption Price either in Common Shares
(based on the "current market price", as defined in Section 11(d)(i) hereof, of
the Common Shares at the time of redemption) or cash; provided, however, if the
Board of Directors of the Company authorizes redemption of the Rights in either
of the circumstances set forth in clauses (i) and (ii) of this proviso, then
there must be Continuing Directors then in office and such authorization shall
require the concurrence of a majority of such Continuing Directors: (i) such
authorization occurs on or after the time a Person becomes an Acquiring Person,
or (ii) such authorization occurs on or after the date of a change (resulting
from a proxy or consent solicitation) in a majority of the directors in office
at the commencement of such solicitation if any Person who is a participant in
such solicitation has stated (or, if upon the commencement of such solicitation,
a majority of the Board of Directors of the Company has determined in good
-37-
<PAGE>
faith) that such Person (or any of its Affiliates or Associates) intends to
take, or may consider taking, any action that would result in such Person
becoming an Acquiring Person or that would cause the occurrence of a Triggering
Event unless, concurrent with such solicitation, such Person (or one or more of
its Affiliates or Associates) is making a cash tender offer pursuant to a
Schedule 14D-1 (or any successor form) filed with the Securities and Exchange
Commission for all outstanding Common Shares not beneficially owned by such
Person (or by its Affiliates or Associates); provided further, however, that if,
following the occurrence of a Stock Acquisition Date and following the
expiration of the right of redemption hereunder but prior to any Triggering
Event, (i) an Acquiring Person shall have transferred or otherwise disposed of a
number of Common Shares in one transaction or series of transactions, not
directly or indirectly involving the Company or any of its Subsidiaries, which
did not result in the occurrence of a Triggering Event or the Company (with the
approval of the majority of Continuing Directors) shall have issued additional
equity securities, in either instance such that such Person is thereafter a
Beneficial Owner of [10%] or less of the outstanding Common Shares, and (ii)
there is no other Acquiring Person immediately following the occurrence of the
event described in clause (i), then the right of redemption shall be reinstated
and thereafter be subject to the provisions of this Section 23. Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Section 11(a)(ii) Event until such
time as the Company's right of redemption hereunder has expired.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the Transfer Agent for the Common Shares. Any notice that
is mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.
(c) In deciding whether or not to exercise the Company's right
of redemption hereunder, the directors of the Company shall act in good faith,
in a manner they reasonably believe to be in the best interests of the Company
and with such care, including reasonable inquiry, skill and diligence, as a
person of ordinary prudence would use under similar circumstances.
-38-
<PAGE>
Section 24. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares (other than a regular quarterly dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, or (iii) to effect any reclassification of its Preferred Shares
(other than a reclassification involving only the subdivision of outstanding
Preferred Shares), or (iv) to effect any consolidation or merger into or with
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), or to effect any sale or other transfer (or
to permit one or more of its Subsidiaries to effect any sale or other transfer),
in one transaction or a series of related transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of a
Rights Certificate, to the extent feasible and in accordance with Section 25
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, distribution of rights or warrants, or
the date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of Preferred Shares, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of Preferred Shares for purposes of such action, and in the
case of any such other action, at least twenty (20) days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Preferred Shares, whichever shall be the earlier.
(b) Upon the occurrence of a Section 11(a)(ii) Event, (i) the
Company shall as soon as practicable thereafter give to each holder of a Right,
to the extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Shares shall be deemed
thereafter to refer to Common Shares and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this
-------
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
-39-
<PAGE>
Unisource Worldwide, Inc.
825 Duportail Road
Wayne, Pennsylvania 19087-5589
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
[Name of Rights Agent]
[Address of Rights Agent]
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date to the holder of certificates representing Common
Shares) shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 26. Supplements and Amendments.
--------------------------
(a) Prior to the Distribution Date and subject to the
penultimate sentence of this Section 26, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of this Agreement
without the approval of any holders of certificates representing Common Shares.
From and after the Distribution Date and subject to the penultimate sentence of
this Section 26, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (iii) to shorten or lengthen any time period
hereunder, or (iv) to change or supplement the provisions hereunder in any
manner that the Company may deem necessary or desirable and that shall not
adversely affect the interests of the holders of Rights Certificates; provided,
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights. Upon
the delivery of a certificate from an appropriate officer of the Company that
states that the proposed
-40-
<PAGE>
supplement or amendment is in compliance with the terms of this Section 26, the
Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, (i) no supplement or
amendment shall be made that changes the Redemption Price, the Final Expiration
Date, the Purchase Price or the number of Preferred Share Fractions for which a
Right is exercisable, (ii) any supplement or amendment shall be effective only
if there are Continuing Directors and shall require the concurrence of a
majority of such Continuing Directors if: (x) such supplement or amendment
occurs on or after the time a Person becomes an Acquiring Person, or (y) such
supplement or amendment occurs on or after the date of a change (resulting from
a proxy or consent solicitation) in a majority of the directors in office at the
commencement of such solicitation if any Person who is a participant in such
solicitation has stated (or, if upon the commencement of such solicitation, a
majority of the Board of Directors of the Company has determined in good faith)
that such Person (or any of its Affiliates or Associates) intends to take, or
may consider taking, any action that would result in such Person becoming an
Acquiring Person or that would cause the occurrence of a Triggering Event
unless, concurrent with such solicitation, such Person (or one or more of its
Affiliates or Associates) is making a cash tender offer pursuant to a Schedule
14D-1 (or any successor form) filed with the Securities and Exchange Commission
for all outstanding Common Shares not beneficially owned by such Person (or by
its Affiliates or Associates), and (iii) no supplement or amendment that changes
the rights and duties of the Rights Agent under this Agreement shall be
effective without the consent of the Rights Agent. Prior to the Distribution
Date, the interests of the beneficial owners of Rights shall be deemed
coincident with the interests of the holders of Common Shares.
(b) In deciding whether or not to supplement or amend this
Agreement, the directors of the Company shall act in good faith, in a manner
they reasonably believe to be in the best interests of the Company and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances, and they may consider the
effects of any action upon employees, suppliers and customers of the Company and
upon communities in which offices or other establishments of the Company are
located, and all other pertinent factors.
Section 27. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
-----------------------------------------------------
etc. For all purposes of this Agreement, any calculation of the number of
- - ---
Common Shares outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding Common Shares of which
any Person is the Beneficial Owner, shall be made in
-41-
<PAGE>
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
(with, where specifically provided for herein, the concurrence of the Continuing
Directors) shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board (with, where specifically provided for herein, the concurrence of the
Continuing Directors) or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend or supplement the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) that are done or made by the Board
(with, where specifically provided for herein, the concurrence of the Continuing
Directors) in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties, and
(y) not subject the Board or the Continuing Directors to any liability to the
holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Shares) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Shares).
Section 30. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable for any purpose or under
any set of circumstances or as applied to any Person, such invalid, void or
unenforceable term, provision, covenant or restriction shall continue in effect
to the maximum extent possible for all other purposes, under all other
circumstances and as applied to all other Persons; and the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Without limiting
-42-
<PAGE>
the foregoing, if any provisions requiring that a determination be made by less
than the entire Board (or at a time or with the concurrence of a group of
directors consisting of less than the entire Board) is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable,
such determination shall then be made by the Board in accordance with applicable
law and the Company's Certificate of Incorporation and by-laws.
Section 31. Governing Law. This Agreement, each Right and each
-------------
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the Delaware and for all purposes shall be governed by and construed
in accordance with the laws of such jurisdiction applicable to contracts made
and to be performed entirely within such jurisdiction.
Section 32. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
--------------------
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
UNISOURCE WORLDWIDE, INC.
By
-------------------------------
Name:
Title:
[NAME OF RIGHTS AGENT]
By
-------------------------------
Name:
Title:
-43-
<PAGE>
EXHIBIT A
---------
RESOLUTION OF THE BOARD OF DIRECTORS OF
UNISOURCE WORLDWIDE, INC.
ESTABLISHING AND DESIGNATING
SERIES A JUNIOR PARTICIPATING PREFERRED SHARES
AS A SERIES OF THE SERIES PREFERRED STOCK
RESOLVED, that pursuant to the authority expressly vested in the Board
of Directors of Unisource Worldwide, Inc. (the "Corporation") by Article III of
the Amended and Restated Certificate of Incorporation of the Corporation, the
Board of Directors hereby fixes and determines the voting rights, designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of the first series of
the Series Preferred Stock, no par value, which shall consist of _______ shares
and shall be designated as Series A Junior Participating Preferred Shares (the
"Series A Preferred Shares").
Special Terms of the Series A Preferred Shares
- - ----------------------------------------------
Section 1. Dividends and Distributions.
---------------------------
(a) The rate of dividends payable per share of Series A Preferred
Shares on the first day of January, April, July and October in each year or such
other quarterly payment date as shall be specified by the Board of Directors
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of the Series A Preferred Shares,
shall be (rounded to the nearest cent) equal to the greater of (i) $4.00 or (ii)
subject to the provision for adjustment hereinafter set forth times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in cash, based upon the fair market value at the time
the non-cash dividend or other distribution is declared or paid as determined in
good faith by the Board of Directors) 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, par value $1.00 per share, of the
Corporation since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of the Series A Preferred Shares.
Dividends on the Series A Preferred Shares shall be paid out of funds legally
available for such purpose. In the event the Corporation shall at any time
after November __, 1996 (the "Rights Declaration Date") (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case the amounts
to which holders of Series A Preferred Shares were entitled immediately prior to
such event under clause (ii) of the preceding sentence shall be adjusted by
multiplying each such amount by a fraction the numerator of which
<PAGE>
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.
(b) Dividends shall begin to accrue and be cumulative on outstanding
Series A Preferred Shares from the Quarterly Dividend Payment Date next
preceding the date of issue of such Series A Preferred Shares, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of Series A Preferred Shares entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Preferred Shares in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding.
Section 2. Voting Rights. In addition to any other voting rights
-------------
required by law, the holders of Series A Preferred Shares shall have the
following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each Series A Preferred Share shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of Series A Preferred
Shares were entitled immediately prior to such event shall be adjusted by
multiplying such number 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.
(b) In the event that dividends upon the Series A Preferred Shares
shall be in arrears to an amount equal to six full quarterly dividends thereon,
the holders of such Series A Preferred Shares shall become entitled to the
extent hereinafter provided to vote noncumulatively at all elections of
directors of the Corporation, and to receive notice of all shareholders'
meetings to be held for such purpose. At such meetings, to the extent that
directors are being elected, the holders of such Series A Preferred Shares
voting as a class shall be entitled solely to elect two members of the Board of
Directors of the Corporation; and all other directors of the Corporation shall
be elected by the other shareholders of the Corporation entitled to vote in the
election of directors. Such voting rights of the holders of such Series A
Preferred Shares shall continue until all accumulated and unpaid dividends
thereon shall have been paid or funds sufficient therefor set aside, whereupon
all such voting rights of the holders of shares of such series shall cease,
A-2
<PAGE>
subject to being again revived from time to time upon the reoccurrence of the
conditions above described as giving rise thereto.
At any time when such right to elect directors separately as a class
shall have so vested, the Corporation may, and upon the written request of the
holders of record of not less than 20% of the then outstanding total number of
shares of all the Series A Preferred Shares having the right to elect directors
in such circumstances shall, call a special meeting of holders of such Series A
Preferred Shares for the election of directors. In the case of such a written
request, such special meeting shall be held within 90 days after the delivery of
such request, and, in either case, at the place and upon the notice provided by
law and in the By-laws of the Corporation; provided, that the Corporation shall
not be required to call such a special meeting if such request is received less
than 120 days before the date fixed for the next ensuing annual or special
meeting of shareholders of the Corporation. Upon the mailing of the notice of
such special meeting to the holders of such Series A Preferred Shares, or, if no
such meeting be held, then upon the mailing of the notice of the next annual or
special meeting of shareholders for the election of directors, the number of
directors of the Corporation shall, ipso facto, be increased to the extent, but
only to the extent, necessary to provide sufficient vacancies to enable the
holders of such Series A Preferred Shares to elect the two directors hereinabove
provided for, and all such vacancies shall be filled only by vote of the holders
of such Series A Preferred Shares as hereinabove provided. Whenever the number
of directors of the Corporation shall have been increased, the number as so
increased may thereafter be further increased or decreased in such manner as may
be permitted by the By-laws and without the vote of the holders of Series A
Preferred Shares, provided that no such action shall impair the right of the
holders of Series A Preferred Shares to elect and to be represented by two
directors as herein provided.
So long as the holders of Series A Preferred Shares are entitled
hereunder to voting rights, any vacancy in the Board of Directors caused by the
death or resignation of any director elected by the holders of Series A
Preferred Shares, shall, until the next meeting of shareholder for the election
of directors, in each case be filled by the remaining director elected by the
holders of Series A Preferred Shares having the right to elect directors in such
circumstances.
Upon termination of the voting rights of the holders of any series of
Series A Preferred Shares the terms of office of all persons who shall have been
elected directors of the Corporation by vote of the holders of Series A
Preferred Shares or by a director elected by such holders shall forthwith
terminate.
(c) Except as otherwise provided herein, in the articles of the
Corporation or by law, the holders of Series A Preferred Shares and the holders
of Common Stock (and the holders of shares of any other series or class entitled
to vote thereon) shall vote together as one class on all matters submitted to a
vote of shareholders of the Corporation.
Section 3. Reacquired Shares. Any Series A Preferred Shares
-----------------
purchased or
A-3
<PAGE>
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued Series Preferred Stock and may
be reissued as part of a new series of Series Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
Section 4. Liquidation, Dissolution or Winding Up. In the event of
--------------------------------------
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series A Preferred Shares shall be entitled to
receive the greater of (a) $100 per share, plus accrued dividends to the date of
distribution, whether or not earned or declared, or (b) an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii)
combine the outstanding shares of Common Stock into a smaller number of shares,
then in each such case the amount to which holders of Series A Preferred Shares
were entitled immediately prior to such event pursuant to clause (b) 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.
Section 5. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination 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 Series A
Preferred Shares 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 100 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 changed or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Shares 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.
Section 6. No Redemption. The Series A Preferred Shares shall not be
-------------
redeemable.
Section 7. Ranking. The Series A Preferred Shares shall rank junior
-------
to all other series of the Corporation's Series Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
A-4
<PAGE>
Section 8. Fractional Shares. Series A Preferred Shares 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 A Preferred Shares.
A-5
<PAGE>
EXHIBIT B
---------
[Form of Rights Certificate]
Certificate No. R- ___________ Rights
NOT EXERCISABLE AFTER NOVEMBER __, 2006 OR AFTER EARLIER REDEMPTION BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS
OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY,
THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL
AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH
AGREEMENT.]*
- - ---------------
* The bracketed portion of the legend shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
UNISOURCE WORLDWIDE, INC.
RIGHTS CERTIFICATE
This certifies that _______________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of November __, 1996 (the "Rights Agreement"),
between Unisource Worldwide, Inc., a Delaware corporation (the "Company"), and
[Name of Rights Agent], (the "Rights Agent"), to purchase from the Company at
any time prior to 5:00 P.M. (New York, New York time) on November __, 1996 at
the office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one one-hundredth of a fully paid, nonassessable
share of Series A Junior Participating Preferred Stock (the "Preferred Share")
of the Company, at a purchase price (the "Purchase Price") of $____ per one one-
hundredth of a Preferred Share (such fraction, a "Preferred Share Fraction"),
upon presentation and surrender of this Rights Certificate with the Form of
Election to Purchase and related Certificate duly executed. Except as provided
in Sections 11(q) and 13(e) of the Rights Agreement, the Purchase Price shall be
paid, at the election of the holder, in cash or Common Stock, of the Company
(the "Common Shares") having an equivalent value. The number of Rights
evidenced by this Rights Certificate (and the number of Preferred Share
Fractions that may be purchased upon exercise thereof) set forth above, and the
Purchase Price per Preferred Share Fraction set forth above, are the number and
Purchase Price as of November __, 1996, based on the Preferred Shares as
constituted at such date.
Except as otherwise provided in the Rights Agreement, upon the
occurrence of any Section 11(a)(ii) Event (as such term is defined in the Rights
Agreement), if the Rights evidenced by this Rights Certificate are beneficially
owned by (i) an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a
transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of any such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of Preferred Shares or other securities that may be purchased upon the
exercise of the Rights evidenced by this Rights Certificate are subject to
modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by
B-2
<PAGE>
reference and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Rights Certificates, which limitations of rights include
the temporary suspension of the exercisability of such Rights under the specific
circumstances set forth in the Rights Agreement. Copies of the Rights Agreement
are on file at the above-mentioned office of the Rights Agent and are also
available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Share Fractions as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall
have entitled such holder to purchase. If this Rights Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Rights Certificate or Rights Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the close
of business on (i) the tenth day following the Stock Acquisition Date (as such
time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date. Under certain circumstances set forth in the Rights
Agreement, the decision to redeem shall require the concurrence of a majority of
the Continuing Directors.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of a Preferred Share, which may, as the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash payment will be
made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Shares or
of any other securities of the Company (including Common Shares) that may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of ____________, 19__
ATTEST UNISOURCE WORLDWIDE, INC.
By
- - -------------------- -------------------------------
Secretary Title:
Countersigned
[NAME OF RIGHTS AGENT]
By
--------------------
Authorized Signature
B-4
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ________________________________________ hereby sells,
assigns and transfers unto ____________________________________________________
(Please print name and address of transferee)
- - -----------------------------------------------------------
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _________________, 19 __
-----------------------
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ________________, 19__ ---------------------
Signature
Signature Guaranteed:
B-5
<PAGE>
NOTICE
The signatures to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: UNISOURCE WORLDWIDE, INC.:
The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Rights Certificate to purchase the Preferred Shares issuable
upon the exercise of the Rights (or Common Shares or such other securities of
the Company or of any other person that may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security
or other identifying number
- - --------------------------------------------------------------------------------
(Please print name and address)
- - --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- - --------------------------------------------------------------------------------
(Please print name and address)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Dated: _____________, 19__
-------------------------
Signature
Signature Guaranteed:
B-7
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: _____________, 19__ -------------------------
Signature
Signature Guaranteed:
NOTICE
------
The signatures to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-8
<PAGE>
EXHIBIT C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On November __, 1996 the Board of Directors of Unisource Worldwide,
Inc. (the "Company") declared a dividend distribution of one Right for each
outstanding share of Common Stock (each, a "Common Share"), of the Company to
shareholders of record at the close of business on November __, 1996. Each
Right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a "Unit") of the Series A Junior
Participating Preferred Stock, no par value, of the Company (the "Preferred
Shares"), or a combination of securities and assets of equivalent value, at a
Purchase Price of ______ per Unit, subject to adjustment. The Purchase Price
may be paid, at the option of the holder, in cash or Common Shares having a
value at the time of exercise equal to the Purchase Price. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and [Name of Rights Agent], as Rights Agent.
Initially, ownership of the Rights will be evidenced by the Common
Share certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common
Shares and a Distribution Date will occur upon the earlier of (i) 10 business
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding Common
Shares (the "Stock Acquisition Date"), or (ii) within 10 Business Days (or such
later date as may be determined by action of the Board of Directors prior to
such time any Person becomes an Acquiring Person) following the commencement of
a tender offer or exchange offer that would result in a person or group
beneficially owning 20% or more of the outstanding Common Shares. Until the
Distribution Date, (i) the Rights will be evidenced by the Common Share
certificates and will be transferred with and only with such Common Share
certificates, (ii) new Common Share certificates issued after November __, 1996
will contain a notation incorporating the Rights Agreement by reference and
(iii) the surrender for transfer of any certificates for Common Shares
outstanding will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on November __, 2006, unless earlier redeemed by
the Company as described below or unless a transaction under Section 13(d) of
the Rights Agreement has occurred.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, and except in connection with the exercise of
C-1
<PAGE>
employee stock options or stock appreciation rights or under any other benefit
plan for employees or directors or in connection with the exercise of warrants
or conversion of convertible securities, only Common Shares issued after
November __, 1996 and prior to the Distribution Date will be issued with Rights.
Except in the circumstances described below, after the Distribution
Date each Right will be exercisable into one one-hundredth of a Preferred Share
(a "Preferred Share Fraction"). Each Preferred Share Fraction carries voting
and dividend rights that are intended to produce the equivalent of one Common
Share. The voting and dividend rights of the Preferred Shares are subject to
adjustment in the event of dividends, subdivisions and combinations with respect
to the Common Shares of the Company. In lieu of issuing certificates for
Preferred Share Fractions which are less than an integral multiple of one
Preferred Share (i.e. 100 Preferred Share Fractions), the Company may pay cash
representing the current market value of the Preferred Share Fractions.
In the event that at any time following the Stock Acquisition Date,
(i) the Company is the surviving corporation in a merger with an Acquiring
Person and its Common Shares remain outstanding, (ii) a Person becomes the
beneficial owner of more than 20% of the then outstanding Common Shares other
than pursuant to a tender offer that is determined to be in the best interests
of the Company and its stockholders by at least a majority of the Continuing
Directors, (iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time as
there is an Acquiring Person an event occurs that results in such Acquiring
Person's ownership interest being increased by more than 1% (e.g., a reverse
stock split), each holder of a Right will thereafter have the right to receive,
upon exercise, Common Shares (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right. In lieu of requiring payment of the Purchase Price upon
exercise of the Rights following any such event, the Company may permit the
holders simply to surrender the Rights, in which event they will be entitled to
receive Common Shares (and other property, as the case may be) with a value of
50% of what could be purchased by payment of the full Purchase Price.
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in clauses (i), (ii), (iii) or (iv) of this paragraph, all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person who was involved in
the transaction giving rise to any such event will be null and void. However,
Rights are not exercisable following the occurrence of any of the events set
forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
For example, at an exercise price of $_____ per Right, each Right not
otherwise voided following an event set forth in the preceding paragraph would
entitle its holder to purchase $____ worth of Common Shares (or other
consideration, as noted above) for $____. Assuming that the Common Shares had a
per share value of $_____ at such time, the holder of each valid Right would be
entitled to purchase ______ Common Shares for $____. Alternatively, the Company
could permit the holder to surrender each Right in exchange for
C-2
<PAGE>
stock or cash equivalent to ______________ Common Shares (with a value of
______) without the payment of any consideration other than the surrender of the
Right.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation (other than a
merger that is described in, or that follows a tender offer or exchange offer
described in, the second preceding paragraph), or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights that previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right. Again, provision is made to permit surrender of the Rights in exchange
for one-half of the value otherwise purchasable. The events set forth in this
paragraph and in the second preceding paragraph are referred to as the
"Triggering Events."
The Purchase Price payable, and the number of Units of Preferred
Shares or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) if holders of the Preferred Shares are granted certain
rights or warrants to subscribe for Preferred Shares or convertible securities
at less than the current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular quarterly dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Shares on the
last trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right. That ten day redemption period may be extended by the Board of Directors
so long as the Rights are still redeemable. Under certain circumstances set
forth in the Rights Agreement, the decision to redeem will require the
concurrence of a majority of the Continuing Directors. Immediately upon the
action of the Board of Directors ordering redemption of the Rights, with, where
required, the concurrence of the Continuing Directors, the Rights will terminate
and the only right of the holders of Rights will be to receive the $.01
redemption price.
The term "Continuing Directors" means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of the
Rights Agreement, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors, but shall not include an Acquiring Person, or an affiliate or
associate of an Acquiring Person, or any representative of the foregoing
entities.
C-3
<PAGE>
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Preferred Shares (or other consideration) of the Company or for
common shares of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes that do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable. Under certain circumstances set forth in the Rights Agreement,
amendments will require the concurrence of a majority of the Continuing
Directors.
A copy of the Rights Agreement is being filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE
as to
RESTATED CERTIFICATE OF INCORPORATION
of
UNISOURCE WORLDWIDE, INC.
UNISOURCE WORLDWIDE, INC., a Delaware corporation which filed its
Certificate of Incorporation on August 28, 1975 under the name SAXON INDUSTRIES,
INC., hereby restates, integrates and amends its Certificate of Incorporation
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, and DOES HEREBY CERTIFY:
1. That the Board of Directors of such corporation, by unanimous
written consent, adopted a resolution proposing and declaring advisable the
Restated Certificate of Incorporation attached hereto as Exhibit A.
2. The sole stockholder of the corporation has given its written
consent to said Restated Certificate of Incorporation in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, UNISOURCE WORLDWIDE, INC. has caused this
certificate to be signed by its duly authorized officer this _____ day of
_______________, 1996.
UNISOURCE WORLDWIDE, INC.
By:________________________________
Title:
<PAGE>
Exhibit A
---------
RESTATED CERTIFICATE OF INCORPORATION
OF
UNISOURCE WORLDWIDE, INC.
FIRST: The name of the corporation is Unisource Worldwide, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The registered office of the Corporation is to be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, in the
County of New Castle, in the State of Delaware. The name of its registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware ("GCL").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is two hundred and sixty million (260,000,000) shares,
consisting of two hundred and fifty million (250,000,000) shares of common
stock, each without par value (hereinafter referred to as the "Common Stock"),
and ten million (10,000,000) shares of preferred stock, each without par value
(hereinafter referred to as the "Preferred Stock"). The powers, designations,
preferences and relative, participating, optional or other special rights (and
the qualifications, limitations or restrictions thereof) of the Common Stock and
the Preferred Stock are as follows:
A. Preferred Stock.
---------------
The Board of Directors is hereby expressly authorized at any time, and
from time to time, to create and provide for the issuance of shares of
Preferred Stock in one or more series and, by filing a certificate pursuant
to the GCL (hereinafter referred to as a "Preferred Stock Designation"), to
establish the number of shares to be included in each such series, and to
fix the designations, preferences and relative, participating, optional or
other special rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors, including, but not limited to, the
following:
(1) the designation of and the number of shares constituting such
series, which number the Board of Director may thereafter (except as
otherwise provided in the Preferred Stock
<PAGE>
Designation) increase or decrease (but not below the number of shares
of such series then outstanding);
(2) the dividend rate for the payment of dividends on such
series, if any, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such dividends, if
any, shall bear to the dividends payable on any other class or classes
of or any other series of capital stock, the conditions and dates upon
which such dividends, if any, shall be payable, and whether such
dividends, if any, shall be cumulative or non-cumulative;
(3) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such
redemption, the times, prices and other terms and conditions of such
redemption;
(4) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(5) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of, any
other series of any class or classes of capital stock of, or any other
security of, the Corporation or any other corporation, and, if
provision be made for any such conversion or exchange, the times,
prices, rates, adjustments and any other terms and conditions of such
conversion or exchange;
(6) the extent, if any, to which the holders of the shares of
such series shall be entitled to vote as a class or otherwise with
respect to the election of directors or otherwise;
(7) the restrictions, if any, on the issue or reissue of shares
of the same series or of any other class or series;
(8) the amounts payable on and the preferences, if any, of the
shares of such series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(9) any other relative rights, preferences and limitations of
that series.
B. Common Stock.
------------
<PAGE>
Each holder of Common Stock shall have one vote in respect of each
share of Common Stock held by such holder of record on the books of the
Corporation for the election of directors and on all other matters on which
stockholders of the Corporation are entitled to vote. Subject to any
rights that may be conferred upon any holders of Preferred Stock, upon
dissolution, the holders of Common Stock then outstanding shall be entitled
to receive the net assets of the Corporation. Such net assets shall be
divided among and paid to the holders of Common Stock, on a pro-rata basis,
according to the number of shares of Common Stock held by them. Subject to
any rights that may be conferred upon any holders of Preferred Stock, the
holders of shares of Common Stock shall be entitled to receive, when and if
declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
stock or otherwise.
FIFTH: The Corporation is to have perpetual existence.
SIXTH:
A. Subject to the rights of the holders of any series of Preferred
Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed,
and may be increased or decreased from time to time, in such a manner as
may be prescribed by the By-laws of the Corporation.
B. Unless and except to the extent that the By-laws of the
Corporation shall so require, the election of directors of the Corporation
need not be by written ballot.
C. The directors, other than those who may be elected by the holders
of any series of Preferred Stock or any other series or class of stock
(except for Common Stock) as set forth in this Certificate of
Incorporation, shall be divided into three classes as nearly equal in size
as possible and designated as Class I, Class II and Class III. Class I
directors shall be initially elected for a term expiring at the 1997 annual
meeting of stockholders, Class II directors shall be initially elected for
a term expiring at the 1998 annual meeting of stockholders, and Class III
directors shall be initially elected for a term expiring at the 1999 annual
meeting of stockholders. Members of each class shall hold office until
their successors are elected and qualified. At each annual meeting of the
stockholders of the Corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a
term expiring at the annual meeting of stockholders held in the third year
following the year of their election, and until their successors are
elected and qualified.
<PAGE>
D. Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the By-laws of the
Corporation.
E. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of
shares representing at least 66-2/3% of the voting power of the then
outstanding voting stock of the Corporation entitled to vote in elections
of directors generally, voting together as a single class, shall be
required to amend, repeal or adopt any provisions inconsistent with this
Article SIXTH.
SEVENTH: The Board of Directors shall have the power, in addition to the
stockholders, to make, alter, or repeal the By-laws of the Corporation.
EIGHTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit.
Neither the amendment nor repeal of this Article EIGHTH, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders are granted subject to this reservation.
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
UNISOURCE WORLDWIDE, INC.
(a Delaware Corporation)
ARTICLE I
OFFICES AND FISCAL YEAR
-----------------------
SECTION 1.01. Registered Office. The registered office of the
-----------------
corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.
SECTION 1.02. Other Offices. The corporation may also have offices
-------------
at such other places within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the corporation shall
-----------
end on the 30th of September in each year unless the Board of Directors
determines otherwise.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Place of Meeting. All meetings of the stockholders of
----------------
the corporation shall be held at the registered office of the corporation, or at
such other place within or without the State of Delaware as shall be designated
by the Board of Directors in the notice of such meeting.
SECTION 2.02. Annual Meeting. The Board of Directors shall fix the
--------------
date and time of the annual meeting of the stockholders, and at said meeting the
stockholders then entitled to vote shall elect directors and shall transact such
other business as may properly be brought before the meeting.
SECTION 2.03. Special Meetings. Subject to the rights of the holders
----------------
of any series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock") with respect
to such series of Preferred Stock or any other series or class of stock set
forth in the Certificate of Incorporation, a special meeting of the
<PAGE>
stockholders shall be called only by the secretary of the corporation at the
request of (i) a majority of the total number of directors which the corporation
at the time would have if there were no vacancies or (ii) by any person
authorized by the Board of Directors to call a special meeting.
SECTION 2.04. Notice of Meetings. Written notice of the place, date
------------------
and hour of every meeting of the stockholders, whether annual or special, shall
be given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting. Every notice
of a special meeting shall state the purpose or purposes thereof.
SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders
----------------------------------------
of a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the Certificate of
Incorporation or by these By-laws. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the Board of
Directors or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At any such adjourned meeting, at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. When a quorum is
present at any meeting, the vote by stockholders present or represented by proxy
entitled to cast a majority of the votes which all stockholders present are
entitled to cast thereon shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the applicable
statute, the Certificate of Incorporation or these By-laws, a different vote is
required in which case such express provision shall govern and control the
decision of such question. Except upon those questions governed by the
aforesaid express provisions, the stockholders present in person or by proxy at
a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Organization. At every meeting of the stockholders,
------------
the chairman of the board, if there be one, shall act as chairman or in the case
of a vacancy in the office or absence of the chairman of the board, one of the
following persons present in the following order stated shall act as chairman:
the vice chairman, if one has been appointed, the president, the vice presidents
in their order or rank, a chairman designated by the Board of Directors or a
chairman chosen by the stockholders entitled to cast a majority of the votes
which all stockholders present in person or by proxy are entitled to cast, shall
act as chairman, and the
-2-
<PAGE>
secretary, or, in his or her absence, an assistant secretary, or in the absence
of the secretary and the assistant secretaries, a person appointed by the
chairman, shall act as secretary.
SECTION 2.07. Voting. Each stockholder shall at every meeting of the
------
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the
stockholder or by such stockholder's duly authorized attorney-in-fact and filed
with the secretary of the corporation. A proxy may be made irrevocable
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the corporation generally. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of such death or
incapacity is given to the secretary of the corporation.
SECTION 2.08. Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) Annual Meeting of Stockholders.
------------------------------
(1) Nominations of persons for election to the Board of Directors
of the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) by or at the
direction of the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the corporation at the time
would have if there were no vacancies or (b) by any stockholder of the
corporation who is entitled to vote at the meeting with respect to the election
of directors or the business to be proposed by such stockholder, as the case may
be, who complies with the notice procedures set forth in clauses (2) and (3) of
paragraph (A) of this Section 2.08 and who is a stockholder of record at the
time such notice is delivered to the secretary of the corporation as provided
below.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (b) of paragraph
(A) (1) of this Section 2.08, the stockholder must have given timely notice
thereof in writing to the secretary of the corporation and such business must be
a proper subject for stockholder action under the Delaware General Corporation
Law (the "DGCL"). To be timely, a stockholder's notice shall be delivered to the
secretary of the corporation at the principal executive office of the
corporation not less than sixty days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
-------- -------
that in the event that the date of the annual meeting is advanced by more than
30 days, or delayed by more than 30 days, from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the ninetieth
day prior to such annual meeting and not later than either the close of business
on (a) the tenth day following the day on which notice of the date of such
meeting was mailed or (b) the tenth day following the day on which public
announcement of the date of such meeting is first made, whichever first occurs
in (a) or (b). Such stockholder's notice shall set forth (x) as to each person
-3-
<PAGE>
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (y) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (z) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A) (2) of this Section 2.08 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least eighty
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by paragraph (A) (2) of this Section 2.08 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the secretary of
the corporation at the principal executive offices of the Corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the corporation.
(B) Special Meeting of Stockholders. Only such business shall be
-------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting and in accordance
with these By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 2.08, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 2.08. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section 2.08 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the
-4-
<PAGE>
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholders notice as described above.
(C) General.
-------
(1) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.08 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.08.
(2) Except as otherwise provided by law, the Certificate of
Incorporation or this Section 2.08, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.08 and, if any proposed nomination or business is not in
compliance with his Section 2.08, to declare that such defective nomination or
proposal shall be disregarded.
(3) For purposes of this Section 2.08, "public announcement"
shall mean disclosure on a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section
2.08, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 2.08. Nothing in this Section 2.08 shall be
deemed to affect any rights (i) of stockholders to request inclusion of
proposals in the corporation's proxy materials with respect to a meeting of
stockholders pursuant to Rule 14a-8 under Exchange Act or (ii) of the holders of
any series of Preferred Stock or any other series or class of stock as set forth
in the Certificate of Incorporation to elect directors under specified
circumstances or to consent to specific actions taken by the corporation.
SECTION 2.09. Procedure for Election of Directors; Required Vote.
--------------------------------------------------
Subject to the rights of the holders of any series of Preferred Stock or any
other series or class of stock as set forth in the Certificate of Incorporation
to elect directors under specified circumstances, election of directors at all
meetings of the stockholders at which directors are to be elected shall be by a
plurality of the votes cast. Except as otherwise provided by law, the
Certificate of Incorporation, or these By-Laws, in all matters other than the
election of directors, the affirmative vote of a majority of the stock present
in person or represented by proxy at the meeting and entitled to vote on the
matter shall be the act of the stockholders.
-5-
<PAGE>
SECTION 2.10. No Stockholder Action by Written Consent. Subject to
----------------------------------------
the rights of the holders of any series of Preferred Stock or any other series
or class of stock set forth in the Certificate of Incorporation to elect
additional directors under specified circumstances or to consent to specific
actions taken by the corporation, any action required or permitted to be taken
by the stockholders of the corporation must be taken at an annual or special
meeting of the stockholders and may not be taken by any consent in writing by
such stockholders.
SECTION 2.11. Voting Lists. The officer who has charge of the stock
------------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting. The list shall be arranged in alphabetical order showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.12. Inspectors of Election. All elections of directors
----------------------
shall be by written ballot, unless otherwise provided in the Certificate of
Incorporation; the vote upon any other matter need not be by ballot. In advance
of any meeting of stockholders the Board of Directors may appoint inspectors of
election, who need not be stockholders, to act at such meeting or any
adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting shall, and upon the demand of any stockholder or
such stockholder's proxy at the meeting and before voting begins shall, appoint
inspectors of election. The number of inspectors shall be either one or three,
as determined by the chairman of the meeting or the Board of Directors, as the
case may be. No person who is a candidate for office shall act as an inspector.
In case any person appointed as an inspector fails to appear or fails or refuses
to act, the vacancy may be filled by appointment made by the Board of Directors
in advance of the convening of the meeting, or at the meeting by the chairman of
the meeting.
If inspectors of election are appointed as aforesaid, they shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies and ballots, receive votes or
ballots, hear and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes, determine the
result, and do such acts as may be proper to conduct the election or vote with
fairness to all
-6-
<PAGE>
stockholders. If there be three inspectors of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
On request of the chairman of the meeting or of any stockholder or
such stockholder's proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. Powers. The business and affairs of the corporation
------
shall be managed by or under the direction of the Board of Directors. In
addition to the express powers conferred upon the Board of Directors by these
By-laws, the Board of Directors may exercise all such powers of the corporation
and do all such lawful acts and things as are not by law or the Certificate of
Incorporation or by these By-laws required to be exercised or done by the
stockholders.
SECTION 3.02. Number and Term of Office. The Board of Directors
-------------------------
shall consist of such number of directors, not less than six nor more than
eighteen, as may be determined from time to time by (i) a resolution adopted by
a majority of the total number of directors which the corporation at the time
would have if there were no vacancies or (ii) the affirmative vote of at least
66 2/3% of the voting power of all of the shares of the corporation entitled to
vote generally in the elections of directors, voting together as a single class.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation to elect directors under specified circumstances,
shall be divided into three classes as nearly equal in size as possible, and
designated as Class I, Class II and Class III. Class I directors shall be
initially elected for a term expiring at the 1997 annual meeting of
stockholders, Class II directors shall be initially elected for a term expiring
at the 1998 annual meeting of stockholders and Class III directors shall be
initially elected for a term expiring at the 1999 annual meeting of
stockholders. Members of each class shall hold office until their successors
shall have been duly elected and qualified. At each annual meeting of
stockholders of the corporation, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election, and until their successors are elected and qualified. All
directors of the corporation shall be natural persons, but need not be residents
of Delaware or stockholders of the corporation.
-7-
<PAGE>
SECTION 3.03. Vacancies. Subject to applicable law and the rights of
---------
the holders of any series of Preferred Stock or any other series or class of
stock as set forth in the Certificate of Incorporation to elect directors under
specified circumstances, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors shall shorten the term of any incumbent
director.
SECTION 3.04. Resignations. Any director of the corporation may
------------
resign at any time by giving written notice to the president or the secretary of
the corporation. Such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.05 Removal. Subject to the rights of the holders of any
-------
series of Preferred Stock or any other series or class of stock as set forth in
the Certificate of Incorporation to elect directors under specified
circumstances and applicable law, any director may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 66 2/3% of the voting power of all the shares of the corporation entitled
to vote generally in the election of directors, voting together as a single
class.
SECTION 3.06. Organization. At every meeting of the Board of
------------
Directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a chairman chosen by a majority of the directors present, shall
preside, and the secretary, or, in his or her absence, an assistant secretary,
or in the absence of the secretary and the assistant secretaries, any person
appointed by the chairman of the meeting, shall act as secretary.
SECTION 3.07. Place of Meeting. The Board of Directors may hold its
----------------
meetings, both regular and special, at such place or places within or without
the State of Delaware as the Board of Directors may from time to time appoint,
or as may be designated in the notice calling the meeting.
-8-
<PAGE>
SECTION 3.08. Organization Meeting. The first meeting of each newly
--------------------
elected Board of Directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first meeting
of the newly elected Board of Directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 3.09. Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the Board of Directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the Board of Directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting.
SECTION 3.10. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by the president or by two or more of
the directors. Notice of each such meeting shall be given to each director by
telephone or in writing, including by facsimile message, to such telephone
number or address as a director may designate from time to time at least 24
hours (in the case of notice by telephone or facsimile message) or 48 hours (in
the case of notice by overnight delivery service) or three days (in the case of
notice by mail) before the time at which the meeting is to be held. Each such
notice shall state the time and place of the meeting to be so held. Any notice
by telephone shall be deemed effective if a message regarding the substance of
the notice is given on a director's behalf to the director's secretary or
assistant or to a member of the director's family.
SECTION 3.11. Quorum, Manner of Acting and Adjournment. At all
----------------------------------------
meetings of the Board of Directors a majority of the directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors
-9-
<PAGE>
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
SECTION 3.12. Executive and Other Committees. The Board of Directors
------------------------------
may, by resolution adopted by a majority of the whole board, designate an
executive committee and one or more other committees, each committee to consist
of one or more directors and to have such authority as may be specified by the
Board of Directors, subject to the DGCL. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member, and the alternate or alternates, if any,
designated for such member, of any committee the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member. Any such
committee shall be governed by the procedural provisions of these By-laws that
govern the operation of the full Board of Directors, including with respect to
notice and quorum, except to the extent specified otherwise by the Board of
Directors.
SECTION 3.13. Compensation of Directors. Unless otherwise restricted
-------------------------
by the Certificate of Incorporation, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 3.14. Conference Telephone Meetings. One or more directors
-----------------------------
may participate in a meeting of the Board of Directors, or of a committee of the
Board of Directors, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
--------
SECTION 4.01. Number, Qualifications and Designation. The officers
--------------------------------------
of the corporation shall be chosen by the Board of Directors and shall be a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers as may be elected in
-10-
<PAGE>
accordance with the provisions of Section 4.03 of this Article. Any number of
offices may be held by the same person. Officers may, but need not, be
directors or stockholders of the corporation. The Board of Directors may elect
from among the members of the Board of Directors a chairman of the board and a
vice chairman of the board who may be executive officers of the corporation if
so designated by the Board of Directors. All officers elected by the Board of
Directors shall each have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of this Article IV. Such
officers shall also have such powers and duties as may from time to time be
conferred by the Board of Directors or by any committee thereof.
SECTION 4.02. Election and Term of Office. The officers of the
---------------------------
corporation, except those elected by delegated authority pursuant to the last
sentence of Section 4.03 of this Article IV, shall be elected annually by the
Board of Directors, but each such officer shall hold office until a successor is
elected and qualified, or until his or her earlier resignation or removal.
SECTION 4.03. Subordinate Officers, Committees and Agents. The Board
-------------------------------------------
of Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these By-laws, or as the Board of Directors may from
time to time determine. The Board of Directors may delegate to any officer or
committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof, and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
SECTION 4.04. Removal. Any officer elected, or agent appointed, by
-------
the Board of Directors may be removed by the affirmative vote of a majority of
the whole Board of Directors whenever, in their judgment, the best interests of
the corporation would be served thereby. Any officer or agent appointed by
another officer by delegated authority pursuant to the last sentence of Section
4.03 may be removed by such other officer whenever, in such officer's judgment,
the best interests of the corporation would be served thereby. No elected
officer shall have any contractual rights against the corporation for
compensation by virtue of such election beyond the date of the election of the
such officer's successor, such officer's death, such officer's resignation or
such officer's removal, whichever event shall first occur, except as otherwise
provided in an employment contract or under an employee deferred compensation
plan.
SECTION 4.05. Vacancies. A newly created elected office and a
---------
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any
-11-
<PAGE>
vacancy in an office appointed by another officer by delegated authority
pursuant to Section 4.03 because of death, resignation, or removal may be filled
by such other officer.
SECTION 4.06. The Chairman of the Board and Vice Chairman of the
--------------------------------------------------
Board. The chairman of the board, if there be one, or in the absence of the
- - -----
chairman of the board, the vice chairman of the board, if there be one, shall
preside at all meetings of the stockholders and of the Board of Directors.
Unless otherwise determined by the Board of Directors, the chairman of the board
shall be the chief executive officer of the corporation and shall have general
supervision over the business, operations and affairs of the corporation,
subject, however, to the control of the Board of Directors, and shall perform
such other duties as may from time to time be assigned by the Board of
Directors.
SECTION 4.07. The President. The president shall, in general,
-------------
perform all duties incident to the office of the president, and shall perform
such other duties as may from time to time be assigned by the chairman of the
board or the Board of Directors.
SECTION 4.08. The Vice Presidents. The vice presidents shall perform
-------------------
such duties as may from time to time be assigned to them by the Board of
Directors or by the chief executive officer.
SECTION 4.09. The Secretary. The secretary, or an assistant
-------------
secretary, shall attend all meetings of the stockholders and of the Board of
Directors and shall record the proceedings of the stockholders and of the
directors and of committees of the Board of Directors in a book or books to be
kept for that purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law; shall be the
custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and such
other duties as may from time to time be assigned by the Board of Directors or
the chief executive officer.
SECTION 4.10. The Treasurer. The treasurer, or an assistant
-------------
treasurer, shall have or provide for the custody of the funds or other property
of the corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
corporation; shall deposit all funds in his or her custody as treasurer in such
banks or other places of deposit as the Board of Directors may from time to time
designate; whenever so required by the Board of Directors, shall render an
account showing his or her transactions as treasurer and the financial condition
of the corporation; and, in general, shall discharge such other duties as may
from time to time be assigned by the Board of Directors or the chief executive
officer.
-12-
<PAGE>
SECTION 4.11. Officers' Bonds. No officer of the corporation need
---------------
provide a bond to guarantee the faithful discharge of the officer's duties
unless the Board of Directors shall by resolution so require a bond in which
event such officer shall give the corporation a bond (which shall be renewed if
and as required) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of office.
SECTION 4.12. Salaries. The salaries of the officers and agents of
--------
the corporation elected by the Board of Directors shall be fixed from time to
time by the Board of Directors.
ARTICLE V
NOTICE - WAIVERS
----------------
SECTION 5.01. Notice, What Constitutes. Whenever, under the
------------------------
provisions of the statutes of Delaware or the Certificate of Incorporation or of
these By-laws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at such
stockholder's address as it appears on the records of the corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail. Notice to directors
may also be given in accordance with Section 3.09 of Article III hereof.
SECTION 5.02. Waivers of Notice. Whenever any written notice is
-----------------
required to be given under the provisions of the Certificate of Incorporation,
these By-laws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
SECTION 5.03. Exception to Requirements of Notice. Whenever notice
-----------------------------------
is required to be given, under any provision of the DGCL or of the Certificate
of Incorporation or these By-laws, to any person with whom communication is
unlawful, the giving of such
-13-
<PAGE>
notice to such person shall not be required and there shall be no duty to apply
to any governmental authority or agency for a license or permit to give such
notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall have
the same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of a
certificate under any section of the DGCL, the certificate shall state, if such
is the fact and if notice is required, that notice was given to all persons
entitled to receive notice except such persons with whom communication is
unlawful.
Whenever notice is required to be given, under any provision of the
DGCL or the Certificate of Incorporation or these By-laws, to any stockholder to
whom (i) notice of two consecutive annual meetings, and all notices of meetings
or of the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all, and
at least two, payments (if sent by first class mail) of dividends or interest on
securities during a 12 month period, have been mailed addressed to such person
at such stockholder's address as shown on the records of the corporation and
have been returned undeliverable, the giving of such notice to such person shall
not be required. Any action or meeting which shall be taken or held without
notice to such person shall have the same force and effect as if such notice had
been duly given. If any such person shall deliver to the corporation a written
notice setting forth such stockholder's then current address, the requirement
that notice be given to such person shall be reinstated. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any section of the DGCL, the certificate need not state that
notice was not given to persons to whom notice was not required to be given
pursuant to this section.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
-------------------------------------
SECTION 6.01. Issuance. Each stockholder shall be entitled to a
--------
certificate or certificates for shares of stock of the corporation owned by such
stockholder upon such stockholder's request therefor. The stock certificates of
the corporation shall be numbered and registered in the stock ledger and
transfer books of the corporation as they are issued. They shall be signed by
the chairman of the board, the president or a vice president and by the
secretary or an assistant secretary or the treasurer. It shall not be necessary
for any such certificate to bear the corporate seal unless required by law. Any
of or all the signatures upon such certificate may be a facsimile, engraved or
printed. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer, transfer agent or registrar, before the certificate
-14-
<PAGE>
is issued, it may be issued with the same effect as if he were such officer,
transfer agent or registrar at the date of its issue.
SECTION 6.02. Transfer. Upon surrender to the corporation or the
--------
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Stock Certificates. Stock certificates of the
------------------
corporation shall be in such form as provided by statute and approved by the
Board of Directors or by such committee or officer authorized by the Board of
Directors to approve the form of certificate. The stock record books and the
blank stock certificates books shall be kept by the secretary or by any agency
designated by the Board of Directors for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
-------------------------------------------------
Board of Directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such stockholder's legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
SECTION 6.05. Record Holder of Shares. The corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.06. Determination of Stockholders of Record. In order that
---------------------------------------
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is
-15-
<PAGE>
adopted by the Board of Directors, and which record date shall not be more than
sixty nor less than ten days before the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
----------------------------------------------
SECTION 7.01. Indemnification of Authorized Representatives in Third
------------------------------------------------------
Party Proceedings. The corporation shall indemnify any person who was or is an
- - -----------------
authorized representative of the corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to, the
best interests of the corporation, and, with respect to any criminal third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
-16-
<PAGE>
SECTION 7.02. Indemnification of Authorized Representatives in
------------------------------------------------
Corporate Proceedings. The corporation shall indemnify any person who was or is
- - ---------------------
an authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such corporate proceeding was pending
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.03. Mandatory Indemnification of Authorized
---------------------------------------
Representatives. To the extent that an authorized representative of the
- - ---------------
corporation has been successful on the merits or otherwise in defense of any
third party or corporate proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
-----------------------------------------------
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall
be made:
(1) By the Board of Directors by a majority of a quorum consisting of
directors who were not parties to such third party or corporate proceeding, or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such a quorum so directs, by independent legal counsel in a
written opinion, or
(3) By the stockholders.
SECTION 7.05. Advancing Expenses.
------------------
-17-
<PAGE>
(1) Expenses actually and reasonably incurred in defending a third
party or corporate proceeding shall be paid on behalf of a director or other
authorized representative by the corporation in advance of the final disposition
of such third party or corporate proceeding upon receipt of an undertaking by or
on behalf of the director or other authorized representative to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the corporation as authorized in this Article.
(2) The financial ability of any director or other authorized
representative to make a repayment contemplated by this Section 7.05 shall not
be a prerequisite to the making of an advance.
SECTION 7.06. Definitions. For purposes of this Article VII:
-----------
(1) "authorized representative" shall mean a director or officer of
the corporation, or a person serving at the request of the corporation as a
director, officer, or trustee, of another corporation, partnership, joint
venture, trust or other enterprise;
(2) "corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation of merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor or investigative proceeding by the corporation;
(4) "criminal third party proceeding" shall include any action or
investigation which could or does lead to a criminal third party proceeding;
(5) "expenses" shall include attorneys' fees and disbursements;
(6) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan;
-18-
<PAGE>
(7) "not opposed to the best interests of the corporation" shall
include actions taken in good faith and in a manner the authorized
representative reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include any
service as a director, officer or employee of the corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, other than an action by or in the right of the corporation.
SECTION 7.07. Insurance. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the corporation would have the
power or the obligation to indemnify such person against such liability under
the provisions of this Article.
SECTION 7.08. Scope of Article. The indemnification of authorized
----------------
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as
----------------------
an authorized representative of the corporation shall be deemed to be doing so
in reliance upon rights of indemnification provided by this Article, with the
same effect as if such person and
-19-
<PAGE>
the corporation entered into a binding contract under which the corporation
agreed to provide the indemnification provided by this Article VII.
ARTICLE VIII
GENERAL PROVISIONS
------------------
SECTION 8.01. Dividends. Dividends upon the capital stock of the
---------
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the corporation, subject to the provisions of the
Certificate of Incorporation. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 8.02. Contracts. Except as otherwise provided in these By-
---------
laws, the Board of Directors may authorize any officer or officers including the
chairman and vice chairman of the Board of Directors, or any agent or agents, to
enter into any contract or to execute or deliver any instrument on behalf of the
corporation and such authority may be general or confined to specific instances.
SECTION 8.03. Checks. All checks, notes, bills of exchange or other
------
orders in writing shall be signed by the president, any vice president, the
treasurer and such other person or persons as the Board of Directors may from
time to time designate.
SECTION 8.04. Corporate Seal. The corporate seal shall have
--------------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.05. Deposits. All funds of the corporation shall be
--------
deposited from time to time to the credit of the corporation in such banks,
trust companies, or other depositories as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the Board of Directors shall from time to
time determine.
-20-
<PAGE>
SECTION 8.06. Corporate Records. Every stockholder shall, upon
-----------------
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, books or records of account, and records of
the proceedings of the stockholders and directors, and make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of business. Where the
stockholder seeks to inspect the books and records of the corporation, other
than its stock ledger or list of stockholders, the stockholder shall first
establish (1) compliance with the provisions of this section respecting the form
and manner of making demand for inspection of such document; and (2) that the
inspection sought is for a proper purpose. Where the stockholder seeks to
inspect the stock ledger or list of stockholders of the corporation and has
complied with the provisions of this section respecting the form and manner of
making demand for inspection of such documents, the burden of proof shall be
upon the corporation to establish that the inspection sought is for an improper
purpose.
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The court may
summarily order the corporation to permit the director to inspect any and all
books and records, the stock ledger and the stock list and to make copies or
extracts therefrom. The court may, in its discretion, prescribe any limitations
or conditions with reference to the inspection, or award such other and further
relief as the court may deem just and proper.
SECTION 8.07. Amendment of By-laws. These By-laws may be amended,
--------------------
added to, rescinded or repealed at any meeting of the Board of Directors or of
the stockholders, provided that notice of the proposed change was given in the
--------
notice of the meeting and, in the case of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; provided, however,
-----------------
that in the case of amendments by stockholders, notwithstanding any other
provisions of these By-laws or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the holders
of any series of Preferred Stock or any other series of stock required by law,
the Certificate of Incorporation or these By-laws, the affirmative vote of the
holders of at least 66 2/3% of the voting power of the then outstanding shares
of the corporation entitled to vote generally in the election of directors,
present or represented by proxy, voting together as a single class, shall be
required to alter, amend or repeal Sections 2.03, 2.08, 3.02, 3.03, 3.05, 8.07
and Article VII of these By-laws.
-21-
<PAGE>
Conformed Copy
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement"), dated as
of November 20, 1996, by and between Alco Standard Corporation, an Ohio
corporation ("Alco") and Unisource Worldwide, Inc., a Delaware corporation
("Unisource"), on behalf of themselves, the Alco Group, the Unisource Group and
their respective successors.
RECITALS
WHEREAS, the Alco Board of Directors has determined that it is appropriate
and desirable to distribute all of the outstanding shares of the Unisource
common stock on a pro rata basis to the holders of the Alco common stock (the
"Distribution") in a transaction that will qualify as a tax-free distribution
for federal income tax purposes under section 355 of the Code (as defined
below); and
WHEREAS, Unisource and its affiliates will accordingly cease to be members
of the affiliated group (within the meaning of Section 1504(a) of the Code) of
which Alco is the common parent, effective as of January 1, 1997 (the "Effective
Date"); and
WHEREAS, Alco and Unisource desire to provide for and agree upon the
allocation of liabilities for Taxes with respect to the parties; and
<PAGE>
WHEREAS, the parties hereto also desire to provide for: (1) the preparation
and filing of Tax Returns along with the payment of Taxes shown due and payable
thereon, (2) the retention and maintenance of relevant records necessary to
prepare and file appropriate Tax Returns, as well as the provision for
appropriate access to those records by the parties to this Agreement, (3) the
conduct of audits, examinations and proceedings by appropriate governmental
entities which could result in a redetermination of Taxes of the parties to this
Agreement, (4) the treatment of refunds of Taxes and Carrybacks of the parties,
(5) the cooperation of all parties with one another in order to fulfill their
duties and responsibilities under this Agreement and under the Code and other
applicable law, and (6) any other matters related to Taxes , including
allocation of and indemnification for any Taxes imposed solely as a result of
the Distribution or any steps taken to effect the Distribution; and
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, the parties hereto
agree as follows:
SECTION I
Definitions
-----------
As used in this Agreement (including the Recitals hereof), the following
definitions shall apply:
(a) "Adjustment" shall mean any proposed or final change in the tax
liability of a taxpayer.
2
<PAGE>
(b) "Affiliated Group" shall mean an affiliated group of corporations
(whether or not presently in existence) within the meaning of Code
section 1504(a).
(c) "Alco Affiliated Group" shall mean, for each taxable period, the
Affiliated Group of which Alco or its successor is the common parent
corporation.
(d) "Alco Group" shall mean, for each tax period, (i) the corporations that
comprise the Alco Affiliated Group, and (ii) the corporations that
would be members of the Alco Affiliated Group, but for the fact that
they are foreign corporations.
(e) "Alco Affiliated Group Tax Liability" shall mean, for each tax period,
the consolidated federal income tax liability (including any associated
penalties) of the Alco Group for any taxable year for which the Alco
Affiliated Group files a consolidated federal income tax return.
(f) "Carryback Item" shall mean any net operating loss, net capital loss,
unused general business tax credit, or any other Tax item of the
Unisource Affiliated Group which, under the Code or any other
applicable Tax law, may be carried back and may generate a Tax Benefit
for any member of the Alco Group.
(g) "Code" shall mean the United States Internal Revenue Code of 1986, as
amended, or any successor law.
(h) "Consolidated Personal Property Tax Return" means a tax return
reflecting personal property taxes for any two or more members of the
Alco Group, which is required to be filed on a consolidated return
basis.
(i) "Distribution" shall mean the pro rata distribution of all of the
Unisource common stock to the holders of the common stock of Alco.
3
<PAGE>
(j) "Effective Date" shall mean January 1, 1997.
(k) "Final Determination" shall mean the final resolution of any tax
matter. A Final Determination shall result from the first to occur of:
(i) the expiration of thirty (30) days after the IRS' acceptance of
a Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax and Acceptance of Over Assessment on Federal
Revenue (Form 870 or 870-AD or any successor comparable form)
(the "Waiver")), except as to reserved matters specified
therein, or the expiration of thirty (30) days after acceptance
by any other taxing authority of a comparable agreement or form
under the laws of any other jurisdiction, including State,
local, and foreign; unless, within such period, the taxpayer
gives notice to the other party to this Agreement of the
taxpayer's intention to attempt to recover all or part of any
amount paid pursuant to the Waiver by the filing of a timely
claim for refund;
(ii) a decision, judgment, decree, or other order by a court of
competent jurisdiction that is not subject to further judicial
review (by appeal or otherwise) and has become final;
(iii) the execution of a closing agreement under Code section 7121, or
the acceptance by the IRS of an offer in compromise under Code
section 7122, or comparable agreements under the laws of any
other jurisdiction, including State, local, and foreign, except
as to reserved matters specified therein;
4
<PAGE>
(iv) the expiration of the time for filing a claim for refund or for
instituting suit in respect of a claim for refund that was
disallowed in whole or part by the IRS or any other taxing
authority;
(v) the expiration of the applicable statute of limitations; or
(vi) an agreement by the parties hereto that a Final Determination
has been made.
(l) "Indemnifying Party" shall mean any party that is required to pay any
other party pursuant to the terms and conditions of this Agreement with
respect to an Adjustment under Section VI(b).
(m) "Indemnified Party" shall mean any party who is entitled to receive
payment from an Indemnifying Party pursuant to the terms and conditions
of this Agreement with respect to an Adjustment under Section VI(b).
(n) "IRS" shall mean the United States Internal Revenue Service or any
successor thereto, including but not limited to its agents,
representatives, and attorneys.
(o) "Nexus" shall mean a presence of property (owned or rented), payroll,
employment of individuals, sales, or other factors which cause
activities to be subject to Unitary Income Tax in a particular
jurisdiction.
(p) "Restructuring Liability" means any Tax Liability resulting from any
actions, restructurings, acts, or omissions necessary to implement the
Distribution and its associated events, including, for example,
intercompany sales, liquidations, and mergers. The term "Restructuring
Liability," however, shall not include any liability or liabilities
arising under Section V of this Agreement.
5
<PAGE>
(q) "Ruling" means the private letter ruling issued by the Service in reply
to the Ruling Request (and, in the event Alco and Unisource join in
requesting an amendment or supplement thereto, such amendment or
supplemental ruling).
(r) "Ruling Request" means the private letter ruling request filed by the
parties with the Service on April 29, 1996 (and, if applicable, as
modified or supplemented by any materials submitted to the Service),
seeking rulings that, among other things, the Distribution will qualify
for federal income tax purposes as a tax-free distribution under
Section 355 of the Code.
(s) "Separate Tax Return" shall mean all Tax Returns other than Unitary
Income Tax returns, Consolidated Personal Property Tax Returns, and all
Tax Returns filed on a consolidated basis.
(t) "Straddle Period" shall have the meaning ascribed to it in Section
II(a).
(u) "Tax Benefit" shall mean a reduction in the Tax Liability of a taxpayer
(or of the Affiliated Group of which it is a member) for any taxable
period. Except as otherwise provided in this Agreement, a Tax Benefit
shall be deemed to have been realized or received from a Tax Item in a
taxable period only if and to the extent that the Tax Liability of the
taxpayer (or of the Affiliated Group of which it is a member) for such
period, after taking into account the effect of the Tax Item on the Tax
Liability of such taxpayer in all prior periods, is less than it would
have been if such Tax Liability were determined without regard to such
Tax Item. Whenever any party is required under this Agreement to pay an
amount equal to a Tax Benefit, the payment of that amount shall not
itself be deemed to give rise to a
6
<PAGE>
a Tax Benefit.
(v) "Tax Detriment" shall mean an increase in the Tax Liability of a
taxpayer (or of the Affiliated Group of which it is a member) for any
taxable period. Except as otherwise provided in this Agreement, a Tax
Detriment shall be deemed to have been realized or suffered from a Tax
Item in a taxable period, only if and to the extent that the Tax
Liability of the taxpayer (or the Affiliated Group of which it is a
member) for such period, after taking into account the effect of the
Tax Item on the Tax Liability of such taxpayer in all prior periods, is
greater than it would have been if such Tax Liability were determined
without regard to such Tax Item.
(w) "Tax Item" shall mean any item of income, gain, loss, deduction,
credit, recapture of credit, or any other item which may have the
effect of increasing or decreasing Taxes paid or payable.
(x) "Tax Liability" shall mean the net amount of Taxes due and paid or
payable for any taxable period, determined after applying all tax
credits and all applicable carrybacks for net operating losses, net
capital losses, unused general business tax credits, or any other Tax
Items arising from a prior or subsequent taxable period, and all other
relevant adjustments, and shall include, without limitation, the net
amount due and paid or payable for alternative minimum tax imposed
under Code section 55 or similar alternative or add-on minimum taxes.
(y) "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns relating to, or
required to be filed in connection with any Taxes, including
information returns or reports with respect
7
<PAGE>
to backup withholding and other payments to third parties.
(z) "Taxes" means all federal, state, territorial, local, foreign and other
net income, gross income, gross receipts, sales, use, value added, ad
valorem, transfer, franchise, profits, license, lease, withholding,
payroll, employment, unemployment insurance, workers compensation
insurance, social security, excise, severance, stamp, business license,
occupation, premium, property, environmental, windfall profits,
customs, duties, alternative minimum, estimated or other taxes, fees,
premiums, assessments or charges of any kind whatever imposed or
collected by any governmental entity or political subdivision thereof,
which any member of the Alco Group or the Unisource Group is required
to pay, collect or withhold, together with any interest and any
penalties, additions to Tax or additional amounts with respect thereto,
and the term "Tax" means any one of the foregoing Taxes.
(aa) "Unisource Affiliated Group" shall mean, for each tax period, Unisource
and all corporations of which Unisource or its successor is the common
parent corporation (whether or not presently in existence) that, at the
pertinent time, would be required or entitled to join with Unisource in
filing consolidated federal income tax returns if (i) Unisource were a
common parent corporation and not a member of the Alco Affiliated
Group, and (ii) Unisource and such corporations had duly elected to
file consolidated federal income tax returns for the period including
such time.
8
<PAGE>
(bb) "Unisource Group" shall mean, for each tax period, (i) the
corporations that are members of the Unisource Affiliated Group, and
(ii) the corporations that would be members of the Unisource
Affiliated Group but for the fact that they are foreign corporations.
(cc) "Unisource Stand-alone Federal Consolidated Tax Liability" shall mean,
for each tax period, the amount of the federal income tax liability
(or refund) that the Unisource Affiliated Group would have had,
computed as if the Unisource Affiliated Group had been a separate
affiliated group of corporations filing a consolidated federal income
tax return pursuant to Section 1502 of the Code for such tax period
and all prior and subsequent tax periods during which Unisource was
(or is) a member of the Alco Affiliated Group. For purposes of the
preceding sentence, the term "Unisource Affiliated Group" shall
include any subsidiary or division of Alco that is operated under the
control of Unisource and is included in the "Unisource Group" as that
term is defined in the Distribution Agreement entered into between
Alco Standard Corporation and Unisource Worldwide, Inc., dated as of
November 20, 1996 (the "Distribution Agreement"). In computing the
Unisource Stand-alone Federal Consolidated Tax Liability for the tax
year that includes the Straddle Period, the tax attributes associated
with intercompany transactions or distributions that are taken into
account during the Straddle Period between any members of the
Unisource Affiliated Group and any members of the Alco Affiliated
Group that are not members of the Unisource Affiliated Group shall be
taken into account, to the extent actually paid. Any consolidated net
9
<PAGE>
operating losses, capital losses, or credits attributable to any
member of the Unisource Affiliated Group for any period ending prior
to the period under consideration shall not be taken into account.
(dd) "Unitary Group" shall mean all members of the Alco Group and the
Unisource Group, or portions of such members and all other entities
contained in a collective business unit identified by a state or local
taxing jurisdiction as the basis for its Unitary Income Tax assessment
and for which a Unitary Income Tax return is filed or due.
(ee) "Unitary Income Tax" shall mean state or local taxing jurisdictions'
consolidated income taxes; unitary or combined reporting income taxes;
and consolidated, unitary, or combined reporting franchise taxes.
SECTION II
Preparation and Filing of Tax Return
------------------------------------
(a) Alco shall prepare and file, or cause to be prepared and filed, all
Tax Returns of or with respect to all members of the Alco Group for
all tax periods ending before the Effective Date, and all periods
beginning before the Effective Date and ending on or after the
Effective Date ("Straddle Periods"), other than Separate Tax Returns
of or with respect to members of the Unisource Group.
(b) Unisource shall prepare and file, or cause to be prepared and filed,
all Tax Returns of or with respect to members of the Unisource Group
for all tax periods
10
<PAGE>
beginning on or after the Effective Date, and all Separate Tax Returns
of or with respect to all members of the Unisource Group.
(c) Any Straddle Period Returns prepared by one or more members of the
Alco Group, or one or more members of the Unisource Group, as the case
may be (the "Preparing Party"), shall be prepared in accordance with
past Tax accounting practices used with respect to the Returns in
question (unless such past practices are no longer permissible under
the Code or other applicable Laws), and to the extent any items are
not covered by past practices (or in the event such past practices are
no longer permissible under the Code or other applicable Laws), in
accordance with reasonable Tax accounting practices selected by the
Preparing Party.
(d) For the Alco Affiliated Group's consolidated federal income tax return
for the period ending September 30, 1997, which will include the tax
items of the Unisource Affiliated Group for the period from October 1,
1996 through December 31, 1996 (the "Short Period"), Unisource will
provide Alco with a pro forma federal income tax return relating to
the Short Period by September 1, 1997.
SECTION III
Payment of Taxes
----------------
(a) Taxes Generally. Except as provided in Sections III(b), III(c),
----------------
III(d), and V of this Agreement: (i) Alco shall pay, or cause to be
paid, and shall indemnify and hold Unisource harmless against all Tax
Liabilities that relate to all Tax Returns
11
<PAGE>
that Alco is required to prepare and file, or cause to be prepared and
filed, pursuant to Section II of this Agreement; and (ii) Unisource
shall pay, or cause to be paid, and shall indemnify and hold Alco
harmless against all Tax Liabilities that relate to all Tax Returns
and Separate Tax Returns that Unisource is required to prepare and
file, or cause to be prepared and filed, pursuant to Section II of
this Agreement.
(b) Federal Consolidated Income Taxes.
---------------------------------
(i) If a consolidated federal income tax return is filed by the
Alco Affiliated Group for any taxable year, and if that return
evidences a liability for federal income taxes for such year,
the total liability as shown on such return shall be payable in
full to the IRS by Alco.
(ii) For the tax year ended September 30, 1996, Unisource shall not
make any payments to Alco in respect of federal consolidated
income tax liability unless Alco remits additional payments to
the IRS on either December 15, 1996 or June 15, 1997 (each, an
"Additional Payment"). Unisource shall pay to Alco forty
percent (40%) of any Additional Payment within thirty (30) days
of Alco's remittance of such Additional Payment to the IRS. Any
overpayments of estimated taxes for the tax year ended on
September 30, 1996 shall be allocated forty percent (40%) to
Unisource and sixty percent (60%) to Alco. Alco shall pay to
Unisource its allocable share of any overpayment no later than
thirty (30) days after receiving any refund of such
overpayment. For purposes of this Section III(b)(ii),
Unisource's
12
<PAGE>
forty percent (40%) allocable share of any Additional Payment
or overpayment shall be computed without taking any alternative
minimum tax credit carryforward into account.
(iii) For the tax year that includes the Straddle Period, Unisource
shall pay to Alco an amount equal to Unisource's share of each
of Alco's payments in respect of estimated federal consolidated
income tax liability for the Straddle Period, calculated in
accordance with the estimated tax payment method employed for
the Alco Affiliated Group's tax year ending on September 30,
1997 (or such other method as agreed to by the parties); any
such payment by Unisource shall be due within thirty (30) days
after Alco remits the pertinent tax payment to the IRS.
Unisource's share of the Alco Affiliated Group's final federal
consolidated income tax liability for the Straddle Period shall
equal the Unisource Stand-alone Federal Consolidated Tax
Liability for the Straddle Period, and Unisource shall pay to
Alco such amount (or receive such refund or reduction in future
estimated tax payments from Alco), after taking into account
payments with respect to estimated taxes made pursuant to the
immediately preceding sentence, no later than the earlier of
September 30, 1997 or within thirty (30) days after Unisource
provides Alco with the information required under Section II(d)
of this Agreement. Unisource shall also pay to Alco the amount
of any penalty assessed against Alco for an underpayment of
estimated taxes to the extent Alco's estimated tax
13
<PAGE>
underpayment is due to Unisource's underpayment of estimated
taxes paid to Alco. Such payment shall be made within thirty
days of Alco providing written notice to Unisource of such
underpayment of estimated taxes by Unisource.
(iv) If any tax year ending before or including the Effective Date
is subsequently examined by the IRS, and an Adjustment results
from such examination, then Unisource's share of the Alco
Group's additional federal consolidated income Tax Liability
(or Tax Benefit) for that tax year resulting from the
Adjustment shall be computed in accordance with a method to be
agreed to by the parties, and payments under this Section
III(b) shall be adjusted to conform to those recomputations. It
is generally assumed that in the majority of cases the benefit
or burden of an Adjustment would be readily attributable either
to the Alco Group or to the Unisource Group and that the
benefit or burden would be computed at the highest marginal tax
rate for C corporations provided in the Internal Revenue Code
for the pertinent year. If the parties cannot agree upon the
method to recompute Unisource's share of the Alco Group's
additional federal consolidated income Tax Liability (or Tax
Benefit), then Unisource's share of the Alco Group's additional
federal consolidated income Tax Liability (or Tax Benefit)
shall be equal to the difference between (x) the Unisource
Stand-alone Federal Consolidated Tax Liability for the
pertinent year computed without taking the Adjustment into
14
<PAGE>
account and (y) the Unisource Stand-alone Federal Consolidated
Tax Liability for the pertinent year after taking the
Adjustment into account.
(v) The provisions of this Section III shall remain in effect
notwithstanding that Unisource may have ceased to be a member
of the affiliated group of corporations of which Alco is the
common Parent.
(c) Unitary Income Taxes.
--------------------
(i) The Unisource Group's share of Unitary Income Tax liabilities
for any tax periods for which there is a Unitary Income Tax
Liability shall be allocated in accordance with Section
III(c)(ii) and Appendix I hereto.
(ii) The total Unitary Income Tax liability due to a taxing
jurisdiction where members of the Unisource Group are included
in a Unitary Group with members of Alco Group shall be
determined jointly by Alco and Unisource and then allocated
within such Unitary Group. Nexus both for purposes of the
determination of the Unitary Income Tax liability in a
particular jurisdiction and for purposes of the allocation of
such liability in the Unitary Group shall be determined jointly
by Alco and Unisource. Should a particular taxing jurisdiction
subsequently determine Nexus differently from a determination
previously used, or otherwise determine that an adjustment is
necessary, the Unitary Income Tax liability shall be governed
by the subsequent determination or adjustment, and any
additional Unitary Income Tax liabilities arising therefrom
shall be allocated among the Unitary Group in accordance with
this Section III(c).
15
<PAGE>
(d) Consolidated Personal Property Taxes.
------------------------------------
(i) Unisource shall pay to Alco an amount equal to the Unisource
Group's share, if any, of Tax Liabilities reflected on any
Consolidated Personal Property Tax Return filed by Alco.
(ii) If any taxable year is subsequently examined, and an Adjustment
results from such examination, then the Unisource Group's share
of Tax Liabilities with respect to the Consolidated Personal
Property Tax Return for such year shall be recomputed, and
payments under Section III(d)(i) shall be adjusted to conform
to those recomputations.
(e) Subject to the provisions of Section V, Alco shall pay and hold
Unisource harmless from any Restructuring Liability. In addition, if,
as a result of the payment by Alco of any Restructuring Liability,
Unisource derives a Tax Benefit, then Unisource shall pay to Alco an
amount equal to such Tax Benefit within thirty (30) days of filing the
tax return pertaining to such Tax Benefit. If, however, as a result of
a Final Determination, the Tax Benefit is reduced, in whole or in
part, then Alco shall pay to Unisource an amount equal to the
reduction of such Tax Benefit including interest, computed in
accordance with Section IX(r) of this Agreement.
16
<PAGE>
SECTION IV
Carrybacks and Alternative Minimum Tax Credits
----------------------------------------------
(a) In the event Unisource or any other member of the Unisource Affiliated
Group desires to carry back a loss or other Tax Benefit arising in a
year ending after the Effective Date (the "Loss Year") to an Alco
Affiliated Group federal consolidated income tax return for a pre-
Effective Date period (the "Carryback year"), Unisource shall notify
Alco in writing of its intent to carry back such item (and to forego
any election to waive such Carryback Item). Alco shall cooperate with
Unisource in connection with the filing and processing of any
Unisource Carryback Item and shall provide Unisource with copies of
all correspondence in connection therewith.
(b) Subject to Section IV(c), if, pursuant to the terms of Section IV(a)
hereof, Unisource elects to carryback a loss or other Tax Benefit item
to a pre-Effective Date period, Alco shall pay to Unisource an amount
equal to the lesser of (i) any reduction in the Unisource Stand-alone
Federal Consolidated Tax Liability for the Carryback Year (and all
other pre-Effective Date Periods), or (ii) the excess of the Alco
Affiliated Group Tax Liability, as originally computed for the
Carryback Year (and all other years), over the Alco Affiliated Group
Tax Liability for the Carryback Year (and all other years), after
taking the Carryback Item into account.
(c) For purposes of determining the amount due under Section IV(b), in the
event that both Alco and Unisource have Carryback Items available for
use in a pre-
17
<PAGE>
Effective Date period, the order of use of such Carryback Items shall
be determined under the Code and applicable Regulations.
(d) If Alco is required to make a payment to Unisource with respect to any
Unisource Carryback Item under this Section IV, Alco shall make such
payment within thirty (30) days of receiving the Tax refund
attributable to such Unisource Carryback Item, and Alco is required to
file a claim for refund within thirty (30) days after written notice
of such claim has been delivered by Unisource to Alco.
(e) If a Loss Year or a Carryback Year is subsequently examined by the
IRS, and an Adjustment results from such examination, then Unisource's
share of the Alco Group's additional federal consolidated income Tax
Liability (or Tax Benefit) for that tax year resulting from the
Adjustment shall be computed in accordance with a method to be agreed
to by the parties. It is generally assumed that in the majority of
cases the benefit or burden of an Adjustment would be readily
attributable either to the Alco Group or to the Unisource Group and
that the benefit or burden would be computed at the highest marginal
tax rate for C corporations provided in the Internal Revenue Code for
the pertinent year. If the parties cannot agree upon the method to
recompute Unisource's share of the Alco Group's additional federal
consolidated income Tax Liability (or Tax Benefit), then Unisource's
share of the Alco Group's additional federal consolidated income Tax
Liability (or Tax Benefit) shall be equal to the difference between
(x) the Unisource Stand-alone Federal Consolidated Tax Liability for
the pertinent year computed without taking the Adjustment into account
and (y) the Unisource
18
<PAGE>
Stand-alone Federal Consolidated Tax Liability for the pertinent year after
taking the Adjustment into account.
(f) Where it lawfully minimizes the Alco Group's Unitary Income Tax liability,
Unisource Group losses, credits, or other deductions may be carried back to
the Alco Group's Unitary Income Tax return for any period at Unisource's
election. Under such circumstances, Alco shall file, within thirty (30)
days, any such carryback return or claim, and upon receipt of any resulting
refund, Alco shall pay to Unisource (in accordance with Section III(b)
hereof) its allocable share of any such refund which may be received,
together with any interest pertaining thereto, within thirty (30) days of
receiving such refund and interest. In the event of a subsequent
examination, appropriate adjustments of such payments shall be made.
(g) Each member of the Unisource Affiliated Group hereby agrees that Alco shall
be responsible, in the exercise of its discretion (but consistent with
Treasury Regulation (S) 1.1502-55, as proposed or finalized as of the date
of filing the Alco Affiliated Group consolidated federal income tax return
for the Straddle Period), for determining the extent to which any
consolidated alternative minimum tax credits of the Alco Affiliated Group
for the Straddle Period or any prior period shall be allocated to the
members of the Unisource Affiliated Group as a consequence of their
departure from the Alco Affiliated Group, and each member of the Unisource
Affiliated Group shall abide by Alco's determination in this regard, unless
and until Alco's determination is modified pursuant to a Final
Determination.
19
<PAGE>
SECTION V
---------
Liability for Taking Certain Actions Inconsistent with the Ruling or Ruling
---------------------------------------------------------------------------
Request
-------
(a) In the event that either party, or employee, officer, or director of such
party, takes any action inconsistent with, or fails to take any action
required by, or in accordance with, the Ruling Request or the Ruling, then
such party shall be liable for and shall indemnify and hold the other party
harmless from any Tax Liabilities resulting from such action or failure to
act.
(b) If, within two years after the Effective Date, either party engages in any
transaction involving its stock or assets, and as a result of that
transaction, the Distribution is treated as a taxable event,
notwithstanding the receipt of the Ruling, then the party engaging in such
transaction shall hold the other party harmless from any Tax Liabilities
that result from the treatment of the Distribution as a taxable event.
SECTION VI
----------
Cooperation and Exchange of Information; Audits and Adjustments
---------------------------------------------------------------
(a) Tax Return Information.
----------------------
(i) Unisource shall, and shall cause each appropriate member of the
Unisource Group to, provide Alco with all information and other
assistance reasonably requested by Alco to enable the members of the
20
<PAGE>
Alco Group to prepare and file the Tax Returns required to be filed
by them pursuant to this Agreement.
(ii) Alco shall, and shall cause each appropriate member of the Alco
Group to, provide Unisource with all information and other
assistance reasonably requested by Unisource to enable the members
of the Unisource Group to file the Tax Returns required to be filed
by them pursuant to this Agreement.
(iii) Within thirty (30) days after the filing by a member of the Alco
Group of a Tax Return that affects the liability or the
determination of the liability for taxes of any member of the
Unisource Group, the pertinent member of the Alco Group shall
provide Unisource with a copy of so much of the Tax Return that is
relevant to a member of the Unisource Group.
(b) Audits and Adjustments.
----------------------
(i) Whenever Alco or Unisource receives in writing from the IRS or any
other taxing authority notice of an Adjustment that may give rise to
a payment from the other party under this Agreement, Alco or
Unisource, as the case may be, shall give written notice of the
Adjustment to the other party within thirty (30) days of becoming
aware of the Adjustment but in no case later than thirty (30) days
before Alco or Unisource, as the case may be, is required to respond
to the IRS or other taxing authority. The Indemnifying Party at its
own expense shall have primary control over all matters relating to
the Adjustment that may give rise to a payment
21
<PAGE>
obligation by the Indemnifying Party, provided, however, that the
-------- -------
Indemnified Party may settle, partially settle, or otherwise resolve
any controversy involving the Indemnified Party's return to which
the particular Adjustment relates, so long as the Indemnified Party
does not settle, partially settle, or otherwise resolve the
controversy in a manner inconsistent with the Indemnifying Party's
position, without prior written consent, which may not be
unreasonably withheld, from the Indemnifying Party.
(ii) Unisource agrees reasonably to cooperate with Alco, in the
negotiation, settlement, or litigation of any liability for taxes of
any member of the Alco Group.
(iii) Alco agrees reasonably to cooperate with Unisource in the
negotiation, settlement, or litigation of any liability for taxes of
any member of the Unisource Group.
(iv) Alco will reasonably promptly notify Unisource in writing of any
Adjustments involving changes in the tax basis of the assets of any
Unisource property, specifying the nature of changes so that the
Unisource Group will be able to reflect the revised basis in its tax
books and records for periods beginning on or after the Effective
Date.
For purposes of this Section, the term "party" shall refer to any member of the
Alco Group and any member of the Unisource Group, as the case may be.
22
<PAGE>
SECTION VII
-----------
Retention of Records
--------------------
(a) Alco and Unisource agree to retain the appropriate records which may affect
the determination of the liability for taxes of any member of the Alco
Group or the Unisource Group, respectively, until such time as there has
been a Final Determination with respect to such liability for taxes.
(b) Alco and Unisource will notify each other in writing of any waivers or
extensions of the applicable statute of limitations that may affect the
period for which any materials, records, or documents must be retained.
SECTION VIII
------------
Resolution of Disputes
----------------------
(a) If the parties are, after negotiation in good faith, unable to agree upon
the appropriate application of this Agreement, the controversy shall be
settled by arbitration in accordance with the rules of the American
Arbitration Association (the "AAA").
(b) Upon written notice by any party to the other party that the controversy is
to be submitted to arbitration, each party shall appoint an independent
arbitrator (who shall be a tax attorney or independent certified public
accountant) within thirty (30) days, and the two arbitrators so appointed
shall appoint a third arbitrator
23
<PAGE>
within thirty (30) days after the appointment of the last arbitrator
appointed within the initial thirty (30) day period. If any party fails to
appoint an arbitrator or the parties agree on a single arbitrator, the
controversy shall be determined by a single arbitrator. If the two
arbitrators are unable to agree on a third arbitrator within thirty (30)
days, any party may apply to the AAA to make such appointment, and all
parties shall be bound by any appointment so made.
(c) The locale of the arbitration shall be Wayne, Pennsylvania, or any other
location mutually agreed on by all parties.
(d) The award of the arbitrators (or arbitrator) shall be final, and judgment
upon the award rendered may be entered in any court having Jurisdiction.
(e) The fees and expenses of the AAA arbitration panel shall be borne in equal
parts by the parties, unless the arbitration award specifies otherwise.
SECTION IX
----------
Miscellaneous
-------------
(a) Term of the Agreement. This Agreement shall become effective as of the date
---------------------
of its execution and, except as otherwise expressly provided herein, shall
continue in full force and effect indefinitely.
(b) Elections Under Code Section 1552. Nothing in this Agreement is intended
---------------------------------
to change or otherwise affect any election made by or on behalf of the Alco
Affiliated Group with respect to the calculation of earnings and profits
under
24
<PAGE>
Code Section 1552.
(c) Injunctions. The parties acknowledge that irreparable damage would occur
-----------
in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached.
Subject to Section IX, the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in
any court having jurisdiction, such remedy being in addition to any other
remedy to which they may be entitled at law or in equity.
(d) Severability. If any term, provision, covenant, or restriction of this
------------
Agreement is held by a court of competent jurisdiction (or an arbitrator or
arbitration panel) to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions set forth herein shall
remain in full force and effect, and shall in no way be affected, impaired,
or invalidated. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms,
provisions, covenants, and restrictions without including any of such which
may be hereafter declared invalid, void, or unenforceable. In the event
that any such term, provision, covenant, or restriction is held to be
invalid, void, or unenforceable, the parties hereto shall use their best
efforts to find and employ an alternate means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant, or restriction.
(e) Assignment. Except by operation of law or in connection with the sale of
----------
all or substantially all the assets of a party hereto, this Agreement shall
not be
25
<PAGE>
assignable, in whole or in part, directly or indirectly by any party hereto
without the advance written consent of the other party, and any attempt to
assign any rights or obligations arising under this Agreement without such
consent shall be void; provided, however, that the provisions of this
Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and
permitted assigns.
(f) Further Assurances. Subject to the provisions hereof, the parties hereto
------------------
shall make, execute, acknowledge, and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required
in order to effectuate the purposes of this Agreement and to consummate the
transactions contemplated hereby. Subject to the provisions hereof, each
of the parties shall, in connection with entering into this Agreement,
performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, regulations, orders, and
decrees, obtain all required consents and approvals and make all required
filings with any governmental agency, other regulatory or administrative
agency, commission or similar authority, and promptly provide the other
parties with all such information as they may reasonably request in order
to be able to comply with the provisions of this sentence.
(g) Parties in Interest. Except as herein otherwise specifically provided,
-------------------
nothing in this Agreement expressed or implied is intended to confer any
right or benefit upon any person, firm, or corporation other than the
parties and their respective
26
<PAGE>
successors and permitted assigns.
(h) Waivers, Etc.. No failure or delay on the part of the parties in exercising
-------------
any power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this
Agreement nor consent to any departure by the parties therefrom shall in
any event be effective unless the same shall be in writing, and then such
waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
(i) Setoff. All payments to be made by any party under this Agreement shall be
------
made without setoff, counterclaim, or withholding, all of which are
expressly waived.
(j) Change of Law. If, due to any change in applicable law or regulations or
-------------
their interpretation by any court of law or other governing body having
jurisdiction subsequent to the date of this Agreement, performance of any
provision of this Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
(k) Confidentiality. Subject to any contrary requirement of law and the right
---------------
of each party to enforce its rights hereunder in any legal action, each
party agrees that it shall keep strictly confidential, and shall cause its
employees and agents to keep
27
<PAGE>
strictly confidential, any information which it or any of its employees or
agentsmay require pursuant to, or in the course of performing its
obligations under, any provision of this Agreement.
(l) Headings. Descriptive headings are for convenience only and shall not
--------
control or affect the meaning or construction of any provision of this
Agreement.
(m) Counterparts. For the convenience of the parties, any number of
------------
counterparts of this Agreement may be executed by the parties hereto, and
each such executed counter-part shall be, and shall be deemed to be, an
original instrument.
(n) Notices. All notices, consents, requests, instructions, approvals, and
-------
other communications provided for herein shall be validly given, made, or
served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, or by facsimile transmission to
Alco at: Alco Standard Corporation
825 Duportail Road
Wayne, PA 19087
Attn.: Director of Taxes
Unisource at: Unisource Worldwide, Inc.
825 Duportail Road
Wayne, PA 19087
Attn..: Vice President, Taxes
or to such other address as any party may, from time to time, designate in
a
28
<PAGE>
written notice given in a like manner. Notice given by telegram shall be
deemed deliveredwhen received by the recipient. Notice given by mail as set
out above shall be deemed delivered five (5) calendar days after the date
the same is mailed. Notice given by facsimile transmission shall be deemed
delivered on the day of transmission provided telephone confirmation of
receipt is obtained promptly after completion of transmission.
(o) Pre-Distribution Earnings and Profits. Alco and Unisource agree to
-------------------------------------
allocate pre-Distribution earnings and profits in accordance with Treasury
Regulation Section 1.312-10.
(p) Deferred Compensation Payments and deductions with respect to Alco's
---------------------
deferred compensation plans are generally discussed in Section 6.02 of the
Benefits Agreement entered into between Alco Standard Corporation and
Unisource Worldwide, Inc. dated as of November 20, 1996 (the "Benefits
Agreement"). In the event that Alco makes a payment to Unisource pursuant
to Section 6.02 of the Benefits Agreement, the parties agree that Alco will
not take a deduction for the amount of such payment and Unisource will not
include such payment in income. It is the intent of the parties that the
after-tax cost to Unisource of payments made under Section 6.02 of the
Benefits Agreement will be zero (0), taking into account any Adjustment
resulting from a Final Determination.
(q) Costs and Expenses. Unless otherwise specifically provided herein, each
------------------
party agrees to pay its own costs and expenses resulting from the
fulfillment of its respective obligations hereunder.
29
<PAGE>
(r) Cancellation of Tax Allocation or Tax-Sharing Agreements. Except
--------------------------------------------------------
as otherwise expressly provided herein, on or prior to the Effective Date,
Alco shall cancel or cause to be canceled all agreements (other than this
Agreement) providing for the allocation or sharing of Income and Taxes to
which any member of the Unisource Group would otherwise be bound following
the Distribution.
(s) Interest on Late Payments. Any payment required under this Agreement that
-------------------------
is not paid within the time specified herein shall be subject to interest
computed in accordance with Article XII of the Distribution Agreement.
SECTION X
---------
Applicable Law
--------------
This Agreement shall be governed by and construed and enforced in accordance
with the domestic substantive laws of the Commonwealth of Pennsylvania without
regard to any choice or conflict of laws, rules, or provisions that would cause
the application of the domestic substantive laws of any other jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed by
30
<PAGE>
their respective officers, each of whom is duly authorized, all as of the day
and year first above written.
ALCO STANDARD CORPORATION
By: /s/ John E. Stuart
----------------------------------
Title: Chairman and Chief Executive Officer
UNISOURCE WORLDWIDE, INC.
By: /s/ Ray B. Mundt
----------------------------------
Title: Chairman and Chief Executive Officer
31
<PAGE>
APPENDIX I
Allocation of Unitary Income Tax Liabilities and Benefits
---------------------------------------------------------
(a) Pursuant to Section III(c) of the Tax Sharing and Indemnification
Agreement, the Unisource Group, shall be allocated a pro rata share of any
Unitary Income Tax cost or benefit, including interest and penalties (either as
originally reported or as adjusted upon audit, amended return, or ultimate
settlement, or otherwise), arising by reason of its activities' being included
in a Unitary Income Tax return with activities of the Alco Group. In order to
ascertain the Unisource Group's allocated tax cost or benefit of such Unitary
Income Tax return in a particular jurisdiction for a particular tax period the
following principles shall apply: (1) any taxable income or loss from Alco
Standard Acquisition Capital Corporation ("ASACC") shall be allocated to the
groups that received the loans which resulted in such income or loss and (2) the
taxable income or loss of Alco that appears on line 30 of the pro forma federal
Form 1120 of Alco Corporate shall be allocated sixty percent (60%) to the Alco
Group and forty percent (40%) to the Unisource Group. This paragraph (a) shall
govern cases involving universal unitary treatment (i.e., cases in which both
the Alco Group and the Unisource Group are treated as part of a single unitary
business, as is currently expected to be the case in Minnesota) and cases
involving group unitary treatment (i.e., cases in which the Alco Group and the
Unisource Group are each treated as distinct unitary businesses, as is currently
expected to be the case in California). Any costs or expenses incurred to
protest or resolve universal unitary tax treatment shall be allocated sixty
percent (60%) to the Alco Group and forty percent (40%) to the Unisource Group.
Appendix I
<PAGE>
(b) In cases of selective unitary treatment, (i.e., where Alco
Corporate and ASACC are treated as a unitary business, but no member of the
Unisource Group is treated as part of a unitary group, as is currently the case
in Connecticut), Unisource will be allocated 40 percent of the Unitary Income
Tax cost or benefit attributable to the Alco Corporate's and ASACC's inclusion
in the selective Alco unitary grouping. Any third-party costs or expenses
incurred to protest or resolve selective unitary treatment shall be allocated
sixty percent (60%) to the Alco Group and forty percent (40%) to the Unisource
Group.
Appendix I
<PAGE>
EXHIBIT 10.2
November __, 1996
UNISOURCE WORLDWIDE, INC.
DIRECTORS' STOCK OPTION PLAN
Purpose--The Unisource Worldwide, Inc. Directors' Stock Option Plan (the "Plan")
enables directors of Unisource Worldwide, Inc. ("Unisource") to purchase
common stock of Unisource. The purpose of the Plan is to promote an
identity of interest between Unisource and its directors and to attract
and retain highly competent individuals to serve as members of Unisource's
Board of Directors (the "Board"). This Prospectus relates to 250,000
shares of common stock of Unisource issuable upon exercise of options
granted under the Plan.
Automatic Annual Grants: Number of Shares and Price--Each year, each director
who is not otherwise an employee of Unisource or its subsidiaries will
automatically be granted an option to purchase 800 shares of Unisource
common stock ("Regular Options") immediately following the annual meeting
of shareholders. The exercise price for the Regular Options is 100% of
the fair market value of the shares on the date of grant.
Elective Annual Grants: Number of Shares and Price--Each year, each director
who is not otherwise an employee of Unisource or its subsidiaries may
elect to receive all or a portion of his or her directors' and trustees'
fees in the form of options to purchase shares of Unisource common stock
("Discounted Options"). The exercise price for Discounted Options is 75%
of the fair market value of the shares on the date of grant. The
Discounted Options will be granted immediately following the annual
meeting of shareholders.
Exercisability--Regular Options are exercisable six months following the date of
grant, and Discounted Options are exercisable twelve months following the
date of the grant, in either case, if the director is then a member of the
Board. If a director leaves the Board on account of attainment of
retirement age, disability or death, the director's options will be fully
exercisable. However, if a director ceases to be a member of the Board
for any reason, any portion of a Discounted Option that is attributable to
compensation not yet earned shall abate and be cancelled.
Term-- Regular Options have a ten-year term, and Discounted Options have a
twenty-year term. When all or part of an option becomes exercisable, it
will remain exercisable for the balance of its term (except in the event
of a director's death). In the event of a director's death, the director's
personal representative has twelve months to exercise any outstanding
options (unless the options otherwise expire prior to the end of such
period).
Conversion of Options Held by Former Directors of Alco Standard Corporation--
Unisource directors who were members of the Board of Directors of Alco
Standard Corporation ("Alco") immediately before the distribution of
Unisource stock to the shareholders of Alco may elect to have their
options to purchase Alco stock that were granted under Alco's stock option
plans for directors converted into options to purchase Unisource stock.
The conversion will be based on a conversion formula approved by the Alco
Board of Directors and the Unisource Board that is intended to preserve
the economic value of the options as of the conversion date. The new
1
<PAGE>
Unisource options shall have terms substantially identical to the terms of
the Alco options that they replace and shall be administered under the
terms of this Plan.
Exercise--An optionee may exercise all or any part of an exercisable option by
delivering written notice to Unisource. The full exercise price for the
shares shall be paid in cash, by check payable to Unisource, or in such
other form of consideration as may be approved by Unisource. After
exercise, the optionee will receive a stock certificate for the number of
shares purchased, and is free thereafter to sell the shares, subject to
compliance with Rule 144.
Tax Consequences--Options granted under the Plan are nonqualified stock options.
Exercise of an option will generally result in ordinary income to the
optionee at the time of exercise.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or make any
representations, other than as contained in this Prospectus, in connection with
the sale of any of the securities covered by this Prospectus, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by Unisource. Neither the delivery of the Prospectus nor
any sale of the securities covered hereby shall, under any circumstances, create
any implication that there has been no change in the affairs of Unisource since
the date hereof. This Prospectus does not constitute an offer or solicitation
in any jurisdiction in which such offer or solicitation may not lawfully be
made.
Table of Contents
-----------------
Page
----
Available Information............................................. 3
The Plan
General...................................................... 3
Purpose of the Plan.......................................... 3
Administration of the Plan................................... 4
Number of Shares Available Under the Plan.................... 4
Grant of Regular Options..................................... 4
Grant of Discounted Options.................................. 5
Option Agreements............................................ 5
Exercisabililty and Term of Options.......................... 5
Exercise of Rights Upon Ceasing to be a Member of the Board.. 6
2
<PAGE>
Conversion of Options Held by Former Alco Directors.......... 6
Exercise of Options.......................................... 6
Duration of Plan............................................. 6
Nontransferability of Options................................ 6
Plan and Options Not to Affect Directorship.................. 6
Rights in Stock.............................................. 7
Outstanding Options Under the Plan........................... 7
Requirements of Law.......................................... 7
Amendment of the Plan........................................ 7
Employee Retirement Income Security Act of 1974.............. 7
Resale of Shares Acquired Upon Exercise of Options................ 7
Federal Income Tax Consequences................................... 8
Documents Incorporated by Reference............................... 8
AVAILABLE INFORMATION
Unisource is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by Unisource with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its Regional Offices at 500 West
Madison Street, 14th Floor, Chicago, Illinois 60661, and 7 World Trade Center,
New York, New York 100048. Copies can also be obtained upon payment of
prescribed rates from the Public Reference Section of the Commission in
Washington, D.C. 20549. Reports, proxy statements and other information about
Unisource can also be inspected at the New York, Philadelphia and Chicago Stock
Exchanges (on which Unisource's common stock is listed).
Each person holding an option under the Plan who does not otherwise receive
such materials as a shareholder of Unisource will be provided with copies of all
reports, proxy statements and other communications distributed to the
shareholders of Unisource generally. Unisource also will provide, without
charge, to each person to whom a copy of this Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents required to be delivered pursuant to Rule 428(b) of the Securities Act
of 1933 (the "Securities Act") and any or all of the documents which have been
or may be incorporated by reference in Item 3 of Part II of the Registration
Statement, other than exhibits to such documents. Requests for such copies
should be directed to Corporate Communications Department, Unisource Worldwide,
Inc., P.O. Box 834, Valley Forge, Pennsylvania 19482 or (610) 296-8000.
Additional information about the Plan and the administrators may be obtained by
writing or telephoning Unisource at the address or telephone number listed
above. For further information, reference is made to the Registration Statement
and documents incorporated therein by reference.
3
<PAGE>
THE PLAN
General
The Plan was adopted by the Board, effective December 1, 1996, and has been
approved by Alco, as the sole shareholder of Unisource. A copy of the Plan is
included as part of this Prospectus. The following summary is qualified in its
entirety by reference to the Plan.
Unisource's principal office is located in Valley Forge, Pennsylvania
19482. Its telephone number is (610) 296-8000.
Purpose of the Plan
The purpose of the Plan is to promote an identity of interest between
Unisource and its directors and to attract and retain highly competent
individuals to serve as members of the Board.
Administration of the Plan
The Plan is administered by the Human Resource Committee of the Board (the
"Committee"). Members of the Committee are ordinarily appointed for a term
coinciding with their term of office; however, the members serve at the pleasure
of the Board and may be changed at any time. The Committee has authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations and take all other actions
deemed necessary or advisable in administering the Plan. The determinations of
the Committee on these matters shall be conclusive. No member of the Committee
will be liable for any action taken or decision made in good faith relating to
the Plan or any grant thereunder. The Committee may, from time to time, appoint
an Administrator of the Plan, who will be responsible for the general
administration of the Plan under the policy guidance of the Committee. The
Administrator will be an employee of Unisource and will be compensated for
services and expenses by Unisource according to Unisource's normal employment
policies, without special or additional compensation, other than reimbursement
of expenses, for services as the Administrator.
Number of Shares Available Under the Plan
The maximum number of shares of Unisource common stock for which options
may be granted under the Plan is 250,000 shares, subject to adjustment as
provided herein. If the outstanding shares of Unisource 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 Unisource common
stock or other securities, through merger, consolidation, sale of all or
substantially all of the assets of Unisource, 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 will be
4
<PAGE>
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.
The shares of Unisource common stock issuable upon exercise of options
granted under the Plan may be unissued shares or shares held in Unisource's
treasury, including shares bought on the open market. If an option expires,
terminates or is canceled prior to being exercised in full, any shares remaining
subject to such option will again be available for the grant of options under
the Plan.
Grant of Regular Options
Each individual who is not an employee of Unisource or any of its
subsidiary corporations and who is elected a director of Unisource at an annual
meeting of shareholders of Unisource will automatically be granted a Regular
Option to purchase 800 shares of Unisource common stock (subject to adjustment
as described herein) immediately following the annual meeting of shareholders.
An individual who ceases to be a director of Unisource at the annual meeting of
shareholders shall not be entitled to receive an award.
The option exercise price for each Regular Option shall be 100% of the fair
market value of a share of Unisource common stock on the date of grant of the
option. For purposes of the Plan, the fair market value of Unisource stock is
defined as the closing price as reported on the New York Stock Exchange
Composite Tape.
Grant of Discounted Options
Discounted Options will be granted automatically immediately following each
annual meeting of Unisource's shareholders to each director who is not an
employee of Unisource or any of its subsidiary corporations and who has filed
with Unisource an election to receive stock options in lieu of all or a
specified portion of his or her Annual Retainer (as defined below) to be earned
during each Plan Year. Discounted Options granted under the Plan will entitle
the optionee to purchase shares of Unisource common stock at a price equal to
75% of the fair market value of the stock on the date of grant.
A "Plan Year" is the twelve month period beginning March 1 and ending the
last day of February thereafter. A director's election shall remain in effect
for each Plan Year unless the Administrator shall have received notice of any
change which the director wishes to make before the shareholder's meeting to
which the change applies.
"Annual Retainer" is the amount of fees which the director will be
entitled to receive during each Plan Year for serving as a director or a member
of one or more of the committees of the Board or for serving as a trustee of any
of Unisource's employee benefit plan trusts. The term does not include per
meeting attendance fees or fees for any other services provided to Unisource.
5
<PAGE>
After a director has executed an appropriate election, the number of
options for shares of Unisource stock that the director will be entitled to
receive is determined by dividing the director's Annual Retainer (or the portion
thereof which the director has elected to receive as stock options) by 25% of
the fair market value of a share of Unisource stock (representing the difference
between the fair market value and the exercise price on the date of grant). No
options for fractional shares will be issued, nor will cash payments be made in
lieu of fractional shares.
Option Agreements
Options will be evidenced by stock option awards to be issued by Unisource,
which shall specify the number of shares of stock for which the options are
issued, the exercise price, and all other terms of the options. In the event of
any discrepancy between a stock option award and the Plan, the provisions of the
Plan shall govern. In the event of any discrepancy between this Prospectus and
either a stock option award or the Plan, such award or the Plan, as appropriate,
shall govern.
Exercisability and Term of Options
Exercisability of Options. Regular Options may be exercised at any time
-------------------------
after six months from the date of grant, and Discounted Options may be exercised
at any time after twelve months from the date of grant, provided, in either
case, that the director is a member of the Board on the date on which the
options become exercisable. If a director ceases to be a member of the Board by
reason of attainment of retirement age, disability or death, the director's
options will be fully exercisable (except as provided below). If a director
ceases to be a member of the Board for any reason, any portion of a Discounted
Option that is attributable to compensation not yet earned shall abate and be
canceled.
Term of Options. The term of Regular Options will be ten years from the
----------------
date of grant, and the term of Discounted Options will be twenty years from the
date of grant. No option may be exercised after the expiration of its term.
Exercise of Rights Upon Ceasing to be a Member of the Board
The rights of a director in an option that has become exercisable under the
Plan will not terminate upon such director's ceasing to be a member of the Board
for any reason (including retirement because of age, death or disability),
except as provided below. However, any exercisable option granted to a director
that is outstanding on the date of his or her death may be exercised by the
administrator of such director's estate, the executor under his or her will, or
the person to whom the option shall have been validly transferred pursuant to
the laws of descent and distribution, but not beyond the first to occur of (i)
the expiration of twelve months from the date of such director's death, or (ii)
the specified expiration date of the option. Upon the first to occur of the
foregoing events, the option shall terminate.
6
<PAGE>
Conversion of Options Held by Former Alco Directors
Unisource directors who were members of the Board of Directors of Alco
immediately before the distribution of Unisource shares to the shareholders of
Alco may elect to have their options to purchase Alco stock that were granted
under Alco's stock option plans for directors converted into options to purchase
Unisource stock. The Board of Directors of Alco and the Unisource Board shall
approve the formula to be used for the conversion. The vesting and other terms
of the new Unisource options shall be identical to the terms of the Alco options
that they replace, except that service on the Unisource Board shall be
considered continued service for purposes of the options. The new Unisource
options shall be administered under the terms of this Plan.
Exercise of Options
Options granted under the Plan may be exercised by delivering written
notice to Unisource. The full exercise price for the shares as to which options
are exercised shall be paid in cash, by check payable to Unisource, or in such
other form of consideration as may be approved by the Administrator or by the
Committee.
Duration of Plan
No options may be granted pursuant to the Plan after November 30, 2006.
Nontransferability of Options
No option granted pursuant to this Plan shall be transferable by the
optionee other than by will or the laws of descent and distribution, and an
option may be exercisable during the optionee's lifetime only by the optionee.
Plan and Options Not to Affect Directorship
Neither the Plan, nor the granting of an option, nor any other action taken
pursuant to the Plan, constitutes evidence of any agreement or understanding,
expressed or implied, that Unisource will nominate any director for reelection
by Unisource's shareholders.
Rights in Stock
An optionee has 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 representing such shares. No adjustment will be
7
<PAGE>
made for dividends or other rights for which the record date is prior to the
date such share certificate is issued.
Outstanding Options Under the Plan
Information as to the number of shares subject to outstanding options and
for which options remain available under the Plan, as well as exercises of
options and expiration dates of outstanding options, will be provided, to the
extent required by law , in Unisource's annual report or proxy statement.
Requirements of Law
The obligation of Unisource to sell, issue and deliver shares upon exercise
of options granted under the Plan is subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies as may be
required.
Amendment of the Plan
The Board has complete power and authority to terminate and in any respect
amend or modify the Plan, except to the extent that the approval of Unisource's
shareholders is required under applicable law. No amendment, modification or
termination of the Plan may adversely affect the rights of participants with
respect to any option previously granted, without their consent.
Employee Retirement Income Security Act of 1974
The Plan is not a qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended, and is not subject to any provisions of the
Employee Retirement Income Security Act of 1974.
RESALE OF SHARES ACQUIRED UPON EXERCISE OF OPTIONS
The Plan imposes no limitation or restriction on resales of shares acquired
upon exercise of options granted thereunder. However, any optionee who is an
"affiliate" of Unisource at the time of resale of shares acquired upon exercise
of options granted under the Plan may make such resales only pursuant to an
effective registration statement specifically relating to such resales, pursuant
to Rule 144 under the Securities Act, or in a transaction otherwise exempt from
registration under the Securities Act. Affiliates may not use this Prospectus
for the reoffer or resale of such shares. Optionees who are not affiliates of
Unisource at the time of resale are not restricted by the Securities Act with
respect to resale of their shares.
8
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
All options to be granted under the Plan are non-qualified stock options
which are not entitled to special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended. Generally, there are no tax
consequences to an optionee or to Unisource when a non-qualified stock option is
granted. When such an option is exercised, the excess of the then fair market
value of the shares over the exercise price will constitute ordinary income to
the optionee, and Unisource will be entitled to a corresponding tax deduction.
Upon disposition of the shares by the optionee, long term or short term capital
gain or loss, as the case may be, will be recognized, equal to the difference
between the amount realized on such disposition and the optionee's basis in the
shares, which will include the amount previously recognized as ordinary income.
The capital gain holding period will commence on the day the optionee acquires
the shares pursuant to exercise of the option.
The foregoing is not a complete summary of income tax consequences to
participants or to Unisource. It does not reflect the effects of foreign, state
or local tax laws.
BECAUSE OF THE COMPLEXITY OF THE FEDERAL TAX LAWS RELATING TO STOCK OPTION
PLANS AND THE APPLICATION OF STATE AND LOCAL LAWS, PARTICIPANTS IN THE PLAN ARE
ADVISED TO CONSULT THEIR PERSONAL TAX ADVISERS REGARDING THESE MATTERS.
DOCUMENTS INCORPORATED BY REFERENCE
The following document filed by Unisource with the Commission is
incorporated herein by reference: Unisource's Information Statement on Form 10
dated ______________________.
All documents filed by Unisource after the date hereof pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a post-
effective amendment indicating that all securities offered hereby have been sold
or which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Prospectus and shall be a part hereof from the
date of filing of such documents.
9
<PAGE>
Exhibit A
UNISOURCE WORLDWIDE, INC.
DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of this Directors' Stock Option Plan (the
"Plan") of Unisource Worldwide, Inc. ("Unisource") is to promote an identity
of interest between Unisource and its directors and to attract and retain
highly competent individuals to serve as members of Unisource's Board of
Directors.
2. Effective Date. This Plan shall become effective as of December 1,
1996.
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 250,000 shares of Unisource's common stock, no par value, subject
to adjustment as provided hereinafter in paragraph 13. Such shares may be, in
whole or in part, authorized but unissued shares, whether now or hereafter
authorized, or issued shares which have been reacquired by Unisource. If any
option under this Plan shall expire, terminate or be canceled 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.
(a) The Plan shall be administered by the Human Resources Committee
(the "Committee") of the Board of Directors of Unisource (the "Board"), except
as provided otherwise in the Plan.
(b) The Committee shall have authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations and take all other actions deemed necessary or
advisable in administering the Plan.
(c) The determinations of the Committee on the matters referred to
in this paragraph 4 shall be conclusive. No member of the Committee shall be
liable for any action taken or decision made in good faith relating to the
Plan or any grant hereunder.
(d) An Administrator of the Plan may from time to time be appointed
by the Committee. Such Administrator shall be responsible for the general
administration of the Plan under the policy guidance of the Committee. The
Administrator shall be in the employ of Unisource and shall be compensated for
services and expenses by Unisource according to its normal employment
policies, without special or additional compensation, other than reimbursement
of expenses, for his or her services as the Administrator.
5. Automatic Annual Stock Option Awards.
10
<PAGE>
(a) Each year, for as long as the Plan remains in effect, each
person who is not an employee of Unisource or any of its present or future
subsidiary corporations (as defined in Section 425 of the Internal Revenue
Code of 1986, as amended) and who is elected a director of Unisource at
Unisource's annual meeting of shareholders shall automatically be granted an
option (a "Regular Option") to purchase 800 shares of common stock of
Unisource (subject to adjustment as provided hereinafter in paragraph 13)
immediately following the annual meeting of shareholders. An individual who
ceases to be a director of Unisource at the annual meeting of shareholders
shall not be entitled to receive an award. Each Regular Option shall be
evidenced by an option award document which shall comply with and be subject
to the applicable terms and conditions set forth in the Plan.
(b) The exercise price for each Regular Option granted under the
Plan shall be 100% of the Fair Market Value of shares of Unisource common
stock on the date on which the option is granted (the "Grant Date"). For
purposes of this Plan, "Fair Market Value" shall be the closing price per
share of Unisource common stock as reported on the New York Stock Exchange
Composite Tape.
(c) Each Regular Option may be exercised after the date that is six
months following the Grant Date, if the director is a member of the Board on
such date. However, if the director ceases to be a member of the Board on
account of attainment of retirement age specified by the Board, death or
disability, as determined by the Board, the Regular Option shall be fully
exercisable as of the date on which the director ceases to be a member of the
Board.
(d) Each Regular Option shall have a term of ten years from the
Grant Date. No option granted under the Plan shall be exercisable after the
expiration of its term. Each Regular Option shall be subject to termination
before its date of expiration as herein provided in paragraph 7 below.
6. Elective Annual Stock Option Awards.
(a) Each year, for as long as the Plan remains in effect, each
person who is not an employee of Unisource or any of its present or future
subsidiaries, who is elected a director of Unisource at Unisource's annual
meeting of shareholders, and who has filed with Unisource an election to
receive a stock option in lieu of the Annual Retainer (as defined below), or
some portion thereof, to be earned by such director in each Plan Year (as
defined below) during which he or she shall serve as director, shall receive
an option (a "Discounted Option") to purchase shares of Unisource common
stock. The Discounted Option shall be granted immediately following the
annual meeting of shareholders. An individual who ceases to be a director of
Unisource at the annual meeting of shareholders shall not be entitled to
receive an award. Each Discounted Option shall be evidenced by an option
award document which shall comply with and be subject to the applicable terms
and conditions set forth in the Plan.
(b) The number of shares of Unisource common stock subject to each
Discounted Option granted to a director for a Plan Year shall be equal to the
nearest number of whole shares determined in accordance with the following
formula:
Annual Retainer = Number of Shares
-------------------------
11
<PAGE>
Fair Market Value minus
Exercise Price
No fractional shares shall be issued, nor shall cash payments be made in lieu
of fractional shares. "Exercise Price" shall be defined as set forth in
Subsection 6(c), and "Fair Market Value" shall be defined as set forth in
Subsection 5(b). "Annual Retainer" shall mean the amount of fees which the
director will be entitled to receive during a Plan Year for serving as a
director or a member of one or more committees of the Board or a trustee of
any of Unisource's employee benefit plan trusts; provided, however, that if a
director elects to receive a stock option in lieu of only a portion of the
Annual Retainer, the Annual Retainer for purposes of the foregoing formula
shall equal the portion of the Annual Retainer so elected. For purposes of
this Plan, "Annual Retainer" shall not include fees or expenses for attendance
at meetings of the Board or any committee of the Board or for any other
services to be provided to Unisource except as set forth herein. The "Plan
Year" is the twelve month period beginning each March 1 and ending on the last
day of February.
(c) The exercise price for each Discounted Option granted under the
Plan shall be 75% of the Fair Market Value of shares of Unisource common stock
on the Grant Date.
(d) Each Discounted Option may be exercised after the date that is
twelve months following the Grant Date, if the director is a member of the
Board as of such date. However, except as provided below, if the Director
ceases to be a member of the Board on account of attainment of retirement age
specified by the Board, death or disability, as determined by the Board, the
Discounted Option shall be fully exercisable as of the date on which the
director ceases to be a member of the Board.
(e) Notwithstanding the foregoing, if a director ceases to be a
member of the Board for any reason, any portion of a Discounted Option that is
attributable to a portion of an Annual Retainer that has not yet been earned
shall automatically abate and be canceled.
7. Termination of Directorship. The rights of a director in an option
granted under the Plan shall not terminate upon such director's termination as
a director for any reason (including retirement because of age, death or
disability), except as provided in Subsection 6(e) above or except as provided
below. Except as provided in Subsection 6(e) above, any option granted to a
director and outstanding on the date of his or her death may be exercised by
the administrator of such director's estate or the person to whom the option
shall have been validly transferred by will or the laws of descent and
distribution, but not beyond the first to occur of (i) the expiration of
twelve months from the date of the director's death, or (ii) the specified
expiration date of the option. Upon the first to occur of the foregoing
events, the option shall terminate.
12
<PAGE>
8. Conversion of Alco Options. In connection with the distribution by
Alco Standard Corporation ("Alco) of the common stock of Unisource to Alco's
shareholders, the Unisource directors who were members of the Alco Board of
Directors immediately before the distribution may elect to have their
outstanding options to purchase Alco stock that were granted under Alco's
stock option plans for directors converted into options to purchase Unisource
common stock. The options to purchase Alco stock shall be converted into
options to purchase Unisource stock according to a formula approved by the
Alco Board of Directors and the Unisource Board that is intended to preserve
the economic value of the options as of the date of the conversion. In all
other respects, the terms of the Unisource options shall be identical to the
terms of the replaced Alco options, except that membership on the Board of
Unisource shall be considered continued Board membership for purposes of the
Unisource options. The new Unisource options shall be administered pursuant
to the terms of this Plan.
9. Exercise of Options. Options may be exercised only by written
notice to Unisource. The full exercise price for the shares as to which
options are exercised shall be paid in cash, by check payable to Unisource, or
in such other form of consideration as shall be approved by the Administrator
or by the Committee.
10. Limitations.
(a) No options may be granted pursuant to this Plan after November
30, 2006.
(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.
11. Withholding Taxes. Whenever shares of Unisource common stock
are to be issued or delivered, the Committee shall have the right to require
the recipient to remit to Unisource an amount sufficient to satisfy any
required federal, state or local income or employment tax withholding
requirements.
12. Limitation of Rights.
(a) Neither the Plan, nor the granting of an option, nor any other
action taken pursuant to the Plan, shall constitute evidence of any agreement
or understanding, expressed or implied, that Unisource will nominate any
director for reelection by Unisource's shareholders.
(b) 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.
13. Adjustments. If the outstanding shares of Unisource 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
13
<PAGE>
respect to such shares of Unisource common stock or other securities, through
merger, consolidation, sale of all or substantially all of the assets of
Unisource, 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 shall 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.
14. Amendment and Termination. The Board shall have complete power and
authority to terminate and in any respect amend or modify the Plan, except to
the extent that the approval of Unisource's shareholders is required under
applicable law. No amendment, modification or termination of the Plan may
adversely affect the rights of participants with respect to any option
previously granted, without their consent.
15. Government and Other Regulations. The obligation of Unisource 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.
16. Other Actions. Nothing contained in the Plan shall be construed to
limit the authority of Unisource to exercise its corporate rights and powers
including, but not limited to, the right of Unisource (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.
17. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
14
<PAGE>
UNISOURCE WORLDWIDE, INC.
SUPPLEMENTAL RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- - ------- ----
<S> <C> <C>
I. Purpose.............................................. 1
II. Definitions.......................................... 1
III. Supplemental Benefit Amount.......................... 3
IV. Vesting.............................................. 4
V. Forfeiture........................................... 4
VI. Facility of Payment.................................. 5
VII. Withholding.......................................... 5
VIII. Source of Funds...................................... 5
IX. Nonalienation of Benefits............................ 5
X. Adverse Determinations............................... 6
XI. Amendment and Termination............................ 7
XII. No Contract of Employment............................ 7
XIII. Applicable Law....................................... 7
XIV. Successors........................................... 7
</TABLE>
<PAGE>
UNISOURCE WORLDWIDE, INC.
SUPPLEMENTAL RETIREMENT PLAN
I. Purpose.
-------
This plan is adopted effective as of January 1, 1997, for the purpose of
providing retirement benefits which would otherwise be reduced by reason of the
restrictive provisions of law applicable to the Unisource Worldwide, Inc.
Participating Companies Pension Plan. This plan is to be unfunded and is
maintained for a select group of highly compensated employees.
II. Definitions.
-----------
2.01 "Administrator" means the administrator of the Master Plan.
-------------
2.02 "Alco Supplemental Plan" means the Alco Standard Corporation
----------------------
Supplemental Retirement Plan.
2.03 "Annual Benefit Limit" means the limitations described in sections
--------------------
415(b) and 415(e) of the Code.
2.04 "Beneficiary" means the Participant's beneficiary under the Master
-----------
Plan, except to the extent that the Beneficiary is receiving a benefit under
the Master Plan pursuant to a qualified domestic relations order as defined in
section 414(p) of the Code.
2.05 "Code" means the Internal Revenue Code of 1986, as it may be
----
amended from time to time.
2.06 "Committee" means the pension committee of the Master Plan.
---------
2.07 "Company" means Unisource and its Subsidiaries.
-------
2.08 "Compensation" means a Participant's "Compensation," as that term
------------
is defined in the Master Plan; provided, however, that Compensation under the
Plan shall be limited to $500,000 per calendar year.
2.09 "Deferred Compensation Plan" means the Unisource Worldwide, Inc.
--------------------------
1997 Deferred Compensation Plan, the Alco Standard Corporation Deferred
Compensation Plan, the Alco Standard Corporation 1985 Deferred Compensation
Plan, the Alco Standard Corporation 1991 Deferred Compensation Plan, the Alco
Standard Corporation 1994 Deferred Compensation Plan, the Alco Standard 1996
Deferred Compensation Plan, the Unisource the Unijax Sloan, Inc. Deferred
Compensation Plan for Select Executive Group, the Unijax Sloan, Inc. Deferred
Compensation Plan for Senior Executive Group, the Unijax Sloan, Inc. Deferred
Compensation Plan for Sales Force, and any other plan or contract designated by
the Committee which involves the Participant and a Company.
<PAGE>
2.10 "Master Plan" means the Unisource Worldwide, Inc. Participating
-----------
Companies Pension Plan, as amended from time to time.
2.11 "Participant" means
-----------
(a) An employee of a Company on or after January 1, 1997, excluding
any employee whose principal employment responsibility is sales, who is a
Master Plan Participant and:
(i) whose benefits under the Master Plan are limited under
section 415 of the Code;
(ii) whose Compensation for Master Plan purposes is limited
under section 401(a)(17) of the Code; or
(iii) whose Compensation for Master Plan purposes is reduced
in connection with a Deferred Compensation Plan.
(b) Any other employee of the Company as determined by Unisource.
(c) An employee described in paragraph (a) or (b) above shall not
be a Participant unless such employee is a member of a select group of
management or highly compensated employees as determined by the Company in
a manner consistent with the exemption set forth in section 401(a)(3) of
ERISA.
2.12 "Plan" means the Unisource Worldwide, Inc. Supplemental Retirement
----
Plan, effective January 1, 1997, as it may be amended from time to time.
2.13 "Retirement Date" means a Participant's "Early Retirement Date" or
---------------
"Normal Retirement Date" as those terms are defined in the Master Plan, or such
earlier date as is determined by the Board of Directors of Unisource at its
discretion.
2.14 "Subsidiary" means any Unisource subsidiary which would qualify as an
----------
includible corporation within the meaning of section 1563(a) of the Code.
2.15 "Total and Permanent Disability" means "Total Disability" as that
------------------------------
term is defined in the Master Plan.
2.16 "Unisource" means Unisource Worldwide, Inc.
---------
III. Supplemental Benefit Amount.
---------------------------
3.01 Eligibility. Subject to Articles IV and V below, Unisource will
-----------
supplement the annual pension under the Master Plan of a Participant who attains
his Retirement Date or suffers a Total and Permanent Disability while employed
by the Company. Unisource
2
<PAGE>
will also supplement a pre-retirement death benefit payable under the Master
Plan on behalf of a Participant who dies with a vested interest in the Master
Plan while employed by the Company.
3.02 Amount. The amount of the supplement for a Participant described in
------
Section 2.11(a) shall be (a) the difference, if any, between the pension or pre-
retirement death benefit paid under the Master Plan and the pension or pre-
retirement death benefit which would have been payable under the Master Plan if
(i) the provisions of the Master Plan were administered without regard to the
Annual Benefit Limit, (ii) the Participant's Compensation had not been limited
for purposes of the Master Plan under section 401(a)(17) of the Code, or (iii)
the Participant's Compensation for purposes of the Master Plan had not been
reduced in connection with a Deferred Compensation Plan, or (b) such other
amount as determined by Unisource. Notwithstanding the foregoing, the amount of
the supplement for a Participant described in Section 2.11(b) shall be the
amount as determined by Unisource.
3.03 Form of Benefits. Subject to Section 3.04 below, supplemental pension
----------------
or pre-retirement death benefits will be paid in the same form as the payment of
pension and pre-retirement death benefits under the Master Plan. Notwithstanding
the foregoing, the Committee reserves the right to convert any supplemental
pension or pre-retirement death benefits into an actuarially equivalent form of
payment as determined by the Committee with the advice of the actuary for the
Master Plan.
3.04 Commencement of Benefits. A Participant or Beneficiary shall begin to
------------------------
receive supplemental pension or pre-retirement death benefits, as the case may
be, as of the same time that benefits begin to be paid under the Master Plan, or
such other time as determined by Unisource. Actual benefit payments shall be
made at the same time as the Master Plan payments are made.
3.05 Approval of Committee. Notwithstanding the provisions of
---------------------
Sections 3.03 and 3.04 above, an election made by a Participant or Beneficiary
under the Master Plan with respect to the form of benefit payment under the
Master Plan, or the date for commencement of payment thereof, shall not be
effective with respect to the form of payment or date for commencement of
payment of benefits hereunder unless such election is expressly approved in
writing by the Committee with respect to benefits under this Plan. If the
Committee shall disapprove such election in writing, then the form of payment or
date for commencement of payment shall be selected by the Committee in its sole
discretion.
3.06 Method of Calculation. All calculations of benefits under this Plan
---------------------
shall be in accordance with the methods and assumptions utilized by the Master
Plan.
3.07 Qualified Domestic Relations Order. In the event a Participant's
----------------------------------
pension or
3
<PAGE>
pre-retirement death benefit under the Master Plan is subject to a qualified
domestic relations order as defined in section 414(p) of the Code, the
supplemental pension or pre-retirement death benefit provided by this Plan shall
be calculated and paid as if no qualified domestic relations order was in
existence.
3.08 Coordination with Alco Supplemental Plan. All benefits that
----------------------------------------
Participants in this Plan accrued before January 1, 1997 under the Alco
Supplemental Plan shall be provided to such Participants under the terms of this
Plan, and the provisions of this Article III shall include such benefits. There
shall be no duplications of benefits under this Plan and the Alco Supplemental
Plan. If for any reason benefits are paid to a Participant under the Alco
Supplemental Plan with respect to benefits accrued before January 1, 1997, any
benefits payable under this Plan shall be reduced by the amount paid to the
Participant under the Alco Supplemental Plan.
IV. Vesting.
-------
A Participant shall have a right to a benefit under this Plan only if and to the
extent that (a) the Participant has a vested right to a benefit under the Master
Plan and (b) the Participant has met the other requirements set forth in this
Plan pertaining to the right to receive a Plan benefit.
V. Forfeiture.
----------
A Participant and his Beneficiary shall not be entitled to receive any benefits
under this Plan if the Participant engages in any conduct which, in the
reasonable opinion of the Board of Directors of Unisource, is detrimental to the
best interests of a Company. Such conduct shall include accepting employment
with a competitor of a Company within a period of time following termination of
employment and in a geographic area that the Unisource board of directors deems
reasonable.
VI. Facility of Payment.
-------------------
In the event that the Administrator finds that any Participant or Beneficiary to
whom a benefit is payable hereunder is unable to care for his or her affairs
because of physical, mental, or legal incompetence, any payment due hereunder
may (unless prior claim therefor shall have been made by a duly qualified
guardian or other legal representative), in the discretion of the Administrator,
be paid to the person or institution deemed by the Administrator to be
maintaining or responsible for the maintenance of such Participant or
Beneficiary; any such payment shall be deemed a payment for the account of the
Participant or Beneficiary and shall constitute a complete discharge of any
liability therefor under the Plan.
VII. Withholding.
-----------
Unisource shall withhold from payments made under the Plan any federal, state or
local
4
<PAGE>
taxes required to be withheld from a Participant's wages.
VIII. Source of Funds.
---------------
This Plan shall be unfunded, and payment of benefits hereunder shall be made
from the general assets of Unisource. Any asset which may be set aside,
earmarked or identified as being intended for the provision of benefits
hereunder shall remain an asset of Unisource and shall be subject to the claims
of its general creditors. Each Participant shall be a general creditor of
Unisource to the extent of the value of his or her benefit accrued hereunder,
but the Participant shall have no right, title, or interest in any specific
asset that Unisource may set aside or designate as intended to be applied to the
payment of benefits under this Plan. Unisource's obligations under the Plan
shall represent an unfunded and unsecured promise of Unisource to pay money in
the future.
IX. Nonalienation of Benefits.
-------------------------
Except as hereinafter provided with respect to marital disputes, neither
benefits or rights of a Participant or any Beneficiary shall be subject to the
claim of any creditor. In particular, to the fullest extent permitted by law,
all of such benefits and rights shall be free from attachment, garnishment or
any other legal or equitable process available to any creditor of the
Participant or the Beneficiary. Neither the Participant nor the Beneficiary
shall have the right to alienate, anticipate, commute, pledge, encumber, or
assign any of the benefits or payments which he or she may expect to receive,
contingently or otherwise, under this Plan, except the right to designate a
Beneficiary. In cases of marital dispute, Unisource will observe the terms of
the Plan unless and until ordered to do otherwise by a state or federal court,
whether such order effects a judgment of such court or is issued to enforce a
judgment or order of another court.
X. Adverse Determinations.
----------------------
10.01 Claim for Benefits. If at any time the Administrator makes a
------------------
determination adverse to a Participant or any other claimant with respect to a
written 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 therefor;
(b) the 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 for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) an explanation of the rights and procedures set forth in
Section 10.02.
5
<PAGE>
The Administrator's decision shall be forwarded to the claimant within 90
days of the Administrator's receipt of the claim; provided, however, that in
special circumstances the Administrator may extend the response period for up to
an additional 90 days, provided that the Administrator so notifies the claimant
in writing and specifies the reason or reasons for such extensions.
10.02 Review of Claim. A Participant or any other claimant who
---------------
receives notice of an adverse determination by the Administrator with respect to
his claim may himself or through his duly authorized representative:
(a) request in writing within 60 days of receipt of such notice a
review of the Administrator's determination by the Committee;
(b) review pertinent documents; and
(c) submit issues and comments with respect to the controversy in
writing to the Committee.
The Committee shall render a decision within 60 days of receipt of a
request for review, 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. The Committee may extend the 60 day
response period in special circumstances for up to an additional 60 days.
Written notice of the extension shall be sent to the claimant prior to the
commencement of the extension. A copy of such decision shall be delivered to
the Participant and maintained in the records of the Committee.
XI. Amendment and Termination.
-------------------------
Unisource's Board of Directors reserves the right to amend this Plan at any time
and from time to time in any fashion, and to terminate it at will. No amendment
or termination of the Plan shall decrease or restrict any vested benefit which a
Participant (or Beneficiary) has accrued under the Plan, as of the date of
termination or amendment of the Plan based on the Participant's accrued benefit
under the Master Plan at such date, unless the Participant (or Beneficiary)
would have been entitled to a smaller Plan benefit if the Plan had not been
amended or terminated.
XII. No Contract of Employment.
-------------------------
Nothing contained herein shall be construed as conferring upon any person the
right to be employed or continue in the employ of the Company.
XIII. Applicable Law.
--------------
The provisions of this Plan shall be construed and interpreted according to the
laws of the Commonwealth of Pennsylvania to the extent not superseded by federal
law.
6
<PAGE>
XIV. Successors.
----------
The provisions of this Plan shall bind and inure to the benefit of Unisource and
its successors and assigns. The term successors as used herein shall include
any corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise, acquire all or substantially all of the
business and assets of Unisource, and successors of any such corporation or
other business entity.
IN WITNESS WHEREOF, and as evidence of the adoption of the foregoing Plan,
Unisource has caused the same to be executed by its duly authorized officers
this _____ day of _______________,1996.
UNISOURCE WORLDWIDE, INC.
By:
--------------------------
7
<PAGE>
Conformed Copy
BENEFITS AGREEMENT
dated as of
November 20, 1996
between
ALCO STANDARD CORPORATION
and
UNISOURCE WORLDWIDE, INC.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS...................................................................... 1
Section 1.01. Definitions....................................................... 1
-----------
ARTICLE II
EMPLOYEES AND ALLOCATION OF LIABILITIES.......................................... 4
Section 2.01. Allocation of Employee Liabilities................................ 4
----------------------------------
Section 2.02. Offer of Employment; Benefit Plan Coverage........................ 5
------------------------------------------
Section 2.03. Accounting Adjustments............................................ 5
----------------------
Section 2.04. Collective Bargaining Agreements.................................. 6
--------------------------------
Section 2.05. Administration.................................................... 6
--------------
ARTICLE III
PENSION AND SAVINGS PLANS........................................................ 7
Section 3.01. Plans to be Transferred to Unisource.............................. 7
------------------------------------
Section 3.02. Participating Companies Pension Plan.............................. 7
------------------------------------
Section 3.03. Transfer of Pension Plan Assets................................... 11
-------------------------------
Section 3.04. Supplemental Executive Retirement Plan............................ 13
--------------------------------------
Section 3.05. Retirement Savings Plan........................................... 13
-----------------------
Section 3.06. Assumption of Liabilities Upon Transfer of Plan Assets; Filings... 15
---------------------------------------------------------------
ARTICLE IV
EMPLOYEE STOCK OPTION PLANS...................................................... 16
Section 4.01. Employee Stock Option Plans....................................... 16
---------------------------
ARTICLE V
PARTNER PLANS.................................................................... 18
Section 5.01. Partners' Stock Purchase Plan..................................... 18
-----------------------------
Section 5.02. Partner Loan Program.............................................. 19
--------------------
ARTICLE VI
OTHER EMPLOYEE PLANS............................................................. 20
Section 6.01. Bonus and Long-Term Incentive Plans............................... 20
-----------------------------------
Section 6.02. Deferred Compensation Plans....................................... 20
---------------------------
Section 6.03. Welfare Benefit Plans............................................. 24
---------------------
Section 6.04. Monthly Investment Plan........................................... 27
-----------------------
Section 6.05. Vacation Pay and Similar Items.................................... 28
------------------------------
Section 6.06. Canadian Plans.................................................... 28
--------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VII
DIRECTORS PLANS.................................................................. 28
Section 7.01. Stock Options..................................................... 28
-------------
Section 7.02. Retirement Plan................................................... 29
---------------
ARTICLE VIII
INDEMNIFICATION.................................................................. 29
Section 8.01. Unisource Indemnification of the Alco Group....................... 29
-------------------------------------------
Section 8.02. Alco Indemnification of Unisource Group........................... 30
---------------------------------------
Section 8.03. Insurance and Third Party Obligations............................. 30
-------------------------------------
ARTICLE IX
INDEMNIFICATION PROCEDURES....................................................... 31
Section 9.01. Notice and Payment of Claims...................................... 31
----------------------------
Section 9.02. Notice and Defense of Third-Party Claims.......................... 31
----------------------------------------
ARTICLE X
MISCELLANEOUS.................................................................... 33
Section 10.01. Notices.......................................................... 33
-------
Section 10.02. Amendment and Waiver............................................. 34
--------------------
Section 10.03. Entire Agreement................................................. 34
----------------
Section 10.04. Parties in Interest.............................................. 35
-------------------
Section 10.05. Further Assurances and Consents.................................. 35
-------------------------------
Section 10.06. Severability..................................................... 36
------------
Section 10.07. Governing Law.................................................... 36
-------------
Section 10.08. Counterparts..................................................... 36
------------
Section 10.09. Disputes......................................................... 36
--------
</TABLE>
SCHEDULE 1.01
Closed or Sold Operations Included in the Unisource Business
SCHEDULE 2.04
Multi-Employer Plans
SCHEDULE 3.01
Pension and Savings Plans to be Transferred to Unisource
SCHEDULE 3.02
Calculation of Former Employees Portion, Active Unisource Employees Portion
and Active Alco Employees Portion as of December 31, 1995
SCHEDULE 4.01
Conversion and Adjustment of Outstanding Stock Options
ii
<PAGE>
BENEFITS AGREEMENT
BENEFITS AGREEMENT ("Agreement") dated as of November 20, 1996 by and
between Alco Standard Corporation, an Ohio corporation (together with its
successors and permitted assigns, "Alco"), and Unisource Worldwide, Inc., a
Delaware corporation (together with its successors and permitted assigns,
"Unisource").
RECITALS
(A) Unisource is presently a wholly-owned subsidiary of Alco.
(B) The Board of Directors of Alco has determined that it is in the
best interest of Alco and the stockholders of Alco to make a distribution (the
"Distribution") to the holders of Alco Common Stock (as defined herein) of all
of the outstanding shares of Unisource Common Stock (as defined herein).
(C) The parties have entered into a Distribution Agreement dated as of
November 20, 1996 (the "Distribution Agreement").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements and covenants contained in this Agreement, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used herein, the following terms have
-----------
the following meanings:
"Action" means any claim, suit, arbitration inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
1
<PAGE>
"Active Alco Employee" means any person who is an employee of the Alco
Group as of the Effective Date, including an employee who is absent on account
of sick leave, short-term disability or authorized leave of absence.
"Active Unisource Employee" means:
(i) Any person who is employed in the Unisource Business as of
the Effective Date, including any employee of the Unisource Business
who is absent from work on the Effective Date on account of sick
leave, short-term disability, leave of absence, or otherwise, and
including any employee of the Unisource Business who is receiving
severance payments on the Effective Date;
(ii) Any corporate staff employee of the Alco Group who is
designated by Unisource and Alco as an employee to whom Unisource will
offer employment as of the Effective Date; and
(iii) Any employee of the Unisource Business as of the Effective
Date who is determined to have incurred a long-term disability (as
defined in Section 6.03(c)) on or after October 1, 1996. The term
"Active Unisource Employee" shall not include an employee who is
determined to have incurred a long-term disability before October 1,
1996.
"Alco Common Stock" means the outstanding shares of common stock, no
par value, of Alco.
"Alco Group" means Alco and its subsidiaries, excluding any member of
the Unisource Group.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE>
"Distribution" is defined in the recitals of this Agreement.
"Distribution Agreement" is defined in the recitals of this Agreement.
"Effective Date" means January 1, 1997.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Former Unisource Employee" means any former employee of the Unisource
Business as of the Effective Date (including, without limitation, an employee of
the Unisource Business who retired or otherwise terminated employment before the
Effective Date) whose last day of active employment was with the Unisource
Business, other than (i) an employee who is receiving severance payments on the
Effective Date and (ii) an employee who is determined to have incurred a long-
term disability on or after October 1, 1996.
"Unisource Business" means the business now or formerly conducted by
Unisource and its present or former subsidiaries or any other member of the
Unisource Group, and shall include the closed or sold operations listed on
Schedule 1.01.
"Unisource Common Stock" means the outstanding shares of common stock,
no par value, of Unisource.
"Unisource Director" shall mean a person who is a member of the Board
of Directors of Unisource as of the Effective Date.
"Unisource Group" shall mean Unisource, its subsidiaries and any
subsidiary or division of any member of the Alco Group that is operated under
the control of Unisource and is included in the results of Unisource for
internal financial reporting purposes.
3
<PAGE>
ARTICLE II
EMPLOYEES AND ALLOCATION OF LIABILITIES
Section 2.01. Allocation of Employee Liabilities.
----------------------------------
(a) As of the Effective Date, Unisource shall assume, retain and be
liable for all wages, salaries, welfare, pension, incentive compensation and
other employee-related liabilities and obligations ("Employee Liabilities") with
respect to Active Unisource Employees, except as specifically provided otherwise
in this Agreement. Unisource shall assume, retain and be liable for Employee
Liabilities with respect to Former Unisource Employees only as provided in this
Agreement, except that if any Employee Liability arises with respect to an
Active or Former Unisource Employee that is not covered in this Agreement (other
than worker's compensation liability, which is covered in the Distribution
Agreement), Unisource shall be liable for such Employee Liability. Alco shall
assume, retain and be liable for Employee Liabilities with respect to Active and
Former Unisource Employees to the extent described in this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, Alco
shall be liable for all Employee Liabilities with respect to Edward Patrone, and
he shall not be considered a Former or Active Unisource Employee for purposes of
this Agreement.
(c) Except as specifically provided otherwise in this Agreement, as of
the Effective Date, Alco shall transfer (or cause to be transferred) to
Unisource all reserves and other assets held by the Alco Group that are
attributable to liabilities assumed or retained by Unisource under this
Agreement.
4
<PAGE>
Section 2.02. Offer of Employment; Benefit Plan Coverage.
------------------------------------------
(a) Unisource shall offer those persons who are employed by the Alco
Group immediately before the Effective Date, and who have been designated as
Active Unisource Employees, employment with the Unisource Group as of the
Effective Date, on terms and conditions, and with aggregate compensation and
benefits, substantially similar to those of their employment with the Alco Group
immediately before the Effective Date.
(b) Active Unisource Employees shall not continue to be active
participants in benefit plans maintained by the Alco Group on or after the
Effective Date and, instead, shall be eligible to participate in applicable
Unisource plans, as determined by Unisource, as of the Effective Date. Unisource
shall treat service of each Active Unisource Employee with the Alco Group before
the Effective Date as if such service had been with Unisource for purposes of
determining eligibility to participate, eligibility for benefits, benefit forms
and vesting under plans maintained by Unisource, to the extent the corresponding
Alco plans gave credit for such service.
Section 2.03. Accounting Adjustments. As of October 1, 1996,
----------------------
Unisource has established on its books for financial accounting purposes
liabilities and reserves for pension, welfare and other employee benefit plan
obligations that will be retained or assumed by Unisource under this Agreement,
and Alco has adjusted the liabilities and reserves on its books for financial
accounting purposes to take into account Unisource's assumption or retention of
liabilities under this Agreement. The initial adjustments as of October 1, 1996
have been made on an estimated basis. After the parties have finally calculated
the actual liabilities under this Agreement, each party shall appropriately
adjust its liabilities and reserves to reflect the actual
5
<PAGE>
amount of the liabilities and reserves that are properly allocable to that
party. Neither party shall have any obligation to make payments or transfer
assets to the other party with respect to such adjustments.
Section 2.04. Collective Bargaining Agreements. As of the Effective
--------------------------------
Date, Unisource shall assume any and all obligations of the Alco Group under
collective bargaining agreements with respect to Active or Former Unisource
Employees and any and all obligations of the Alco Group to contribute to multi-
employer plans (as defined in Section 3(37) of ERISA) with respect to Active or
Former Unisource Employees. On and after the Effective Date, any withdrawal
liability obligations, and any expenses or other amounts related thereto, that
are payable to any multi-employer plan with respect to Active or Former
Unisource Employees, regardless of whether such obligations relate to services
performed before or after the Effective Date, shall be the sole responsibility
of Unisource. Attached as Schedule 2.04, for information purposes only, is a
list of all multi-employer plans covering Active Unisource Employees as of the
Effective Date.
Section 2.05. Administration. Unisource and Alco shall each make its
--------------
appropriate employees and data regarding employee benefit coverage available to
the other at such reasonable times as may be necessary for the proper
administration by the other of any and all matters relating to employee benefits
and worker's compensation claims affecting its employees.
6
<PAGE>
ARTICLE III
PENSION AND SAVINGS PLANS
Section 3.01. Plans to be Transferred to Unisource.
------------------------------------
(a) As of the Effective Date, Unisource shall assume all of the Alco
Group's obligations with respect to the pension and savings plans listed on
Schedule 3.01 (the "Transferred Plans"). Unisource (or a member of the
Unisource Group) shall maintain each Transferred Plan on and after the Effective
Date and shall take all actions necessary to be substituted for the Alco Group
with respect to each Transferred Plan. The Alco Group shall cease to be the
plan sponsor for the Transferred Plans as of the Effective Date.
(b) The assets of Alco's Group Trust Fund (the "Group Trust Fund")
allocable to each Transferred Plan whose assets are held in the Group Trust Fund
shall be transferred in kind to a trust fund established by Unisource for the
Transferred Plan as described in Section 3.03. The assets of any other Alco
trust fund maintained for a Transferred Plan shall be transferred in kind on the
Effective Date to a trust fund established by Unisource for the Transferred
Plan.
Section 3.02. Participating Companies Pension Plan.
------------------------------------
(a) As of the Effective Date, Unisource shall establish a defined
benefit pension plan and trust (the "Unisource Pension Plan") covering Active
Unisource Employees who are participants in Alco's Participating Companies
Pension Plan (the "Alco Pension Plan") that shall be initially comparable to the
Alco Pension Plan. The Unisource Pension Plan shall be qualified under Sections
401 and 501 of the Code.
7
<PAGE>
(b) As of the Effective Date, Alco shall direct the trustees of the
Alco Pension Plan to divide the assets of the Alco Pension Plan into three
portions, as follows:
(i) The "Former Employees Portion" shall be that portion of the
fair market value of the assets of the Alco Pension Plan as of the
Effective Date equal to the accumulated benefit obligations ("ABO") of
all participants in the Alco Pension Plan who are not Active Alco
Employees or Active Unisource Employees as of the Effective Date.
(ii) The "Active Alco Employees Portion" shall be an amount equal
to the total fair market value of the assets of the Alco Pension Plan
as of the Effective Date, less the Former Employees Portion,
multiplied by a fraction, the numerator of which is the aggregate
projected benefit obligations (as defined below) ("PBO") of the Active
Alco Employees in the Alco Pension Plan as of the Effective Date and
the denominator of which is the total PBO of all Active Alco Employees
and Active Unisource Employees in the Alco Pension Plan as of the
Effective Date.
(iii) The "Active Unisource Employees Portion" shall be an amount
equal to the total fair market value of the assets of the Alco Pension
Plan as of the Effective Date, less the Former Employees Portion,
multiplied by a fraction, the numerator of which is the aggregate PBO
of the Active Unisource Employees in the Alco Pension Plan as of the
Effective Date and the denominator of which is the total PBO of all
Active Alco Employees and Active Unisource Employees in the Alco
Pension Plan as of the Effective Date.
8
<PAGE>
(iv) Attached as Schedule 3.02 is a calculation of the Former
Employees Portion, Active Unisource Employees Portion and Active Alco
Employees Portion computed as of December 31, 1995 in accordance with
this Section 3.02.
(c) After the foregoing division has been made, Alco shall direct the
trustees of the Alco Pension Plan to transfer to the Unisource Pension Plan
assets equal to the Active Unisource Employees Portion. The Former Employees
Portion and the Active Alco Employees Portion shall remain in the Alco Pension
Plan, and Alco shall remain responsible for providing benefits with respect to
participants who are not Active Unisource Employees.
(d) The terms "accumulated benefit obligations" and "projected benefit
obligations" shall have the meanings given those terms in the Statement of
Financial Accounting Standards No. 87 ("FAS 87"), using the same assumptions as
are used by Alco for financial reporting purposes under FAS 87 as of September
30, 1996.
(e) For purposes of calculating the value of the Alco Pension Plan
assets as of the Effective Date, there shall be included a receivable for Alco's
contributions for the plan year ending September 30, 1996 and for the portion of
the 1997 plan year ending on the Effective Date, which shall be calculated
consistent with Alco's past practice for making contributions to the Alco
Pension Plan. Unisource shall reimburse Alco for Unisource's pro rata share of
the contribution relating to the plan year ended September 30, 1996, no later
than the date on which Alco makes such contribution to the Alco Pension Plan.
Unisource shall contribute its pro rata share of the 1997 plan year contribution
to the applicable Unisource pension plan.
9
<PAGE>
(f) If the amount calculated for transfer to the Unisource Pension
Plan under the foregoing provisions of this Section 3.02 is not sufficient to
satisfy section 414(l) of the Code, the amount shall be adjusted so as to equal
the minimum amount required by section 414(l) of the Code. If the amount
calculated for transfer to the Unisource Pension Plan under the foregoing
provisions of this Section 3.02 is greater than the maximum amount allowed to be
transferred under section 414(l) of the Code (such that section 414(l) of the
Code would be violated by the transfer), the amount shall be adjusted to the
extent necessary to cause the requirements of section 414(l) of the Code to be
met. In either event, the party whose plan received more assets than the amount
calculated under the foregoing provisions of this Section 3.02 shall make an
appropriate payment directly to the other party to place the parties in the same
economic position as if only the amount calculated under the foregoing
provisions of this Section 3.02 had been transferred.
(g) Alco shall adjust the amount to be transferred from the Alco
Pension Plan to the Unisource Pension Plan, as calculated above, by a pro rata
share of the Alco Pension Plan earnings, gains and losses, appreciation,
depreciation and expenses for the period between the Effective Date and the date
on which the assets are actually transferred, and by the assets transferred
pursuant to the second sentence of Section 3.03(a).
(h) The calculations referred to in this Section 3.02 shall be made by
Alco's actuaries and shall be subject to review by Unisource's actuaries. The
assets shall be transferred in kind as described in Section 3.03.
10
<PAGE>
(i) The accrued benefits to be credited under the Unisource Pension
Plan as of the Effective Date with respect to Active Unisource Employees shall
not be less than the accrued benefits of the Active Unisource Employees under
the Alco Pension Plan immediately before the Effective Date.
(j) If an employee of the Unisource Business incurred a long-term
disability before October 1, 1996 and for that reason is not considered an
Active Unisource Employee, and the employee subsequently recovers from the long-
term disability and returns to work with the Unisource Group, Alco shall direct
the trustees of the Alco Pension Plan to transfer an amount equal to the PBO of
such employee from the Alco Pension Plan to the applicable Unisource pension
plan covering such employee. The amount shall be computed and transferred as of
the end of the calendar year in which the employee returns to work and shall be
computed based on the assumptions used by Alco for financial reporting purposes
under FAS 87 as of the end of the fiscal year ending in that calendar year. The
amount to be transferred shall be determined consistent with Section 414(l) of
the Code and shall be transferred within 30 days after the end of the calendar
year in which the employee returns to work. Unisource and its applicable pension
plan shall assume liability for all benefits payable with respect to the
transferred assets. Unisource shall also assume liability for all benefits that
are payable under Alco's Supplemental Retirement Plan with respect to the
employee on and after the date on which the employee returns to work with the
Unisource Group.
Section 3.03. Transfer of Pension Plan Assets.
-------------------------------
(a) The assets of Alco's Group Trust Fund allocable to the Transferred
Plans and to the portion of the Alco Pension Plan that is to be transferred to
the Unisource Pension
11
<PAGE>
Plan shall be transferred in kind to one or more trusts established by Unisource
for the Unisource plans. Within 30 days after the Effective Date, Alco shall
transfer to the Unisource trust an amount that Alco and Unisource deem
sufficient to cover all benefit payments required to be made with respect to
Active Unisource Employees under the Unisource pension plans before the date on
which the final asset transfer occurs. The remaining assets shall be
transferred as soon as is practicable after the actuaries finalize their
calculation of the amount to be transferred, and after receipt of any
governmental approvals.
(b) Alco shall apportion the assets of the Group Trust Fund pro rata,
to the extent practicable, in a fair and equitable manner, consistent with the
fiduciary obligations of Alco and the plan trustees, between the plans remaining
with Alco and the plans or plan assets being transferred to the Unisource trust.
The trustees of the Alco Group Trust Fund have determined that the Alco Common
Stock held in the Group Trust Fund will be allocated to the plans remaining with
Alco and, except as provided below, the Unisource Common Stock held in the Group
Trust Fund will be allocated to the Unisource trust. However, in order to comply
with applicable law, on the date on which assets are transferred to the
Unisource trust, the fair market value of the Unisource Common Stock allocated
to the Unisource trust shall not exceed 10% of the fair market value of the
assets of the applicable Unisource plans. Any Unisource Common Stock that is not
allocated to the Unisource trust as a result of this limit shall be allocated to
the plans remaining with Alco.
(c) If for any reason the amount transferred from Alco's Group Trust
Fund to the Unisource trust exceeds or is less than the amount that should have
been transferred pursuant to this Article III, an appropriate amount shall be
transferred between the Unisource trust and
12
<PAGE>
Alco's Group Trust Fund such that Alco's Group Trust Fund and the Unisource
trust will be in the same economic position as if only the correct amount had
been transferred.
Section 3.04. Supplemental Executive Retirement Plan. As of the
--------------------------------------
Effective Date, Unisource shall establish a supplemental executive retirement
plan for eligible Active Unisource Employees, and Unisource shall assume
liability for all benefits that are payable on or after the Effective Date with
respect to Active Unisource Employees under Alco's Supplemental Executive
Retirement Plan. Alco shall be liable for all benefits payable under Alco's
Supplemental Executive Retirement Plan with respect to Former Unisource
Employees.
Section 3.05. Retirement Savings Plan.
-----------------------
(a) As of the Effective Date, Unisource shall establish a defined
contribution plan and trust (the "Unisource RSP") covering Active Unisource
Employees who are participants in Alco's Retirement Savings Plan (the "Alco
RSP"). The Unisource RSP shall be qualified under Sections 401 and 501 of the
Code and shall provide for salary reduction contributions pursuant to Section
401(k) of the Code.
(b) Assets of the Alco RSP equal to the aggregate account balances of the
Active Unisource Employees under the Alco RSP shall be transferred to the
Unisource RSP as of the Effective Date. The transfer shall be made in cash,
interests in mutual funds, Alco Common Stock and Unisource Common Stock,
according to the investment of each Active Unisource Employee's account as of
the date on which the transfer is made. Any outstanding balances of plan loans
to Active Unisource Employees shall be transferred with the underlying accounts.
The account balances of the Active Unisource Employees shall be valued as of the
date on which the transfer is made, which value shall include the earnings,
gains and losses, appreciation and
13
<PAGE>
depreciation of the investment funds in which the accounts are invested through
the date on which the transfer is made. Alco and the Alco RSP shall remain
responsible for providing benefits accrued under the Alco RSP for Former
Unisource Employees.
(c) After the Effective Date, Unisource shall allow participants in the
Unisource RSP to retain their investment in shares of Alco Common Stock under
the Unisource RSP for such period as Unisource deems appropriate. Unless
Unisource determines otherwise, Unisource shall allow participants to transfer
investments out of the Alco Common Stock investment fund under the Unisource
RSP, but no investments may be transferred into the Alco Common Stock fund under
the Unisource RSP.
(d) After the Effective Date, Alco shall allow participants in the Alco RSP
to retain their investment in shares of Unisource Common Stock under the Alco
RSP for such period as Alco deems appropriate. Unless Alco determines
otherwise, Alco shall allow participants to transfer investments out of the
Unisource Stock Fund under the Alco RSP, but no investments may be transferred
into the Unisource Stock Fund under the Alco RSP.
(e) Each party shall provide to the other party in a timely manner such
proxy statements, annual reports, and other materials with respect to the
party's stock as may be reasonably requested by the other party.
(f) Alco shall retain all company-owned life insurance policies purchased
with respect to participants in the Alco RSP, except as otherwise provided in
Section 6.02 with respect to life insurance policies purchased in connection
with deferred compensation plans.
14
<PAGE>
(g) If an employee of the Unisource Business incurred a long-term
disability before October 1, 1996 and for that reason is not considered an
Active Unisource Employee, and the employee subsequently recovers from the long-
term disability and returns to work with the Unisource Group, Alco shall direct
the trustee of the Alco RSP to transfer assets of the Alco RSP equal to the
account balance of such employee to the Unisource RSP as of the end of the
calendar year in which the employee returns to work. The transfer shall be made
consistent with Section 414(l) of the Code and subsection (b) above, and shall
be made within 30 days after the end of the plan year in which the Unisource
Employee returns to work. Unisource and the Unisource RSP shall assume
liability for all benefits payable with respect to the transferred assets.
Section 3.06. Assumption of Liabilities Upon Transfer of Plan Assets;
-------------------------------------------------------
Filings.
- - -------
(a) Effective on the date of the transfer of assets of a Transferred Plan,
the Alco Pension Plan or the Alco RSP, (i) the Unisource Group and its
applicable benefit plan shall assume all liabilities in connection with the
transferred assets, and (ii) the Alco Group shall have no further liability with
respect to the assets and liabilities that are transferred. The Alco Group
shall have no liability with respect to Unisource's pension and savings plans,
and the Unisource Group shall have no liability with respect to Alco's pension
and savings plans.
(b) Unisource and Alco shall make the appropriate filings required under
the Code or ERISA in connection with the transfers described in this Article III
in a timely manner. The parties agree that the transfers described in Sections
3.02 and 3.05 shall be made in accordance with Section 414(1) of the Code.
15
<PAGE>
(c) Unisource shall submit to the Internal Revenue Service requests for
favorable determination letters with respect to the tax-qualified status of the
Transferred Plans, the Unisource Pension Plan and the Unisource RSP as soon as
practicable after the Effective Date, and Unisource shall make such amendments
to the plans as may be required by the Internal Revenue Service in order for
Unisource to receive favorable determination letters with respect to the plans.
ARTICLE IV
EMPLOYEE STOCK OPTION PLANS
Section 4.01. Employee Stock Option Plans.
---------------------------
(a) Unisource shall establish one or more stock option plans for eligible
Active Unisource Employees. Unisource and Alco shall give each Active Unisource
Employee an opportunity to elect, by December 6, 1996, either:
(i) To have all the Active Unisource Employee's options to purchase
Alco Common Stock that are outstanding as of December 31, 1996 and that
were granted under the Alco Group's stock options plans (both vested and
unvested options) converted into options to purchase Unisource Common
Stock, or
(ii) To retain the Active Unisource Employee's vested options to
purchase Alco Common Stock that are outstanding as of December 31, 1996
until March 31, 1997 (but not later than the end of their term), thereby
forfeiting any unvested options.
For purposes of this Section 4.01, the term "Active Unisource Employee" shall
not include an employee of the Unisource Business who is receiving severance
payments on or after December
16
<PAGE>
6, 1996; any options to purchase Alco Common Stock that held by such a person
and are outstanding as of December 31, 1996 shall be adjusted as described in
subsection (b) below. If an Active Unisource Employee elects alternative (ii),
(A) the Active Unisource Employee's unvested Alco options shall terminate as of
the Effective Date, (B) the Active Unisource Employee's vested Alco options
shall be adjusted as described in subsection (b) below, (C) the Active Unisource
Employee's vested Alco options shall be exercisable until March 31, 1997 (but
not beyond the stated term of the options), and (D) any vested Alco options that
are not exercised by March 31, 1997 (or by the end of their term, if sooner)
shall immediately terminate. If an Active Unisource Employee fails to make an
election, his or her Alco options shall not be converted into Unisource options.
The conversion of Alco options into Unisource options shall be made according to
the applicable formula set forth in Schedule 4.01 and shall be made consistent
with Section 424(a) of the Code with respect to options that are "incentive
stock options" under Section 422 of the Code. The Unisource options shall have
vesting and other terms identical to those of the Alco options that they
replace, except that, for the period after the Effective Date, service with the
Unisource Group shall be considered continued service with the employer.
(b) Alco shall adjust all outstanding options to purchase Alco Common Stock
that were granted under the Alco Group's stock option plans and that are held by
persons who are not Active Unisource Employees or Unisource Directors, or that
are held by Active Unisource Employees who retain their Alco options under
subsection (a) above, to take into account the Distribution. The adjustment
shall be made according to the applicable formula set forth in Schedule 4.01 and
shall be made consistent with Section 424(a) of the Code with respect to
17
<PAGE>
options that are "incentive stock options" under Section 422 of the Code.
ARTICLE V
PARTNER PLANS
Section 5.01. Partners' Stock Purchase Plan.
-----------------------------
(a) Unisource shall establish a stock purchase plan for its eligible
employees, directors and consultants designated by Unisource as partners (the
"Unisource PSPP"). Unisource shall assume liability for all benefits that are
payable on or after the Effective Date under Alco's Partners' Stock Purchase
Plan (the "Alco PSPP") with respect to Active Unisource Employees (which term
shall include, for purposes of the PSPP only, any Unisource consultants
participating in the PSPP) and Unisource Directors. The accounts of Active
Unisource Employees and Unisource Directors under the Alco PSPP shall be
transferred to the Unisource PSPP within 30 days after the Effective Date. Any
unvested shares held for Active Unisource Employees and Unisource Directors
shall continue to vest in accordance with the existing vesting schedules, which
shall take into account service with the Unisource Group as continued service
for the period after the Effective Date. Alco shall remain responsible for any
Alco PSPP benefits payable to Former Unisource Employees.
(b) Unisource shall allow each eligible Active Unisource Employee and
Unisource Director to direct that the shares of Alco Common Stock held in his or
her account under the Unisource PSPP be converted into shares of Unisource
Common Stock. The conversions into Unisource shares shall be made by exchanging
shares of Alco Common Stock for shares of Unisource Common Stock based on the
closing price of Alco Common Stock and Unisource Common Stock, respectively, as
of the last business day of the month in which the
18
<PAGE>
Active Unisource Employee or Unisource Director elects to have Alco shares
converted into Unisource shares.
(c) Alco shall allow each of its eligible employees, directors and
consultants who remain with the Alco Group to direct that the shares of
Unisource Common Stock held in his or her account under the Alco PSPP be
converted into shares of Alco Common Stock. The conversions into Alco shares
shall be made by exchanging shares of Unisource Common Stock for shares of Alco
Common Stock based on the closing price of Alco Common Stock and Unisource
Common Stock, respectively, as of the last business day of the month in which
the employee, director or consultant elects to have Unisource shares converted
into Alco shares.
(d) Unisource and Alco each agree to purchase or sell such shares of
Unisource Common Stock or Alco Common Stock, respectively, as may be necessary
to effect the conversions described in subsections (b) and (c), at the prices at
which the exchanges of shares are to be made.
Section 5.02. Partner Loan Program. Unisource shall establish a loan
--------------------
program for its eligible employees designated by Unisource as partners (the
"Unisource Loan Program"). All existing loans for Active Unisource Employees
under Alco's Partner Loan Program, and the related collateral, shall be
transferred to the Unisource Loan Program as soon as administratively
practicable after the Effective Date, and Unisource shall assume all rights and
responsibilities with respect to such loans. Active Unisource Employees shall
be given an opportunity to substitute shares of Unisource Common Stock for
shares of Alco Common Stock as collateral for their loans, and continuing Alco
employees shall be given an opportunity to substitute shares of Alco Common
Stock for shares of Unisource Common Stock as collateral for their loans under
19
<PAGE>
Alco's Partner Loan Program. Alco shall remain responsible for any existing
loans under Alco's Partner Loan Program with respect to Former Unisource
Employees.
ARTICLE VI
OTHER EMPLOYEE PLANS
Section 6.01. Bonus and Long-Term Incentive Plans.
-----------------------------------
(a) Unisource shall establish such bonus plans as it deems appropriate for
Active Unisource Employees for periods beginning on and after October 1, 1996.
(b) Unisource shall establish a long-term incentive plan (the "Unisource
LTIP") for eligible Active Unisource Employees, and Unisource shall assume
liability for all amounts payable under Alco's Long-Term Incentive Compensation
Plan ("the Alco LTIP") to Active Unisource Employees with respect to periods
ending on or after October 1, 1996. The outstanding Alco LTIP awards for Active
Unisource Employees shall be paid under the Unisource LTIP. The outstanding
Alco LTIP awards for Active Unisource Employees for the 1995-97 plan period
shall be paid in the form of Unisource Common Stock. Unisource shall make such
adjustments to the financial goals, targets, payments and forms of payment as
Unisource deems appropriate to take into account the Distribution.
(c) Alco shall remain responsible for any amounts payable under Alco bonus
plans or the Alco LTIP with respect to periods ending before October 1, 1996.
Section 6.02. Deferred Compensation Plans.
---------------------------
(a) Unisource shall establish one or more deferred compensation plans,
which shall permit eligible Active Unisource Employees to defer compensation
upon such terms as Unisource deems appropriate.
20
<PAGE>
(b) Alco shall retain all liabilities with respect to Alco's 1980 Deferred
Compensation Plan (the "1980 Plan"), and Alco shall pay all benefits to or with
respect to Active or Former Unisource Employees as required by the terms of the
1980 Plan. Service with the Unisource Group after the Effective Date shall be
considered continued service with the employer for purposes of vesting and
payment of benefits under the 1980 Plan. Alco shall retain all insurance
policies purchased by Alco in connection with the 1980 Plan, and Unisource shall
have no liability with respect to the 1980 Plan.
(c) Unisource shall pay all benefits to or with respect to Active or Former
Unisource Employees (other than employees described in subsection (g) below)
under Alco's 1985 Deferred Compensation Plan (the "1985 Plan") as the benefits
become due. Alco shall reimburse Unisource for the cost (as defined in
subsection (h) below) of each benefit payment made by Unisource under the 1985
Plan. Service with the Unisource Group after the Effective Date shall be
considered continued service with the employer for purposes of vesting and
payment of benefits under the 1985 Plan. Alco shall retain all insurance
policies purchased by Alco in connection with the 1985 Plan.
(d) (i) Active Unisource Employees shall cease deferrals under Alco's
1991 Deferred Compensation Plan (the "1991 Plan") as of the Effective Date. The
retirement benefit of any Active Unisource Employee who is making deferrals
under the 1991 Plan immediately before the Effective Date shall be computed as a
pro rata portion (based on deferrals actually made) of the retirement benefit
that would have been payable had the Active Unisource Employee's deferrals
continued to the end of the applicable deferral period. The pro rata portion
for a participant who has made deferrals based on a ten-year deferral period
since the inception of
21
<PAGE>
the 1991 Plan through December 31, 1996 shall be 73% of the participant's
retirement benefit under the 1991 Plan. Service with the Unisource Group after
the Effective Date shall be considered continued service with the employer for
purposes of vesting and payment of benefits under the 1991 Plan. Each Active
or Former Unisource Employee who has a benefit under the 1991 Plan shall
continue to pay Alco the monthly payment for the cost of life insurance benefits
under the 1991 Plan, as required by the 1991 Plan, until the Active or Former
Unisource Employee attains age 65 or retires from the Unisource Group, whichever
occurs later.
(ii) Unisource shall pay all benefits to or with respect to Active or
Former Unisource Employees (other than employees described in subsection (g)
below) under the 1991 Plan as the benefits become due. Alco shall reimburse
Unisource for the cost (as described in subsection (h) below) of each benefit
payment made by Unisource under the 1991 Plan. Alco shall retain all insurance
policies purchased by Alco in connection with the 1991 Plan, except as provided
below.
(iii) When an Active or Former Unisource Employee (other than an
employee described in subsection (g) below) attains age 65 or retires from the
Unisource Group, whichever occurs later, Alco shall transfer to Unisource, and
Unisource shall immediately transfer to the Active or Former Unisource Employee,
a life insurance policy that is attributable to the life insurance benefit under
the split-dollar arrangement of the 1991 Plan. Alco shall not transfer any
insurance policies relating to the retirement benefits under the 1991 Plan. If
for any reason Unisource is not able to transfer such life insurance policy
immediately to the Active or Former Unisource Employee, Alco shall transfer the
policy directly to the Active or Former Unisource Employee pursuant to the terms
of the 1991 Plan. Any tax benefit received by
22
<PAGE>
Unisource as a result of the transfer of a life insurance policy to an Active or
Former Unisource Employee shall be a credit against, and shall reduce, any
reimbursements that are to be made by Alco to Unisource with respect to benefits
paid by Unisource under the 1991 Plan or under other deferred compensation plans
pursuant to this Section 6.02.
(e) Active Unisource Employees shall cease deferrals under Alco's 1994
Deferred Compensation Plan (the "1994 Plan") as of the Effective Date. The
retirement benefit of an Active or Former Unisource Employee under the 1994 Plan
shall be computed based on the Active or Former Unisource Employee's deferrals
made before the Effective Date, adjusted by future hypothetical investment
performance pursuant to the 1994 Plan. Service with the Unisource Group after
the Effective Date shall be considered service with the employer for purposes of
vesting and payment of benefits under the 1994 Plan. Unisource shall pay all
benefits to or with respect to Active or Former Unisource Employees (other than
employees described in subsection (g) below) under the 1994 Plan as the benefits
become due. Alco shall reimburse Unisource for the cost (as described in
subsection (h) below) of each benefit payment by Unisource under the 1994 Plan.
Alco shall retain all insurance policies purchased by Alco in connection with
the 1994 Plan.
(f) Active Unisource Employees shall cease deferrals under Alco's 1996
Executive Deferred Compensation Plan (the "1996 Plan") as of the Effective Date.
Alco shall retain all liabilities with respect to the 1996 Plan and shall pay
all benefits to or with respect to Active or Former Unisource Employees as
required by the 1996 Plan. Alco shall retain all insurance policies purchased
by Alco in connection with the 1996 Plan, and Unisource shall have no liability
with respect to the 1996 Plan.
23
<PAGE>
(g) Notwithstanding the foregoing, Unisource shall have no responsibility
or liability with respect to benefits under the 1985 Plan, 1991 Plan and 1994
Plan for Active or Former Unisource Employees who were corporate staff employees
of the Alco Group or were otherwise on the Alco Group payroll when the deferrals
under the applicable Plan were made, and Alco shall remain responsible for
providing such benefits.
(h) Alco shall reimburse Unisource for 63% of each benefit payment made by
Unisource under the 1985 Plan, 1991 Plan and 1994 Plan. All reimbursements by
Alco to Unisource under this Section 6.02 shall be made within 30 business days
after Unisource delivers to Alco written notice of a payment by Unisource under
the 1985 Plan, 1991 Plan or 1994 Plan, as the case may be.
(i) In order to enable Unisource to make benefit payments pursuant to this
Section 6.02, Alco shall provide Unisource with a list of all Active and Former
Unisource Employees participating in the 1985 Plan, 1991 Plan and 1994 Plan, the
amount of benefits payable to or with respect to each such Active or Former
Unisource Employee, and the dates on which such benefits are to be paid.
Section 6.03. Welfare Benefit Plans.
---------------------
(a) Unisource shall establish welfare benefit plans for eligible Active
Unisource Employees, which shall provide such medical, health, disability,
accident, life insurance, death, dental or other benefits as Unisource deems
appropriate. Unisource shall establish such welfare benefit plans for eligible
employees on its payroll as of October 1, 1996. Eligible employees of the Alco
Group who become Active Unisource Employees as of the Effective Date shall be
eligible to participate in applicable Unisource welfare benefit plans as of
24
<PAGE>
the Effective Date. For purposes of this Section 6.03, the term "Active
Unisource Employee" shall include (in addition to the persons described in the
definition of "Active Unisource Employee" as set forth in Section 1.01) persons
employed in the Unisource Business on or after October 1, 1996, determined by
using the definition of "Active Unisource Employee" as set forth in Section 1.01
as of October 1, 1996.
(b) (i) Unisource shall be liable for all employee health (including,
without limitation, medical and dental), life insurance (including, without
limitation, disability waiver of premium claims and any other life insurance
disability claims) and long-term disability claims, and any other welfare
benefit claims, and any expenses related thereto, ("Welfare Claims") that are
incurred on or after October 1, 1996 with respect to Active Unisource Employees
and their beneficiaries and dependents.
(ii) Except as otherwise provided in this Section 6.03, Alco shall be
liable for all Welfare Claims that are incurred before October 1, 1996 with
respect to Active Unisource Employees and their beneficiaries and dependents.
(iii) Except as otherwise provided in this Section 6.03, Alco shall
be liable for all Welfare Claims that are incurred before, on or after October
1, 1996 with respect to Former Unisource Employees and their beneficiaries and
dependents.
(iv) Notwithstanding the foregoing, (A) Unisource shall be liable for
all retiree health claims (including, without limitation, medical and dental)
and retiree life insurance claims incurred before, on or after October 1, 1996
with respect to Active or Former Unisource Employees, and Alco shall have no
liability with respect to such claims, and (B) Unisource shall be liable for all
short-term disability claims incurred before, on or after October
25
<PAGE>
1, 1996 with respect to Former or Active Unisource Employees, and Alco shall
have no liability with respect to such claims.
(v) If either party pays any welfare benefit claims that are a
liability of the other party, the responsible party shall reimburse the paying
party for all such payments.
(c) For purposes of this Section 6.03, a health benefit claim is incurred
when the medical services are rendered, and a life insurance claim is incurred
when the covered employee dies. A claim for a hospital admission shall be
deemed to have been incurred on the date of admission to the hospital and shall
continue for the duration of that period of hospital confinement; costs for all
services provided during that period of hospital confinement shall be included
in the claim. A long-term disability claim or life insurance disability claim
shall be deemed to have been incurred on the date the condition causing the
disability rendered the employee disabled, as determined by the committee or
plan administrator making the determination; costs for all long-term disability
benefits relating to the claim shall be included in the claim.
(d) Unisource shall maintain its welfare benefit plans as a continuation of
Alco's welfare benefit plans. Unisource shall give Active Unisource Employees
credit under its welfare benefit plans for payments made under Alco's welfare
benefit plans for purposes of deductibles and maximum out-of-pocket limits, and
Unisource shall not impose break in service or preexisting condition
requirements with respect to Active Unisource Employees' initial participation
in the Unisource welfare benefit plans. Elections made by Active Unisource
Employees under Alco's welfare benefit plans shall continue in effect for
Unisource's corresponding plans, except to the extent that Unisource determines
otherwise.
26
<PAGE>
(e) For purposes of allowing Alco to determine health care continuation
requirement obligations under the Code and ERISA, Unisource agrees to provide
such health care information as is required by Alco with respect to the volume
and level of coverage under health care plans. Unisource shall be liable for
any health care continuation obligations under Section 4980B of the Code and
Section 601 through 608 of ERISA with respect to Active and Former Unisource
Employees and persons who are "qualified beneficiaries" (as that term is used in
Section 4980B of the Code) of such employees, to the same extent as Unisource is
liable for the underlying health care coverage of the Active or Former Unisource
Employees pursuant to subsection (b) above.
(f) Unisource shall establish a long-term disability plan covering eligible
Unisource Employees who are participants in Alco's long-term disability plan,
and a trust meeting the requirements of Section 501(c)(9) of the Code to hold
assets of the Unisource LTD Plan. Pursuant to subsection (b) above, Unisource
and its long-term disability plan shall be liable for any long-term disability
claims that are incurred on or after October 1, 1996 with respect to Active
Unisource Employees.
(g) The Distribution shall not be considered an event entitling any
employee to salary continuation or other severance benefits. Notwithstanding
subsection (b), Unisource shall assume liability for all salary continuation and
other severance benefits that payable on or after the Effective Date with
respect to all Active Unisource Employees.
Section 6.04. Monthly Investment Plan. Unisource shall establish a
-----------------------
monthly investment plan for eligible Active Unisource Employees upon such terms
as Unisource deems appropriate.
27
<PAGE>
Section 6.05. Vacation Pay and Similar Items. Unisource shall assume or
------------------------------
retain liability for all unpaid vacation pay, sick pay and personal leave
accrued by Active Unisource Employees as of the Effective Date.
Section 6.06. Canadian Plans. Unisource shall continue to be responsible
--------------
for the Pension Plan for Employees of the Canadian Subsidiary and Associated
Companies of Alco Standard Corporation and the welfare and other employee
benefit plans that cover Canadian employees of the Unisource Group.
ARTICLE VII
DIRECTORS PLANS
Section 7.01. Stock Options.
-------------
(a) Unisource shall establish such stock option plans as it deems
appropriate for Unisource Directors. Unisource and Alco shall give each
Unisource Director an opportunity to elect, by December 6, 1996, either:
(i) To have part or all of the Unisource Director's outstanding
options to purchase Alco Common Stock that were granted under Alco's
directors stock option plans converted into options to purchase Unisource
Common Stock, or
(ii) To retain the Unisource Director's options to purchase Alco
Common Stock that were granted under Alco's directors stock option plans.
If a Unisource Director fails to make an election, his or her Alco options shall
not be converted into Unisource options. The conversion shall be made according
to the applicable formula set forth in Schedule 4.01. The Unisource options
shall have vesting and other terms identical to
28
<PAGE>
those of the Alco options that they replace, except that, for the period after
the Effective Date, service as a director of Unisource shall be considered
continued service.
(b) Alco shall adjust all outstanding options to purchase Alco Common Stock
that are held by Alco directors who do not become Unisource Directors, or that
are held by Unisource Directors who retain their Alco options under subsection
(a) above, and that were granted under Alco's directors stock option plans, to
take into account the Distribution. The adjustment shall be made according to
the applicable formula set forth in Schedule 4.01.
Section 7.02. Retirement Plan. As of the Effective Date, Unisource shall
---------------
establish a retirement plan for its outside directors (the "Unisource Directors
Plan") that is comparable to Alco's Retirement Plan for Non-Employee Directors
(the "Alco Directors Plan"). Unisource shall assume liability for all benefits
that Unisource Directors accrued under the Alco Directors Plan before the
Effective Date, and such benefits shall be provided under the Unisource
Directors Plan. The Unisource Directors Plan shall be a continuation of the
Alco Directors Plan, and service as a director of Alco before the Effective Date
shall be taken into account in computing benefits under the Unisource Directors
Plan. Alco shall have no liability with respect to the Unisource Directors
Plan.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Unisource Indemnification of the Alco Group. On and after
-------------------------------------------
the Effective Date, Unisource shall indemnify, defend and hold harmless each
member of the Alco Group, and each of their respective directors, officers,
employees and agents (the "Alco Indemnitees") from and against any and all
damage, loss, liability and expense (including,
29
<PAGE>
without limitation, reasonable expenses of investigation and reasonable
attorneys fees and expenses in connection with any and all Actions or threatened
Actions) (collectively, "Indemnifiable Losses") incurred or suffered by any of
the Alco Indemnitees and arising out of, or due to the failure of Unisource or
any member of the Unisource Group to pay, perform or otherwise discharge, any of
the employee benefit liabilities and obligations assumed or retained, and
agreements made, by Unisource pursuant to this Agreement.
Section 8.02. Alco Indemnification of Unisource Group. On and after the
---------------------------------------
Effective Date, Alco shall indemnify, defend and hold harmless each member of
the Unisource Group, and each of their respective directors, officers, employees
and agents (the "Unisource Indemnitees") from and against any and all
Indemnifiable Losses incurred or suffered by any of the Unisource Indemnitees
and arising out of, or due to the failure of Alco or any member of the Alco
Group to pay, perform or otherwise discharge, any of the employee benefit
liabilities and obligations assumed or retained, and agreements made, by Alco
pursuant to this Agreement.
Section 8.03. Insurance and Third Party Obligations. No insurer or any
-------------------------------------
other third party shall be (a) entitled to a benefit it would not be entitled to
receive in the absence of the foregoing indemnification provisions, (b) relieved
of the responsibility to pay any claims to which it is obligated or (c) entitled
to any subrogation rights with respect to any obligation hereunder.
30
<PAGE>
ARTICLE IX
INDEMNIFICATION PROCEDURES
Section 9.01. Notice and Payment of Claims. If any Alco or Unisource
----------------------------
Indemnitee (the Indemnified Party") determines that it is or may be entitled to
indemnification by a party (the "Indemnifying Party") under Article VIII (other
than in connection with any Action or claim subject to Section 9.02), the
Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 90 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other immediately
available funds (or reach agreement with the Indemnified Party as to a mutually
agreeable alternative payment schedule) unless the Indemnifying Party objects to
the claim for indemnification or the amount thereof. If the Indemnifying Party
does not give the Indemnified Party written notice objecting to such claim and
setting forth the grounds therefor within the same 90 day period, the
Indemnifying Party shall be deemed to have acknowledged its liability for such
claim and the Indemnified Party may exercise any and all of its rights under
applicable law to collect such amount.
Section 9.02. Notice and Defense of Third-Party Claims. Promptly
----------------------------------------
following the earlier of (a) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (b)
receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to
31
<PAGE>
which indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the Indemnified Party to give notice as provided in
this Section 9.02 shall not relieve the Indemnifying Party of its obligations
under this Agreement, except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Within 90 days after receipt of such
notice, the Indemnifying Party may (a) by giving written notice thereof to the
Indemnified Party, acknowledge liability for and at its option elect to assume
the defense of such Third-Party Claim at its sole cost and expense or (b) object
to the claim of indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 9.02; provided
that if the Indemnifying Party does not within the same 90 day period give the
Indemnified Party written notice objecting to such claim and setting forth the
grounds therefor or electing to assume the defense, the Indemnifying Party shall
be deemed to have acknowledged its liability for such Third-Party Claim. Any
contest of a Third Party Claim as to which the Indemnifying Party has elected to
assume the defense shall be conducted by attorneys employed by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party; provided that the
Indemnified Party shall have the right to participate in such proceedings and to
be represented by attorneys of its own choosing at the Indemnified Party's sole
cost and expense. If the Indemnifying Party assumes the defense of the Third-
Party Claim, the Indemnifying Party may settle or compromise the claim without
the prior written consent of the Indemnified Party; provided that the
Indemnifying Party may not agree to any such settlement pursuant to which any
such remedy or relief, other than monetary damages for which the Indemnifying
Party shall be responsible hereunder, shall be applied to or against the
Indemnified Party, without the prior
32
<PAGE>
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not assume the defense of
a Third-Party Claim for which it has acknowledged liability for indemnification
under Article VIII, the Indemnified Party may require the Indemnifying Party to
reimburse it on a current basis for its reasonable expenses of investigation,
reasonable attorney's fees and reasonable out-of-pocket expenses incurred in
defending against such Third-Party Claim and the Indemnifying Party shall be
bound by the result obtained with respect thereto by the Indemnified Party;
provided that the Indemnifying Party shall not be liable for any settlement
effected without its consent, which consent shall not be unreasonably withheld.
The Indemnifying Party shall pay to the Indemnified Party in cash the amount for
which the Indemnified Party is entitled to be indemnified (if any) within 15
days after the final resolution of such Third-Party Claim (whether by the final
nonappealable judgment of a court of competent jurisdiction or otherwise) or, in
the case of any Third-Party Claim as to which the Indemnifying Party has not
acknowledged liability, with 15 days after such Indemnifying Party's objection
has been resolved by settlement, compromise or the final nonappealable judgment
of a court of competent jurisdiction.
ARTICLE X
MISCELLANEOUS
Section 10.01. Notices. All notices and communications under this
-------
Agreement shall be in writing and any communications or delivery hereunder shall
be deemed to have been duly given when received addressed as follows:
33
<PAGE>
If to Alco, to:
Alco Standard Corporation
825 Duportail Road
Wayne, Pennsylvania 19087
Attention: Corporate Secretary
If to Unisource, to:
Unisource Worldwide, Inc.
825 Duportail Road
Wayne, Pennsylvania 19087
Attention: Corporate Secretary
Either party may, by written notice so delivered to the other party, change the
address to which delivery of any notice shall thereafter be made.
Section 10.02. Amendment and Waiver. This Agreement may not be altered
--------------------
or amended, nor may rights hereunder be waived, except by an instrument in
writing executed by the party or parties to be charged with such amendment or
waiver. No waiver of any terms, provision or condition of or failure to
exercise or delay in exercising any rights or remedies under this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, provision, condition, right or remedy or as
a waiver of any other term, provision or condition of this Agreement.
Section 10.03. Entire Agreement. This Agreement, together with the
----------------
Distribution Agreement and the Ancillary Agreements referred to therein,
constitute the entire understanding of the parties hereto with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter. To the extent
that the provisions of this Agreement are inconsistent with the provisions of
the Distribution Agreement or any Ancillary Agreement, the provisions of this
Agreement
34
<PAGE>
shall prevail.
Section 10.04. Parties in Interest. Neither of the parties hereto may
-------------------
assign its rights or delegate any of its duties under this Agreement without the
prior written consent of each other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. Nothing contained in this Agreement, express
or implied, is intended to confer any benefits, rights or remedies upon any
person or entity other than members of the Alco Group and the Unisource Group,
and the Alco Indemnitees and Unisource Indemnitees under Articles VIII and IX
hereof.
Section 10.05. Further Assurances and Consents. In addition to the
-------------------------------
actions specifically provided for elsewhere in this Agreement, each of the
parties hereto will use its reasonable efforts to (i) execute and deliver such
further instruments and documents and take such other actions as any other party
may reasonably request in order to effectuate the purposes of this Agreement and
to carry out the terms hereof and (ii) take, or cause to be taken, all actions,
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, using its reasonable efforts to obtain any
consents and approvals and to make any filings and applications necessary or
desirable in order to consummate the transactions contemplated by this
Agreement; provided that no party hereto shall be obligated to pay any
consideration therefor (except for filing fees and other similar charges) to any
third party from whom such consents, approvals and amendments are requested or
to take any action or omit to take any action if the taking of or the omission
to take such action would be unreasonably burdensome to the party or its Group
or the business
35
<PAGE>
thereof. To the extent that either party is obligated to deliver shares of the
other party in satisfaction of obligations under employee or director benefit
plans or other arrangements, including, without limitation, savings plans, stock
option plans, stock purchase plans and bonus and incentive plans, the party
whose shares are required for such purpose shall make such shares available from
authorized but unissued shares or treasury shares on such terms as may be
appropriate to the transaction.
Section 10.06. Severability. The provisions of this Agreement are
------------
severable and should any provision hereof be void, voidable or unenforceable
under any applicable law, such provision shall not affect or invalidate any
other provision of this Agreement, which shall continue to govern the relative
rights and duties of the parties as though such void, voidable or unenforceable
provision were not part hereof.
Section 10.07. Governing Law. This Agreement shall be construed in
-------------
accordance with, and governed by, the laws of the Commonwealth of Pennsylvania,
without regard to the conflicts of law rules of such state.
Section 10.08. Counterparts. This Agreement may be executed in one or
------------
more counterparts each of which shall be deemed an original instrument, but all
of which together shall constitute but one and the same Agreement.
Section 10.09. Disputes. Resolution of any and all disputes arising from
--------
or in connection with this Agreement, whether based on contract, tort, statute
or otherwise, including, but not limited to, disputes in connection with claims
by third parties shall be exclusively governed by and settled in accordance with
provisions identical to those set forth in Section 12.11 of the Distribution
Agreement, which Section is hereby incorporated by this reference.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
ALCO STANDARD CORPORATION
BY /s/ John E. Stuart
-------------------------------------
Name: John E. Stuart
Title: Chairman and Chief Executive Officer
UNISOURCE WORLDWIDE, INC.
BY /s/ Ray B. Mundt
-------------------------------------
Name: Ray B. Mundt
Title: Chairman and Chief Executive Officer
37
<PAGE>
SCHEDULE 1.01
CLOSED OR SOLD OPERATIONS
INCLUDED IN THE UNISOURCE BUSINESS
<TABLE>
<CAPTION>
Business Sold Buyer Date of Sale
- - ------------- ----- ------------
<S> <C> <C>
Minerva Paper James River Corporation 4/29/81
A. E. MacAdam & Co. George W. Millar & Co., Inc. 5/13/83
Harold Paper Company Lombardi Food Co. 6/13/83
Narrow Fabric Division of Wyomissing Corp. assets to management group 9/30/85
Wyomissing Corp. James River Corporation 3/31/89
Coastal Plastics BBC Acquisitions Corp. 6/30/89
American Warehouses, Inc. Larry Chandler 2/13/91
American Warehouses, Inc.
Central Products, Inc. Spinnaker Industries, Inc. 9/29/95
Former Units of Saxon Industries, Inc.
- - --------------------------------------
Brown & Bigelow Division B&B Communications 1983
Chuckerman Company, a Division Swarz Paper Company (DE) 1982
Fonda Cup and Container Division DMS Acquisition Company (DE) 1984
Missisquoi Division Boise Cascade Corporation 1983
National Metallizing Division NMD, Inc. 1982
Saxon Business Products Division Copystatics, Inc. (DE) 1982
Saxon Export Corporation Saxport International, Inc. (FL) 1982
</TABLE>
Schedule 1.01
<PAGE>
SCHEDULE 2.04
MULTI-EMPLOYER PLANS
1. Central States Teamsters
Locals 107, 120, 325, 364, 707, 716, 807
2. Phila. Warehousemen
Local 169
3. Central Pennsylvania Teamsters
Local 429
4. St. Paul Grocers
Local 503
5. GCIU
Local 447
6. United Service Workers
Local 355
7. ILWU
San Francisco Local 6
8. Independent Truck Drivers
9. Paper Products and Misc.
Local 27
10. Western Conference of Teamsters
City of Commerce Local 598
Portland Locals 57, 162, 206
San Bernadino Local 166
San Diego Local 542
San Francisco Local 70
San Jose Local 287
Seattle Locals 117, 174
Spokane Local 582
11. Pulp & Paperworkers
Locals 433, 1124, 5
12. Calgary RSP
Schedule 2.04
<PAGE>
SCHEDULE 3.01
PENSION AND SAVINGS PLANS
TO BE TRANSFERRED TO UNISOURCE
1. Alco Standard Corporation Participating Companies Pension Plan for Union
Employees.
2. Unisource Northeast Affiliated Employees Pension Plan.
3. Inter-City Paper Company Profit Sharing Plan.
Schedule 3.01
<PAGE>
SCHEDULE 3.02
CALCULATION OF FORMER EMPLOYEES PORTION,
ACTIVE UNISOURCE EMPLOYEES PORTION AND
ACTIVE ALCO EMPLOYEES PORTION
AS OF DECEMBER 31, 1995
Alco Master Plan and SERP
(Including Hourly Master Plan)
Estimated Asset Allocation
(Based on 6/30/96 Assets)
<TABLE>
<CAPTION>
All Inactives Staying with IKON
IKON Unisource Total
------------- ------------- -------------
<S> <C> <C> <C>
Projected Benefit Obligation (Qualified Plan Only)
. Inactives (Same as ABO) $137,920,000 $ 0 $137,920,000
. Actives 65,739,000 108,990,000 174,729,000
------------ ------------ ------------
Total $203,659,000 $108,990,000 $312,649,000
Percent of Total 65.1% 34.9%
Market Value of Assets $201,603,000 $105,580,000 $307,183,000
Percent of Total 65.6% 34.4%
* * *
Funded Status
(Qualified Plan Only) (2,056,000) (3,410,000) (5,466,000)
Pension Liability
(Qualified Plan Only) (31,869,000) (19,473,000) (51,342,000)
Estimated Accounting Expenses for 9/30/97
. Qualified Plan $ 11,520,000 $ 11,640,000 $ 23,160,000
. SERP 1,420,000 1,500,000 2,920,000
------------ ------------ ------------
Total $ 12,940,000 $ 13,140,000 $ 26,080,000
Estimated 1997 Cash
Contributions $ 14,000,000 $ 10,000,000 $ 24,000,000
</TABLE>
Schedule 3.02
<PAGE>
SCHEDULE 4.01
CONVERSION AND ADJUSTMENT
OF OUTSTANDING STOCK OPTIONS
Fair Market Value:
- - -----------------
The Fair Market Value of Alco Common Stock immediately before the Distribution
shall be based on the average of the high and low trading prices of Alco Common
Stock on the New York Stock Exchange on December 10, 1996.
The Fair Market Value of Unisource Common Stock and IKON Common Stock (Alco when
issued) immediately after the Distribution shall each be based on the average of
the high and low trading prices of the applicable stock on the New York Stock
Exchange for the three trading day period beginning December 11, 1996 (the ex-
dividend date) and ending December 13, 1996.
During the period December 10, 1996 through December 13, 1996, it is expected
that there will be traded on the New York Stock Exchange the following
securities: ASN (Alco Standard taken as a whole); ASN-wi (equivalent of
IKON/Alco when issued), and UNISOURCE-wi (Unisource when issued).
Schedule 4.01-2
<PAGE>
IKON/UNISOURCE OPTION ADJUSTMENT FORMULA (PER SHARE)
----------------------------------------------------
A = Alco Option Price
B = Alco Fair Market Value before the Distribution
C = Unisource Fair Market Value after the Distribution
D = IKON Fair Market Value after the Distribution
U = Unisource Exercise Price
V = Unisource Number of Shares
Y = IKON Exercise Price
Z = IKON Number of Shares
U = A x C
-
B
V = 1 x B
-
C
Y = A x D
-
B
Z = 1 x B
-
D
EXAMPLE OF OPTION CONVERSIONS
(Assumes a 1 Unisource for 2 Alco dividend)
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
ALCO UNISOURCE IKON
---- --------- ----
Option Current Exercise Number Exercise Number
Price FMV Spread FMV Price of Shares Spread FMV Price of Shares Spread
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.3750 45.0000 32.6250 20.0000 5.5000 2.2500 32.6250 35.0000 9.6250 1.2857 32.6250
- - -------------------------------------------------------------------------------------------------------------------------------
15.7500 47.0000 31.2500 21.0000 7.0372 2.2381 31.2500 36.5000 12.2314 1.2877 31.2500
- - -------------------------------------------------------------------------------------------------------------------------------
28.8125 46.0000 17.1875 18.0000 11.2745 2.5556 17.1875 37.0000 23.1753 1.2432 17.1875
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.6
UNISOURCE WORLDWIDE, INC.
LONG TERM INCENTIVE COMPENSATION PLAN
1. Purpose. The Unisource Worldwide, Inc. Long-Term Incentive Plan is
-------
adopted effective January 1, 1997 for the purpose of motivating, recognizing and
rewarding performance at the corporate, group and business unit levels which
enhances long term shareholder value.
2. Eligibility. Participation in the Plan shall be limited to full-
-----------
time key employees of Unisource Worldwide, Inc. ("Unisource") and its
subsidiaries (collectively, the "Company").
3. Administration and Interpretation. The Plan as it applies to
---------------------------------
participants who are executive officers of Unisource shall be administered by a
committee of the Board of Directors of Unisource (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
Unisource shall be administered by the Chief Executive Officer of Unisource. 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.
4. 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. Any awards in the form of shares will be issued pursuant to the
Unisource Stock Award Plan. Any awards in the form of stock options will be
issued pursuant to the Unisource Stock Option Plan. 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,
<PAGE>
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
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 overall limit on the number of Shares described in Section 3.
5. 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, Unisource 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 Unisource's deferred
compensation programs and/or reduction in the amount 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.
6. Certificate. Each Award shall be evidenced by a Stock 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.
7. 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 Unisource 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 Unisource's Long-Term Disability Plan) or dies before the end of the
Performance Period, the participant (or estate or legal heir) shall
-2-
<PAGE>
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 Unisource 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.
8. Adjustments. If the outstanding shares of Unisource 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 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.
9. Common Stock Subject to Award. Shares issued pursuant to Awards may
-----------------------------
be unissued shares or treasury shares, including shares bought on the open
market.
10. 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.
11. 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.
12. 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.
-3-
<PAGE>
13. 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.
14. Amendment of Plan. The Board of Directors of Unisource 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.
15. Successors. The Plan shall be binding upon and inure to the
----------
benefit of any successor, successors or assigns of Unisource.
16. 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.
17. 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.
18. 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.
19. 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 By-Laws.
20. 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.
21. 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 pursuant to an Award.
22. Effective Date. The Plan shall be effective January 1, 1997.
--------------
-4-
<PAGE>
23. Termination of the Plan. No Award shall be made after
-----------------------
September 30, 2007. 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.
-5-
<PAGE>
Exhibit 10.7
PROSPECTUS January 1, 1997
UNISOURCE WORLDWIDE, INC.
Offers to Key Persons its
PARTNERS' STOCK PURCHASE PLAN
Dear Unisource Partner:
The Unisource Partners' Stock Purchase Plan allows certain key
persons, selected by Unisource as "Partners," to invest in Unisource common
stock and to receive additional Unisource stock purchased with company
contributions. The Plan provides for company matching contributions of two-
thirds of investments made by Participants. As an added incentive, Partners have
the potential to receive an annual additional one-third company matching
contribution upon achievement of certain performance goals, for a total matching
company contribution of up to 100%. All company matching contributions vest over
a five-year period.
The term "Partner" is a designation that reflects Unisource's
entrepreneurial philosophy, which encourages Unisource executives to make a
personal commitment to sharing the risks and rewards of Unisource as it emerges
as a new public company. This philosophy is embodied in the Partners' Stock
Purchase Plan, and we encourage all Unisource Partners to participate in the
Plan.
This Prospectus, covering 1,000,000 shares of Unisource common stock,
describes the terms, conditions and operation of the Partners' Stock Purchase
Plan.
CHARLES F. WHITE RAY B. MUNDT
President and Chief Operating Officer Chairman and Chief Executive Officer
---------------------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER
-1-
<PAGE>
THE SECURITIES ACT OF 1933.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-2-
<PAGE>
No person has been authorized to give any information or make any
representations other than as contained in this document, in connection with the
sale of any of the securities covered by this document, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by Unisource. Neither the delivery of this document nor any sale of
the securities covered hereby shall, under any circumstances, create any
implication that there has been no change in the affairs of Unisource since the
date hereof. This document does not constitute an offer or solicitation in any
jurisdiction in which such offer or solicitation may not lawfully be made.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
Information about the Plan 3 Liens 6
General Information 3 Expenses 6
Eligible Persons 3 Federal Income Tax Consequences 6
Contributions by Participants 3 Sale of Shares 7
Contributions by Unisource 4 Administration of Plan 7
Purchase of Shares 4 Amendment or Termination of Plan 8
Interest of Participants in Shares 4 Employee Retirement Income Security
Issuance of Share Certificates and Act of 1974 8
Distribution of Dividends 5 Documents Incorporated by Reference 8
Termination of Participation 5 Unisource Partners' Stock Purchase Plan 9
</TABLE>
AVAILABLE INFORMATION
Unisource Worldwide, Inc. ("Unisource") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission"). Such
reports, proxy statements and other information filed by Unisource with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission, at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission; New York
Regional Office, Seven World Trade Center, New York, New York 10048 and Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Copies can also be obtained upon payment of prescribed rates from the
Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Reports, proxy statements and other
information about Unisource can also be inspected at the New York, Philadelphia
and Chicago Stock Exchanges (on which Unisource's common stock is listed).
-3-
<PAGE>
INFORMATION ABOUT THE PLAN
General Information
The Unisource Partners' Stock Purchase Plan (the "Plan") is a
continuation of a similar plan sponsored by Alco Standard Corporation ("Alco"),
Unisource's predecessor corporation. The Board of Directors of Unisource has
adopted the Plan, effective January 1, 1997, the date on which Unisource will
become an independent public company. The Plan provides a convenient means for
eligible employees, directors and certain consultants of Unisource (or its
qualifying subsidiaries) to acquire shares of Unisource common stock (the
"Shares") and to encourage stock ownership by such persons. The present maximum
amount of common stock which has been authorized by Unisource's Board of
Directors to be purchased pursuant to this Prospectus is 1,000,000 shares.
Unisource's principal office is located at P.O. Box 834, Valley Forge,
Pennsylvania 19482-0834 (telephone number: (610) 296-8000).
Investments by participants in the Plan ("Participants") are made by
payroll deduction, and are used to purchase Shares on the open market or in
unsolicited privately negotiated transactions. Shares purchased with a
Participant's investments will vest immediately and will be distributed each
month or, at the Participant's election, will be held in an account for the
Participant by Unisource's transfer agent, National City Bank. Shares purchased
with matching company contributions are held by the Plan and distributed to
Participants only when and to the extent that they receive a vested interest in
such Shares. Participation in the Plan is entirely voluntary and no person is
required to become a Participant.
Eligible Persons
An "Eligible Person" under the Plan is a member of the Board of
Directors of Unisource, or a full-time or part-time employee or consultant of
Unisource, or of any subsidiary (unless otherwise determined by the Committee)
who has been designated as a "Partner of Unisource" by Unisource's Board of
Directors. A subsidiary whose employees or consultants may be considered for
participation in the Plan is any present or future company of which Unisource or
a subsidiary of Unisource owns fifty percent or more of the total combined
voting power of all classes of stock of such company. It is expected that there
will be approximately 200 Eligible Persons as of January 1, 1997.
An Eligible Person may become a Participant in the Plan by delivering
to Unisource the prescribed election form. The first election will be effective
on the first day of the calendar month succeeding the month in which the
Participant delivered the election form (the "Entry Date"). Any election
thereafter will also become effective on the first day of the next succeeding
month.
-4-
<PAGE>
Contributions by Participants
Participants elect the amount they wish to invest in the Plan, which
may not exceed 15% of the Participant's "Base Compensation" (as hereinafter
defined) and shall not be less than 2% of such "Base Compensation," provided,
however, that a Participant shall also be entitled to contribute an amount which
is within the foregoing percentages of the Participant's cash bonus compensation
which may be payable on an annual basis to the Participant after September 30 of
each year as a percentage of Base Compensation. If a Participant also
participates in Unisource's Retirement Savings Plan, the 15% limitation shall be
reduced by the amount which is used as the basis for calculation of matching
company contributions under such other Plan.
-5-
<PAGE>
"Base Compensation" shall mean (a) monthly base salary, including: i)
amounts deferred pursuant to the Unisource Retirement Savings Plan, ii) base
salary amounts set aside in any cafeteria plan qualified under Section 125 of
the Internal Revenue Code, and iii) base salary amounts deferred pursuant to any
deferred compensation plan maintained by Unisource or any Subsidiary; (b) annual
director, committee and trustee fees, including amounts deferred pursuant to the
Unisource Directors' Stock Option Plan; or (c) consulting fees in the case of
consultants.
Contributions by Unisource
Unisource will contribute to the Plan an amount equal to 66 2/3% of
each Participant's investments. The investment of each Participant, together
with Unisource's contribution, will be applied to the purchase of Shares.
Unisource may also make an additional annual contribution to each Participant's
account of an amount equal to 33 1/3% of the Participant's annual investment.
Such additional 33 1/3% contribution (which shall also be applied to the
purchase of Shares) will be made as soon as administratively practicable after
September 30 of each year, and will be calculated on the basis of investments
made by the Participant during the preceding 12-month period from October 1 to
September 30 (the "Previous Fiscal Year"). This additional 33 1/3% contribution
shall be made by Unisource only if 1) the Company (as hereinafter defined)
employing the Participant has achieved Target Performance as contemplated by the
Company's Incentive Bonus Plan (or, in the case of Unisource corporate partners,
Target Performance as established from time to time by the Human Resources
Committee) for the Previous Fiscal Year; and 2) the Participant is an employee
of such Company on September 30 of the Previous Fiscal Year. "Company" means
Unisource or each division, subsidiary or other grouping within Unisource, as
the case may be.
Purchase of Shares
Shares will be purchased either (a) on the open market, or (b) in
private transactions including, without limitation, from Unisource, from Alco
Standard Corporation ("Alco") or IKON Office Solutions ("IKON"), from any
individual, or from any employee benefit plan maintained by Unisource, Alco or
IKON; provided, however, that all such purchases shall be at not more than the
then current fair market value of the Shares. Such purchases, to the extent
permitted by law and administratively practicable, will be made within 30 days
of receipt of the funds. Shares purchased with funds invested by the Participant
will be registered in the name of the Participant or in such other name or names
as the Participant may have designated in the prescribed election form, and
Shares purchased with Unisource 's contributions will be registered in the names
of the Trustees with appropriate credit to the account of the Participant in
records kept for such purposes. The current Trustees are Kathleen M. Burns, Vice
President and Treasurer of Unisource, and William M. Bauer, Director-Risk
Management of Unisource.
Interest of Participants in Shares
An account will be maintained for each Participant showing the number
of Shares purchased with the Participant's investments and with funds
contributed by Unisource for the benefit of the Participant.
-6-
<PAGE>
A Participant shall immediately have a fully vested interest in the Shares
purchased with the Participant's own investments. A Participant's interest in
Shares purchased with Unisource's contributions is not immediately vested but
will vest at the rate of 20% per year, beginning January 2 of the second full
calendar year following the year of purchase of such Shares, and continuing for
five years as long as the Participant remains an Eligible Person. The foregoing
vesting schedule is subject to the provisions contained in the section of this
Prospectus entitled "Termination of Participation."
On January 1, 1997, Participants who were previously Partners of Alco
will automatically become Participants in the Plan. All assets held as of
December 31, 1996 in the Alco Partners' Stock Purchase Plan on behalf of
Unisource Partners (including Alco unvested shares and the Unisource dividend
attributable to such unvested shares) will be transferred to the Participant's
account in the Plan. Effective January 1, 1997, Participants who were previously
Partners of Alco will have unvested common shares of both Alco/IKON and
Unisource in their accounts. These shares, which are attributable to company
contributions made by Alco prior to January 1, 1997, will continue to vest in
accordance with the terms of the Alco Plan (vesting 20% per year, beginning
January 2 of the second full calendar year following the year of purchase).
Shares of Alco/IKON and Unisource will be distributed to Partners as they vest,
subject to the forfeiture provisions described in "Termination of
Participation," below.
[Reserved for Discussion of Conversion Rights]
Each Participant is entitled to exercise full voting rights with
respect to Shares which have been distributed from the Plan. Voting rights with
respect to Shares (including shares of both Unisource and Alco/IKON stock)
purchased with funds contributed by Unisource or Alco which have not vested may
be exercised only by the Trustees.
Issuance of Share Certificates and Distribution of Dividends
After the end of each calendar month, each Participant will receive a
stock certificate registered in the name of the Participant, or in such other
name or names as the Participant may have designated in the prescribed election
form, representing the number of whole Shares purchased with funds invested
during that month by the Participant. In the alternative, the Participant may
elect to have Unisource's transfer agent, National City Bank, hold such stock
certificate for the Participant's account through its book entry system. Each
Participant will receive a monthly account statement showing the Participant's
investments and Unisource's contributions for the current year, the Shares
purchased, and any fractional Share in the Participant's account.
After the end of each calendar year, in addition to the certificate
and account statement described above, each Participant will receive a stock
certificate registered in the name of the Participant, or in such other name or
names as the Participant may have designated in the prescribed election form,
representing the number of whole Shares purchased by Unisource's contributions
for the Participant's account which have vested.
-7-
<PAGE>
In the alternative, the Participant may elect to have Unisource's transfer
agent, National City Bank, hold such certificate for the Participant's
account through its book entry system. Concurrently, there will be furnished to
each Participant an annual statement which will reflect the amount of the
Participant's investments to date, the contributions by Unisource to date, the
cost basis of the vested Shares, the fractional Share, if any, to which such
Participant may be entitled as of the end of such year, and the Shares in the
Participant's account which are not vested. A similar statement will be
furnished on any termination of participation in the Plan.
Ordinary cash dividends on all Shares purchased from funds contributed
by the Participant and by Unisource, whether or not such Shares have vested,
will be distributed to the Participant currently. In the alternative, the
Participant may elect to have such dividends applied to the purchase of Shares,
which Shares will also be distributed currently (or, at the Participant's
election, held for the Participant's account by Unisource's transfer agent,
National City Bank, through its book entry system).
-8-
<PAGE>
Termination of Participation
If a Participant ceases to be an Eligible Person because of retirement,
total disability (as defined by Unisource's Long Term Disability Plan), or
death, his or her participation in the Plan shall automatically terminate as of
the end of the calendar month of his retirement, total disability or death, and
the Participant's interest in all shares of Unisource common stock in his
account purchased with contributions by Unisource shall immediately vest, and
there shall be delivered to the Participant, or to the estate of a deceased
Participant (a) a stock certificate registered in the name of the Participant,
or such other name or names as he may have designated in the prescribed election
form, representing any whole shares in the Participant's account purchased from
funds contributed by the Participant which have not been previously distributed
to him, (b) a stock certificate registered in the name of the Participant, or
such other name or names as he may have designated, representing the whole
shares in the Participant's account purchased from funds contributed by
Unisource or a subsidiary, and (c) cash representing the value of any fractional
share to which the Participant is entitled as of the effective date of
termination of his participation in the Plan. The term "retirement" shall mean
(a) as to an employee, termination of employment with Unisource or a subsidiary
at or after the earlier of (i) the earliest age on which a Participant may
retire pursuant to the terms of the defined benefit pension plan sponsored by
Unisource or a subsidiary in which the Participant is then participating or
(ii) a Participant's attainment of age sixty (60), or (b) as to a director or
consultant, termination of such status at any time.
If a Participant ceases to be an Eligible Person because of any reason
other than retirement, total disability, or death, participation in the Plan
shall automatically terminate as of the end of the calendar month of cessation
as an Eligible Person, unless otherwise determined by the Plan Committee or the
Board of Directors. Upon such termination, the Participant will retain his
interest in all Shares which have vested. The Participant's interest will
terminate in all Shares which have not yet vested, unless otherwise determined
by the Plan Committee or the Board of Directors. Such unvested Shares will
thereafter be available to reduce the number of Shares otherwise required to be
purchased with contributions by Unisource under the Plan.
If a Participant discontinues making contributions, participation in the
Plan will not terminate, but instead, as long as the Participant is an Eligible
Person, the Participant's interest in Shares not yet vested shall vest over time
as provided in the Plan.
Liens
No person has or is given the right to create a lien on or make any
transfer or other disposition of any funds or Shares held under the Plan which
have not been distributed to the Participant.
-9-
<PAGE>
Expenses
In addition to its contributions, Unisource will pay all fees and expenses
incurred in connection with the Plan, except that any brokerage fees or
commissions incurred in the purchase of Shares shall be considered part of the
cost of the Shares to be paid from the contributions under the Plan. No charge
or deduction for any expenses will be made to the Participant upon the
termination of participation under the Plan or upon the distribution of
certificates representing Shares purchased with the Participant's investments or
Unisource's contributions.
-10-
<PAGE>
Federal Income Tax Consequences
The Plan is not a qualified plan under Section 401(a) of the Internal
Revenue Code. The following paragraphs describe the general tax consequences of
participation in the Plan under existing federal income tax law.
The amount deducted from a Participant's salary for the purchase of Shares
has been included in the Participant's taxable income, and will be taxable at
ordinary income rates and, except as to directors', trustees' and consultants'
fees, subject to withholding. Thus, the Participant's investment will be made
with "after-tax dollars."
The Shares that are purchased for the Participant's account with
contributions by Unisource and held by the Trustees will not be treated as
income to the Participant until there is vesting of the Shares. At the time of
each vesting, the Participant will recognize ordinary income to the extent of
the value of the interest which then vests and federal income tax, FICA and
Medicare taxes will be withheld from the Participant's ordinary compensation.
The basis of the Shares purchased with deductions from the Participant's
salary will be their cost. The basis of the Shares purchased with contributions
by Unisource will be equal to the amount of ordinary income which the
Participant recognizes as each interest vests, reduced by any cash distributed
in lieu of fractional shares.
Dividends on the Shares purchased with the Participant's investments
(whether distributed in cash or invested in additional Shares) will be taxed to
the Participant as the dividends are declared. Dividends on the Shares purchased
with contributions by Unisource, whether or not such Shares have vested, will
also be taxed currently and will be treated as compensation and thus subject to
normal withholding.
Unisource will receive deductions for federal income tax purposes in the
amount of dividends paid on unvested Shares purchased with contributions by
Unisource and the value of interests in such Shares when they vest. Unisource
will receive a deduction in the amount of the value of the Participant's
investments at the time Shares are purchased.
This Prospectus does not attempt to describe the tax consequences under any
state, local or foreign law which may be applicable to participation in the
Plan. For information as to such consequences, which may materially affect
decisions with respect to participation in the Plan, advice should be sought
from legal or other counsel.
Sale of Shares
Participants (except for "Affiliates" of Unisource) are generally free to
sell Shares distributed to them pursuant to the Plan. "Affiliates" of Unisource
are persons who (directly or indirectly) control or are
-11-
<PAGE>
controlled by, or are under common control with Unisource, and thus may include
Unisource's directors and officers. Affiliates of Unisource may sell Shares
purchased by them pursuant to the Plan only in accordance with Unisource's
securities preclearance policy for directors and officers, and only (a) if the
sale is pursuant to the quantity and other limitations of Rule 144 under the
Securities Act of 1933, as amended (the "Act"), (b) if Unisource agrees to file
a registration statement pursuant to the Act for such purpose, or (c) if
Unisource subsequently determines that an exemption from the Act is applicable
to the sale.
Administration of Plan
The Plan provides that authority for the administration and interpretation
of the Plan shall be vested in a committee appointed by the Board of Directors
consisting of not less than three members (the "Plan Committee"). The members of
the Retirement Plans Committee of Unisource have been appointed as the Plan
Committee. The members of the Plan Committee are employees of Unisource who
serve at the pleasure of the board of directors and may be changed at any time.
The Plan Committee from time to time appoints a Plan Administrator who is
an employee of Unisource and who is responsible for the general administration
of the Plan under the policy guidance of the Committee. The Plan Administrator
serves for an indefinite term, but may be removed from office at any time by the
Committee.
The members of the Retirement Plans Committee and the Plan Administrator
are compensated for their services according to Unisource's normal employment
policies, without special compensation for services to the Plan. Participants
may obtain additional information about the Plan and its administrators by
contacting: Unisource Worldwide, Inc., P.O. Box 834, Valley Forge, PA 19482,
(610) 296-8000, Attention: Retirement Plans Department.
Amendment or Termination of Plan
The Board of Directors of Unisource may terminate the Plan at any time and
may amend the Plan from time to time in any respect; provided, however, that
upon any termination of the Plan, all unvested assets in the Participants'
account shall become fully vested, and shall be distributed to the Participants
as soon as administratively practicable, and provided further that no amendment
to the Plan shall materially affect the right of a Participant to receive his
interest in the assets in his account, whether vested or unvested.
Employee Retirement Income Security Act of 1974
The Plan is not a "pension plan" as defined in the Employee Retirement
Income Security Act of 1974 ("ERISA") and thus is not subject to any provisions
of ERISA.
-12-
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Prospectus:
(a) Unisource's Form 10 Registration Statement, (b) Unisource's preferred share
purchase rights, and (c) the description of Unisource common stock contained in
a registration statement filed under the Securities Exchange Act of 1934,
including any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by Unisource or the Plan pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior
to the filing of a post-effective amendment indicating that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be part hereof from the date of filing of such documents.
-13-
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS' STOCK PURCHASE PLAN
1. Purpose. The purpose of this Partners' Stock Purchase Plan (the
-------
"Plan") of Unisource Worldwide, Inc. ("Unisource"), is to secure for Unisource
and its stockholders the benefits of the incentive which an interest in the
ownership of common stock of Unisource will provide to directors and those
employees and consultants who will be responsible for Unisource's future growth
and continued success.
2. Participation. Only "Eligible Persons" (as hereinafter defined) shall
-------------
be entitled to participate in the Plan. An "Eligible Person" shall be a director
of Unisource, or a full-time or part-time employee of Unisource, or of a
subsidiary, or a consultant to Unisource or a subsidiary, who shall have been
designated as a "Partner of Unisource" by the Board of Directors of Unisource. A
subsidiary whose employees or consultants may be considered for participation in
the Plan is any present or future corporation of which Unisource or a subsidiary
of Unisource owns stock representing fifty percent or more of the combined
voting power of all classes of stock of such corporation ("Eligible Subsidiary"
or "Subsidiary"). An Eligible Subsidiary, for this purpose, may be either a
domestic or foreign corporation, provided, however, that participation by a
foreign corporation is subject to approval by the Board of Directors.
An Eligible Person may become a participant in the Plan ("Participant") by
delivering to Unisource or to a Subsidiary the prescribed election form. The
first election shall generally be effective on the first day of the calendar
month next succeeding the month in which the election form is delivered (the
"Entry Date"). Any election thereafter to increase, decrease, or discontinue
contributions to the Plan shall generally become effective as of the next
succeeding Entry Date. A succeeding Entry Date is the first day of the
succeeding month.
3. Contributions by Participants. All contributions by Participants shall
-----------------------------
be by pay deduction. The amount of such pay deduction shall be fixed in the
election form delivered by the Participant, but shall not be less than 2% and
shall not exceed 15% of the Participant's "Base Compensation," provided,
however, that a Participant shall also be entitled to contribute an amount which
is within the foregoing percentages of the Participant's cash bonus compensation
which may be payable on an annual basis to the Participant after September 30 of
each year as a percentage of Base Compensation. In the event a Participant also
participates in the Unisource Retirement Savings Plan, the foregoing 15%
contribution limitation shall be reduced by the amount which is used as the
basis for calculation of matching company contributions under such plan. "Base
Compensation" shall mean (a) monthly base salary, including: i) amounts deferred
pursuant to the Unisource Retirement Savings Plan, ii) base salary amounts set
aside in any cafeteria plan qualified under Section 125 of the Internal Revenue
Code, and iii) base salary amounts deferred pursuant to any deferred
compensation plan maintained by Unisource or any Subsidiary; (b) annual
director, committee and trustee fees, including
-14-
<PAGE>
amounts deferred pursuant to the Unisource Directors' Stock Option Plan; or
(c) consulting fees in the case of consultants.
4. Contributions by Unisource or a Subsidiary. Unisource or a Subsidiary
------------------------------------------
shall contribute into the Plan with respect to each Participant an amount equal
to 66 2/3% of the Participant's contributions. In addition to the foregoing
amount, as soon as administratively practicable after September 30 of each year,
Unisource or a Subsidiary shall contribute to each Participant's account an
amount equal to 33-1/3% of the Participant's contributions during the preceding
12-month period from October 1 to September 30 (the "Previous Fiscal Year"),
provided the following conditions are met:
a) the Company (as hereinafter defined) employing such Participant
has achieved its Target Performance (as hereinafter defined) for the Previous
Fiscal Year; and
b) except as otherwise authorized by the Plan Committee appointed
pursuant to Paragraph 13, the Participant is an employee of the Company on
September 30 of the Previous Fiscal Year.
"Company" shall mean Unisource, or each division, subsidiary or other
grouping within Unisource or a Subsidiary, as the case may be. "Target
Performance" shall, in the case of groups and companies, have the meaning set
forth in the Unisource Incentive Bonus Plan, as from time to time in effect for
each group and each company, and in the case of Unisource corporate partners,
including non-employee directors, the performance which earns a bonus for
Unisource corporate officers equal to 100% of target as established from time to
time by the Human Resources Committee of the Board of Directors. The
contribution of each Participant, together with Unisource's or a Subsidiary's
contribution, will be applied to the purchase of shares of Unisource common
stock as hereinafter described.
5. Trustee. The Board of Directors shall name and designate a Trustee or
-------
Trustees (hereinafter "Trustee"), who shall enter into a Trust Agreement with
Unisource in a form approved by the Board of Directors. The Board shall have the
power to approve amendments to the Trust Agreement, remove any Trustee, and
designate a successor Trustee or Trustees. The assets of the Plan shall be held
in trust by the Trustee for use in accordance with the Plan in providing for the
benefits hereunder. Before the satisfaction of all liabilities under the Plan in
the event of termination of the Plan, none of the assets held by the Trustee
shall be used for or diverted to purposes other than for the exclusive benefit
of Participants and their beneficiaries except as expressly provided in this
Plan and in the Trust Agreement. No persons shall have any interest in, or right
to, any part of the assets or income held by the Trustee, except as and to the
extent expressly provided in this Plan and the Trust Agreement.
6. Purchases of Unisource Common Stock. As soon as is practicable after
-----------------------------------
the end of each month, the Trustee shall allocate to the account of each
Participant, out of shares of Unisource common stock acquired by the Trustee for
such purpose, such number of full shares and such fractional interest in a share
of Unisource common stock as may be purchased by funds in each Participant's
account at the end of such month representing contributions by the Participant
and by Unisource or a Subsidiary. Such allocation of shares shall be at the
average cost to the Trustee of the shares allocated to all Participants'
accounts at such
-15-
<PAGE>
time. Shares purchased with funds contributed by the Participant shall be
registered in the name of the Participant or in such other name or names as the
Participant may have designated in the prescribed election form. Shares
purchased with funds contributed by Unisource or a Subsidiary shall be
registered in the name of the Trustee. Any dividends shall be paid on all shares
held in the Plan at the close of business on the record date.
Shares of Unisource common stock shall be purchased by the Trustee from
time to time out of funds received by the Trustee under the Plan, either (a) on
the open market, or (b) in private transactions, including, without limitation,
from Unisource, a Subsidiary, or any predecessor corporation, any individual or
any employee benefit plan maintained by Unisource, a Subsidiary or any
predecessor corporation; provided, however, that all such purchases shall be at
not more than the then current fair market value of Unisource common stock. The
Trustee shall also hold for the purpose of allocation to the accounts of
Participants as above provided shares of Unisource common stock forfeited under
the provisions of Paragraph 11 herein.
7. Stock Rights, Stock Splits and Stock Dividends. The Trustee, in its
----------------------------------------------
discretion, may exercise or sell any rights to purchase any securities
appertaining to shares of Unisource common stock held by the Trustee, whether or
not allocated to individual accounts. The accounts of Participants shall be
appropriately credited. Securities received by the Trustee by reason of a stock
split, a stock dividend or other distribution shall also be appropriately
allocated to the accounts of Participants.
8. Voting of Unisource Common Stock. The Trustee shall vote all shares of
--------------------------------
Unisource common stock purchased with the contributions of Unisource or a
Subsidiary and held by the Trustee in such manner as the Trustee shall, in the
Trustee's discretion, determine. In the event of a tender offer for Unisource
stock, the Trustee shall tender or not tender shares held by the Plan in the
Trustee's discretion.
9. Interest of the Participant in Shares. An account will be maintained
-------------------------------------
for each Participant showing the number of shares of Unisource common stock
purchased from funds contributed by the Participant and from funds contributed
by Unisource or a Subsidiary for the benefit of the Participant. A Participant
shall at all times have a vested interest in the shares of Unisource common
stock in his account purchased with his contributions. A Participant's interest
in the shares purchased with the contributions of Unisource or a Subsidiary
shall not be immediately vested but shall vest in five equal annual
installments, beginning January 2 of the second full calendar year following the
year of purchase of such shares. The foregoing vesting schedule is subject to
the provisions of Paragraph 11 hereof regarding termination of participation in
the Plan.
On January 1, 1997, Participants who were previously Partners of Alco will
automatically become Participants in the Plan. All assets held as of December
31, 1996 in the Alco Partners' Stock Purchase Plan on behalf of Unisource
Partners (including Alco unvested shares and the Unisource dividend attributable
to such unvested shares) will be transferred to the Participant's account in the
Plan. Effective January 1, 1997, Participants who were previously Partners of
Alco will have unvested common shares of both Alco/IKON and Unisource in their
accounts. These shares, which are attributable to company contributions made by
Alco prior to January 1, 1997, will continue to vest in
-16-
<PAGE>
accordance with the terms of the Alco Plan (vesting 20% per year, beginning
January 2 of the second full calendar year following the year of purchase).
Shares of Alco/IKON and Unisource will be distributed to Partners as they vest,
subject to the forfeiture provisions described in "Termination of
Participation," below.
[Reserved for Discussion of Conversion Rights]
Each Participant is entitled to exercise full voting rights with respect to
Shares which have been distributed from the Plan. Voting rights with respect to
Shares (including shares of both Unisource and Alco/IKON stock) purchased with
funds contributed by Unisource or Alco which have not vested may be exercised
only by the Trustees.
10. Share Certificates and Distribution of Dividends. After the end of
------------------------------------------------
each calendar month there shall be distributed to each Participant a stock
certificate registered in the name of the Participant, or in such other name or
names as he may have designated in the prescribed election form, representing
the number of whole shares of Unisource common stock purchased during the
preceding calendar month from funds contributed by the Participant.
After the end of each calendar year, there shall be distributed to each
Participant a stock certificate registered in the name of the Participant, or in
such other name or names as he may have designated in the prescribed election
form, representing the number of whole shares of Unisource common stock
purchased from funds contributed by Unisource or a Subsidiary in which the
Participant's interest shall have vested. Concurrently, there shall be furnished
to each Participant an annual statement which shall reflect the amount of his
contributions to date, the corresponding contributions by Unisource or a
Subsidiary to date, the aggregate cost of the shares represented by the
certificate distributed to the Participant, the fractional share, if any, to
which the Participant may be entitled, and the number of shares of Unisource
common stock in the Participant's account in which his interest shall not have
vested. A similar statement will be furnished on termination of participation in
the Plan. Ordinary cash dividends on all shares of Unisource common stock,
whether or not such shares have vested, will be distributed currently.
11. Termination of Participation. If a Participant ceases to be an
----------------------------
Eligible Person because of retirement, total disability (as defined by
Unisource's Long Term Disability Plan), or death, his participation in the Plan
shall automatically terminate as of the end of the calendar month of his
retirement, total disability or death, and the Participant's interest in all
shares of Unisource common stock in his account purchased with contributions by
Unisource or a Subsidiary shall immediately vest and there shall be delivered to
the Participant, or to the estate of a deceased Participant (a) a stock
certificate registered in the name of the Participant, or such other name or
names as he may have designated in the prescribed election form, representing
any whole shares in the Participant's account purchased from funds contributed
by the Participant which have not been previously distributed to him, (b) a
stock certificate registered in the name of the Participant, or such other name
or names as he may have designated, representing the whole shares in the
Participant's account purchased from funds contributed by Unisource or a
Subsidiary, and (c) cash representing the value of any fractional share to which
the Participant is entitled as of the effective date of
-17-
<PAGE>
termination of his participation in the Plan. The term "retirement" as used
above shall mean (a) as to an employee, termination of employment with Unisource
or a Subsidiary at or after the earlier of (i) the earliest age on which a
Participant may retire pursuant to the terms of the defined benefit pension plan
sponsored by Unisource or a Subsidiary in which the Participant is then
participating or (ii) a Participant's attainment of age sixty (60), or (b) as to
a director or consultant, termination of such status at any time.
If a Participant ceases to be an Eligible Person because of any reason
other than retirement, total disability, or death, his participation in the Plan
shall automatically terminate as of the end of the calendar month of his
cessation as an Eligible Person, unless otherwise determined by the Plan
Committee or the Board of Directors. Upon such termination of participation, the
Participant will retain his interest in all assets in his account which have
vested. The Participant shall receive a stock certificate representing any
vested shares, together with cash representing the value of any fractional share
to which the Participant is entitled. The Participant's interest will terminate
in all assets which have not yet vested, unless otherwise determined by the Plan
Committee or the Board of Directors. The assets in the Participant's account
which have not vested will thereafter be available to reduce the number of
shares otherwise required to be purchased with contributions by Unisource or a
Subsidiary under the Plan.
12. Expenses. In addition to its contributions, Unisource or its
--------
Subsidiary will pay all fees and expenses incurred in connection with the Plan,
except that brokerage fees or commissions incurred in the purchase of shares of
Unisource common stock shall be considered part of the cost of the shares and
shall be paid from contributions under the Plan. No charge or deduction for any
expenses will be made to a Participant upon the termination of his participation
under the Plan or upon the distribution of certificates representing shares of
Unisource common stock purchased with his contributions or the contributions of
Unisource or a Subsidiary.
13. Administration. The Board of Directors shall appoint a Plan
--------------
Committee, which Plan Committee shall consist of at least three persons to serve
at the pleasure of the Board. The Plan Committee shall appoint an Administrator,
who shall be responsible for the general administration of the Plan under the
policy guidance of the Plan Committee. The Administrator shall be in the employ
of Unisource and shall receive no special or additional compensation, other than
reimbursement of expenses, for his service as Administrator.
The Administrator and Plan Committee shall have all powers and duties
necessary to administer the Plan in accordance with its terms and applicable
law. Any construction, interpretation, or application of the Plan by the
Administrator or the Plan Committee shall be final, conclusive and binding on
all persons.
14. Powers and Duties of Plan Committee. In addition to any duties and
-----------------------------------
powers described elsewhere herein, the Plan Committee shall have the following
specific duties and powers:
(i) to retain such consultants, accountants and attorneys, as deemed
necessary or advisable, to render statements, reports and advice with
respect to the Plan and to assist the Plan Committee in
-18-
<PAGE>
complying with all applicable rules and regulations affecting the Plan
(such consultants, accountants or attorneys may be the same as those
retained by Unisource);
(ii) to decide appeals from adverse determinations of the Administrator
with respect to eligibility for or amounts of benefits under the Plan; and
(iii) to supervise the duties of the Administrator.
15. Powers and Duties of Administrator. In addition to the duties and
----------------------------------
powers described elsewhere herein, the Administrator shall have the following
specific duties and powers:
(i) under the supervision of the Plan Committee, to establish
rules, regulations and procedures to carry out the provisions of the Plan;
(ii) to resolve questions or disputes relating to eligibility for
benefits or the amount of benefits under the Plan;
(iii) to conduct the day-to-day administration of the Plan subject to the
control and guidance of the Plan Committee;
(iv) to interpret the provisions of the Plan;
(v) to evaluate administrative procedures;
(vi) to retain such consultants, accountants and attorneys, as deemed
necessary or advisable, to render statements, reports and advice with
respect to the Plan and to assist the Administrator in complying with all
applicable rules and regulations affecting the Plan (such consultants,
accountants or attorneys may be the same as those retained by Unisource);
and
(vii) to delegate such duties and powers as the Administrator shall
determine from time to time, to any person or persons.
16. Functioning of Administrator and Plan Committee. The Administrator
-----------------------------------------------
and Plan Committee shall keep accurate records and minutes of meetings,
interpretations and decisions. The Plan Committee shall act by majority vote of
the members.
17. Adverse Determinations. If, at any time, the Administrator makes a
----------------------
determination adverse to a Participant or other claimant with respect to a
written claim for benefits or participation under the Plan, the Administrator
shall notify the claimant in writing of such determination.
18. Appeals from Adverse Determinations. A Participant or any other
-----------------------------------
claimant who receives notice of an adverse determination by the Administrator
with respect to his claim may request in writing, within 60 days of receipt of
such notice, a review of the Administrator's determination by the Plan
Committee. The Plan Committee shall render a decision within 90 days of receipt
of a request for review.
19. Deemed Denials. If for any reason the written notice of denial
--------------
described in Paragraph 17 is not furnished within 90 days of the Administrator's
receipt of a claim for benefits, the claim shall be deemed denied. Likewise, if
for any reason the written decision on review described in Paragraph 18 is not
furnished within the time prescribed, the claim shall be deemed to be denied on
review.
-19-
<PAGE>
20. Indemnification. The Administrator, each member of the Plan Committee
---------------
and each Trustee shall be indemnified by Unisource against expenses (other than
amounts paid in settlement to which Unisource does not consent) reasonably
incurred by him in connection with any action to which he may be a party by
reason of his performance of administrative functions and duties under the Plan,
except in relation to matters as to which he shall be adjudged in such action to
be personally guilty of willful misconduct or gross negligence in the
performance of his duties. The foregoing right to indemnification shall be in
addition to such other rights as the Administrator, Plan Committee member or
Trustee may enjoy as a matter of law or by reason of insurance coverage of any
kind. Rights granted hereunder shall also be in addition to and not in lieu of
any rights to indemnification to which the Administrator, the Plan Committee
member or Trustee may be entitled pursuant to the By-Laws of Unisource.
21. Amendment and Termination. The Board of Directors of Unisource may
-------------------------
terminate the Plan at any time and may amend the Plan from time to time in any
respect; provided, however, that upon any termination of the Plan, all unvested
assets in the Participants' account shall become fully vested, and shall be
distributed to the Participants as soon as administratively practicable, and
provided further that no amendment to the Plan shall materially affect the right
of a Participant to receive his interest in the assets in his account, whether
vested or unvested.
22. Government and Other Regulations. The obligation of Unisource or a
--------------------------------
Subsidiary to make contributions under the Plan, and the obligation of Unisource
or a Subsidiary to purchase shares of Unisource common stock 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.
23. Non-Alienation. No Participant shall be permitted to assign, alienate,
--------------
sell, transfer, pledge, or otherwise encumber his interest under the Plan prior
to the distribution of stock certificates to him. Any attempt to assign,
alienate, sell, transfer, pledge, or otherwise encumber a Participant's interest
under the Plan prior to distribution of stock certificates shall be void and of
no effect.
-20-
<PAGE>
Exhibit 10.8
PROSPECTUS January 1, 1997
UNISOURCE WORLDWIDE, INC.
STOCK AWARD PLAN
Purpose--The Plan will provide awards of Unisource common stock to employees of
- - -------
Unisource Worldwide, Inc. and its subsidiaries who perform valuable services for
Unisource. Thus, the Plan will reward employees who have contributed to the
success of Unisource.
Number of Shares--A maximum of 300,000 shares of Unisource common stock may be
- - ----------------
issued under the Plan.
Eligibility--All full-time and part-time employees are generally eligible for
- - -----------
selection to receive stock awards, except that any stock awards granted to
executive officers must be approved in advance by the Human Resources Committee
of the Board of Directors.
Selection--The Board has appointed a Committee to select employees to receive
- - ---------
stock awards. The Committee may consider the recommendations of Unisource
operating companies when selecting employees.
Relationship to Other Compensation--Stock awards may be granted to employees
- - ----------------------------------
either in lieu of or as a supplement to regular compensation or bonus.
Employment Period or Performance Period--The stock award granted to the employee
- - ---------------------------------------
may (but need not) specify that the employee must remain employed with Unisource
for a specified period (the "Employment Period") after the date of the award as
a condition to receiving shares of Unisource common stock, or the stock award
may (but need not) specify that individual or company performance criteria must
be met over a period of time (the "Performance Period") as a condition to
receiving such shares.
Tax Consequences--An employee who receives a stock award will recognize current
- - ----------------
taxable income equal to the fair market value of the stock on the date of the
award. If the award specifies an Employment Period or a Performance Period,
however, the employee generally will not recognize taxable income until the
Employment Period or Performance Period has ended.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
-1-
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-2-
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH
THE SALE OF ANY OF THE SECURITIES COVERED BY THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY UNISOURCE. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE OF THE SECURITIES COVERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF UNISOURCE
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT
LAWFULLY BE MADE.
TABLE OF CONTENTS
Available Information................................................. 3
Plan Information...................................................... 4
General............................................................... 4
Eligibility........................................................... 4
Administration........................................................ 4
Grant of Awards....................................................... 4
Employment or Performance Period...................................... 5
Relationship to Other Compensation.................................... 5
Award................................................................. 5
Delivery of Shares.................................................... 5
Termination of Employment............................................. 5
Federal Income Tax Consequences....................................... 6
Amendment or Termination of the Plan.................................. 6
Changes in Capitalization............................................. 6
Employee Retirement Income Security Act of l974....................... 6
Documents Incorporated by Reference................................... 7
Unisource Worldwide, Inc. Stock Award Plan............................ 8
-3-
<PAGE>
AVAILABLE INFORMATION
Unisource is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
("Commission"). Such reports, proxy statements and other information filed by
Unisource can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, New
York, New York 10008. Copies can also be obtained upon payment of prescribed
rates from the Public Reference Section of the Commission in Washington, D.C.
20549. Reports, proxy statements and other information about Unisource can also
be inspected at the New York, Philadelphia and Chicago Stock Exchanges (on which
Unisource's common stock is listed).
Unisource will provide without charge to each person to whom a copy of this
prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the information incorporated by reference in this
prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Unisource will also
furnish, without charge, to each such person, on the written request therefor, a
copy of its most recent annual report to shareholders, and additional
information about the Plan and the Committee which administers the Plan.
Requests for such information should be directed to Corporate Affairs
Department, Unisource Worldwide, Inc., P.O. Box 834, Valley Forge, Pennsylvania
19482-0834; telephone number: (610) 296-8000.
Unisource will also deliver to each participant in the Plan, who does not
otherwise receive such materials, copies of all reports, proxy statements and
other communications generally distributed to the shareholders of Unisource.
-4-
<PAGE>
UNISOURCE WORLDWIDE, INC.
STOCK AWARD PLAN INFORMATION
General
The Unisource Worldwide, Inc. Stock Award Plan (the "Plan") was adopted by
the Board of Directors effective January 1, 1997. The Plan provides for awards
of Unisource common stock to employees who perform valuable services and who
have been selected to receive awards under the Plan. The Plan authorizes the
grant of stock awards for an aggregate of 300,000 shares of Unisource common
stock.
Eligibility
All full-time and part-time employees of Unisource (including its divisions
and subsidiaries) shall be eligible to receive awards under the Plan, except
that any stock awards granted to officers of Unisource who are subject to
Section 16 of the Securities Exchange Act of 1934 must be approved in advance by
the Human Resources Committee of the Board of Directors, and except that
employees of foreign subsidiaries may receive awards only if the Committee so
determines.
Administration
The Plan shall be administered by Unisource's Chief Executive Officer, Chief
Operating Officer and Executive Vice President (the "Committee"). The members of
the Committee are appointed by and serve at the pleasure of the Board of
Directors. A decision made by any one member of the Committee in carrying out,
administering or construing the Plan shall be final and binding.
The Committee may, in its discretion, appoint a Plan Administrator who shall
handle the day-to-day operations of the Plan and who shall perform such other
duties and take such other actions as may be delegated to the Plan Administrator
by the Committee.
Grant of Awards
The Committee shall: 1) select employees to receive awards of Unisource
common stock from time to time; 2) determine the number of shares subject to
each award; 3) determine the amount, if any, of compensation which selected
employees shall be required to forgo as a condition to receiving their awards;
4) determine any Employment Period and/or Performance Period criteria to be met
as a condition to receiving shares of common stock pursuant to the award; and 5)
determine any other terms or conditions to be placed on the awards. Selection of
employees and any other determinations to be made under the Plan shall be
entirely within the discretion of the Committee, which may consider the
recommendations of Unisource operating companies. Notwithstanding the
-5-
<PAGE>
foregoing, the Committee shall obtain the prior approval of the Human Resources
Committee for any award proposed to be granted to an executive officer of the
Company.
Employment Period or Performance Period
Stock awards under the Plan may (but need not) specify that, as a condition
to receiving all or a portion of the Unisource stock subject to the award, the
employee must remain employed by Unisource for a specified period of time (the
"Employment Period") following the date of the award. Similarly, the stock award
may (but need not) specify that individual or company performance criteria must
be met over a period of time (the "Performance Period") as a condition to
receiving such shares. The Employment Period or Performance Period shall not
exceed ten years. Upon completion of the Employment Period and/or satisfaction
of the performance criteria within the Performance Period, the employee will
receive the shares of Unisource common stock granted pursuant to the award.
Relationship to Other Compensation
Awards under the Plan may (but need not) specify that, as a condition to
receiving the award, the employee has elected to forgo a portion of his or her
compensation or bonus.
Award
The award granted to the employee shall specify: 1) the number of shares of
Unisource common stock granted by the award; 2) the amount of compensation, if
any, which the employee has elected to forgo as a condition to receiving the
award; 3) whether the award is granted subject to fulfillment of an Employment
Period or Performance Period; and 4) any other terms or conditions of the award.
Delivery of Shares
If no Employment Period or Performance Period is specified, shares of
Unisource common stock granted pursuant to a stock award hereunder shall be
delivered to the employee upon receipt of the award or shortly thereafter. If an
Employment Period or Performance Period is specified, the employee shall have no
rights as a shareholder until the Employment Period or the Performance Period is
completed, at which time the shares of Unisource common stock granted pursuant
to the award will be delivered to the employee.
-6-
<PAGE>
Termination of Employment
If an employee has received a stock award which is subject to an Employment
Period, and the employee's employment terminates prior to completion of the
Employment Period due to death, retirement, or disability, the employee (or heir
or legal representative) shall generally be immediately entitled to receive all
shares of Unisource common stock subject to the stock award, unless otherwise
determined by the Committee. If an employee has received a stock award which is
subject to a Performance Period, and the employee's employment terminates prior
to completion of the Performance Period due to death, retirement, or disability,
the Committee shall determine, in its discretion, whether the employee (or heir
or legal representative) shall be immediately entitled to receive all shares of
Unisource common stock subject to the stock award. If the employment of such an
employee terminates prior to completion of the Employment Period or Performance
Period for any other reason, or if the Performance Period criteria are not met,
the employee shall forfeit all shares of Unisource common stock which are
subject to the Employment Period or Performance Period restriction, unless
otherwise determined by the Committee.
Federal Income Tax Consequences
If the award does not specify an Employment Period or Performance Period, an
employee will generally recognize taxable income when he or she receives an
award of Unisource stock. The amount of such taxable income will be based on the
fair market value of Unisource common stock on the date of the award. If the
award specifies an Employment Period or Performance Period, the employee
generally will not recognize taxable income until the Employment Period or
Performance Period has ended, and the amount of such taxable income will be
based on the closing price of Unisource common stock on the date the Employment
Period or the Performance Period is completed. Upon sale of the Unisource stock
received pursuant to a stock award, the employee will generally recognize
taxable income on the difference between the amount previously recognized and
the sale price.
Amendment or Termination of the Plan
The Plan and any award granted under the Plan may be amended, suspended or
terminated at any time by action of the Committee, Human Resources Committee or
the Board of Directors, except that only the Human Resources Committee or the
Board of Directors shall have the authority to amend or suspend the provisions
of the Plan regarding awards to executive officers. No amendment, suspension or
termination shall adversely affect the rights of those employees who have
previously received stock awards under the Plan, except as provided in "Changes
in Capitalization" below.
Changes in Capitalization
If the outstanding shares of Unisource 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 Unisource common stock
-7-
<PAGE>
or other securities, through merger, consolidation, sale of all or substantially
all of the assets of Unisource, 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, and (ii)
the number and kind of shares and other securities subject to an award under the
Plan.
Employee Retirement Income Security Act of 1974
The Plan is not subject to the Employee Retirement Income Security Act of
1974.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the registrant with the Securities
and Exchange Commission are incorporated by reference in this prospectus:
(a) Registration Statement on Form 10 (effective November __, 1996);
(b) The registrant's registration statement on Form 8-A, relating to the
registrant's preferred share purchase rights; and
(c) Description of the registrant's common stock contained in a
registration statement filed under the Securities Exchange Act of 1934,
including any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by the registrant pursuant to sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the
filing of a post-effective amendment indicating that all securities offered
hereby have been sold or which deregisters all securities then remaining unsold,
shall be deemed to be incorporated by reference in this prospectus and to be
part thereof from the date of filing of such documents.
-8-
<PAGE>
UNISOURCE WORLDWIDE, INC.
STOCK AWARD PLAN
1. Purpose. The Unisource Worldwide, Inc. Stock Award Plan enables
-------
employees of Unisource Worldwide, Inc. ("Unisource") and its subsidiaries to
receive shares of Unisource common stock in recognition of services rendered.
Thus, the Plan is intended to reward employees who have contributed to the
success of Unisource.
2. Effective Date. The Plan shall become effective as of
--------------
January 1, 1997.
3. Eligibility. All full-time or part-time employees of Unisource
-----------
and its subsidiaries shall be eligible for selection to receive awards of
Unisource common stock as provided by the Plan.
4. Selection. The Plan Committee described in Paragraph 8, by action
---------
of at least one member, shall: a) select employees to receive stock awards from
time to time; b) determine the number of shares subject to each award; c)
determine the amount of compensation, if any, which selected employees shall be
required to forgo as a condition to receiving such awards; d) determine any
employment restrictions or performance restrictions to be placed upon such
awards; and e) determine any other terms or conditions to be placed upon the
awards. Such selections and determinations shall be entirely within the
discretion of the Committee, but the Committee may consider recommendations
received from Unisource operating companies. Notwithstanding the foregoing, the
Committee must obtain the prior approval of the Human Resources Committee for
any award proposed to be granted to an executive officer of the Company.
"Executive Officer" shall mean a person who files reports regarding ownership of
Unisource stock pursuant to Section 16 of the Securities Exchange Act of 1934.
-9-
<PAGE>
5. a) Number of Shares. An award to be granted hereunder shall
----------------
state the number of shares of Unisource common stock subject to the award.
b) Employment or Performance Restrictions. The award may (but
--------------------------------------
need not) specify that the employee must remain employed with Unisource or its
subsidiaries for a specified period from date of the grant of the award (the
"Employment Period") as a condition to receiving all or a portion of the
Unisource stock subject to the award, or the stock award may (but need not)
specify that individual or company performance criteria must be met over a
period of time (the "Performance Period") as a condition to receiving such
shares. If such an Employment Period or Performance Period is specified, the
stock subject to the Employment Period or Performance Period restriction shall
not be delivered to the employee unless and until the Employment Period or
Performance Period has been completed and any applicable Performance Period
criteria have been met. In no event shall the Employment Period or Performance
Period exceed ten years.
c) Payment Requirement. The award may (but need not) specify
-------------------
that the employee has elected to forgo a specified portion of his or her
compensation as a condition to receiving the award.
6. Rights as Shareholder. Unless an Employment Period or Performance
---------------------
Period is specified, an employee who has received a stock award hereunder shall
generally have all the rights of a shareholder with respect to the Unisource
stock subject to the award upon delivery of the shares subject to such award.
If an Employment Period or Performance Period is specified, the employee
generally shall not have any rights as a shareholder with respect to the
Unisource stock subject to the Employment Period or Performance Period
restriction until the Employment Period or Performance Period has been
successfully completed and shares have been delivered pursuant to the award.
-10-
<PAGE>
7. Adjustment. If the outstanding shares of Unisource 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
Unisource common stock or other securities, through merger, consolidation, sale
of all or substantially all of the assets of Unisource, 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, and (ii) the number and kind of shares and other securities subject to
an award under the Plan.
8. Administration. The Plan shall be administered by Unisource's
--------------
Chief Executive Officer, Chief Operating Officer, and Executive Vice President
(the "Plan Committee"), and any decision made by at least one of them in
carrying out, administering or construing the Plan shall be final and binding
upon employees and their heirs, successors and legal representatives.
Nothwithstanding the foregoing, any award proposed to be granted to an Executive
Officer must be approved in advance by the Human Resources Committee. The
Committee may, in its discretion, appoint a Plan Administrator who shall handle
the day-to-day operations of the Plan and who shall perform such other duties
and take such other actions as may be delegated to the Plan Administrator by the
Committee.
9. Amendment or Termination. The Plan may be amended, suspended or
------------------------
terminated at any time by action of the Committee, Human Resources Committee or
Board of Directors, except only the Human Resources Committee or Board of
Directors shall have sole
-11-
<PAGE>
authority to amend the provisions of the Plan regarding awards to executive
officers. No such amendment, suspension or termination shall adversely affect
the rights of those employees who have received stock awards under the Plan,
except as provided in Paragraph 7.
10. Termination of Employment. If the employment (with Unisource or
-------------------------
a subsidiary) of an employee who has received a stock award subject to an
Employment Period terminates due to death, retirement , or total disability (as
defined in Unisource's Long Term Disability Plan), the employee (or legal
representative or heir) shall generally be entitled to receive all shares of
Unisource common stock subject to such stock award regardless of whether the
Employment Period has been completed, except as otherwise determined by the Plan
Committee. If the employment (with Unisource or a subsidiary) of an employee
who has received a stock award subject to a Performance Period terminates due to
death, retirement , or disability (as defined in Unisource's Long Term
Disability Plan), the Committee shall determine, in its sole discretion, whether
the employee (or the employee's legal representative or heir) shall be entitled
to receive the shares of Unisource common stock subject to such stock award
regardless of whether the Performance Period has been completed. If the
employment (with Unisource or a subsidiary) of an employee who has received a
stock award subject to an Employment Period or Performance Period terminates for
any reason other than those set forth above, or if the Performance Period
criteria are not met, the employee (or legal representative or heir) will
generally forfeit all shares of Unisource common stock which were awarded
subject to the Employment Period or Performance Period restriction, unless
otherwise determined by the Committee.
-12-
<PAGE>
11. No Agreement to Employ. Nothing in the Plan shall be construed
----------------------
to constitute or be evidence of an agreement or understanding, express or
implied, on the part of Unisource or its subsidiaries, to employ or retain an
employee who has received a stock award for any specific period of time, unless
otherwise specified in the individual award.
12. Withholding. Unisource and its subsidiaries will have the right
-----------
to require the employee to pay, as a condition to receiving the award, an amount
necessary to satisfy withholding requirements for all federal, state and local
taxes. In connection with such withholding, Unisource and its subsidiaries may
make such arrangements, consistent with the Plan, as they may deem appropriate.
IN WITNESS WHEREOF, the Unisource Worldwide, Inc. Stock Award Plan is
hereby adopted by the Corporation, by duly authorized signature set forth below.
UNISOURCE WORLDWIDE, INC.
By:
Title:
-13-
<PAGE>
EXHIBIT 10.9
November 1, 1996
UNISOURCE WORLDWIDE, INC.
1997 DEFERRED COMPENSATION PLAN
The Plan
Unisource Worldwide, Inc. ("Unisource") is offering to certain employees of
its divisions and subsidiaries ("Employer(s)") the opportunity to participate in
the Unisource Worldwide, Inc. 1997 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 will become effective on January 1, 1997.
The full text of the Plan is set forth beginning on page 9 of this
document. This document sets forth information about the Plan, but should be
read in conjunction with the text of the Plan itself.
Unisource's principal office is located at Wayne, Pennsylvania 19087. Its
telephone number is (610) 296-8000. Unisource's federal tax identification
number is 13-5369500.
Eligibility
You are eligible to participate in the Plan if you are:
--A full-time employee of Unisource or an Employer;
--Either (a) a former participant in the Alco Standard Corporation 1994
Deferred Compensation Plan (the "Alco Plan"), (b) a "highly
compensated" employee (employees who had compensation from Unisource
or an Employer or from Alco Standard Corporation ("Alco") in excess of
$110,000 in calendar year 1995 or who expect to have compensation from
Unisource, an Employer or Alco in excess of $110,000 in calendar year
1996 will be considered "highly compensated" for purposes of the
Plan), (c) a "Partner" or (d) have been selected for participation by
the President of Unisource; and
--A U.S. taxpayer.
Election to Participate
Participation in the Plan is voluntary. You may elect to begin
participation in the Plan as of January 1, 1997 (or the beginning of any
subsequent calendar year) by signing an
1
<PAGE>
agreement ("Participation Agreement") which expresses your commitment to
participate in the Plan for five years (or until your employment terminates, if
earlier) and sets forth your deferral election for the first year. You may also
be required to sign any other forms required by the Plan Administrator.
Deferrals
In your Participation Agreement, you may elect to defer receipt of a
portion of your salary and/or bonus and/or cash awards under any long term
incentive compensation plan ("LTIP") that may be adopted by Unisource. If you
elect to defer receipt of a portion of your bonus or LTIP cash award, you may
specify either a dollar amount or a percentage to be deferred. The amount of
your salary deferrals must be at least $3,000 and the aggregate amount of your
deferrals from your salary, bonus and LTIP awards may not exceed $100,000 for
each of the five plan years. The amounts you defer may vary from year to year,
subject to these minimum and maximum limits, and you will be given the
opportunity, before the beginning of each year, to change the amount of your
deferrals. A participant who does not elect a specific amount for any year will
be deemed to have elected to defer $3,000 of salary for such year. If you
terminate employment during the deferral period, your deferral of income will
immediately cease.
The amounts you elect to defer will generally be deducted from your salary
through payroll deduction in substantially equal installments during each
deferral period, and from your bonus or LTIP cash award in a lump sum.
Investment Accounts
Amounts that you defer under the Plan will be credited to an account
established by Unisource 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, Unisource will measure the
performance of these funds, and will credit your account accordingly. Unisource
may, but is not obligated to, use participant deferrals to invest in the
investment funds described below. You will at all times remain a general
unsecured creditor of Unisource.
You may allocate your account balance among one or more of the following
alternatives (or such other alternatives as Unisource 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
2
<PAGE>
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 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 investment in securities, principally equities,
of issuers in countries other than the United States.
. High Current Income Alternative - seeks high current income by
investing principally in fixed-income
3
<PAGE>
securities which are rated in the lower rating categories of the
established rating services (Baa or lower by Moody's and BBB or lower
by Standard & Poor's), or in unrated securities of comparable quality.
Securities rated below Baa by Moody's and below BBB by Standard &
Poor's are commonly known as "junk bonds."
Neuberger & 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, International Equity Focus and High Current
Income 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.
You may change your allocation among the various alternatives once during
any calendar month. Any change you request by the 25th day of a month will
become effective as of the first day of the next calendar month.
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 Unisource, an Employer or Alco for a period of five years after you begin
participating in the Plan (or after you began participating in the Alco Plan) 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 Unisource 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.
4
<PAGE>
Death Benefits
If you die (whether before or after 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 Unisource 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,
. 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 commencement of your benefits to a later date, or to
receive your benefits in five or fifteen annual payments (rather than ten), by
providing written notice to the Administrator by December 31 of the second year
prior to the earliest date on which your benefits would otherwise commence.
Use of Participant Payments
Unisource currently intends (but is not obligated) to use participant
deferrals to purchase life insurance on the lives of participating employees.
The obligations of Unisource 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
5
<PAGE>
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 Unisource or an
Employer, except that the deferrals will 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
Unisource's Partners' Stock Purchase Plan.
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
Unisource (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
Unisource, 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 900.
All expenses incurred in administering the Plan will be paid by Unisource
and none will be paid by the Plan participants.
6
<PAGE>
Claims Procedure
If at any time the Plan Administrator denies your written claim for any
benefit to which you 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 if 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 Unisource. The Committee
will render a written decision within 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 Unisource. Naturally, both you and Unisource 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 Unisource 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 Unisource 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.
7
<PAGE>
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 Unisource
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
participant 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. Unisource or an Employer will generally be permitted a federal
income tax deduction for the year in which such benefits are paid.
8
<PAGE>
UNISOURCE WORLDWIDE, INC.
1997 DEFERRED COMPENSATION PLAN
1. Purpose. The purpose of the Unisource Worldwide, Inc. 1997 Deferred
Compensation Plan is to permit certain eligible employees of Unisource
Worldwide, Inc. 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
Unisource (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) "Alco Plan" shall mean the Alco Standard Corporation 1994 Deferred
Compensation Plan.
(e) "Compensation" shall mean all salaries, bonuses, commissions and
incentive compensation from an Employer, including cash payable pursuant to
awards under an LTIP, but shall not include company contributions under
Unisource's Partners' Stock Purchase Plan or under any of Unisource's qualified
retirement plans or any fringe benefits.
(f) "Effective Date" shall mean January 1, 1997.
(g) "Employer" shall mean Unisource or an Affiliated Employer.
(h) "LTIP" shall mean any long term incentive compensation plan
adopted by Unisource from time to time.
(i) "Participant" shall mean any person employed by an Employer who is
eligible, and who has elected, to participate in the Plan.
9
<PAGE>
(j) "Participation Agreement" shall mean the agreement executed by
each Participant and such Participant's Employer setting forth certain
information relating to the Participant's participation in the Plan.
(k) "Plan" shall mean the Unisource Worldwide, Inc. 1997 Deferred
Compensation Plan, as amended from time to time.
(l) "Plan Year" shall mean the period beginning on January 1 and
ending on December 31 of each year.
(m) "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 Unisource).
(n) "Unisource" shall mean Unisource Worldwide, Inc., a Delaware
corporation.
3. Participation. Any person who (a) is employed by an Employer on a
full-time basis, (b) either (i) is a former participant in the Alco Plan, or
(ii) is "highly compensated" (employees who received Compensation from Alco or
an Employer in the 1995 calendar year, or who expect to receive Compensation
from Alco or an Employer in the 1996 calendar year, in excess of $110,000 are
considered "highly compensated" for purposes of the Plan) or (iii) has been
designated by Alco as a "Partner" and (c) is a United States taxpayer, 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 Unisource. 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 and prior to
the beginning of each Plan Year during the term of the Plan, an employee who
meets the eligibility requirements of Paragraph 3 may irrevocably elect to defer
or forgo a portion of his Compensation for each of the next five Plan Years (or,
if less, for each of the Plan Years while he is an active employee of an
Employer). The amount of the deferral for each Plan Year may vary, subject to
the minimum and maximum limitations set forth below.
The amount of salary and/or bonus and/or cash payments pursuant to LTIP
awards (stated as a dollar amount or as a percentage in the case of deferrals
from a Participant's bonus or LTIP award) to be deferred for the first Plan Year
shall be designated on the Participant's Participation Agreement, subject
10
<PAGE>
to the minimum and maximum limitations set forth below. For each of the next
four Plan Years after a Participant's initial deferral election (or, if less,
for each Plan Year while 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 of Compensation to be deferred, subject to the minimum
and maximum limitations set forth below. For each Plan Year, the amount of a
Participant's deferrals from salary may be no less than $3,000 and the aggregate
amount of a Participant's deferrals from salary, bonus and LTIP awards may be no
more than $100,000. 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 of salary 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 during the applicable deferral period in the case of
deferrals from salary, and in a lump sum in the case of deferrals from bonuses
or LTIP awards.
5. Investment Accounts. Amounts deferred by a Participant pursuant to
Paragraph 4 will be credited to an account established by Unisource 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 Unisource from time to time.
A Participant may request a change in his allocation among the various
investment alternatives once during any calendar month. Any such changes
requested by the 25th day of the month will become effective as of the first day
of the next calendar month.
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 who formerly participated in the Alco
Plan, on the fifth anniversary of the date of his initial participation in the
Alco Plan) or when he attains age 65, whichever shall first occur, provided the
Participant has been a full-time employee of an Employer or of Alco 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).
11
<PAGE>
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.
7. Death Benefits. If a Participant dies (whether before or after he
begins to receive benefit payments), 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 be paid in
ten annual payments and 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, by December 31 of the second year prior to such date, of his election
to defer commencement of such benefits until a later date or his election to
receive benefits in five or fifteen annual payments.
A. Ten Payments. If the Participant's benefits are to be paid to him
------------
in ten annual payments, such payments shall be made 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.
12
<PAGE>
(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.
(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.
B. Five Payments. If the Participant elects (in accordance with the
-------------
procedure specified herein) to have his benefits paid in five annual payments,
such payments shall be made as follows:
(a) 1/5 of the value of his account as of the preceding December 31 in
the first year.
(b) 1/4 of the value of his account as of the preceding December 31 in
the second year.
(c) 1/3 of the value of his account as of the preceding December 31 in
the third year.
(d) 1/2 of the value of his account as of the preceding December 31 in
the fourth year.
(e) All amounts remaining in his account in the fifth year.
C. Fifteen Payments. If the Participant elects (in accordance with
----------------
the procedure specified herein) to have his benefits paid in fifteen annual
payments, such payments shall be made as follows:
(a) 1/15 of the value of his account as of the preceding December 31
in the first year.
(b) 1/14 of the value of his account as of the preceding December 31
in the second year.
13
<PAGE>
(c) 1/13 of the value of his account as of the preceding December 31
in the third year.
(d) 1/12 of the value of his account as of the preceding December 31
in the fourth year.
(e) 1/11 of the value of his account as of the preceding December 31
in the fifth year.
(f) 1/10 of the value of his account as of the preceding December 31
in the sixth year.
(g) 1/9 of the value of his account as of the preceding December 31 in
the seventh year.
(h) 1/8 of the value of his account as of the preceding December 31 in
the eighth year.
(i) 1/7 of the value of his account as of the preceding December 31 in
the ninth year.
(j) 1/6 of the value of his account as of the preceding December 31 in
the tenth year.
(k) 1/5 of the value of his account as of the preceding December 31 in
the eleventh year.
(l) 1/4 of the value of his account as of the preceding December 31 in
the twelfth year.
(m) 1/3 of the value of his account as of the preceding December 31 in
the thirteenth year.
(n) 1/2 of the value of his account as of the preceding December 31 in
the fourteenth year.
(o) All amounts remaining in his account in the fifteenth year.
10. Beneficiary Designation. A Participant shall designate in his
Participation Agreement the beneficiary or beneficiaries who shall, in the event
of his death, receive the benefits payable in accordance with Paragraph 7. 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 such benefits are payable, payments shall be made to the
members of the first surviving class of the Participant in the following
priority:
(a) spouse;
14
<PAGE>
(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 Unisource. Unisource 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, 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. Unisource 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
Unisource or an Employer. To the extent that any person acquires
15
<PAGE>
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 Unisource or an Employer.
15. Ownership of Life Insurance Policies. Unisource may, but is not
obligated to, purchase life insurance policies to assist it in meeting its
obligation to pay benefits under the Plan. Unisource will retain all incidents
of ownership in such policies.
As a condition of participation in the Plan, the Participant shall agree
that Unisource 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 Unisource (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.
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.
16
<PAGE>
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 Unisource's Partners' Stock Purchase Plan.
19. Amendment. The Board of Directors of Unisource 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 shall
have a material adverse effect upon a Participant unless he consents to such
amendment or termination in writing.
20. Termination. This Plan shall remain in effect until termination by
the Board of Directors of Unisource. The Board of Directors of Unisource shall
have the right to terminate the Plan in its entirety, and not in part, at any
time for any reason that it, in its discretion, deems appropriate. In such
event, Unisource shall have no liability or obligation under the Plan or the
Participant's Participation Agreement (or any other document), provided that
Unisource 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. Unisource 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
17
<PAGE>
other accelerated manner as Unisource 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 Unisource's determination to accelerate benefits. If
Unisource 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. 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 Unisource'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 Unisource, its
successors and assigns, and each Participant, his heirs and legal
representatives.
(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.
18
<PAGE>
Exhibit 10.12
EXECUTION COPY
===============================================================================
CREDIT AGREEMENT
dated as of
November 22, 1996
among
Unisource Worldwide, Inc.
Unisource Capital Corporation
Unisource Canada, Inc.
The Lenders Party Hereto
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
THE TORONTO-DOMINION BANK,
as Canadian Agent
TORONTO DOMINION (TEXAS), INC.,
as Documentation Agent
---------------------------
CHASE SECURITIES INC.,
as Arranger
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms............................................. 1
SECTION 1.02. Classification of Loans and
Borrowings.............................................. 25
SECTION 1.03. Terms Generally........................................... 25
SECTION 1.04. Accounting Terms; GAAP.................................... 26
SECTION 1.05. Exchange Rates............................................ 26
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments............................................... 27
SECTION 2.02. Loans and Borrowings...................................... 28
SECTION 2.03. Requests for Revolving Borrowings......................... 30
SECTION 2.04. Competitive Bid Procedure................................. 31
SECTION 2.05. Swingline Loans........................................... 34
SECTION 2.06. Funding of Borrowings..................................... 36
SECTION 2.07. Interest Elections........................................ 38
SECTION 2.08. Termination and Reduction of
Commitments............................................. 41
SECTION 2.09. Repayment of Loans; Evidence of Debt...................... 42
SECTION 2.10. Prepayment of Loans....................................... 43
SECTION 2.11. Fees...................................................... 45
SECTION 2.12. Interest.................................................. 47
SECTION 2.13. Alternate Rate of Interest................................ 49
SECTION 2.14. Increased Costs; Illegality............................... 50
SECTION 2.15. Break Funding Payments.................................... 53
SECTION 2.16. Taxes..................................................... 54
SECTION 2.17. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs..................................... 56
SECTION 2.18. Mitigation Obligations; Replacement of
Lenders................................................. 59
SECTION 2.19. Acceptances............................................... 61
<PAGE>
2
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers................................... 66
SECTION 3.02. Authorization; Enforceability.......................... 66
SECTION 3.03. Governmental Approvals; No Conflicts................... 66
SECTION 3.04. Financial Condition; No Material
Adverse Change........................................ 67
SECTION 3.05. Properties............................................. 67
SECTION 3.06. Litigation and Environmental Matters................... 68
SECTION 3.07. Compliance with Laws and Agreements.................... 68
SECTION 3.08. Investment and Holding Company Status.................. 68
SECTION 3.09. Taxes.................................................. 69
SECTION 3.10. ERISA.................................................. 69
SECTION 3.11. Disclosure............................................. 69
SECTION 3.12. Subsidiaries........................................... 69
SECTION 3.13 Solvency............................................... 70
SECTION 3.14. Federal Reserve Requirements........................... 70
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date......................................... 70
SECTION 4.02. Each Credit Event...................................... 72
SECTION 4.03. First Credit Event..................................... 73
SECTION 4.04. First Credit Event after Spin-Off...................... 74
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other
Information........................................... 74
SECTION 5.02. Notices of Material Events............................. 76
SECTION 5.03. Existence; Conduct of Business......................... 76
SECTION 5.04. Payment of Obligations................................. 77
SECTION 5.05. Maintenance of Properties; Insurance................... 77
SECTION 5.06. Books and Records; Inspection Rights................... 77
SECTION 5.07. Compliance with Laws................................... 78
SECTION 5.08. Use of Proceeds........................................ 78
SECTION 5.09. Ownership of Delaware Borrower and
Canadian Borrower..................................... 78
<PAGE>
3
SECTION 5.10. Further Assurances...................................... 78
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness............................................ 79
SECTION 6.02. Liens................................................... 80
SECTION 6.03. Sale and Lease-Back Transactions........................ 82
SECTION 6.04. Fundamental Changes..................................... 82
SECTION 6.05. Leases.................................................. 82
SECTION 6.06. Transactions with Affiliates............................ 83
SECTION 6.07. Restrictive Agreements.................................. 83
SECTION 6.08. Leverage Ratio.......................................... 84
SECTION 6.09. Minimum Consolidated Net Worth.......................... 84
ARTICLE VII
Events of Default....................................... 84
-----------------
ARTICLE VIII
The Agents.............................................. 87
----------
ARTICLE IX
Guarantee............................................... 90
---------
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Notices................................................. 92
SECTION 10.02. Waivers; Amendments..................................... 93
SECTION 10.03. Expenses; Indemnity; Damage Waiver...................... 95
SECTION 10.04. Successors and Assigns.................................. 96
SECTION 10.05. Survival................................................ 100
SECTION 10.06. Counterparts; Integration;
Effectiveness......................................... 101
SECTION 10.07. Severability............................................ 101
SECTION 10.08. Right of Setoff......................................... 102
SECTION 10.09. Governing Law; Jurisdiction; Consent
to Service of Process................................. 102
<PAGE>
4
SECTION 10.10. WAIVER OF JURY TRIAL..................... 103
SECTION 10.11. Headings................................. 103
SECTION 10.12. Confidentiality.......................... 103
SECTION 10.13. Conversion of Currencies................. 104
SCHEDULES:
- - ---------
Schedule 1.01(a) -- Alternate Procedures
Schedule 1.01(b) -- Subsidiary Guarantors
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries, Material Subsidiaries and
Ownership Interests
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.07 -- Existing Restrictions
EXHIBITS:
- - --------
Exhibit A -- Form of Assignment and Acceptance
Exhibit B-1 -- Form of Opinion of U.S. Counsel
Exhibit B-2 -- Form of Opinion of Canadian Counsel
Exhibit C -- Form of Discount Note
Exhibit D -- Form of Subsidiary Guarantee Agreement
Exhibit E -- Form of Indemnity, Subrogation and
Contribution Agreement
<PAGE>
CREDIT AGREEMENT dated as of November 22, 1996
among UNISOURCE WORLDWIDE, INC., a Delaware
corporation (the "Company"), UNISOURCE CAPITAL
CORPORATION, a Delaware corporation (the "Delaware
Borrower" and, together with the Company, the "U.S.
Borrowers"), UNISOURCE CANADA, INC., a Canadian
corporation (the "Canadian Borrower" and, together
with the U.S. Borrowers, the "Borrowers"), the
LENDERS party hereto, THE CHASE MANHATTAN BANK, as
Administrative Agent, THE TORONTO-DOMINION BANK, as
Canadian Agent, and TORONTO DOMINION (TEXAS) INC., as
Documentation Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Acceptance" means a Draft drawn by the Canadian Borrower on a
----------
Canadian Lender conforming to the requirements of Section 2.19 and accepted by
such Canadian Lender in accordance with Section 2.19(c). As the context shall
require, "Acceptance" has also the meaning assigned to it in Section 2.19(i).
"Acceptance Borrowing" means a group of Acceptances accepted by the
--------------------
Canadian Lenders that are created on the same date and have the same maturity
date.
"Acceptance Equivalent Loans" means an advance made under this
---------------------------
Agreement by a Canadian Lender evidenced by a Discount Note.
"Acceptance Obligation" means, with respect to each Acceptance, the
---------------------
obligations of the Canadian Borrower to
<PAGE>
2
pay to the Canadian Lender that accepted such Acceptance the face amount
thereof as required by Section 2.19.
"Administrative Agent" means The Chase Manhattan Bank, in its
--------------------
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent or the Canadian Agent, as
applicable.
"Affiliate" means, with respect to a specified Person, another
---------
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Agreement Currency" has the meaning assigned to such term in
------------------
Section 10.13.
"ALCO" means ALCO Standard Corporation, an Ohio corporation.
----
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Alternate Procedures" means, with respect to the Committed Currency
--------------------
Loans in a specified Committed Currency, any alternate exchange rate, notice,
funding or payment procedures approved by the Administrative Agent, the
applicable Borrower and the Lenders and set forth in Schedule 1.01(a) or in
one or more supplements thereto.
"Applicable Percentage" means, with respect to any Lender, the
---------------------
percentage of the total Commitments represented by such Lender's Commitment.
If the Commitments have terminated or expired, the Applicable Percentages
shall be determined based upon the Commitments most recently in effect, giving
effect to any assignments.
<PAGE>
3
"Applicable Rate" means, with respect to any Eurocurrency Revolving
---------------
Loan or Acceptance, or with respect to the facility fees payable hereunder, as
the case may be, the applicable rate per annum set forth below under the
caption "Eurocurrency Spread/Stamping Fee Rate" or "Facility Fee Rate", as the
case may be, (a) for any day on or prior to May 22, 1997, based upon Category
2 and (b) for any day thereafter, based upon (i) initially, the Company's
Leverage Ratio as in effect as of the last day of the most recently completed
fiscal quarter of the Company in respect of which financial statements have
been delivered pursuant to Section 5.01 and (ii) after both Moody's and S&P
have rated the Index Debt,the ratings by Moody's and S&P, respectively,
applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
==========================================================================================
Index Debt Eurocurrency Facility Fee
---------- ------------ ------------
Leverage Ratings Spread/ Rate
-------- ------- ------- ----
Ratio Stamping
----- --------
Fee Rate
--------
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------
Category 1 Less A3 or better
than or from
equal to Moody's/A-or
30% better from
S&P .145% .080%
- - ------------------------------------------------------------------------------------------
Category 2 Greater Baa1 from
- - ---------- than 30% Moody's/BBB
but less + from S&P
than or
equal to
45% .185% .090%
- - ------------------------------------------------------------------------------------------
Category 3 Greater Baa2 from
- - ---------- than 45% Moody's/BBB
but less from S&P
than or
equal to
50% .240% .110%
- - ------------------------------------------------------------------------------------------
Category 4 Greater Less than
- - ---------- than 50% Baa2 from
Moody's/
less than
BBB from S&P .300% .150%
==========================================================================================
</TABLE>
<PAGE>
4
For purposes of the foregoing, (i) if either Moody's or S&P shall
not have in effect a rating for the Index Debt, then the "Applicable Rate"
shall be based upon the Company's Leverage Ratio as in effect as of the last
day of the most recently completed fiscal quarter of the Company in respect of
which financial statements have been delivered pursuant to Section 5.01; (ii)
if the ratings established or deemed to have been established by Moody's and
S&P for the Index Debt shall fall within different Categories, the Applicable
Rate shall be based on the higher of the two ratings unless one of the two
ratings is two or more Categories lower than the other, in which case the
Applicable Rate shall be determined by reference to the Category next below
that of the higher of the two ratings; (iii) if the ratings established or
deemed to have been established by Moody's and S&P for the Index Debt shall be
changed (other than as a result of a change in the rating system of Moody's or
S&P), such change shall be effective as of the date on which it is first
announced by the applicable rating agency and (iv) in the event the financial
statements required to be delivered under Section 5.01 are not delivered on or
prior to the date due, the Leverage Ratio shall be deemed to be greater than
50% during the period from the applicable due date to the date when such
financial statements are delivered. Each change in the Applicable Rate shall
apply during the period commencing on the effective date of such change and
ending on the date immediately preceding the effective date of the next such
change.
"Assessment Rate" means, for any day, the annual assessment rate in
---------------
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
--------
any change in any law, rule or regulation after the date hereof, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall be such annual rate as shall be determined in a
commercially reasonable manner by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance
-------------------------
entered into by a Lender and an assignee
<PAGE>
5
(with the consent of any party whose consent is required by Section 10.04) and
accepted by the Administrative Agent or the Canadian Agent, as applicable, in
the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
-------------------
Effective Date to but excluding the earlier of the Maturity Date and the date
of termination of the Commitments.
"Bank Act (Canada)" means the Bank Act (Canada), as amended from
-----------------
time to time.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
------------
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System
-----
of the United States of America.
"Borrowers" has the meaning assigned to such term in the preamble.
---------
"Borrowing" means (a) Revolving Loans of the same Type and currency,
---------
made, converted or continued on the same date and, in the case of Eurocurrency
Loans or Acceptances, as to which a single Interest Period is in effect, (b) a
Competitive Loan or group of Competitive Loans of the same Type made on the
same date and as to which a single Interest Period is in effect or (c) a
Swingline Loan.
"Borrowing Request" means (a) a request by a U.S. Borrower for a
-----------------
Revolving Loan Borrowing (other than a Canadian Loan) in accordance with
Section 2.03 or (b) a request by the Canadian Borrower for a Canadian Loan in
accordance with Section 2.03 or 2.19.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by
law to remain closed; provided that, when used in connection with a
--------
Eurocurrency Loan, the term "Business Day" shall also exclude any day on which
------------
banks are not open for dealings in deposits in the applicable Committed
Currency in the London interbank market.
<PAGE>
6
"Calculation Date" means the last Business Day or Canadian Business
----------------
Day, as applicable, of each calendar month.
"Canadian Agent" means Toronto Dominion Bank, in its capacity as
--------------
agent for the Canadian Lenders hereunder.
"Canadian Borrower" has the meaning assigned to such term in the
-----------------
preamble.
"Canadian Business Day" means any Business Day other than a Business
---------------------
Day on which commercial banks in Toronto or Montreal are authorized or
required by law to remain closed.
"Canadian Commitment" means, with respect to each Canadian Lender,
-------------------
the commitment of such Canadian Lender to make Canadian Loans hereunder. The
initial amount of each Canadian Lender's Canadian Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Canadian Lender shall have assumed its Canadian Commitment, as applicable.
The initial aggregate amount of the Canadian Lenders' Canadian Commitments is
$100,000,000.
"Canadian Dollar Equivalent" means, on any date of determination,
--------------------------
with respect to any amount in Canadian Dollars, the equivalent in dollars of
such amount, determined by the Canadian Agent pursuant to Section 1.05(a)
using the Canadian Exchange Rate with respect to Canadian Dollars then in
effect.
"Canadian Dollars" or "Cdn.$" refers to lawful money of Canada.
---------------- -----
"Canadian Exchange Rate" means, on any day, with respect to Canadian
----------------------
Dollars, the spot rate at which Canadian Dollars may be exchanged into dollars
(and, for purposes of clause (e) of Section 2.07 and clause (i) of Section
2.13, the rate at which dollars may be exchanged into Canadian Dollars), as
quoted by the Bank of Canada at approximately 12:00 Noon, Toronto time, on
such day (or if such day is not a Canadian Business Day, on the immediately
preceding Canadian Business Day). In the event that such spot rate is not
quoted by the Bank of Canada, the Canadian Exchange Rate shall be determined
by reference to such other publicly available service for displaying exchange
rates as may be agreed upon by the Canadian Agent and the Company, or, in
<PAGE>
7
the absence of such agreement, such Canadian Exchange Rate shall instead be
the arithmetic average of the spot rates of exchange of the Canadian Agent in
the market where its foreign currency exchange operations in respect of
dollars are then being conducted, at or about 12:00 Noon, Toronto time, on
such date for the purchase of Canadian Dollars for delivery two Business Days
later; provided that if at the time of any such determination, for any reason,
--------
no such spot rate is being quoted, the Canadian Agent may use any reasonable
method it deems appropriate to determine such rate, and such determination
shall be conclusive absent manifest error.
"Canadian Lenders" means the Persons listed on Schedule 2.01 and any
----------------
other Person that shall have become a party hereto and assumed a Canadian
Commitment pursuant to an Assignment and Acceptance, other than any such
Person that ceases to be a party hereto pursuant to an Assignment and
Acceptance. A Canadian Lender shall be a Lender hereunder and shall be a bank
chartered under the Bank Act (Canada) that stamps and accepts Acceptances.
"Canadian Loans" means the Loans made by the Canadian Lenders to the
--------------
Canadian Borrower and the Acceptances pursuant to this Agreement.
"Canadian Prime Rate" means, for any day, a rate per annum equal to
-------------------
the greater of (a) the rate per annum publicly announced from time to time by
Toronto Dominion Bank as its prime rate (being the rate it will charge for
commercial loans in Canadian Dollars in Canada) in effect at its principal
office in Toronto and (b) the CDOR Rate plus .625%. Each change in the
Canadian Prime Rate shall be effective on the date such change is publicly
announced.
"Canadian Prime Rate Loan" means a Canadian Loan to the Canadian
------------------------
Borrower bearing interest at the Canadian Prime Rate.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
<PAGE>
8
"CDOR Rate" means the annual rate of interest which is the rate
---------
determined as being the arithmetic average of the "BA 1 month" rates
applicable to Canadian Dollar bankers' acceptances displayed and identified as
such on the "Reuters' Screen CDOR Page" at approximately 10:00 a.m., Toronto
time, on such day for Schedule I chartered banks, or if such day is not a
Canadian Business Day then on the immediately preceding Canadian Business Day
(as adjusted by a Canadian Lender after 10:00 a.m., Toronto time, to reflect
any error in a posted rate of interest or in the posted average annual rate of
interest).
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof) of shares
representing more than 20% of the aggregate ordinary voting power represented
by the issued and outstanding capital stock of the Company; or (b) occupation
of a majority of the seats (other than vacant seats) on the board of directors
of the Company by Persons who were neither (i) nominated by the board of
directors of the Company nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any applicable law, rule
-------------
or regulation after the date of this Agreement, (b) any change in any
applicable law, rule or regulation or in the interpretation or application
thereof by any Governmental Authority after the date of this Agreement or (c)
compliance by any Lender (or, for purposes of Section 2.14(b), by any lending
office of such Lender or by such Lender's holding company, if any) with any
applicable request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving
Loans, Competitive Loans or Swingline Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commitment" means, with respect to each Lender, the commitment of
----------
such Lender to make Revolving Loans and to acquire participations in Swingline
Loans hereunder,
<PAGE>
9
expressed as an amount representing the maximum aggregate amount of such
Lender's Revolving Credit Exposure hereunder,as such commitment may be (a)
reduced from time to time pursuant to Section 2.08 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 10.04. The initial amount of each Lender's Commitment is
set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to
which such Lender shall have assumed its Commitment, as applicable. The
initial aggregate amount of the Lenders' Commitments is $1,000,000,000.
"Committed Currencies" means French Francs, Deutschemarks and Pounds
--------------------
Sterling.
"Committed Currency Borrowing" means a Borrowing comprised of
----------------------------
Committed Currency Loans.
"Committed Currency Loan" means a Revolving Loan denominated in a
-----------------------
Committed Currency.
"Company" has the meaning assigned to such term in the preamble.
-------
"Competitive Bid" means an offer by a Lender to make a Competitive
---------------
Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive Bid,
--------------------
the Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by a U.S. Borrower for
-----------------------
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan in dollars made pursuant to Section
----------------
2.04.
"Competitive Loan Exposure" means, with respect to any Lender at any
-------------------------
time, the sum of the outstanding principal amount of such Lender's Competitive
Loans at such time.
"Consolidated Total Capitalization" means, on any date, the sum of
---------------------------------
(a) Consolidated Total Debt at such date and (b) the Consolidated Net Worth at
such date.
<PAGE>
10
"Consolidated Total Debt" means, on any date, the aggregate
-----------------------
principal amount of the Indebtedness of the Company and Subsidiaries that
would be reflected as liabilities on a consolidated balance sheet of the
Company and Subsidiaries as of such date prepared in accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income of
-----------------------
the Company and consolidated Subsidiaries, determined on a consolidated basis
in accordance with GAAP for such period.
"Consolidated Net Worth" means, at any date, all amounts which, in
----------------------
conformity with GAAP, would be included under stockholders' equity on a
consolidated balance sheet of the Company and Subsidiaries at such date.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"Discount Note" means a non-interest bearing, non-negotiable
-------------
promissory note of the Canadian Borrower denominated in Canadian Dollars,
issued by the Canadian Borrower to a Canadian Lender, substantially in the
form of Exhibit C.
"Dollar Equivalent" means, on any date of determination, with
-----------------
respect to any amount in any Committed Currency, the equivalent in dollars of
such amount, determined by the Administrative Agent pursuant to Section
1.05(a) using the Exchange Rate with respect to such Committed Currency then
in effect.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
<PAGE>
11
"Draft" shall mean a draft or bill of exchange, payable in Canadian
-----
Dollars, in the form used from time to time by each Canadian Lender,
respectively, in connection with the creation of bankers' acceptances in
accordance with the provisions of Section 2.19.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 10.02).
"Environmental Laws" means all final and effective laws, rules,
------------------
regulations, codes, ordinances, orders, decrees, judgments, injunctions or
binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
-----------------------
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Company or any
Subsidiary resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or imminent threat of release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
-----------
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b)
the existence with respect to any Plan of an "accumulated funding
<PAGE>
12
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of the Code
or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by the Company
or any of its ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by the Company or any
ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan under Title IV of ERISA; (f) the incurrence by the Company
or any of its ERISA Affiliates of any liability with respect to the withdrawal
or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt
or tendering to a Multiemployer Plan by the Company or any ERISA Affiliate of
any notice concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Eurocurrency", when used in reference to any Loan or Borrowing,
------------
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Exchange Rate" means, on any day, with respect to any Committed
-------------
Currency, the rate at which such Committed Currency may be exchanged into
dollars (and, for purposes of Section 2.07(e) and Section 2.13(i), the rate at
which dollars may be exchanged into such Committed Currency or as otherwise
determined in accordance with the Alternate Procedures), as set forth at
approximately 11:00 a.m., London time, on such day on the Reuters World
currency page for such Committed Currency. In the event that such rate does
not appear on any Reuters World currency page, the Exchange Rate shall be
determined by reference to such other publicly available service for
displaying exchange rates as may be agreed upon by the Administrative Agent
and the Company, or, in the absence of such agreement, such Exchange Rate
shall instead be the arithmetic average of the spot rates of exchange of the
Administrative Agent in the market where its foreign currency exchange
operations in respect of such Committed Currency are then being conducted, at
or about 10:00 a.m., local time, on such date for the purchase
<PAGE>
13
of dollars (or such Committed Currency, as the case may be) for delivery two
Business Days later; provided that if at the time of any such determination,
--------
for any reason, no such spot rate is being quoted, the Administrative Agent
may use any reasonable method it deems appropriate to determine such
rate, and such determination shall be conclusive absent manifest error.
"Excluded Taxes" means, with respect to the Administrative Agent,
--------------
the Canadian Agent, any Lender or any other recipient of any payment to be
made by or on account of any obligation of any Borrower hereunder, (a) any
income or franchise taxes imposed on (or measured by) its net income by the
United States of America or Canada (or any political subdivision or taxing
authority thereof) or by the jurisdiction under the laws of which such
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, managed
or controlled, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which any
Borrower is located, (c) any tax imposed by reason of any connection between
the jurisdiction imposing such tax and the Administrative Agent, the Canadian
Agent, such Lender or such other recipient other than a connection arising
from this Agreement, or any transaction hereunder or any enforcement of rights
hereunder and (d) in the case of a Foreign Lender, any withholding tax that
(i) is imposed on amounts payable to such Foreign Lender (other than an
assignee pursuant to a request by a Borrower under Section 2.18(b)) at the
time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office), except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from the applicable
Borrower with respect to such withholding tax pursuant to Section 2.16(a), or
(ii) is attributable to such Foreign Lender's failure to comply with Section
2.16(e).
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day that is a Business Day, the average (rounded upwards,
if
<PAGE>
14
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financed Portion" means at any time, with respect to receivables
----------------
subject to a Securitization (other than the Canadian Securitization referred
to in Section 6.02(e)(i)), an amount of such receivables equal to the
aggregate amount of then outstanding debt or equity instruments or securities
(other than any seller's interest retained by any Borrower or a subsidiary of
the Borrower) issued in connection with such Securitization, in each case
determined in accordance with GAAP.
"Financial Officer" means the chief financial officer, principal
-----------------
accounting officer, treasurer or controller of the Company.
"Fixed Rate" means, with respect to any Competitive Loan (other than
----------
a Eurocurrency Competitive Loan), the fixed rate of interest per annum
specified by the Lender making such Competitive Loan in its related
Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a
---------------
Fixed Rate.
"Foreign Lender" means any Lender that is organized under the laws
--------------
of a jurisdiction other than that in which the applicable Borrower is located.
For purposes of this definition, the United States of America, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"Governmental Authority" means the government of the United States
----------------------
of America, any other nation or any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
---------- ---------
obligation, contingent or otherwise, of the
<PAGE>
15
guarantor guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person (the "primary obligor")
---------------
in any manner, whether directly or indirectly, and including any obligation of
the guarantor, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or other
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment thereof, (b) to purchase or lease property,
securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof or (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness or other obligation; provided, that the term Guarantee shall
--------
not include endorsements for collection or deposit in the ordinary course of
business. The amount of any Guarantee shall be deemed to be an amount equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof determined in good faith
by the guarantor (assuming the guarantor is required to perform thereunder).
"Hazardous Materials" means all explosive or radioactive substances
-------------------
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging
arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations
of such Person in respect of the deferred purchase price of property or
services (excluding accounts payable incurred in the ordinary course
<PAGE>
16
of business), (e) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such Person, whether
or not the Indebtedness secured thereby has been assumed, (f) all Guarantees
by such Person of Indebtedness of others, (g) all Capital Lease Obligations of
such Person, (h) all obligations, contingent or otherwise, of such Person as
an account party in respect of letters of credit and letters of guaranty and
(i) all obligations, contingent or otherwise, of such Person in respect of
bankers' acceptances. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes and Other
-----------------
Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the
-------------------------------------------------
Indemnity, Subrogation and Contribution Agreement, in the form of Exhibit E,
among the Company, the Subsidiary Guarantors and the Administrative Agent.
"Index Debt" means senior, unsecured, long-term indebtedness for
----------
borrowed money of the Company that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the relevant Borrower
-------------------------
to convert or continue a Revolving Borrowing in accordance with Section 2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan
---------------------
(other than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurocurrency Loan or any Canadian Prime Rate
Loan, the last day of the Interest Period applicable to the Borrowing of which
such Loan is a part and, in the case of a Eurocurrency Loan with an Interest
Period of more than three months' duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months' duration after
the first day of such Interest Period, (c) with respect to any Fixed Rate
Loan, the last day of the Interest Period applicable to the Borrowing of which
such
<PAGE>
17
Loan is a part and, in the case of a Fixed Rate Loan with an Interest
Period of more than 90 days' duration (unless otherwise specified in the
applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days' duration after the first
day of such Interest Period, and any other dates that are specified in the
applicable Competitive Bid Request as Interest Payment Dates with respect to
such Borrowing and (d) with respect to any Swingline Loan, the day that such
Loan is required to be repaid.
"Interest Period" means (a) with respect to any Eurocurrency
---------------
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two,
three or six months (or, with the consent of each Lender, nine or twelve
months) thereafter, as the relevant U.S. Borrower may elect, (b) with respect
to any Canadian Prime Rate Borrowing, the period commencing on the date of
such Borrowing and ending on the numerically corresponding day in the calendar
month that is one month thereafter, and (c) with respect to any Fixed Rate
Borrowing, the period (which shall not be less than seven days or more than
360 days) commencing on the date of such Borrowing and ending on the date
specified in the applicable Competitive Bid Request; provided, that (i) if any
--------
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the
case of a Eurocurrency Borrowing only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (ii) any Interest Period pertaining to
a Eurocurrency Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business
Day of the last calendar month of such Interest Period. For purposes hereof,
the date of a Borrowing initially shall be the date on which such Borrowing is
made and, in the case of a Revolving Borrowing, thereafter shall be the
effective date of the most recent conversion or continuation of such
Borrowing.
"Judgment Currency" has the meaning assigned to such term in Section
-----------------
10.13.
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a
<PAGE>
18
party hereto pursuant to an Assignment and Acceptance, other than any such
Person that ceases to be a party hereto pursuant to an Assignment and
Acceptance. Unless the context otherwise requires, the term "Lenders" includes
the Canadian Lenders and the Swingline Lenders.
"Leverage Ratio" means, for any day, the ratio of (i) Consolidated
--------------
Total Debt plus the Financed Portion at such day to (ii) Consolidated Total
Capitalization plus the Financed Portion at such day.
"LIBO Rate" means, with respect to any Eurocurrency Borrowing for
---------
any Interest Period, the rate appearing on Page 3750 (or in the case of a
Committed Currency Borrowing, the rate appearing on the Page for the
applicable Committed Currency) of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits (or, in the case of a Committed Currency Borrowing, deposits
in the applicable Committed Currency) in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits (or the
applicable Committed Currency) with a maturity comparable to such Interest
Period. In the event that such rate is not available at such time for any
reason, then the "LIBO Rate" with respect to such Eurocurrency Borrowing for
---------
such Interest Period shall be the rate at which dollar deposits of $5,000,000
(or, in the case of a Committed Currency Borrowing, deposits in the applicable
Committed Currency in an amount the Dollar Equivalent of which is
approximately equal to $5,000,000) and for a maturity comparable to such
Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to
the commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the
<PAGE>
19
same economic effect as any of the foregoing) relating to such asset and (c)
in the case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
"Loan Documents" means this Agreement, the Subsidiary Guarantee
--------------
Agreement, the Indemnity, Subrogation and Contribution Agreement and each
Acceptance, promissory note or Discount Note delivered pursuant to this
Agreement.
"Loan Parties" means the Borrowers and the Subsidiary Guarantors.
------------
"Loans" means (a) the loans made by the Lenders to the U.S.
-----
Borrowers pursuant to this Agreement and (b) the Canadian Loans.
"Margin" means, with respect to any Competitive Loan bearing
------
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Loan, as specified by the Lender making such Loan
in its related Competitive Bid.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations or financial condition of the Company and the
Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform
any of its obligations under this Agreement or any other Loan Document or (c)
the rights of or benefits available to the Lenders under this Agreement or any
other Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans),
---------------------
or obligations in respect of one or more Hedging Agreements, of any one or
more of the Company and its Subsidiaries in an aggregate principal amount
exceeding $20,000,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Company or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Company or such
Subsidiary would be required to pay if such Hedging Agreement were terminated
at such time.
"Material Subsidiary" means the Delaware Borrower, the Canadian
-------------------
Borrower and each domestic Subsidiary that would be a "Significant Subsidiary"
of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by
<PAGE>
20
the Securities and Exchange Commission as in effect on the date hereof.
"Maturity Date" means November 22, 2001.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Multiemployer Plan" means a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA.
"Obligations" means the obligations of each of the Delaware Borrower
-----------
and the Canadian Borrower under this Agreement or any other Loan Document with
respect to the payment of (i) the principal of and interest on the Loans to
each such Borrower when and as due, whether at maturity, by acceleration, upon
one or more dates set for prepayment or otherwise, and (ii) all other monetary
obligations of each of the Delaware Borrower and the Canadian Borrower
hereunder.
"Other Taxes" means any and all present or future stamp or
-----------
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Payment Location" means an office, branch or other place of
----------------
business of any Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for Taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) landlords', vendors', carriers', warehousemen's, mechanics',
materialmen's, repairmen's and other like Liens imposed by law, arising
in the ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.04;
<PAGE>
21
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure (or to obtain letters of credit that secure)
the performance of bids, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature, in each case in the ordinary course of business;
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Company or any Subsidiary;
and
(f) leases or subleases granted to others in the ordinary course of
business that do not in the aggregate involve annual rental payments in
excess of $10,000,000;
provided that the term "Permitted Encumbrances" shall not include any Lien
--------
securing Indebtedness.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 or 401(a) of the Code or Section 302 of ERISA, and in respect of which the
Company or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Preliminary Form 10" means the draft Form 10 of Unisource Worldwide
-------------------
Holdings, Inc. submitted to the Securities and Exchange Commission on
September 23, 1996.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at
its principal office in
<PAGE>
22
New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.
"Reference Lenders" shall mean Toronto Dominion Bank and The Chase
-----------------
Manhattan Bank of Canada.
"Reference Rate" means, with respect to any Acceptance to be
--------------
accepted by the Canadian Lenders on any date, the average of the discount
rates applicable to Acceptances to be accepted by the Reference Lenders on
such date, as determined by the Canadian Agent in accordance with Section
2.19(c).
"Register" has the meaning set forth in Section 10.04.
--------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
----------------
Credit Exposures and Unused Commitments representing at least 51% of the sum
of the total Revolving Credit Exposures and Unused Commitments at such time;
provided that, for purposes of declaring the Loans to be due and payable
--------
pursuant to Article VII, and for all purposes after the Loans become due and
payable pursuant to Article VII or the Commitments expire or terminate, the
outstanding Competitive Loans of the Lenders shall be included in their
respective Revolving Credit Exposures in determining the Required Lenders.
"Reset Date" has the meaning assigned to such term in Section
----------
1.05(a).
"Revolving Credit Exposure" means, with respect to any Lender at any
-------------------------
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans (or the Dollar Equivalent thereof, in the case of Committed Currency
Loans and Canadian Loans) and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.01 or 2.19.
--------------
"Securitization" means the transfer or pledge of assets or interests
--------------
in assets to a trust, partnership,
<PAGE>
23
corporation or other entity, which transfer or pledge is funded by such entity
in whole or in part by the issuance of instruments or securities that are paid
principally from the cash flow derived from such assets or interests in
assets.
"S&P" means Standard & Poor's Ratings Services.
---
"Spin-Off" means the distribution by ALCO to the holders of its
--------
common stock of all outstanding shares of common stock of the Company and all
related transactions contemplated by the Preliminary Form 10, including
execution and delivery of any agreements between ALCO or any of its
subsidiaries, on the one hand, and the Company or any Subsidiary, on the
other.
"Spin-Off Information" means the Preliminary Form 10 and the pro
--------------------
forma financial statements of the Company after the Spin-Off, both of which
have been delivered to the Lenders prior to the date hereof.
"Statutory Reserve Rate" means, with respect to any currency, a
----------------------
fraction (expressed as a decimal), the numerator of which is the number one
and the denominator of which is the number one minus the aggregate of the
maximum reserve, liquid asset or similar percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal
established any Governmental Authority of the jurisdiction of such currency to
which banks in such jurisdiction are subject for any category of deposits or
liabilities customarily used to fund loans in such currency or by reference to
which interest rates applicable to Loans in such currency are determined.
Such reserve, liquid asset or similar percentages shall, in the case of
dollars, include those imposed pursuant to Regulation D of the Board.
Eurocurrency Loans shall be deemed to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under Regulation D or any other
applicable law, rule or regulation. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements
<PAGE>
24
if such financial statements were prepared in accordance with GAAP as of such
date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other
ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50%
of the general partnership interests are, as of such date, owned, controlled
or held, or (b) that is, as of such date, otherwise Controlled, by the parent
or one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Company.
----------
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee
------------------------------
Agreement in the form of Exhibit D, made by one or more of the Subsidiary
Guarantors in favor of the Administrative Agent for the benefit of the
Lenders.
"Subsidiary Guarantors" means each Person listed on Schedule 1.01(b)
---------------------
and each other Person that becomes party to a Subsidiary Guarantee Agreement
as a Subsidiary Guarantor, and the permitted successors and assigns of each
such Person.
"Swingline Commitment" means, with respect to each Swingline Lender,
--------------------
the commitment of such Swingline Lender to make Swingline Loans hereunder.
The initial amount of each Swingline Lender's Swingline Commitment is set
forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Swingline Lender shall have assumed its Swingline Commitment, as
applicable.
"Swingline Exposure" means, at any time, the aggregate principal
------------------
amount of all Swingline Loans outstanding at such time. The Swingline
Exposure of any Lender at any time shall be its pro rata percentage based on
the Unused Commitments of the total Swingline Loans at such time.
"Swingline Lenders" means The Chase Manhattan Bank, Bank of America
-----------------
Illinois, CoreStates Bank, N.A., First Union National Bank, PNC Bank, N.A. and
Toronto Dominion Bank, each in its capacity as lender of Swingline Loans
hereunder.
"Swingline Loan" means a Loan in dollars made pursuant to Section
--------------
2.05.
<PAGE>
25
"Swingline Rate" means, for any day, the overnight money market rate
--------------
determined by the relevant Swingline Lender in good faith.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
-----------------------------
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of
the Federal Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve Statistical Release
H.15(519) during the week following such day) or, if such rate is not so
reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the
next preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Transactions" means the execution, delivery and performance by the
------------
Loan Parties of the Loan Documents, the borrowing of Loans and the use of the
proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the LIBO Rate, the Alternate Base
Rate, the Canadian Prime Rate, the discount rate applicable to Acceptances or,
in the case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate.
"Unused Commitments" means that portion of the Commitments that has
------------------
not been drawn in the form of Revolving Loans, and shall be determined based
on the assumption that no Lender has defaulted in making any Revolving Loan
required to be made by it hereunder. The Unused Commitment of any Lender at
any time shall be the amount of such Lender's Commitment less the amount of
such Lender's Revolving Loans.
<PAGE>
26
"U.S. Borrowers" has the meaning assigned to such term in the
--------------
preamble.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurocurrency Loan") or by Class and
----
Type (e.g., a "Eurocurrency Revolving Loan"). Borrowings also may be
----
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
----
(e.g., a "Eurocurrency Borrowing") or by Class and Type (e.g., a "Eurocurrency
---- ----
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
----------------
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include
such Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise
-----------------------
expressly provided herein, all terms of an
<PAGE>
27
accounting or financial nature shall be construed in accordance with GAAP, as
in effect from time to time; provided that, if the Company notifies the
--------
Administrative Agent that the Company requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof
in GAAP or in the application thereof on the operation of such provision (or
if the Administrative Agent notifies the Company that the Required Lenders
request an amendment to any provision hereof for such purpose), regardless of
whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of
GAAP as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision
amended in accordance herewith.
SECTION 1.05. Exchange Rates. (a) Not later than 1:00 p.m., New
---------------
York City time, on each Calculation Date, (i) if any Committed Currency Loan
is outstanding, the Administrative Agent shall determine the Exchange Rate as
of such Calculation Date with respect to each Committed Currency and shall
give notice thereof to the Lenders and the Company, and (ii) if any Canadian
Loan is outstanding, the Canadian Agent shall determine the Canadian Exchange
Rate as of such Calculation Date with respect to Canadian Dollars and shall
give notice thereof to the Administrative Agent, the Lenders and the Company.
The Exchange Rates and Canadian Exchange Rates so determined shall become
effective on the first Business Day or Canadian Business Day, as applicable,
immediately following the relevant Calculation Date (a "Reset Date"), shall
remain effective until the next succeeding Reset Date, and shall for all
purposes of this Agreement (other than Section 2.07(e), Section 2.13(i),
Section 10.13 or any other provision expressly requiring the use of a current
Exchange Rate or Canadian Exchange Rate, as applicable) be the Exchange Rates
or Canadian Exchange Rate, as applicable employed in converting any amounts
between dollars and Committed Currencies or Canadian Dollars, as applicable.
(b) Not later than 5:00 p.m., New York City time, on each Reset
Date and each borrowing date with respect to Committed Currency Loans, the
Administrative Agent shall (i) determine the Dollar Equivalent of the
aggregate principal amount of the Committed Currency Loans then outstanding
(after giving effect to any Committed Currency Loans made or repaid on such
date) and (ii) notify the
<PAGE>
28
Lenders and the Company of the results of such determination.
(c) Not later than 5:00 p.m., New York City time, on each Reset
Date and each borrowing date with respect to Canadian Loans, the Canadian
Agent shall (i) determine the Canadian Dollar Equivalent of the aggregate
principal amount of the Canadian Loans then outstanding (after giving effect
to any Canadian Loans to be made or repaid on such date) and (ii) notify the
Administrative Agent, the Lenders and the Company of the results of such
determination.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. (a) Subject to the terms and conditions
------------
set forth herein, each Lender agrees to make Revolving Loans denominated in
dollars or in any Committed Currency to any U.S. Borrower from time to time
during the Availability Period in an aggregate principal amount that will not
result in (i) such Lender's Revolving Credit Exposure exceeding such Lender's
Commitment, (ii) the sum of the total Revolving Credit Exposures plus the
aggregate principal amount of outstanding Competitive Loans exceeding the
total Commitments or (iii) the Dollar Equivalent of the aggregate principal
amount of all outstanding Committed Currency Loans exceeding $100,000,000.
Notwithstanding any other provision contained herein, in the event that any
Lender gives notice to the Administrative Agent that it is unable to fund
Committed Currency Loans at a reasonable cost to it, the Administrative Agent
shall, until such notice is withdrawn and to the extent necessary in order to
excuse such Lender from making any Committed Currency Loans and to continue to
make available to the U.S. Borrowers the full aggregate amount of the
Commitments, reallocate from time to time among the Lenders the outstanding
Loans denominated in dollars and the Committed Currency Loans; provided that,
--------
in the event that the Lenders the Commitments of which aggregate at least 66-
2/3% give such notice to the Administrative Agent, the Lenders shall not be
required to make any Committed Currency Loans until any such notice have been
withdrawn so that the Lenders the Commitments of which aggregate at least 66-
2/3% have either not given any such notice or have withdrawn any such notice.
<PAGE>
29
(b) Subject to the terms and conditions set forth herein, each
Canadian Lender agrees to make Canadian Loans denominated in Canadian Dollars
to the Canadian Borrower from time to time during the Availability Period in
an aggregate principal amount that will not result in (i) the aggregate
principal amount of outstanding Canadian Loan made by such Canadian Lender
exceeding such Canadian Lender's Canadian Commitment, (ii) such Lender's
Revolving Credit Exposure exceeding such Lender's Commitment, (iii) the sum of
the total Revolving Credit Exposures exceeding the total Commitments or (iv)
the Dollar Equivalent of the aggregate principal amount of all Canadian Loans
exceeding $100,000,000. Utilization of a Canadian Lender's Canadian Commitment
shall constitute utilization of such Canadian Lender's Commitment for purposes
hereof.
(c) Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrowers may borrow, prepay and reborrow
Revolving Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan
---------------------
(other than Canadian Loans) shall be made as part of a Borrowing consisting of
Revolving Loans denominated in the same currency and made by the Lenders
ratably in accordance with their respective Unused Commitments. Each Canadian
Loan shall be made as part of a Borrowing consisting of Canadian Loans made by
the Canadian Lenders ratably in accordance with their Canadian Commitments.
Each Acceptance shall be drawn in accordance with the procedures set forth in
Section 2.19. Each Competitive Loan shall be made in accordance with the
procedures set forth in Section 2.04. The failure of any Lender to make any
Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments, the Canadian Commitments
--------
and Competitive Bids of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.13, (i) each Revolving Borrowing shall be
comprised entirely of ABR Loans, Eurocurrency Loans in a single currency,
Acceptances or Canadian Prime Rate Loans as the applicable Borrower may
request in accordance herewith, and (ii) each Competitive Borrowing shall be
comprised entirely of Eurocurrency Loans in a single currency or Fixed Rate
Loans as the applicable U.S. Borrower may request in accordance herewith.
Each Swingline Borrowing shall be a Swingline Rate Loan. Each
<PAGE>
30
Lender at its option may make any Eurocurrency Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided that
--------
any exercise of such option shall not affect the obligation of any Borrower to
repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurocurrency Revolving Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than
$10,000,000 (or the Dollar Equivalent thereof). At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
--------
equal to the entire unused balance of the total Commitments. Each Canadian
Prime Rate Loan shall be in an aggregate amount that is an integral multiple
of Cdn.$1,000,000 and not less than Cdn.$5,000,000. Each Competitive
Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $20,000,000. Each Swingline Loan shall be in an
amount that is an integral multiple of $1,000,000 and not less than
$5,000,000. Borrowings of more than one Type and Class may be outstanding at
the same time; provided that there shall not at any time be more than a total
--------
of 15 Eurocurrency Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. (a) To request a
----------------------------------
Revolving Borrowing (other than a Canadian Borrowing), a U.S. Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case
of a Eurocurrency Revolving Borrowing (other than a Committed Currency
Borrowing), not later than 11:00 a.m., New York City time, three Business Days
before the date of the proposed Borrowing, (b) in the case of a Committed
Currency Borrowing, not later than 10:00 a.m., London time, three Business
Days before the date of the proposed Borrowing (or at such other time as shall
be specified in the Alternate Procedures), or (c) in the case of an ABR
Borrowing, not later than 10:30 a.m., New York City time, on the same Business
Day of the proposed Borrowing. To request
<PAGE>
31
Acceptances, the Canadian Borrower shall follow the procedures set forth in
Section 2.19.
(b) To request a Canadian Prime Rate Borrowing, the Canadian
Borrower shall notify the Canadian Agent of such request by telephone not
later than 11:00 a.m., Toronto time, on the same Canadian Business Day of the
proposed Borrowing.
(c) Each such telephonic Borrowing Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent, or the Canadian Agent, as applicable, of a written Borrowing Request in
a form approved by the Administrative Agent or the Canadian Agent, as
applicable, and signed by the applicable Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in
compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day or a
Canadian Business Day, as applicable;
(iii) whether such Borrowing is to be an ABR Borrowing, a
Eurocurrency Revolving Borrowing or a Canadian Prime Rate Borrowing;
(iv) in the case of a Eurocurrency Revolving Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period", and the
currency of such Borrowing, which shall be dollars or a Committed
Currency; and
(v) the location and number of the relevant Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.07.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no currency is
specified with respect to any requested Eurocurrency Revolving Borrowing, then
the relevant U.S. Borrower shall be deemed to have selected dollars. If no
Interest Period is specified with respect to any requested Eurocurrency
Revolving Borrowing, then the
<PAGE>
32
relevant Borrower shall be deemed to have selected an Interest Period of one
month's duration. Promptly following receipt of a Borrowing Request for a
Revolving Borrowing (other than a Canadian Borrowing) in accordance with this
Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing. Promptly following receipt of a Borrowing Request for a
Canadian Prime Rate Borrowing in accordance with this Section, the Canadian
Agent shall advise the Administrative Agent and each Canadian Lender of the
details thereof and of the amount of such Canadian Lender's Canadian Prime
Rate Loan to be made as part of the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure. (a) Subject to the terms
-------------------------
and conditions set forth herein, from time to time during the Availability
Period any U.S. Borrower may request Competitive Bids for Competitive Loans
denominated in dollars and may (but shall not have any obligation to) accept
Competitive Bids and borrow Competitive Loans; provided that the sum of the
--------
total Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans at any time shall not exceed the total
Commitments. To request Competitive Bids, a U.S. Borrower shall notify the
Administrative Agent of such request by telephone, in the case of a
Eurocurrency Borrowing, not later than 11:00 a.m., New York City time, four
Business Days before the date of the proposed Borrowing and, in the case of a
Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing; provided that the U.S.
--------
Borrowers may submit in the aggregate up to (but not more than) four
Competitive Bid Requests on the same day, but a Competitive Bid Request shall
not be made within five Business Days after the date of any previous
Competitive Bid Request, unless any and all such previous Competitive Bid
Requests shall have been withdrawn or all Competitive Bids received in
response thereto rejected. Each such telephonic Competitive Bid Request shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Competitive Bid Request in a form approved by the Administrative
Agent and signed by the applicable U.S. Borrower. Each such telephonic and
written Competitive Bid Request shall specify the following information in
compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
<PAGE>
33
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurocurrency Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the relevant U.S. Borrower's
account to which funds are to be disbursed, which shall comply with the
requirements of Section 2.07.
Promptly following receipt of a Competitive Bid Request in accordance with
this Section, the Administrative Agent shall notify the Lenders of the details
thereof by telecopy, inviting the Lenders to submit Competitive Bids.
(b) Each Lender may (but shall not have any obligation to) make
one or more Competitive Bids to any U.S. Borrower in response to a Competitive
Bid Request. Each Competitive Bid by a Lender must be in a form approved by
the Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurocurrency Competitive Borrowing, not later than
9:30 a.m., New York City time, three Business Days before the proposed date of
such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not
later than 9:30 a.m., New York City time, on the proposed date of such
Competitive Borrowing. Competitive Bids that do not conform substantially to
the form approved by the Administrative Agent may be rejected by the
Administrative Agent, and the Administrative Agent shall notify the applicable
Lender as promptly as practicable. Each Competitive Bid shall specify (i) the
principal amount (which shall be a minimum of $5,000,000 and an integral
multiple of $1,000,000 and which may equal the entire principal amount of the
Competitive Borrowing requested by the applicable U.S. Borrower) of the
Competitive Loan or Loans that the Lender is willing to make, (ii) the
Competitive Bid Rate or Rates at which the Lender is prepared to make such
Loan or Loans (expressed as a percentage rate per annum in the form of a
decimal to no more than four decimal places) and (iii) the Interest Period
applicable to each such Loan and the last day thereof.
<PAGE>
34
(c) The Administrative Agent shall promptly notify the applicable
U.S. Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall
have made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, a U.S.
Borrower may in its sole and absolute discretion accept or reject any
Competitive Bid. The relevant U.S. Borrower shall notify the Administrative
Agent by telephone, confirmed by telecopy in a form approved by the
Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurocurrency Competitive
Borrowing, not later than 10:30 a.m., New York City time, three Business Days
before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the
proposed date of the Competitive Borrowing; provided that (i) the failure of
--------
such U.S. Borrower to give such notice shall be deemed to be a rejection of
each Competitive Bid, (ii) such U.S. Borrower shall not accept a Competitive
Bid made at a particular Competitive Bid Rate if such U.S. Borrower rejects a
Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate
amount of the Competitive Bids accepted by such U.S. Borrower shall not exceed
the aggregate amount of the requested Competitive Borrowing specified in the
related Competitive Bid Request, (iv) to the extent necessary to comply with
clause (iii) above, such U.S. Borrower may accept Competitive Bids at the same
Competitive Bid Rate in part, which acceptance, in the case of multiple
Competitive Bids at such Competitive Bid Rate, shall be made pro rata in
accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $5,000,000 and an integral multiple of $1,000,000; provided further that
----------------
if a Competitive Loan must be in an amount less than $5,000,000 because of the
provisions of clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating the pro rata
allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by such
U.S. Borrower. A notice given by any U.S. Borrower pursuant to this paragraph
shall be irrevocable.
<PAGE>
35
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and,
if so, the amount and Competitive Bid Rate so accepted), and each successful
bidder will thereupon become bound, subject to the terms and conditions
hereof, to make the Competitive Loan in respect of which its Competitive Bid
has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive
Bid in its capacity as a Lender, it shall submit such Competitive Bid directly
to the relevant U.S. Borrower at least one quarter of an hour earlier than the
time by which the other Lenders are required to submit their Competitive Bids
to the Administrative Agent pursuant to paragraph (b) of this Section.
SECTION 2.05. Swingline Loans. (a) Subject to the terms and
----------------
conditions set forth herein, each Swingline Lender agrees to make Swingline
Loans in dollars to any U.S. Borrower from time to time during the
Availability Period, in an aggregate principal amount at any time outstanding
that will not result in (i) such Swingline Lender's Swingline Exposure
exceeding such Swingline Lender's Swingline Commitment, (ii) the aggregate
principal amount of outstanding Swingline Loans exceeding $100,000,000 or
(iii) the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans exceeding the total
Commitments; provided that no Swingline Lender shall be required to make a
--------
Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, any
U.S. Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, a U.S. Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed relevant
Swingline Loan. Each such notice shall be irrevocable and shall specify the
requested date (which shall be a Business Day) and amount of the requested
Swingline Loan. The Administrative Agent will promptly advise the relevant
Swingline Lender of any such notice received from any U.S. Borrower. The
relevant Swingline Lender shall make such Swingline Loan available to such
U.S. Borrower by means of a credit by 3:00 p.m., New York City time, on the
requested date of such Swingline Loan, to a dollar account designated
<PAGE>
36
in writing by the Borrower not less than one Business Day prior to such Loan.
(c) The relevant Swingline Lender may by written notice given to
the Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Lenders to acquire participations on such Business
Day in all or a portion of the Swingline Loans outstanding. Such notice shall
specify the aggregate amount of Swingline Loans in which Lenders will
participate. Promptly upon receipt of such notice, the Administrative Agent
will give notice thereof to each Lender, specifying in such notice such
Lender's pro rata percentage of Unused Commitments of such Swingline Loan or
Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt
of notice as provided above, to pay to the Administrative Agent, for the
account of the relevant Swingline Lender, such Lender's pro rata percentage of
Unused Commitments of such Swingline Loan or Loans. Each Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Each Lender shall comply with its
obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.06 with respect to Loans
made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the
------- --------
payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the relevant Swingline Lender the amounts so received by it
from the Lenders. The Administrative Agent shall notify the relevant Borrower
of any participations in any Swingline Loan acquired pursuant to this
paragraph, and thereafter payments in respect of such Swingline Loan shall be
made to the Administrative Agent and not to the relevant Swingline Lender. Any
amounts received by any Swingline Lender from a Borrower (or other party on
behalf of a Borrower) in respect of a Swingline Loan after receipt by the
relevant Swingline Lender of the proceeds of a sale of participations therein
shall be promptly remitted to the Administrative Agent; any such amounts
received by the Administrative Agent shall be promptly remitted by the
Administrative Agent to the Lenders that shall have made their payments
pursuant to this paragraph and to the relevant Swingline Lender, as their
interests may appear. The purchase of participations in a
<PAGE>
37
Swingline Loan pursuant to this paragraph shall not relieve the relevant
Borrower of any default in the payment thereof.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan (other than a Committed Currency Loan and a Canadian Loan) to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account
of the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders; provided that Swingline Loans shall be made as provided
--------
in Section 2.05. The Administrative Agent will make such Loans available to
the relevant U.S. Borrower by promptly crediting the amounts so received, in
like funds, to an account of the Company maintained with the Administrative
Agent in New York City and designated by the relevant U.S. Borrower in the
applicable Borrowing Request or Competitive Bid Request. Each Lender shall
make each Committed Currency Loan to be made by it hereunder on the proposed
date thereof by wire transfer of such immediately available funds as may then
be customary for the settlement of international transactions in the
applicable Committed Currency, by 11:00 a.m., London time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders (or by such other time and to such other account as
shall be specified in the Alternate Procedures). The Administrative Agent will
make such Committed Currency Loans available to the relevant U.S. Borrower by
promptly crediting the amounts so received, in like funds, to an account of
the Company maintained with the Administrative Agent in London (or in such
other city as shall be designated in the Alternate Procedures) and designated
by such U.S. Borrower in the applicable Borrowing Request. Each Canadian
Lender shall make each Canadian Prime Rate Loan to be made by it hereunder on
the proposed date thereof by wire transfer of immediately available funds by
2:00 p.m., Toronto time, to the account of the Canadian Agent most recently
designated by it for such purpose by notice to the Canadian Lenders. The
Canadian Agent will make such Canadian Prime Rate Loans available to the
Canadian Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Canadian Borrower maintained with the Canadian
Agent in Toronto and designated by the Canadian Borrower in the applicable
Borrowing Request.
(b) Unless the Administrative Agent or the Canadian Agent, as
applicable, shall have received notice
<PAGE>
38
from a Lender prior to the proposed date of any Borrowing that such Lender
will not make available to the Administrative Agent or the Canadian Agent, as
applicable, such Lender's share of such Borrowing, the Administrative Agent or
the Canadian Agent, as applicable, may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent or the Canadian Agent, as applicable, then the applicable Lender and the
relevant Borrower severally agree to pay to the Administrative Agent or the
Canadian Agent, as applicable, forthwith on demand such corresponding amount
with interest thereon, for each day from and including the date such amount is
made available to the applicable Borrower to but excluding the date of payment
to the Administrative Agent, at (i) in the case of such Lender, (x) the
Federal Funds Effective Rate (in the case of a Borrowing in dollars) and (y)
the rate reasonably determined by the Administrative Agent or Canadian Agent,
as applicable, to be the cost to it of funding such amount (in the case of a
Borrowing in Canadian Dollars or a Committed Currency) or (ii) in the case of
such Borrower, the interest rate applicable to the subject Loan. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing
-------------------
(other than Canadian Loans) initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurocurrency Revolving
Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the relevant Borrower may elect to convert
such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurocurrency Revolving Borrowing, may elect Interest Periods
therefor, all as provided in this Section. A Borrower may elect different
options with respect to different portions of the affected Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding
the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not
apply to Competitive Borrowings or Swingline Borrowings, which may not be
converted or continued. Notwithstanding any contrary provision herein, this
Section shall not be construed to
<PAGE>
39
permit any U.S. Borrower to change the currency of any Borrowing or to convert
any Committed Currency Borrowing to an ABR Borrowing.
(b) To make an election pursuant to this Section, a Borrower shall
notify the Administrative Agent of such election by telephone by the time that
a Borrowing Request would be required under Section 2.03 if such Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to
be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent or the Canadian Agent, as
applicable, of a written Interest Election Request in a form approved by the
Administrative Agent or the Canadian Agent, as applicable, and signed by the
relevant Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurocurrency Borrowing; and
(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurocurrency Borrowing but
does not specify an Interest Period, then such Borrower shall be deemed to
have selected an Interest Period of one month's duration.
<PAGE>
40
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely Interest
Election Request with respect to a Eurocurrency Revolving Borrowing prior to
the end of the Interest Period applicable thereto, then, unless such Borrowing
is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Borrowing (unless such Borrowing is a
Committed Currency Borrowing, in which case such Borrowing shall become due
and payable on the last day of such Interest Period). Notwithstanding any
contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Company, then, so long as an Event of Default is
continuing (i) no outstanding Revolving Borrowing may be converted to or
continued as a Eurocurrency Borrowing, (ii) unless repaid, each Eurocurrency
Revolving Borrowing in dollars shall be converted to an ABR Borrowing at the
end of the Interest Period applicable thereto and (iii) each Committed
Currency Borrowing shall be converted into an ABR Loan at the Exchange Rate
determined by the Administrative Agent on the last day of the Interest Period
applicable thereto.
(f) Each Canadian Loan initially shall be of the Type specified in
the applicable Borrowing Request and, in the case of a Eurocurrency Revolving
Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Canadian Borrower may elect to convert
such Borrowing to a different Type or to continue such Borrowing and, in the
case of an Acceptance, may elect Interest Periods therefor, all as provided in
this Section. The Canadian Borrower may elect different options with respect
to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Canadian Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing.
(g) To make an election pursuant to this Section, the Canadian
Borrower shall notify the Canadian Agent of such election by telephone by the
time that a Borrowing Request would be required under Section 2.03 if such
Borrower were requesting a Borrowing of the Type resulting
<PAGE>
41
from such election to be made on the effective date of such election. Each
such telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Canadian Agent of a
written Interest Election Request in a form approved by the Canadian Agent and
signed by the Canadian Borrower.
(h) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Canadian Business Day;
(iii) whether the resulting Borrowing is to be a Canadian Prime Rate
Borrowing or an Acceptance; and
(iv) if the resulting Borrowing is an Acceptance, the Interest
Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term
"Interest Period".
If any such Interest Election Request requests a Eurocurrency Borrowing but
does not specify an Interest Period, then such Borrower shall be deemed to
have selected an Interest Period of 30 days' duration.
(i) Promptly following receipt of an Interest Election Request, the
Canadian Agent shall advise each Canadian Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(j) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Canadian Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted
to a Canadian Prime Rate Borrowing.
<PAGE>
42
SECTION 2.08. Termination and Reduction of Commitments. (a)
-----------------------------------------
Unless previously terminated, the Commitments shall terminate on the Maturity
Date.
(b) The Company may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
--------
shall be in an amount that is an integral multiple of $5,000,000 and not less
than $25,000,000 and (ii) the Company shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans
in accordance with Section 2.10, the sum of the Revolving Credit Exposures
plus the aggregate principal amount of outstanding Competitive Loans would
exceed the total Commitments. To the extent necessary, the Canadian
Commitments of the Canadian Lenders shall be automatically reduced to ensure
that such Canadian Commitments do not exceed the Commitments of such Lenders.
(c) The Company shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative
Agent shall advise the Lenders of the contents thereof. Each notice delivered
by the Company pursuant to this Section shall be irrevocable; provided that a
--------
notice of termination of the Commitments delivered by the Company may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Company (by notice
to the Administrative Agent on or prior to the specified effective date) if
such condition is not satisfied. Any termination or reduction of the
Commitments shall be permanent. Each reduction of the Commitments shall be
made ratably among the Lenders in accordance with their respective
Commitments.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) Each U.S.
-------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Administrative
Agent for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Borrower on the Maturity Date, (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Competitive Loan of such Borrower on the last day of the
Interest Period applicable to such Loan and (iii) to the relevant Swingline
Lender the then unpaid principal amount of each Swingline Loan made by such
Swingline Lender on the earlier of the
<PAGE>
43
Maturity Date and the fifth day after such Swingline Loan of such Borrower is
made; provided that on each date that a Revolving Borrowing or Competitive
--------
Borrowing is made by a Borrower, such Borrower shall repay all Swingline Loans
then outstanding. The Canadian Borrower hereby unconditionally promises to pay
to the Canadian Agent for the account of each Canadian Lender the then unpaid
principal amount of each Canadian Prime Rate Loan on the last day of each
Interest Period or the Maturity Date, if earlier.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of each Borrower
to such Lender resulting from each Loan made by such Lender, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
U.S. Borrower to each Lender hereunder and (iii) the amount of any sum
received by the Administrative Agent hereunder for the account of the Lenders
and each Lender's share thereof.
(d) The Canadian Agent shall maintain accounts in which it shall
record (i) the amount of each Canadian Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Canadian Borrower to each Canadian Lender hereunder and (iii) the amount of
any sum received by the Canadian Agent hereunder for the account of the
Canadian Lenders and each Canadian Lender's share thereof.
(e) The entries made in the accounts maintained pursuant to
paragraph (b), (c) or (d) of this Section shall be prima facie evidence of the
----- -----
existence and amounts of the obligations recorded therein; provided that the
--------
failure of any Lender, the Administrative Agent or the Canadian Agent to
maintain such accounts or any error therein shall not in any manner affect the
obligation of any Borrower to repay the Loans in accordance with the terms of
this Agreement.
(f) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the
<PAGE>
44
relevant Borrower shall prepare, execute and deliver to such Lender a
promissory note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by
the Administrative Agent. Thereafter, the Loans evidenced by such promissory
note and interest thereon shall at all times (including after assignment
pursuant to Section 10.04) be represented by one or more promissory notes in
such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered
assigns).
SECTION 2.10. Prepayment of Loans. (a) Subject to Section 2.15,
--------------------
any Borrower shall have the right at any time and from time to time to prepay
any Borrowing in whole or in part, subject to prior notice in accordance with
paragraph (d) of this Section; provided that (i) the Canadian Borrower shall
--------
not have the right to prepay any Acceptance and (ii) no Borrower shall have
the right to prepay any Competitive Loan without the prior consent of the
Lender thereof.
(b) The relevant U.S. Borrower shall notify the Administrative
Agent (and, in the case of prepayment of a Swingline Loan, the Swingline
Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i)
in the case of prepayment of a Eurocurrency Revolving Borrowing (other than a
Committed Currency Borrowing), not later than 11:00 a.m., New York City time,
three Business Days before the date of prepayment, (ii) in the case of a
prepayment of a Committed Currency Borrowing, not later than 10:00 a.m.,
London Time, three Business Days before the date of prepayment (or such other
applicable time as shall be set forth in the Applicable Procedures), (iii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 10:30
a.m., New York City time, on the date of prepayment or (iv) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. The Canadian Borrower shall notify the Canadian
Agent by telephone (confirmed by telecopy) of any prepayment hereunder of a
Canadian Prime Rate Borrowing not later than 10:00 a.m., Toronto time, on the
date of prepayment. Each such notice shall be irrevocable and shall specify
the prepayment date and the principal amount of each Borrowing or portion
thereof to be prepaid; provided that, if a notice of prepayment is given in
--------
connection with a conditional notice of termination of the Commitments as
contemplated by Section 2.08, then such notice of prepayment may be revoked
<PAGE>
45
if such notice of termination is revoked in accordance with Section 2.08.
Promptly following receipt of any such notice relating to a Revolving
Borrowing, the Administrative Agent or the Canadian Agent, as applicable,
shall advise the Lenders of the contents thereof. Each partial prepayment of
any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.12.
(c) If, on the last day of any Interest Period for any Borrowing,
the sum of the total Revolving Credit Exposures plus the total Competitive
Loan Exposures exceeds the total Commitments, the relevant Borrower shall, on
such day, prepay Revolving Loans in an amount equal to the lesser of (i) such
excess and (ii) the amount of such Borrowing. If, on any Reset Date, the sum
of the total Revolving Credit Exposures plus the total Competitive Loan
Exposures exceeds 105% of the total Commitments, then the Borrowers shall, not
later than the next Business Day, prepay one or more Revolving Borrowings in
an aggregate principal amount equal to the excess, if any, of the sum of the
total Revolving Credit Exposures plus the total Competitive Loan Exposures (in
each case as of such Reset Date) over the total Commitments.
(d) If, on the last day of any Interest Period for any Committed
Currency Borrowing, the Dollar Equivalent of the aggregate principal amount of
outstanding Committed Currency Loans exceeds $100,000,000 (or such other
amount after giving effect to any reduction or increase thereof pursuant to
this Agreement), the relevant Borrower shall, on such day, prepay such
Committed Currency Borrowing in an amount equal to the lesser of (i) such
excess and (ii) the amount of such Borrowing. If, on any Reset Date, the
Dollar Equivalent of the aggregate principal amount of outstanding Committed
Currency Loans exceeds 105% of $100,000,000 (or such other amount after giving
effect to any reduction or increase thereof pursuant to this Agreement), then
the Borrowers shall, not later than the next Business Day, prepay one or more
Committed Currency Borrowings in an aggregate principal amount equal to the
excess, if any, of the Dollar Equivalent of the aggregate principal amount of
outstanding Committed Currency Loans (as of such next Reset Date) over
$100,000,000 (or such other amount after giving
<PAGE>
46
effect to any reduction or increase thereof pursuant to this Agreement).
(e) If, on the last day of any Interest Period for any Canadian
Borrowing, the Dollar Equivalent of the aggregate principal amount of
outstanding Canadian Loans exceeds $100,000,000 (or such other amount after
giving effect to any reduction or increase thereof pursuant to this
Agreement), the Canadian Borrower shall, on such day, prepay such Canadian
Borrowing in an amount equal to the lesser of (i) such excess and (ii) the
amount of such Borrowing. If, on any Reset Date, the Dollar Equivalent of the
aggregate principal amount of outstanding Canadian Loans exceeds 105% of
$100,000,000 (or such other amount after giving effect to any reduction or
increase thereof pursuant to this Agreement), then the Canadian Borrower
shall, not later than the next Canadian Business Day, prepay one or more
Canadian Borrowings in an aggregate principal amount equal to the excess, if
any, of the Dollar Equivalent of the aggregate principal amount of outstanding
Canadian Loans (as of such next Reset Date) over $100,000,000 (or such other
amount after giving effect to any reduction or increase thereof pursuant to
this Agreement). Any amounts prepaid in respect of Acceptances shall be
deposited by the Canadian Borrower in a cash collateral account with the
Canadian Lender and invested by the Canadian Agent in short-term high-quality
instruments or securities which investments shall be made at the option and
sole discretion of the Canadian Agent and all amounts therein shall be used to
repay Acceptances at their maturity dates.
SECTION 2.11. Fees. (a) The Company agrees to pay to the
-----
Administrative Agent for the account of each Lender a facility fee, which
shall accrue at the Applicable Rate on the daily amount of the Commitment of
such Lender (whether used or unused) during the period from and including the
date hereof to but excluding the date on which such Commitment terminates;
provided that, if such Lender continues to have any Revolving Credit Exposure
--------
after its Commitment terminates, then such facility fee shall continue to
accrue on the daily amount of such Lender's Revolving Credit Exposure from and
including the date on which its Commitment terminates to but excluding the
date on which such Lender ceases to have any Revolving Credit Exposure.
Accrued facility fees shall be payable in arrears on the last day of March,
June, September and December of each year and on the date on which the
Commitments terminate, commencing on the first such date to occur after the
date
<PAGE>
47
hereof; provided that any facility fees accruing after the date on which the
--------
Commitments terminate shall be payable on demand. All facility fees shall be
computed on the basis of a year of 360 days and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).
(b) The Company agrees to pay to the Administrative Agent for the
account of each Lender a utilization fee which shall accrue at a rate per
annum equal to .050% on (i) the daily amount of the Loans outstanding during
the six-month period commencing on the date of this Agreement and (ii)
thereafter, on the amount of the Loans outstanding hereunder on and in respect
of each day on which the aggregate Loans outstanding (or Dollar Equivalent
thereof) exceed 66 2/3% of the Commitments in effect on such day. The
utilization fee shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the date hereof.
For purposes of computing the utilization fees to each Lender, any principal
amount of Competitive Loans outstanding shall be deemed to have been made by
each Lender on a pro rata basis based on such Lender's Unused Commitment. All
utilization fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed.
(c) The Canadian Borrower agrees to pay to each Canadian Lender
that accepts an Acceptance on its behalf a stamping fee in advance, at a rate
per annum equal to the Applicable Rate set forth under the caption
"Eurocurrency Spread/Stamping Fee Rate" on the date of acceptance of each
Acceptance issued by the Canadian Borrower. All stamping fees shall be
calculated on the amount of the Acceptance issued and shall be completed on
the basis of a year of 365 days. The stamping fee shall be in addition to any
other fees payable to such Canadian Lender in connection with the issuance or
discounting of such Acceptance. The discount rate for Acceptances shall be
equal to Reference Rate, shall be calculated under terms customary to the
practice of the Canadian Lenders and shall be based upon a year of 365 days.
(d) The Company agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed
upon between the Company and the Administrative Agent.
<PAGE>
48
(e) All fees payable hereunder (except for stamping fees that are
subject to paragraph (c) above) shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, in the case of
facility fees and utilization fees, to the Lenders. Fees paid shall not be
refundable under any circumstances.
(f) With respect to Canadian Loans and fees relating thereto,
unless otherwise stated herein, wherever reference is made to a rate of
interest "per annum" or a similar expression, such interest shall be
calculated on the basis of a calendar year of 365 days or 366 days, as the
case may be, and using the nominal rate method of calculation, and shall not
be calculated using the effective rate method of calculation or on any other
basis that gives effect to the principle of deemed reinvestment of interest.
(g) For purposes of the Interest Act (Canada) and disclosure
thereunder, whenever interest to be paid with respect to Canadian Loans or
fees relating thereto is to be calculated on the basis of a year of 360 days
or any other period of time that is less than a calendar year, the yearly rate
of interest to which the rate determined pursuant to such calculation is
equivalent is the rate so determined multiplied by the actual number of days
in the calendar year in which the same is to be ascertained and divided by
either 360 or such other period of time, as the case may be.
SECTION 2.12. Interest. (a) The Loans comprising each ABR
---------
Borrowing (other than Swingline Loans) shall bear interest at the Alternate
Base Rate. Each Swingline Loan shall bear interest at the Swingline Rate,
unless a participation is required to be made pursuant to subsection (c) of
Section 2.05, in which case such Loan shall bear interest at the Alternate
Base Rate.
(b) The Loans comprising each Eurocurrency Borrowing shall bear
interest (i) in the case of a Eurocurrency Revolving Loan, at the LIBO Rate
for the Interest Period in effect for such Borrowing plus the Applicable Rate,
or (ii) in the case of a Eurocurrency Competitive Loan, at the LIBO Rate for
the Interest Period in effect for such Borrowing plus (or minus, as
applicable) the Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
<PAGE>
49
(d) Each Canadian Prime Rate Loan shall bear interest at the
Canadian Prime Rate.
(e) Each Acceptance Equivalent Loan shall bear interest in
accordance with Section 2.19.
(f) Notwithstanding the foregoing, if any principal of or interest
on any Loan or any fee or other amount payable by any Borrower hereunder is
not paid when due, whether at stated maturity, upon acceleration or otherwise,
such overdue amount shall bear interest, after as well as before judgment, at
a rate per annum equal to (i) in the case of overdue principal payable in
dollars of any Loan, 2% plus the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section, (ii) in the case of any
other amount payable in dollars, 2% plus the rate applicable to ABR Loans as
provided in paragraph (a) of this Section and (iii) in the case of any amounts
payable in Canadian Dollars 2% plus the Canadian Prime Rate.
(g) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan; provided that (i) interest accrued
--------
pursuant to paragraph (f) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment
of an ABR Revolving Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the
date of such repayment or prepayment, (iii) in the event of any conversion of
any Eurocurrency Revolving Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion and (iv) all accrued interest shall be
payable upon termination of the Commitments.
(h) All interest hereunder shall be computed on the basis of a year
of 360 days, except (i) that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate and
interest on the Canadian Loans shall be computed on the basis of a year of 365
days (or 366 days in a leap year), and (ii) as otherwise specified in the
Alternate Procedures, and in each case shall be payable for the actual number
of days elapsed (including the first day but excluding the last day). The
applicable Alternate Base Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent
manifest error. The applicable Canadian Prime Rate shall be determined by
<PAGE>
50
the Canadian Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurocurrency Borrowing:
(a) the Administrative Agent determines (which determination shall
be conclusive absent manifest error) that adequate and reasonable means
do not exist for ascertaining the LIBO Rate, as applicable, for such
Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or,
in the case of a Eurocurrency Competitive Loan, the Lender that is
required to make such Loan) that the LIBO Rate, as applicable, for such
Interest Period will not adequately and fairly reflect the cost to such
Lenders (or Lender) of making or maintaining their Loans (or its Loan)
included in such Borrowing for such Interest Period; or
(c) in the case of a Committed Currency Borrowing, the
Administrative Agent determines (which determination shall be conclusive
absent manifest error) that deposits in the applicable Committed Currency
are not generally available, or cannot be obtained by certain categories
of financial institutions represented among the Lenders, in the London
interbank market or any other market in which the Lenders shall be
funding such Loans;
then the Administrative Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to,
or continuation of any Revolving Borrowing as, a Eurocurrency Borrowing in the
affected currency shall be ineffective, and any Eurocurrency Borrowing so
requested to be continued shall be converted to an ABR Borrowing at the
Exchange Rate determined by the Administrative Agent on the last day of the
then current Interest Period with respect thereto, (ii) if any Borrowing
Request requests a Eurocurrency Revolving Borrowing (other than a Committed
Currency Borrowing), such Borrowing shall be made as an ABR Borrowing, (iii)
if the affected currency
<PAGE>
51
is dollars, any request by any Borrower for a Eurocurrency Competitive
Borrowing shall be ineffective and (iv) if any Borrowing Request requests a
Committed Currency Borrowing in the affected currency, such request shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
--------
do not affect all the Lenders, then requests for Eurocurrency Competitive
Borrowings may be made to Lenders that are not affected thereby and (B) if the
circumstances giving rise to such notice affect only one Type of Borrowings,
then the other Type of Borrowings shall be permitted.
SECTION 2.14. Increased Costs; Illegality. (a) If any
----------------------------
Governmental Authority shall have in effect any reserve, liquid asset or
similar requirement with respect to any category of deposits or liabilities
customarily used to fund loans in any currency, or by reference to which
interest rates applicable to Loans in such currency are determined, and the
result of such requirement shall be to increase the cost to any Lender of
making or maintaining any Eurocurrency Loan or Fixed Rate Loan in such
currency, and such Lender shall deliver to the Company a notice requesting
compensation under this paragraph and setting forth the applicable Statutory
Reserve Rate, then the Company will pay or cause the applicable Borrower to
pay to such Lender on each Interest Payment Date with respect to each affected
Loan an amount equal to the difference between (i) the interest payable on
such Loan on such date and (ii) the interest that would have been payable had
such Loan borne interest at a rate equal to (A) the LIBO Rate for the
applicable Interest Period multiplied by the applicable Statutory Reserve Rate
plus (B) the Applicable Rate or Margin applicable to such Loan.
(b) If any Change in Law shall impose on any Lender or the London
interbank market (or any other market in which the funding operations of such
Lender shall be conducted with respect to any Committed Currency) any
condition affecting this Agreement or Eurocurrency Loans, Fixed Rate Loans or
Acceptances made by such Lender (other than any reserve, liquid asset or
similar requirement referred to in paragraph (a) above), and the result
thereof shall be to increase the cost to such Lender of making or maintaining
any Eurocurrency Loan, Fixed Rate Loan or Acceptance (or of maintaining its
obligation to make any such Loan or Acceptance) or to increase the cost to
such Lender or to reduce the amount of any sum received or receivable by such
Lender hereunder (whether of principal,
<PAGE>
52
interest or otherwise), then the Company will pay or cause the applicable
Borrower to pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction
suffered. Notwithstanding the foregoing, no additional amount shall be paid by
the Company or any other Borrower to compensate such Lender for any additional
costs incurred or reduction suffered as a result of any Change in Law
affecting Excluded Taxes.
(c) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of
return on such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made by such
Lender to a level below that which such Lender or such Lender's holding
company could have achieved but for such Change in Law (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy), then from time to time the Company
will pay to such Lender such additional amount or amounts as will compensate
such Lender or such Lender's holding company for any such reduction suffered.
(d) A certificate of a Lender, setting forth (i) the amount or
amounts necessary to compensate such Lender or its holding company, as the
case may be, as specified in paragraph (a), (b) or (c) of this Section and
(ii) a reasonably detailed explanation of the calculation of such amount or
amounts shall be delivered to the Company and shall be conclusive absent
manifest error. The Company shall pay or cause the applicable Borrower to pay
such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.
(e) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that neither the Company
--------
nor any other Borrower shall be required to compensate a Lender pursuant to
this Section for any increased costs or reductions incurred more than 270 days
prior to the date that such Lender notifies the Company of the Change in Law
giving rise to such increased costs or reductions and of such Lender's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the
<PAGE>
53
270-day period referred to above shall be extended to include the period
of retroactive effect thereof.
(f) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in
respect of any Competitive Loan if the Change in Law that would otherwise
entitle it to such compensation shall have been publicly announced prior to
submission of the Competitive Bid pursuant to which such Loan was made.
(g) Notwithstanding any other provision of this Agreement, if,
after the date hereof, (i) any Change in Law shall make it unlawful for any
Lender to make or maintain any Eurocurrency Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurocurrency Loan, or
(ii) there shall have occurred any change in national or international
financial, political or economic conditions (including the imposition of or
any change in exchange controls) or currency exchange rates which would make
it impracticable for any Lender to make Loans denominated in the relevant
Committed Currency or to, or for the account of, the applicable Borrower,
then, by written notice to the Company and to the Administrative Agent:
(i) such Lender may declare that Eurocurrency Loans (in the affected
currency or currencies) will not thereafter (for the duration of such
unlawfulness) be made by such Lender hereunder (or be continued for
additional Interest Periods and ABR Loans will not thereafter (for such
duration) be converted into Eurocurrency Loans), whereupon such Lender
shall not submit a Competitive Bid in response to a request for a
Eurocurrency Competitive Loan and any request for a Eurocurrency
Borrowing (in the affected currency or currencies) (or to convert an ABR
Borrowing to a Eurocurrency Borrowing or to continue a Eurocurrency
Borrowing or a Committed Currency Borrowing (in the affected currency or
currencies), as the case may be, for an additional Interest Period)
shall, as to such Lender only, be deemed a request for an ABR Loan or a
Loan denominated in dollars, as the case may be (or a request to continue
an ABR Loan as such for an additional Interest Period or to convert a
Eurocurrency Loan into an ABR Loan, as the case may be), unless such
declaration shall be subsequently withdrawn; and
<PAGE>
54
(ii) such Lender may require that all outstanding Eurocurrency Loans
(in the affected currency or currencies) made by it be converted to ABR
Loans or Loans denominated in dollars, as the case may be, in which event
all such Eurocurrency Loans (in the affected currency or currencies)
shall be automatically converted to ABR Loans or Loans denominated in
dollars, as the case may be, as of the effective date of such notice as
provided in paragraph (h) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied
to repay the Eurocurrency Loans that would have been made by such Lender or
the converted Eurocurrency Loans of such Lender shall instead be applied to
repay the ABR Loans or Loans denominated in dollars, as the case may be, made
by such Lender in lieu of, or resulting from the conversion of, such
Eurocurrency Loans or Loans denominated in dollars, as the case may be.
(h) For purposes of this Section 2.14, a notice to the Company by
any Lender shall be effective as to each Eurocurrency Loan made by such
Lender, if lawful, on the last day of the Interest Period currently applicable
to such Eurocurrency Loan; in all other cases such notice shall be effective
on the date of receipt by the Company.
SECTION 2.15. Break Funding Payments. In the event of (a) the
-----------------------
payment or prepayment (voluntary or otherwise) of any principal of any
Eurocurrency Loan or Fixed Rate Loan other than on the last day of an Interest
Period or maturity date applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurocurrency Loan other than on the
last day of the Interest Period applicable thereto, (c) the conversion of any
Committed Currency Loan to an ABR Loan pursuant to this Agreement, (d) the
failure to borrow, convert, continue or prepay any Revolving Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice may be revoked under Section 2.11(b) and is revoked in accordance
therewith), (e) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan, or (f) the assignment of any Eurocurrency
Loan or Fixed Rate Loan other than on the last day of the Interest Period or
maturity date applicable thereto as a result of a request by any Borrower
pursuant to Section 2.18, then, in any such event, such Borrower shall
compensate each Lender
<PAGE>
55
for the loss, cost and expense attributable to such event (and in the case of
any conversion of Committed Currency Loans to dollar denominated Loans, such
loss, cost or expense shall also include any loss, cost or expense sustained
by a Lender as a result of its inability to convert dollars received by it
into amounts of the applicable Committed Currency equal to the amount of its
Committed Currency Loans). In the case of a Eurocurrency Loan, such loss, cost
or expense to any Lender shall be deemed to include an amount determined by
such Lender to be the excess, if any, of (i) the amount of interest which
would have accrued on such Loan had such event not occurred, at the LIBO Rate
in the case of a Eurocurrency Loan or discount rate in the case of an
Acceptance that would have been applicable to such Loan or Acceptance, for the
period from the date of such event to the last day of the then current
Interest Period therefor or the maturity date thereof (or, in the case of a
failure to borrow, convert or continue, for the period that would have been
the Interest Period for such Loan), over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate
which such Lender would bid were it to bid, at the commencement of such
period, for deposits of a comparable amount and period from other banks. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
Company and shall be conclusive absent manifest error. The relevant Borrower
shall pay such Lender the amount shown as due on any such certificate within
10 days after receipt thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account of
------
any obligation of any Loan Party hereunder and under any other Loan Document
shall be made free and clear of and without deduction for any Indemnified
Taxes or Other Taxes; provided that if any Loan Party shall be required to
--------
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) the Administrative Agent, the Canadian Agent or the Lender (as
the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Loan Party shall make such
deductions and (iii) such Loan Party shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
<PAGE>
56
(b) In addition, the Loan Parties shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) (i) The relevant Loan Party shall indemnify the Administrative
Agent, the Canadian Agent and each Lender, within 20 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent, the Canadian Agent or such Lender on or with respect
to any payment by or on account of any obligation of such Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties,
interest and reasonable expenses (other than those resulting solely from a
failure by the Administrative Agent, the Canadian Agent or such Lender, as the
case may be, to pay, within a reasonable period of time after receipt of
notice and demand for payment, any Indemnified Taxes or Other Taxes for which
it is entitled to receive an indemnification payment) arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability,
setting forth in reasonable detail the basis and computation thereof,
delivered to the Company by a Lender or by the Administrative Agent or the
Canadian Agent on its own behalf or on behalf of a Lender shall be conclusive
absent manifest error.
(ii) If the Administrative Agent, the Canadian Agent or any Lender
shall become aware that it is entitled to receive a refund of Indemnified
Taxes or Other Taxes, it shall promptly notify the relevant Borrower thereof
and, at such Borrower's request, shall apply for such refund at such
Borrower's expense. If the Administrative Agent, the Canadian Agent or any
Lender receives a refund of any Indemnified Taxes or Other Taxes for which the
Administrative Agent, the Canadian Agent or such Lender has received payment
from the relevant Borrower hereunder, it shall promptly notify such Borrower
thereof and shall promptly repay such refund to such Borrower without
interest, except to the extent interest shall have accompanied such refund.
(iii) Without prejudice to the survival of any other agreement
contained herein, the agreements and
<PAGE>
57
obligations contained in this Section 2.16(c) shall survive the payment in
full of principal and interest hereunder.
(d) As soon as practicable after any payment of Indemnified Taxes
or Other Taxes by any Borrower to the relevant Governmental Authority, such
Borrower shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such
payment reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
relevant Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under any Loan Document shall deliver to the
Company (with a copy to the Administrative Agent), on or before the time such
Foreign Lender (or the assignee thereof) becomes a party to this Agreement (or
designates a new lending office), and at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed
by applicable law or reasonably requested by the Company as will permit such
payments to be made without withholding or at a reduced rate. In addition,
each Foreign Lender shall deliver such documentation promptly upon the
obsolescence or invalidity of any documentation previously delivered by such
Foreign Lender.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
--------------------------------------------------
Set-offs. (a) Each U.S. Borrower and each Subsidiary Guarantor shall make
---------
each payment required to be made by it hereunder or under any other Loan
Document (whether of principal, interest or fees, or of amounts payable under
Section 2.14, 2.15 or 2.16, or otherwise) from a Payment Location in the
United States or in the United Kingdom prior to 12:00 noon, New York City time
(or, in the case of any Committed Currency Loans, from such other Payment
Location or by such other time as shall be specified in the Alternate
Procedures), on the date when due, in immediately available funds, without
set-off or counterclaim. The Canadian Borrower shall make each payment
required to be made by it hereunder or under any other Loan Document (whether
of principal, interest or fees, or of amounts payable under Section 2.14, 2.15
or 2.16, or otherwise) prior to 2:00 p.m., Toronto time, on the date when due,
in immediately available funds, without set-off or
<PAGE>
58
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent or the Canadian Agent, as applicable,
be deemed to have been received on the next succeeding Business Day or
Canadian Business Day, as applicable, for purposes of calculating interest
thereon. All such payments shall be made to the Administrative Agent in
dollars at its offices at 270 Park Avenue, New York, New York (or in the
applicable Committed Currency to the Administrative Agent at its office at
Trinity Tower, 9 Thomas Moore Street, London), or at such other offices as
shall be specified in the Alternate Procedures or to the Canadian Agent in
Canadian Dollars at its office at 55 King Street at Bay Street, Toronto, as
applicable, except payments to be made directly to the Swingline Lender as
expressly provided herein and except that payments pursuant to Sections 2.14,
2.15, 2.16 and 10.03 shall be made directly to the Persons entitled thereto.
The Administrative Agent or the Canadian Agent, as applicable, shall
distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof. If any
payment hereunder shall be due on a day that is not a Business Day or Canadian
Business Day, as applicable, the date for payment shall be extended to the
next succeeding Business Day or Canadian Business Day, as applicable, and, in
the case of any payment accruing interest, interest thereon shall be payable
for the period of such extension. All Loans, facility fees and utilization
fees hereunder, other than as set forth in the next two succeeding sentences,
shall be denominated and made, and all payments hereunder (whether of
principal, interest or otherwise) shall be made, in dollars. All Eurocurrency
Revolving Loans may be denominated and made in Committed Currencies as
expressly provided herein and principal of and interest on any Eurocurrency
Revolving Loan made in a Committed Currency shall be paid in such Committed
Currency. All Canadian Loans hereunder shall be denominated and made, and all
payments hereunder in respect thereof (whether of principal, interest or
acceptance fees) shall be made, in Canadian Dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent or the Canadian Agent, as applicable, to pay fully
all amounts of principal, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees
<PAGE>
59
then due to such parties, and (ii) second, towards payment of principal then
due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans (or Canadian Loans, in the case of
Canadian Lenders) or participations in Swingline Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of
its Revolving Loans (or Canadian Loans, in the case of Canadian Lenders) and
participations in Swingline Loans and accrued interest thereon than the
proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in
the Revolving Loans (or Canadian Loans, in the case of Canadian Lenders) and
participations in Swingline Loans of other Lenders (or other Canadian Lenders,
in the case of Canadian Loans) to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with
the aggregate amount of principal of and accrued interest on their respective
Revolving Loans (or Canadian Loans, in the case of Canadian Lenders) and
participations in Swingline Loans; provided that (i) if any such
--------
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by any Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to any Borrower or any subsidiary or Affiliate
thereof (as to which the provisions of this paragraph shall apply). Each Loan
Party consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against such Loan Party rights of
set-off and counterclaim with respect to such participation as fully as if
such Lender were a direct creditor of such Loan Party in the amount of such
participation.
(d) Unless the Administrative Agent shall have received notice from
the relevant Loan Party prior to the
<PAGE>
60
date on which any payment is due to the Administrative Agent for the account
of the Lenders hereunder that such Loan Party will not make such payment, the
Administrative Agent may assume that such Loan Party has made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders the amount due. In such event, if such Loan Party
has not in fact made such payment, then each of the Lenders severally agrees
to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date
of payment to the Administrative Agent, (i) in the case of a Borrowing in
dollars, at the Federal Funds Effective Rate, and (ii) in the case of a
Borrowing in a Committed Currency, at the rate reasonably determined by the
Administrative Agent to be the cost of funding such amount.
(e) Unless the Canadian Agent shall have received notice from the
Canadian Borrower prior to the date on which any payment is due to the
Canadian Agent for the account of the Canadian Lenders hereunder that the
Canadian Borrower will not make such payment, the Canadian Agent may assume
that the Canadian Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Canadian
Lenders the amount due. In such event, if the Canadian Borrower has not in
fact made such payment, then each of the Canadian Lenders severally agrees to
repay to the Canadian Agent forthwith on demand the amount so distributed to
such Canadian Lender with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Canadian Agent, at the rate reasonably determined by the Canadian Agent
to be the cost of funding such amount.
(f) If any Lender shall fail to make any payment required to be
made by it pursuant to Section 2.05(c), 2.06(b) or 2.17(d) or (e), then the
Administrative Agent or the Canadian Agent, as applicable, may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by it for the account of such Lender to satisfy such
Lender's obligations under such Sections until all such unsatisfied
obligations are fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a)
-----------------------------------------------
If any Lender requests compensation under
<PAGE>
61
Section 2.14, or if any Borrower is required to pay any additional amount or
indemnification payment to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.16, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder
to another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.14 or 2.16, as the case may be, in the future
and (ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender. The Company hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or if
any Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Company may, at its sole expense (including the fees referred to in Section
10.04(b)) and effort, upon notice to such Lender and the Administrative Agent
or the Canadian Agent, as applicable, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in Section 10.04), all its interests, rights and obligations under
the Loan Documents (other than any outstanding Competitive Loans held by it,
but including its Canadian Commitment, in the case of a Canadian Lender) to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Company
--------
shall have received the prior written consent of the Administrative Agent or
the Canadian Agent, as applicable (and, if a Commitment is being assigned, the
Swingline Lenders), which consent shall not unreasonably be withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans (other than Competitive Loans) and participations in
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Company (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.14 or payments required to be made
pursuant
<PAGE>
62
to Section 2.16, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Company to require such
assignment and delegation cease to apply.
SECTION 2.19. Acceptances. (a) Acceptance Commitment. Subject to
------------ ----------------------
the terms and conditions hereof, (i) each Canadian Lender severally agrees
that the Canadian Borrower may issue, and such Lender shall accept, Drafts
denominated in Canadian Dollars, in minimum denominations of Cdn.$100,000 or a
whole multiple thereof and in minimum aggregate amounts of Cdn.$5,000,000 or
any greater whole multiple of Cdn.$1,000,000, each in accordance with the
provisions of this Section from time to time until the Maturity Date in an
aggregate face amount at any one time outstanding which, together with the
aggregate outstanding principal amount of such Canadian Lender's Canadian
Prime Rate Loans, shall not exceed such Lender's Canadian Commitment;
provided, however, that the Canadian Borrower shall not be entitled to request
-------- -------
any Acceptance that, if made, would result in more than 10 Acceptance
Borrowings outstanding hereunder at any time. For purposes of this Agreement,
the full face value of an Acceptance, without discount, shall be used when
calculations are made to determine the outstanding amount of a Canadian
Lender's Acceptances.
(b) Terms of Acceptance. Each Draft shall be accepted by a
-------------------
Canadian Lender, upon the written request of the Canadian Borrower, given in
accordance with paragraph (c), by the completion and acceptance by such
Canadian Lender of a Draft (i) payable in Canadian Dollars, drawn by such
Borrower on such Canadian Lender in accordance with this Agreement, to the
order of such Canadian Lender and (ii) maturing prior to the Maturity Date on
a Canadian Business Day that occurs approximately 30, 60 or 90 days (or a
lesser or greater number of days, subject to availability, after the date of
such Draft and on or prior to the Maturity Date) thereafter.
(c) Borrowing Request and Discount of Acceptances.
---------------------------------------------
(i) With respect to each requested acceptance of Drafts, the
Canadian Borrower shall give the Canadian Agent a Borrowing Request
(which shall be irrevocable
<PAGE>
63
and may be by telephone confirmed in writing within one Canadian Business
Day) to be received prior to 12:00 (noon), Toronto time, two Canadian
Business Days prior to the date of the requested acceptance, specifying:
(A) the date on which such Drafts are to be accepted;
(B) the aggregate face amount of such Drafts;
(C) the maturity date of such Acceptances; and
(D) such additional information as the Canadian Agent or any
Canadian Lender may reasonably from time to time request to be
included in such notices.
(ii) Upon receipt of a Borrowing Request, the Canadian Agent shall
promptly notify each Canadian Lender of the contents thereof and of such
Canadian Lender's ratable share of the Acceptances requested thereunder.
The aggregate face amount of the Drafts to be accepted by a Canadian
Lender shall be determined by the Canadian Agent by reference to the
respective Canadian Commitments of the Canadian Lenders. Not later than
2:00 p.m., Toronto time, on the date of such notification each Canadian
Lender shall give telegraphic or telex notice to the Canadian Agent's
Lending Office of such Lender's acceptance of such Draft or Drafts
pursuant to the Borrowing Request.
(iii) Not later than 10:00 a.m., Toronto time, on the date of the
acceptance of a Draft, each Reference Lender shall notify the Canadian
Agent of the discount rate at which such Lender will discount the Draft
or Drafts to be accepted by such Canadian Lender hereunder on such date
and the Canadian Agent shall as soon as practicable thereafter advise the
Canadian Borrower and each Canadian Lender of the Reference Rate. Not
later than 2:00 p.m., Toronto time, on such date each Canadian Lender
shall, subject to the fulfillment of the applicable conditions precedent
specified in Section 4.01 and subject to the provisions of paragraph (e)
of this Section, (a) on the basis of the information supplied by the
Canadian Agent, as aforesaid, complete a Draft or Drafts of the Canadian
<PAGE>
64
Borrower by filling in the amount, date and maturity date thereof in
accordance with the applicable Borrowing Request, (b) duly accept such
Draft or Drafts, (c) discount the Acceptance or Acceptances created
thereby, (d) give the Canadian Agent telegraphic or telex notice of such
Canadian Lender's acceptance of such Draft or Drafts, confirming the
discount rate at which it discounted the Acceptance or Acceptances (which
discount rate shall be equal to the Reference Rate) and the amount paid
to the Canadian Agent for the account of Canadian Borrower and (e) remit
to the Canadian Agent in Canadian Dollars in immediately available funds
an amount equal to the proceeds of such discount. Upon receipt by the
Canadian Agent of such sums from the Canadian Lenders, the Canadian Agent
shall make the aggregate amount thereof available to the Canadian
Borrower. The stamping fee with respect to any Acceptance of any Canadian
Lender shall be deducted from the discount proceeds payable by such
Lender hereunder.
(iv) Each extension of credit hereunder through the acceptance of
Drafts shall be made simultaneously and pro rata by the Canadian Lenders
in accordance with their respective Canadian Commitments; provided,
--------
however, that the failure of any Lender to accept any Acceptance shall
-------
not relieve any other Lender of its obligation to accept Acceptances
hereunder (it being understood, however, that no Lender shall be
responsible for the failure of any other Lender to accept any Acceptance
required to be accepted by such other Lender).
(d) Acceptance Obligation. The Canadian Borrower is obligated, and
---------------------
hereby unconditionally agrees, to pay to each Canadian Lender the face amount
of each Acceptance created by such Lender in accordance with a Borrowing
Request pursuant to paragraph (c) on the maturity date thereof or on such
earlier date as may be required pursuant to provisions of this Agreement.
With respect to each Acceptance which is outstanding hereunder, the Canadian
Borrower shall notify the Canadian Agent prior to 11:00 a.m., Toronto time,
three Canadian Business Days prior to the maturity date of such Acceptance
(which notice shall be irrevocable) of such Borrower's intention to issue
Acceptances on such maturity date to provide for the payment of such maturing
Acceptance and shall deliver a Borrowing Request to the Canadian Agent. Any
repayment of an
<PAGE>
65
Acceptance must be made at or before 2:00 p.m. (Toronto time) on the maturity
date of such Acceptance. If any Acceptance Obligation is not paid when due, it
shall bear interest, payable on demand, at a rate per annum equal to 2% over
the Canadian Prime Rate in effect from time to time, from the due date thereof
to the date of payment thereof. The Canadian Borrower waives presentment for
payment and any other defense to payment of any amounts due to a Canadian
Lender in respect of any Acceptances accepted by such Canadian Lender under
this Agreement which might exist solely by reason of those Acceptances being
held, at the maturity thereof, by that Canadian Lender in its own right and
the Canadian Borrower agrees not to claim any days of grace if that Canadian
Lender, as holder, sues the Canadian Borrower on those Acceptances for payment
of the amounts payable by the Canadian Borrower thereunder.
(e) Supply of Drafts. To enable the Canadian Lenders to accept
----------------
Drafts in the manner specified in this Section, the Canadian Borrower shall
supply to each Canadian Lender upon the execution of this Agreement and
thereafter from time to time forthwith upon request by such Canadian Lender a
sufficient number of blank Drafts conforming with the requirements of this
Agreement and duly executed on behalf of the Canadian Borrower, which such
Canadian Lender shall hold in safekeeping. The Canadian Borrower hereby
authorizes and requests each Canadian Lender in accordance with each Borrowing
Request received from the Canadian Borrower pursuant to paragraph (c) to take
the measures with respect to a Draft or Drafts of the Canadian Borrower then
in possession of such Lender specified in paragraph (c)(iii) and in accordance
with the Borrowing Request. In case any authorized signatory of the Canadian
Borrower whose signature shall appear on any Draft shall cease to have such
authority before the acceptance of a Draft with respect to such Draft, the
obligations of the Canadian Borrower hereunder and under such Acceptance shall
nevertheless be valid for all purposes as if such authority had remained in
force until such creation. The Canadian Agent and each Canadian Lender shall
be fully protected in relying upon any instructions received from the Canadian
Borrower (orally or otherwise) without any duty to make inquiry as to the
genuineness of such instructions. The Canadian Agent and each Canadian Lender
shall be entitled to rely on instructions received from any person identifying
himself (orally or otherwise) as a duly authorized officer of the Canadian
Borrower and shall not be liable for any errors, omissions, delays or
interruptions in the transmission of
<PAGE>
66
such instructions, except for those arising by reason of the gross negligence
or wilful misconduct of the Canadian Agent or such Canadian Lender, as the
case may be.
(f) No Canadian Lender shall be responsible or liable for its
failure to accept a Draft if the cause of such failure is, in whole or in
part, due to the failure of the Canadian Borrower to provide the Drafts
described in paragraph (e) above to such Canadian Lender on a timely basis nor
shall any Canadian Lender be liable for any damage, loss or other claim
arising by reason of any loss or improper use of any such Draft except loss or
improper use arising by reason of the gross negligence or wilful misconduct of
such Canadian Lender.
(g) Rights of Canadian Lender as to Acceptances. Neither the
-------------------------------------------
Canadian Agent nor any Canadian Lender shall have any responsibility as to the
application of the proceeds by the Canadian Borrower of any discount of any
Acceptances. For greater certainty, each Canadian Lender may, at any time,
purchase Acceptances issued by the Canadian Borrower and may at any time and
from time to time hold, sell, rediscount or otherwise dispose of any or all
Acceptances accepted and/or purchased by it.
(h) Acceptance Equivalent Loans. Whenever a Canadian Borrower
---------------------------
delivers a Borrowing Request to the Canadian Agent under this Agreement
requesting the Canadian Lenders to accept Drafts, a Canadian Lender may at its
option, in lieu of accepting Drafts, make an Acceptance Equivalent Loan. On
each date on which Drafts are to be accepted, subject to the same terms and
conditions applicable to the acceptance of Drafts, any Canadian Lender that
elects to make an Acceptance Equivalent Loan, upon delivery by the Canadian
Borrower of an executed Discount Note payable to the order of such Canadian
Lender, will remit to the Canadian Agent in immediately available funds for
the account of the Canadian Borrower the Acceptance equivalent discount
proceeds in respect of the Discount Notes issued by the Canadian Borrower to
the Canadian Lender.
(i) Terms Applicable to Discount Notes. The term "Acceptance" when
----------------------------------
used in this Agreement shall be construed to include Discount Notes and all
terms of this Agreement applicable to Acceptances shall apply equally to
Discount Notes evidencing Acceptance Equivalent Loans with such changes as may
in the context be necessary (except that no
<PAGE>
67
Discount Note may be sold, rediscounted or otherwise disposed of by the
Canadian Lender making Acceptance Equivalent Loans). For greater certainty:
(i) a Discount Note shall mature and be due and payable on the same
date as the maturity date for Acceptances specified in the applicable
Borrowing Request;
(ii) a stamping fee will be payable in respect of a Discount Note
and shall be calculated at the same rate and in the same manner as the
stamping fee in respect of an Acceptance; and
(iii) an Acceptance Equivalent Loan made by a Canadian Lender will
be considered to be part of a Canadian Lender's outstanding Acceptances
for all purposes of this Agreement.
ARTICLE III
Representations and Warranties
------------------------------
The Company represents and warrants as to itself and its
Subsidiaries (and each other Borrower represents and warrants as to itself and
its subsidiaries, as applicable) to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Company and its
---------------------
Subsidiaries, including the Delaware Borrower and the Canadian Borrower, is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to
carry on its business as now conducted and is qualified to do business in, and
is in good standing in, every jurisdiction where such qualification is
required, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.02. Authorization; Enforceability. The Transactions are
------------------------------
within each Loan Party's corporate powers and have been duly authorized by all
necessary corporate and, if required, stockholder action. Each Loan Document
has been duly executed and delivered by each Loan Party and constitutes, or
when executed and delivered by such Loan Party will constitute, a legal, valid
and binding obligation
<PAGE>
68
of such Loan Party, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
-------------------------------------
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such
as have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of any Borrower or any of its subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon any
Borrower or any of its subsidiaries or its assets, or give rise to a right
thereunder to require any payment to be made by any Borrower or any of its
subsidiaries, and (d) will not result in the creation or imposition of any
Lien on any asset of any Borrower or any of its subsidiaries.
SECTION 3.04. Financial Condition; No Material Adverse Change.
------------------------------------------------
(a) The Company has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows as
of and for the fiscal year ended September 30, 1996, reported on by Ernst &
Young LLP, independent public accountants. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Company and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP.
(b) Since September 30, 1996, there has been no material adverse
change in the business, assets, operations, prospects or condition, financial
or otherwise, of the Company and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrowers and its
-----------
subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, except for Permitted
Encumbrances.
(b) Each of the Borrowers and its subsidiaries owns, or is licensed
to use, all trademarks, trade names,
<PAGE>
69
copyrights, patents and other intellectual property material to its business,
and the use thereof by the Borrowers and their subsidiaries does not infringe
upon the rights of any other Person, except for any such infringements that,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are
-------------------------------------
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of any Borrower, threatened
against or affecting any Borrower or any of its subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve this Agreement, any other Loan Document or the
Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Company, any
other Borrower nor any of their respective subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii)
has become aware that it is subject to any Environmental Liability, (iii) has
received notice of any claim with respect to any Environmental Liability or
(iv) knows of any other basis for any Environmental Liability which is
reasonably expected to be asserted.
(c) Since the date of this Agreement, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
------------------------------------
Borrowers and its subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
<PAGE>
70
SECTION 3.08. Investment and Holding Company Status. None of the
--------------------------------------
Borrowers nor any of their respective subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Company and its Subsidiaries has
------
timely filed or caused to be filed all material Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes
required to have been paid by it, except (a) Taxes that are being contested in
good faith by appropriate proceedings and for which the Company or such
Subsidiary, as applicable, has set aside on its books adequate reserves or (b)
to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not,
as of the date of the most recent financial statements reflecting such
amounts, exceed by more than $5,000,000 the fair market value of the assets of
such Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$10,000,000 the fair market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. None of the written reports, financial
-----------
statements, certificates or other information (including the Spin-Off
Information) furnished by or on behalf of the Borrower or any of its
subsidiaries to the Administrative Agent or any Lender in connection with the
negotiation of the Loan Documents or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with
--------
<PAGE>
71
respect to projected financial information, the Company represents only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth as of the
-------------
Effective Date a list of all Subsidiaries and the percentage ownership
interest of the Company therein. Schedule 3.12 also sets forth as of the
Effective Date all Material Subsidiaries that are incorporated within the
United States of America. As of the Effective Date, the shares of capital
stock of such Subsidiaries will be fully paid and non-assessable and such
shares and other ownership interests so indicated by Schedule 3.12 will be
owned by the Company, directly or indirectly, free and clear of all Liens.
SECTION 3.13. Solvency. On the Effective Date and immediately
---------
after the consummation of the Spin-Off, (a) the fair value of the assets of
the Company, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of the Company will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Company does not intend to incur and does
not believe it will incur debts and liabilities, subordinated, contingent or
otherwise, beyond its ability to pay such debts and liabilities as they become
absolute and matured; and (d) the Company will not have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the
Effective Date and the Spin-Off.
SECTION 3.14. Federal Reserve Regulations. (a) None of the
----------------------------
Borrowers is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
Margin Stock.
(b) No part of the proceeds of the Loans has been or will be used,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose which entails a violation of the provisions of the
Regulations of the Board, including, without limitation, Regulation G, U or X
thereof. Not more than 25% of the
<PAGE>
72
assets subject to the restrictions of Sections 6.02 and 6.03 will at any time
consist of Margin Stock.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to
---------------
make Loans hereunder shall not become effective until the date on which each
of the following conditions is satisfied (or waived in accordance with
Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a
counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of (i) Morgan, Lewis & Bockius LLP, U.S.
Counsel for the U.S. Borrowers and Subsidiary Guarantors, and Patricia E.
Armstrong, Canadian counsel for the Canadian Borrower, in each case
substantially in the form of Exhibits B-1 and B-2, respectively, and
covering such other matters relating to the Loan Parties, this Agreement,
the other Loan Documents or the Transactions as the Required Lenders
shall reasonably request. Each Borrower hereby requests such counsel to
deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of the
Loan Parties, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, this Agreement, the other Loan
Documents the Transactions and the Spin-Off, all in form and substance
satisfactory to the Administrative Agent and its counsel.
<PAGE>
73
(d) The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by the President, a Vice President or
a Financial Officer of the Company or the relevant Loan Party, confirming
(i) compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02 and (ii) that all governmental and third-party approvals
necessary or advisable in connection with the Spin-Off and the
Transactions contemplated hereby and the continuing operations of the
Company and its Subsidiaries after the Spin-Off have been obtained and
are in full force and effect, and all applicable waiting periods have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Spin-Off or any of the Transactions contemplated
hereby.
(e) The Administrative Agent shall have received the Subsidiary
Guarantee Agreement duly executed by all parties thereto.
(f) The Administrative Agent shall have received the Indemnity,
Subrogation and Contribution Agreement duly executed by all parties
thereto.
(g) The Administrative Agent shall have received a certificate,
dated the Effective Date and signed by a Financial Officer of the
Company, in form and substance reasonably satisfactory to the Lenders,
confirming the solvency of the Company and its Subsidiaries after giving
effect to the initial Loans hereunder and the use of proceeds thereof.
(h) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all reasonable out-of-
pocket expenses required to be reimbursed or paid by the Borrowers
hereunder.
The Administrative Agent shall notify the Company and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans
hereunder shall not become effective unless each of the foregoing conditions
is satisfied (or waived pursuant to Section 10.02) at or prior to 3:00 p.m.,
New York City time, on January 31, 1997 (and,
<PAGE>
74
in the event such conditions are not so satisfied or waived, the Commitments
shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in each Loan Document shall be true and correct on and as of the date of
such Borrowing. Notwithstanding anything contained in this Agreement to
the contrary, the Spin-Off in itself shall not be deemed a material
adverse change to the extent that it is consummated in all material
respects in accordance with the Spin-Off Information.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
the Company on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
SECTION 4.03. First Credit Event. The obligation of each Lender to
-------------------
make a Loan on the occasion of the initial Borrowing is subject to the
satisfaction of the following conditions:
(a) The Administrative Agent shall (i) be satisfied with the
arrangements for the repayment of approximately $600 million of
intercompany debt of the Company to ALCO or any Affiliate of ALCO with
the proceeds of the initial Borrowing; and (ii) have received
satisfactory evidence that the balance of intercompany debt owed by the
Company has been converted to equity;
(b) The Administrative Agent shall have received satisfactory
evidence that all material assets, if any, to be transferred by ALCO to
the Company in connection with the Spin-Off as contemplated by the Spin-
Off Information shall have been transferred on or prior to the date of
the initial Borrowing; and
<PAGE>
75
(c) The Administrative Agent and each Lender shall have received
copies of a certificate in form and substance satisfactory to the
Administrative Agent, dated the date of the initial Borrowing and signed
by a Financial Officer of the Company, confirming the solvency of the
Company and the Subsidiaries on a consolidated basis after giving effect
to the initial Borrowings and the use of proceeds thereof.
SECTION 4.04. First Credit Event after the Spin-Off. The
--------------------------------------
obligation of each Lender to make a Loan on the occasion of the first
Borrowing after the Spin-Off is subject to receipt by the Administrative Agent
and each Lender of copies of a certificate in form and substance satisfactory
to the Administrative Agent, dated the date of such Borrowing and signed by a
Financial Officer of the Company, confirming that (i) the Spin-Off has been
consummated in all material respects with respect to the Company in accordance
with the Spin-Off Information and all applicable laws, (ii) immediately prior
to the Spin-Off, no material adverse change in the business, assets,
operations, prospects or condition, financial or otherwise, of the Company and
its Subsidiaries, taken as a whole, shall have occurred and (iii) immediately
after giving effect to the Spin-Off, no Default shall have occurred and be
continuing.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees and other amounts payable
hereunder shall have been paid in full, the Company covenants and agrees with
the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
-------------------------------------------
Company will furnish to the Administrative Agent and each Lender:
(a) within 120 days after the end of each fiscal year of the
Company, its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by Ernst & Young LLP or other
<PAGE>
76
independent public accountants of recognized national standing (without a
"going concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of
the Company and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding period or periods of (or, in the
case of the balance sheet, as of the end of) the previous fiscal year,
all certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results of operations
of the Company and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(c) prior to consummation of the Spin-Off, copies of the Form 10
Registration Statement relating to the Spin-Off in the form in which it
is declared effective by the Securities and Exchange Commission;
(d) concurrently with each delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Company (i) certifying as to whether any Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth a
computation in reasonable detail of the Leverage Ratio as of the last day
of the fiscal year or fiscal quarter in respect of which financial
statements are being delivered, (iii) setting forth reasonably detailed
calculations demonstrating compliance with Sections 6.08 and 6.09,
(iv) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to
in Section 3.04 and,
<PAGE>
77
if any such change has occurred, specifying the effect of such change on
the financial statements accompanying such certificate and (v) stating
whether there is any Material Subsidiary that is organized in the United
States of America and that is not a Subsidiary Guarantor;
(e) promptly after the same become publicly available, copies of all
proxy statements and Forms 8-K, 10-K and 10-Q filed by the Company or any
Subsidiary with the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by
the Company to its shareholders generally, as the case may be; and
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Company or any Subsidiary, or compliance with the terms of the Loan
Documents, as the Administrative Agent or any Lender may reasonably
request.
SECTION 5.02. Notices of Material Events. The Company will furnish
---------------------------
to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting
the Company or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected
to result in liability of the Company and its Subsidiaries in an
aggregate amount exceeding $10,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement
of a Financial Officer or other
<PAGE>
78
executive officer of the Company setting forth in reasonable detail the event
or development requiring such notice and any action taken or proposed to be
taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Company will,
-------------------------------
and will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business; provided that the foregoing shall not
--------
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.04.
SECTION 5.04. Payment of Obligations. The Company will, and will
-----------------------
cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect
before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) the Company or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected
to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties; Insurance. The Company
-------------------------------------
will, and will cause each of its Subsidiaries to, (a) keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations or, in lieu
thereof, the Company or any one or more of its Subsidiaries will maintain or
cause to be maintained a system or systems of self-insurance which will be in
accord with the approved practices of companies owning or operating properties
of a similar character and maintaining such systems, and, in such cases of
self-insurance, maintain or cause to be maintained an insurance reserve in
adequate amounts.
SECTION 5.06. Books and Records; Inspection Rights. The Company
-------------------------------------
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all
<PAGE>
79
dealings and transactions in all material respect in relation to its business
and activities. The Company will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Administrative Agent or any
Lender, upon reasonable prior notice, to visit and inspect its properties, to
examine and make extracts from its books and records, and to discuss its
affairs, finances and condition with its officers and, subject to a
representative of the Company being present, independent accountants, all at
such reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Company will, and will
---------------------
cause each of its Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be
----------------
used only to repay approximately $600 million of intercompany debt of the
Company to ALCO and for general corporate purposes (including acquisitions) of
the Borrowers. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations G, U and X.
SECTION 5.09. Ownership of Delaware Borrower and Canadian Borrower.
-----------------------------------------------------
The Company will at all times when such Subsidiary has any outstanding Loan
hereunder maintain ownership of 100% of the capital stock and voting
securities of each of the Delaware Borrower and the Canadian Borrower, other
than qualifying shares held by the directors of such Subsidiary.
SECTION 5.10. Further Assurances. The Company will cause any
-------------------
subsequently acquired or organized Material Subsidiary that is organized
within the United States of America (and any other Subsidiary that hereafter
becomes such a Material Subsidiary) to execute a Subsidiary Guarantee
Agreement and an Indemnity, Subrogation and Contribution Agreement in favor of
the Administrative Agent.
<PAGE>
80
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees and other amounts payable hereunder
have been paid in full, the Company covenants and agrees with the Lenders
that:
SECTION 6.01. Indebtedness. The Company will not permit any
-------------
Subsidiary to create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness created hereunder;
(b) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and extensions, refundings, refinancings, renewals and
replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof;
(c) Indebtedness of any Subsidiary to the Company or any other
Subsidiary;
(d) Guarantees by any Subsidiary or by the Company of Indebtedness
of the Company or any other Subsidiary;
(e) Indebtedness of any Subsidiary incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Capital Lease Obligations and any Indebtedness assumed in
connection with the acquisition of any such assets or secured by a Lien
on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase
the outstanding principal amount thereof; provided that (i) such
--------
Indebtedness is incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement and
(ii) the aggregate principal amount of Indebtedness permitted by this
clause (e) plus Indebtedness permitted by clauses (f) and (g) of this
Section plus the aggregate sale price of all arrangements permitted by
Section 6.03 shall not exceed at any time outstanding 10% of Consolidated
Net Worth as shown on the most recent consolidated balance sheet of the
Company and its Subsidiaries delivered pursuant to Section 5.01;
<PAGE>
81
(f) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; provided that (i) such Indebtedness exists at the time such
--------
Person becomes a Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary and (ii) the aggregate
principal amount of Indebtedness permitted by this clause (f) plus
Indebtedness permitted by clauses (e) and (g) of this Section plus the
aggregate sale price of all arrangements permitted by Section 6.03 shall
not exceed at any time outstanding 10% of Consolidated Net Worth as shown
on the most recent consolidated balance sheet of the Company and its
Subsidiaries delivered pursuant to Section 5.01; and
(g) other unsecured Indebtedness of all Subsidiaries; provided that
--------
the aggregate principal amount of Indebtedness permitted by this clause
(g) plus Indebtedness permitted by clauses (e) and (f) of this Section
plus the aggregate sale price of all arrangements permitted by Section
6.03 shall not exceed at any time outstanding 10% of Consolidated Net
Worth as shown on the most recent consolidated balance sheet of the
Company and its Subsidiaries delivered pursuant to Section 5.01.
The Company will not create, incur, assume or permit to exist any
Indebtedness of the Company, other than Indebtedness included in Consolidated
Total Debt, in an aggregate principal amount at any time outstanding in excess
of $25,000,000; provided, however, that such dollar limitation shall not apply
-------- -------
to any Indebtedness or Guarantee described in clauses (c) and (d) of this
Section 6.01.
SECTION 6.02. Liens. The Company will not, and will not permit any
------
Subsidiary to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Company or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02;
provided that (i) such Lien shall not apply to any other property or
--------
asset of the Company or any Subsidiary and (ii) such Lien shall
<PAGE>
82
secure only those obligations which it secures on the date hereof and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Company or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
--------
(i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case may
be, (ii) such Lien shall not apply to any other property or assets of the
Company or any Subsidiary and (iii) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date
such Person becomes a Subsidiary, as the case may be and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
(d) Liens on fixed or capital assets acquired, constructed or
improved by the Company or any Subsidiary; provided that (i) such
--------
security interests secure Indebtedness permitted by clause (e) of
Section 6.02, (ii) such security interests and the Indebtedness secured
thereby are incurred prior to or within 90 days after such acquisition or
the completion of such construction or improvement, (iii) the
Indebtedness secured thereby does not exceed 100% of the cost of
acquiring, constructing or improving such fixed or capital assets and
(iv) such security interests shall not apply to any other property or
assets of the Company or any Subsidiary;
(e) Liens arising in connection with (i) a Securitization in Canada
in an amount not exceeding at any time Cdn. $95,000,000 of sold
receivables outstanding and (ii) any additional Securitizations
(including in Canada) in an amount not exceeding at any time $200,000,000
(including the Canadian Dollar Equivalent of any such Securitization in
Canada) of sold receivables outstanding, limited in each case to the
accounts receivable sold or transferred and interests therein or in any
trust or similar entity utilized to effect such Securitizations;
<PAGE>
83
(f) any Lien with respect to other deposits made to secure liability
to insurance carriers under insurance or self-insurance arrangements;
(g) any Lien securing reimbursement obligations under letters of
credit, provided in each case that such Liens cover only the title
--------
documents and related goods (and any proceeds thereof) covered by the
related letter of credit;
(h) any attachment or judgment Lien, unless the judgment it secures
shall not, within 30 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal or review, or shall not have
been discharged within 30 days after expiration of any such stay; and
(i) any Lien on property or assets of any Subsidiary securing
Indebtedness of such Subsidiary owing to the Company or any Subsidiary;
provided that (i) such Lien shall not apply to any other property or
--------
asset of such Subsidiaries and (ii) such Lien shall secure only those
obligations which it secures on the date hereof and extensions, renewals
and replacements thereof that do not increase the outstanding principal
amount thereof.
SECTION 6.03. Sale and Lease-Back Transactions. The Company will
---------------------------------
not, and will not permit any of its Subsidiaries to, directly or indirectly,
enter into any arrangement with any Person (other than a Subsidiary) whereby
it shall sell or transfer any property used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred, except for any such
arrangement or arrangements with an aggregate sale price not exceeding,
together with the aggregate principal amount of Indebtedness permitted by
clauses (e), (f) and (g) of Section 6.01, 10% of Consolidated Net Worth as
shown on the most recent consolidated balance sheet of the Company and its
Subsidiaries delivered pursuant to Section 5.01 (it being understood that this
Section 6.03 shall not apply to any sale of real estate in contemplation of
imminent replacement or relocation of facility and related short-term lease of
such real estate).
<PAGE>
84
SECTION 6.04. Fundamental Changes. The Company will not, and will
--------------------
not permit any Material Subsidiary to, merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it,
or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired), or liquidate or dissolve, except that, if at the
time thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing, (i) any Person may merge into the Company in a
transaction in which the Company is the surviving corporation, (ii) any
Subsidiary may merge with or into any other Person in a transaction in which
the surviving entity is a Subsidiary, (iii) any Material Subsidiary (other
than the Delaware Borrower or the Canadian Borrower unless (x) to any Loan
Party or (y) such Borrower first repays all its Obligations hereunder and
agrees in writing not to effect any additional Borrowings hereunder) may sell,
transfer, lease or otherwise dispose of all or substantially all its assets to
any other Person, (iv) any Material Subsidiary (other than the Delaware
Borrower or the Canadian Borrower unless such entity first repays all its
Obligations hereunder and agrees in writing not to effect any additional
Borrowings hereunder) may liquidate or dissolve if the Company determines in
good faith that such liquidation or dissolution is in the best interests of
the Company and is not materially disadvantageous to the Lenders and (v) the
foregoing shall not restrict any Securitization referred to in Section
6.02(e).
SECTION 6.05. Leases. The Company will not, and will not permit
-------
any of its Subsidiaries to, create or suffer to exist any obligations for the
payment or rental for any property under leases or agreements to lease (other
than any arrangement pursuant to which the Company or any of its Subsidiaries
is a lessor), except operating leases in the ordinary course of business in a
manner and to an extent consistent with the historical practices of the
Company or such Subsidiary as of the date hereof; provided that the aggregate
--------
amount of operating lease payments made pursuant hereto does not exceed
$300,000,000 in the aggregate in any fiscal year.
SECTION 6.06. Transactions with Affiliates. The Company will not,
-----------------------------
and will not permit any of its Subsidiaries to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise
<PAGE>
85
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) on terms and conditions
not less favorable to the Company or such Subsidiary than could be obtained on
an arm's-length basis from unrelated third parties, (b) transactions between
or among the Company and/or its wholly owned Subsidiaries not involving any
other Affiliate and (c) the transactions described in the Spin-Off
Information.
SECTION 6.07. Restrictive Agreements. The Company will not, and
-----------------------
will not permit any of its Subsidiaries to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the
Company or any Subsidiary to create, incur or permit to exist any Lien upon
any of its material property or assets, or (b) the ability of any Subsidiary
to pay dividends or other distributions with respect to any shares of its
capital stock or to make or repay loans or advances to the Company or any
other Subsidiary or to Guarantee Indebtedness of the Company or any other
Subsidiary; provided that (i) the foregoing shall not apply to restrictions
--------
and conditions imposed by law or by this Agreement, (ii) the foregoing shall
not apply to restrictions and conditions existing on the date hereof
identified on Schedule 6.07 or existing with respect to a Subsidiary at the
time it becomes a Subsidiary and not created in contemplation thereof (but
shall apply to any extension or renewal of, or any amendment or modification
expanding the scope of, any such restriction or condition), (iii) the
foregoing shall not apply to customary restrictions and conditions contained
in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be
sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement
relating to secured Indebtedness permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Indebtedness and (v) clause (a) of the foregoing shall not apply to customary
provisions in leases and other contracts restricting the assignment thereof.
SECTION 6.08. Leverage Ratio. The Leverage Ratio shall not equal
---------------
or exceed .55 to 1.00 at any time.
SECTION 6.09. Minimum Consolidated Net Worth. Consolidated Net
-------------------------------
Worth shall not at any date be less than
<PAGE>
86
the sum of (i) $745,000,000 plus (ii) 50% of the Consolidated Net Income, if
positive, for each fiscal year ending after December 31, 1996, plus (iii) if
such date is not the last day of a fiscal year, 50% of Consolidated Net
Income, if positive, for the period consisting of any fiscal quarters of the
then current fiscal year that have ended on or before such date.
ARTICLE VII
Events of Default
-----------------
If any of the following events (each, an "Event of Default") shall
----------------
occur:
(a) any Borrower shall fail to pay any principal of any Loan when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Borrower shall fail to pay any interest on any Loan or any
fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement, when and as the same
shall become due and payable, and such failure shall continue unremedied
for a period of five days;
(c) any representation or warranty made or deemed made by or on
behalf of the Company or any Subsidiary in any Loan Document or any
amendment or modification hereof or waiver hereunder, or in any officer's
certificate or financial statement furnished pursuant to or in connection
with any Loan Document or any amendment or modification hereof or thereof
or waiver hereunder or thereunder, shall prove to have been incorrect in
any material respect when made or deemed made;
(d) the Company shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02(a), 5.03 (with respect
to any Borrower's existence) or 5.08 or in Article VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b), (d) or (m) of this Article), and such
<PAGE>
87
failure shall continue unremedied for a period of 30 days after notice
thereof from the Administrative Agent to the Company (which notice will
be given at the request of any Lender);
(f) the Company or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness, when and as the same shall become due and
payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
--------
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Company, any other Borrower or any Material
Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Company, any other Borrower or any Material Subsidiary
or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for 60 days or an order
or decree approving or ordering any of the foregoing shall be entered;
(i) the Company, any other Borrower or any Material Subsidiary shall
(i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
<PAGE>
88
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company, any other Borrower or
any Material Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any affirmative action for the
purpose of effecting any of the foregoing;
(j) the Company, any other Borrower or any Material Subsidiary shall
admit in writing its inability to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $20,000,000 (which amount is not fully covered by
insurance) shall be rendered against the Company, any Subsidiary or any
combination thereof and the same shall remain undischarged for a period
of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to
attach or levy upon any assets of the Company or any Subsidiary to
enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the reasonable
opinion of the Required Lenders, when taken together with all other ERISA
Events that have occurred, could reasonably be expected to result in
liability of the Company and its Subsidiaries in an aggregate amount
exceeding (i) $10,000,000 in any year or (ii) $20,000,000 for all
periods;
(m) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in Article IX or the guarantee of the
Company hereunder or any Subsidiary Guarantee Agreement shall not be (or
shall be claimed by any Person not to be) valid or in full force and
effect; or
(n) a Change in Control shall occur; then, and in every such event
(other than an event with respect to any Borrower described in clause (h) or
(i) of this Article), and at any time thereafter during the continuance of
such event, the Administrative Agent may with
<PAGE>
89
the consent of the Required Lenders, and at the request of the Required
Lenders shall, by written notice to the Company, take either or both of the
following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrowers accrued hereunder,
shall become due and payable immediately, without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower; and in case of any event with respect to any Borrower described in
clause (h) or (i) of this Article, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with
accrued interest thereon and all fees and other obligations of the Borrowers
accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Borrower.
ARTICLE VIII
The Agents
----------
Each of the Lenders hereby irrevocably appoints the Administrative
Agent, and each of the Canadian Lenders hereby irrevocably appoints the
Canadian Agent, as its agent and authorizes such Agent to take such actions on
its behalf and to exercise such powers as are delegated to such Agent by the
terms hereof, together with such actions and powers as are reasonably
incidental thereto. For purposes of this Article, the Administrative Agent
and the Canadian Agent are referred to as the Agents.
Each bank serving as an Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise
the same as though it were not the Agent, and such bank and its Affiliates may
accept deposits from, lend money to and generally engage in any kind of
business with the Company or any Subsidiary or other Affiliate thereof as if
it were not an Agent hereunder.
<PAGE>
90
The Agents shall not have any duties or obligations except those
expressly set forth herein. Without limiting the generality of the foregoing,
(a) the Agents shall not be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing, (b) the Agents
shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby that the applicable Agent is required to exercise in
writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in
Section 10.02), and (c) except as expressly set forth herein, the Agents
shall not have any duty to disclose, and shall not be liable for the failure
to disclose, any information relating to the Company or any of its
Subsidiaries that is communicated to or obtained by any bank serving as Agent
or any of its Affiliates in any capacity. Neither Agent shall be liable for
any action taken or not taken by it with the consent or at the request of the
Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 10.02) or in the
absence of its own gross negligence or wilful misconduct. The Agents shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Agents by the Company or a Lender, and the Agents
shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with
any Loan Document, (ii) the contents of any certificate, report or other
document delivered hereunder or in connection herewith, (iii) the performance
or observance of any of the covenants, agreements or other terms or conditions
set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or
document, or (v) the satisfaction of any condition set forth in Article IV or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Agents.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each Agent also may
rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
<PAGE>
91
thereon. Each Agent may consult with legal counsel (who may be counsel for
the Company), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.
The Agents may perform any and all their duties and exercise their
rights and powers by or through any one or more sub-agents appointed by the
applicable Agent. Each Agent and any such sub-agent may perform any and all
of its duties and exercise its rights and powers through its respective
Related Parties. The exculpatory provisions of the preceding paragraphs shall
apply to any such sub-agent and to the Related Parties of the Agents and any
such sub-agent and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as Agents.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, either Agent may resign at any time by notifying
the Lenders, the other Agent and the Company. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Company, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent in consultation with
the Company which shall be a bank with an office in New York, New York, or
Toronto, as applicable, or an Affiliate of any such bank. Upon the acceptance
of its appointment as an Agent hereunder by a successor, such successor shall
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations hereunder. The fees payable by the Company to a
successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Company and such successor. After an Agent's
resignation hereunder, the provisions of this Article and Section 10.03 shall
continue in effect for the benefit of such retiring Agent, its sub-agents and
their respective Related Parties in respect of any actions taken or omitted to
be taken by any of them while it was acting as Agent.
Each Lender acknowledges that it has, independently and without
reliance upon either Agent or any other Lender and based on such documents and
information as
<PAGE>
92
it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon either Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any related agreement or any document
furnished hereunder or thereunder.
ARTICLE IX
Guarantee
---------
In order to induce the Lenders to extend credit hereunder, the
Company hereby irrevocably and unconditionally guarantees, as a primary
obligor and not merely as a surety, the Obligations. The Company further
agrees that the due and punctual payment of the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
that it will remain bound upon its Guarantee hereunder notwithstanding any
such extension or renewal of any Obligation.
The Company waives presentment to, demand of payment from and
protest to the Delaware Borrower or the Canadian Borrower of any of the
Obligations, and also waives notice of acceptance of its obligations and
notice of protest for nonpayment. The obligations of the Company hereunder
shall not be affected by (a) the failure of any Lender, the Administrative
Agent or the Canadian Agent to assert any claim or demand or to enforce any
right or remedy against the Delaware Borrower or the Canadian Borrower under
the provisions of any Loan Document or otherwise; (b) any rescission, waiver,
amendment or modification of any of the terms or provisions of any Loan
Document or any other instrument or agreement; or (c) the failure of the
Administrative Agent, the Canadian Agent or any Lender to exercise any right
or remedy against the Delaware Borrower or the Canadian Borrower.
The Company further agrees that its agreement hereunder constitutes
a promise of payment when due (whether or not any bankruptcy or similar
proceeding shall have stayed the accrual or collection of any of the
Obligations or operated as a discharge thereof) and not merely of collection
and waives any right to require that any resort
<PAGE>
93
be had by any Lender to any balance of any deposit account or credit on the
books of any Lender in favor of the Delaware Borrower or the Canadian Borrower
or any other Person.
The obligations of the Company hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, and shall not
be subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever, by reason of the invalidity, illegality or unenforceability of the
Obligations, any impossibility in the performance of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations
of the Company hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Administrative Agent, the Canadian Agent or any
Lender to assert any claim or demand or to enforce any remedy under any Loan
Document or any other agreement, by any waiver or modification in respect of
any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or omission which may or
might in any manner or to any extent vary the risk of the Company or otherwise
operate as a discharge of the Company or any other Borrower as a matter of law
or equity.
The Company further agrees that its obligations hereunder shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Obligation is rescinded or must otherwise
be restored by the Administrative Agent, the Canadian Agent or any Lender upon
the bankruptcy or reorganization of any Borrower or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which the Administrative Agent, the Canadian Agent or any Lender may
have at law or in equity against the Company by virtue hereof, upon the
failure of the Delaware Borrower or the Canadian Borrower to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, the Company hereby
promises to and will, upon receipt of written demand by the Administrative
Agent or the Canadian Agent, as applicable, forthwith pay, or cause to be
paid, in cash the amount of such unpaid Obligation. The Company further
agrees that if payment in respect of any Obligation shall be due in a currency
other than dollars and/or at a place of payment other than New York and if, by
reason of any Change in Law, disruption
<PAGE>
94
of currency or foreign exchange markets, war or civil disturbance or similar
event, payment of such Obligation in such currency or at such place of payment
shall be impossible or, in the judgment of any applicable Lender, not
consistent with the protection of its rights or interests, then, at the
election of any applicable Lender, the Company shall make payment of such
Obligation in dollars (based upon the applicable Exchange Rate in effect on
the date of payment) and/or in New York, and shall indemnify such Lender
against any losses or expenses that it shall sustain as a result of such
alternative payment.
Upon payment by the Company of any Obligation, each Lender shall, in
a reasonable manner, assign to the Company the amount of such Obligation owed
to it and so paid, such assignment to be pro tanto to the extent to which the
--- -----
Obligation in question was discharged by the Company, or make such disposition
thereof as the Company shall direct (all without recourse to any Lender and
without any representation or warranty by any Lender).
Upon payment by the Company of any sums as provided above, all
rights of Company against the Delaware Borrower or Canadian Borrower arising
as a result thereof by way of right of subrogation or otherwise shall in all
respects be subordinated and junior in right of payment to the prior
indefeasible payment in full of all the Obligations owed by such Borrower to
the Lenders.
ARTICLE X
Miscellaneous
-------------
SECTION 10.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy (and confirmed), as follows:
(a) if to the Borrowers, to or in care of the Company at 825
Duportail Road, Wayne, PA 19087-5589, Attention of Treasury Department
(Telecopy No. (610) 296-3248);
<PAGE>
95
(b) if to the Administrative Agent, to The Chase Manhattan Bank,
Agent Bank Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Janet Belden (Telecopy No.
(212) 552-5658), with a copy to The Chase Manhattan Bank, One Chase
Manhattan Plaza, New York 10081, Attention of Helene Santo (Telecopy No.
(212) 552-7773) and to any other applicable address specified in the
Alternate Procedures;
(c) if to the Canadian Agent, to it at 9/F TD Bank Tower, TD Center,
Toronto, Ontario M5K 1A2, Attention of Derek Hannon (Telecopy No.
416-982-5535); and
(d) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the
date of receipt.
SECTION 10.02. Waivers; Amendments. (a) No failure or delay by
--------------------
the Administrative Agent, the Canadian Agent or any Lender in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Administrative Agent, the Canadian Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by any Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan shall not be construed as a
waiver of any Default, regardless of whether the Administrative Agent, any
Lender or the Canadian Agent may have had notice or knowledge of such Default
at the time.
<PAGE>
96
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Company and the Required Lenders or by the Company and the
Administrative Agent with the consent of the Required Lenders; provided that
--------
no such agreement shall (i) increase the Commitment of any Lender or the
Canadian Commitment of any Canadian Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby (or, in the case
of any Canadian Commitment, without the written consent of each Canadian
Lender affected thereby), (iv) change Section 2.17(b) or (c) in a manner that
would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) release the Company or any Subsidiary
Guarantor from, or limit or condition, its obligations under Article IX, the
Subsidiary Guarantee Agreement or the Indemnity, Subrogation and Contribution
Agreement, respectively, or (vi) change any of the provisions of this Section
or the definition of "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided further that
----------------
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent, the Canadian Agent or the Swingline Lender
hereunder without the prior written consent of the Administrative Agent, the
Canadian Agent or the Swingline Lender, as the case may be.
SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The
-----------------------------------
Company shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees,
charges and disbursements of counsel for the Administrative Agent, in
connection with the syndication of the credit facilities provided for herein,
the preparation and administration of the Loan Documents or any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not
the transactions contemplated hereby or thereby shall be
<PAGE>
97
consummated) and (ii) all reasonable out-of-pocket expenses incurred by the
Administrative Agent or any Lender, including the reasonable fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
(b) The Company shall indemnify the Administrative Agent, the
Canadian Agent and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
----------
Indemnitee harmless from, any and all losses, claims, damages (excluding
special, indirect, consequential or punitive damages), liabilities and related
expenses, including the reasonable fees, charges and disbursements of any
counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or
delivery of this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties
hereto or thereto of their respective obligations hereunder or thereunder or
the consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual
or alleged presence or release of Hazardous Materials on or from any property
owned or operated by the Company or any of its Subsidiaries, or any
Environmental Liability related in any way to the Company or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any Indemnitee,
--------
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or
wilful misconduct of such Indemnitee.
(c) To the extent that the Company fails to pay any amount required
to be paid by it to the Administrative Agent, the Canadian Agent or the
Swingline Lender under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent, the Canadian
<PAGE>
98
Agent or the Swingline Lender, as the case may be, such Lender's Applicable
Percentage (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
--------
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent, the Canadian Agent or the Swingline Lender in its
capacity as such.
(d) To the extent permitted by applicable law, the Company and each
other Borrower shall not assert, and hereby waive, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of,
in connection with, or as a result of, this Agreement or any other Loan
Document or any agreement or instrument contemplated hereby or thereby, the
Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
but in any event not later than 10 days after written demand therefor.
SECTION 10.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that no
Borrower may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by such Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Canadian Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment or its Canadian Commitment and the Loans at the time owing
to it); provided that (i) except in the case of an assignment to a Lender or
--------
an Affiliate of a Lender, each of the Company and the Administrative Agent
(and, in the case of an assignment of all or a portion of a Commitment or
<PAGE>
99
any Lender's obligations in respect of its Swingline Exposure, the Swingline
Lenders and, in the case of an assignment of all or a portion of its Canadian
Commitment, the Canadian Agent) must give its prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except in
the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment
or Canadian Commitment, the amount of the Commitment or the amount of the
Canadian Commitment (and the associated Commitment) of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent or the Canadian Agent, as applicable) shall not be less than $10,000,000
unless each of the Company and the Administrative Agent or the Canadian Agent,
as applicable, otherwise consents, (iii) each partial assignment shall be made
as an assignment of a proportionate part (as provided in the preceding clause
(ii)) of all the assigning Lender's rights and obligations under this
Agreement, except that this clause (iii) shall not apply to rights in respect
of outstanding Competitive Loans, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent or the Canadian Agent, as
applicable, an Assignment and Acceptance, together with a processing and
recordation fee of $3,500 (or Cdn $4,500, as applicable), (v) the assignee, if
it shall not be a Lender, shall deliver to the Administrative Agent or the
Canadian Agent, as applicable, an Administrative Questionnaire, (vi) no
assignment of any portion of a Canadian Commitment may be made unless
accompanied by an assignment to the same assignee of an equal or greater
Commitment amount, and (vii) no Canadian Lender may assign any portion of its
Commitment if after giving effect thereto its Canadian Commitment would exceed
its Commitment; and provided further that any consent of the Company otherwise
----------------
required under this paragraph shall not be required if an Event of Default
under clause (h) or (i) of Article VII has occurred and is continuing.
Subject to acceptance and recording thereof pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights
and obligations of a Lender and, if applicable, a Canadian Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this
<PAGE>
100
Agreement (and, in the case of an Assignment and Acceptance covering all of
the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to
the benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does
not comply with this paragraph shall be treated for purposes of this Agreement
as a sale by such Lender of a participation in such rights and obligations in
accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent
of the Borrowers, shall maintain at one of its offices in The City of New York
a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
--------
shall be conclusive, and each Borrower, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register pursuant
to the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers and any Lender, at any reasonable time and from
time to time upon reasonable prior notice.
(d) The Canadian Agent, acting for this purpose on behalf of the
Canadian Borrower, shall maintain at one of its offices in Toronto a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Canadian Lenders, and the
Canadian Commitment of, and principal amount of the Canadian Loans owing to,
each Canadian Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive, and the
---------
Canadian Borrower, the Canadian Agent and the Canadian Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as
a Canadian Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Canadian Borrower and any Canadian Lender at any reasonable
time and from time to time upon reasonable prior notice. The Canadian Agent
shall furnish to the Administrative Agent copies of each Borrowing Request,
Assignment and Acceptance,
<PAGE>
101
notices or any other documents received by it in connection with any Canadian
Loan.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent or the Canadian Agent, as
applicable, shall accept such Assignment and Acceptance and record the
information contained therein in the Register. No assignment shall be
effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(f) Any Lender may, without the consent of any Borrower, the
Administrative Agent, the Canadian Agent or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
-----------
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment, Canadian Commitment and the
Loans owing to it); provided that (i) such Lender's obligations under this
--------
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) the Borrowers, the Administrative Agent, the Canadian Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (iv) such Lender shall notify the Company of any such
participation. Any agreement or instrument pursuant to which a Lender sells
such a participation shall provide that such Lender shall retain the sole
right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement; provided that such agreement or
--------
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 10.02(b) that affects such Participant. Subject to
paragraph (g) of this Section, each Borrower agrees that each Participant
shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same
extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section (provided that notwithstanding
--------
anything else herein to the contrary, no such participating bank or entity
shall
<PAGE>
102
be entitled to receive any greater cost or amount pursuant to such Sections as
to any cost or amount described therein existing or reasonably foreseeable at
the time of the sale of such participation than such Lender would have been
entitled to receive in respect of the amount of the participation sold by such
Lender to such participating bank or entity had such sale not occurred). To
the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 10.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.17(c) as though it were a
Lender.
(g) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Company's prior written consent. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 2.16 unless the Company is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Company, to
comply with Section 2.16(e) as though it were a Lender.
(h) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment
--------
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a
party hereto.
SECTION 10.05. Survival. All covenants, agreements,
---------
representations and warranties made by the Borrowers herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement
and the making of any Loans, regardless of any investigation made by any such
other party or on its behalf and notwithstanding that the Administrative
Agent, the Canadian Bank or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and
<PAGE>
103
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 10.03
and Article VIII shall survive and remain in full force and effect regardless
of the consummation of the transactions contemplated hereby, the repayment of
the Loans and the Commitments or the termination of this Agreement or any
provision hereof.
SECTION 10.06. Counterparts; Integration; Effectiveness. This
---------------------------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and the
Canadian Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 10.07. Severability. Any provision of this Agreement held
-------------
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular
provision in a particular jurisdiction shall not invalidate such provision in
any other jurisdiction.
SECTION 10.08. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time
<PAGE>
104
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other obligations at any time owing by such Lender
or Affiliate to or for the credit or the account of any Borrower against any
of and all the obligations of such Borrower now or hereafter existing under
this Agreement held by such Lender, irrespective of whether or not such Lender
shall have made any demand under this Agreement and although such obligations
may be unmatured. The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and
--------
governed by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive personal jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of
or relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Administrative Agent, the Canadian Agent or any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement against any Borrower or its properties in the courts of any
jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to any Loan Document in any court
referred to in paragraph (b) of this Section. Each of the parties hereto
hereby irrevocably waives, to the
<PAGE>
105
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
---------------------
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. Headings. Article and Section headings and the
---------
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. Each of the Administrative Agent,
---------------
the Canadian Agent and the Lenders agrees to maintain the confidentiality of
the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or
any suit, action or proceeding relating to any Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
<PAGE>
106
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement, (g) with the
consent of the Company or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section by such
Person or (ii) becomes available to the Administrative Agent, the Canadian
Bank or any Lender on a nonconfidential basis from a source other than the
Company. For the purposes of this Section, "Information" means all
-----------
information received from the Company or any Related Party thereof in
connection with the Loan Documents relating to the Company or any Subsidiary
or any of their respective businesses, other than any such information that is
available to the Administrative Agent, the Canadian Agent or any Lender on a
nonconfidential basis prior to disclosure by the Company or such Related
Party; provided that, in the case of information received from the Company or
--------
any Subsidiary after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as
such Person would accord to its own confidential information. The
Administrative Agent, the Canadian Agent and any Lender, as the case may be,
shall promptly notify the Company of its receipt of any subpoena of any
regulatory authority as referred to in clause (c) above, unless such notice is
prohibited by such regulatory authority.
SECTION 10.13. Conversion of Currencies. (a) If, for the purpose
-------------------------
of obtaining judgment in any court, it is necessary to convert a sum owing
hereunder in one currency into another currency, each party hereto agrees, to
the fullest extent that it may effectively do so, that the rate of exchange
used shall be that at which in accordance with normal banking procedures in
the relevant jurisdiction the first currency could be purchased with such
other currency on the Business Day or Canadian Business Day, as applicable,
immediately preceding the day on which final judgment is given.
(b) The obligations of each Borrower in respect of any sum due to
any party hereto or any holder of the obligations owing hereunder (the
"Applicable Creditor") shall, notwithstanding any judgment in a currency (the
<PAGE>
107
"Judgment Currency") other than the currency in which such sum is stated to be
due hereunder (the "Agreement Currency"), be discharged only to the extent
that, on the Business Day or Canadian Business Day, as applicable, following
receipt by the Applicable Creditor of any sum adjudged to be so due in the
Judgment Currency, the Applicable Creditor may in accordance with normal
banking procedures in the relevant jurisdiction purchase the Agreement
Currency with the Judgment Currency; if the amount of the Agreement Currency
so purchased is less than the sum originally due to the Applicable Creditor in
the Agreement Currency, such Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Applicable Creditor
against such loss. The obligations of the Borrowers contained in this Section
shall survive the termination of this Agreement and the payment of all other
amounts owing hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
UNISOURCE WORLDWIDE, INC.,
by
_________________________
Name:
Title:
UNISOURCE CAPITAL CORPORATION,
by
_________________________
Name:
Title:
UNISOURCE CANADA, INC.,
by
_________________________
Name:
Title:
<PAGE>
108
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
_________________________
Name:
Title:
THE TORONTO-DOMINION BANK,
individually and as Canadian
Agent,
by
_________________________
Name:
Title:
TORONTO DOMINION (TEXAS),
INC., as Documentation Agent,
by
_________________________
Name:
Title:
TORONTO DOMINION (NEW YORK),
INC.,
by
_________________________
Name:
Title:
BANK OF AMERICA ILLINOIS,
by
_________________________
Name:
Title:
<PAGE>
109
BANK OF MONTREAL,
by
_________________________
Name:
Title:
THE BANK OF NEW YORK,
by
_________________________
Name:
Title:
THE BANK OF NOVA SCOTIA,
by
_________________________
Name:
Title:
BANK OF TOKYO - MITSUBISHI
TRUST COMPANY,
by
_________________________
Name:
Title:
BANQUE NATIONALE DE PARIS,
by
_________________________
Name:
Title:
by
_________________________
Name:
Title:
<PAGE>
110
BARNETT BANK, N.A.,
by
_________________________
Name:
Title:
BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH,
by
_________________________
Name:
Title:
by
_________________________
Title:
Name:
CANADIAN IMPERIAL BANK OF
COMMERCE,
by
_________________________
Name:
Title:
CORESTATES BANK, N.A.,
by
_________________________
Name:
Title:
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH,
by
_________________________
Name:
Title:
<PAGE>
111
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH,
by
_________________________
Name:
Title:
by
_________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
by
_________________________
Name:
Title:
FLEET NATIONAL BANK,
by
_________________________
Name:
Title:
THE FUJI BANK, LIMITED, NEW
YORK BRANCH,
by
_________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY,
by
_________________________
Name:
Title:
<PAGE>
112
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, SPA,
by
_________________________
Name:
Title:
by
_________________________
Name:
Title:
MELLON BANK, N.A.,
by
_________________________
Name:
Title:
NATIONSBANK, N.A.,
by
_________________________
Name:
Title:
THE NORTHERN TRUST COMPANY,
by
_________________________
Name:
Title:
PNC BANK, NATIONAL
ASSOCIATION,
by
_________________________
Name:
Title:
<PAGE>
113
ROYAL BANK OF CANADA,
by
_________________________
Name:
Title:
THE SANWA BANK LIMITED,
by
_________________________
Name:
Title:
SUNTRUST BANK, ATLANTA,
by
_________________________
Name:
Title:
by
_________________________
Name:
Title:
UNION BANK OF SWITZERLAND, NEW
YORK BRANCH,
by
_________________________
Name:
Title:
by
_________________________
Name:
Title:
<PAGE>
114
WELLS FARGO BANK, N.A.,
by
_________________________
Name:
Title:
THE YASUDA TRUST AND BANKING
COMPANY LIMITED, NEW YORK
BRANCH,
by
_________________________
Name:
Title:
THE CHASE MANHATTAN BANK OF
CANADA,
by
_________________________
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, NY 10017
CHASE SECURITIES INC.
270 Park Avenue
New York, NY 10017
October 23, 1996
Unisource Worldwide, Inc.
825 Duportail Road
Wayne, PA 19087-5589
Attention of Kathleen M. Burns
Vice President and Treasurer
Unisource Worldwide, Inc.
-------------------------
Competitive Advance/Revolving Credit Facility
---------------------------------------------
Commitment Letter
-----------------
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase
Securities Inc. ("CSI") that ALCO Standard Corporation, an Ohio corporation
("ALCO"), will distribute to its shareholders all the common stock of Unisource
Worldwide, Inc., a Delaware corporation (the "Company"), in the transactions
described in the Form 10 (the "Form 10") submitted by the Company with the
Securities and Exchange Commission on September 23, 1996. In that connection,
you have requested that CSI agree to structure, arrange and syndicate a
competitive advance and revolving credit facility for the Company in an
aggregate amount of up to $1,000,000,000 (the "Facility"), and that Chase commit
to provide up to $250,000,000 of the principal amount of the Facility and to
serve as administrative agent for the Facility.
Chase is pleased to advise you of its commitment to provide
$250,000,000 of the principal amount of the Facility upon the terms and subject
to successful
<PAGE>
2
syndication of the balance of the Facility and the other conditions set forth or
referred to in this commitment letter (the "Commitment Letter") and in the
Summary of Terms and Conditions attached hereto as Exhibit A (the "Term Sheet").
You hereby appoint Chase as Administrative Agent, and CSI as advisor and
arranger, for the Facility, in each case on the terms set forth or referred to
in this Commitment Letter and in the Term Sheet, and Chase and CSI hereby agree
to act in such capacities.
It is agreed that Chase will act as the sole and exclusive
Administrative Agent, and that CSI will act as the sole and exclusive advisor
and arranger, for the Facility, and each will, in such capacities, perform the
duties and exercise the authority customarily performed and exercised by it in
such roles. Except as determined by CSI in consultation with you, no other
agents or co-agents will be appointed, no other titles will be awarded and no
compensation (other than that expressly contemplated by the Term Sheet and the
Fee Letter referred to below) will be paid in connection with the Facility.
Chase reserves the right, prior to or after the execution of
definitive documentation, to syndicate its commitment hereunder to one or more
financial institutions reasonably satisfactory to you that will become parties
to such definitive documentation (the financial institutions becoming parties to
such documentation being collectively called the "Lenders"). You understand that
CSI intends to commence syndication efforts promptly upon the execution of this
Commitment Letter, and you agree actively to assist CSI in completing a
syndication satisfactory to it prior to closing. Such assistance shall include
(a) your using your best efforts to ensure that the syndication efforts benefit
materially from the existing lending relationships of the Company and ALCO, (b)
direct contact between senior management and advisors of the Company and ALCO
and the proposed Lenders, (c) assistance in the preparation of a Confidential
Information Memorandum and other marketing materials to be used in connection
with the syndication and (d) the hosting, with CSI, of one or more meetings of
prospective Lenders.
It is agreed that CSI will manage, in consultation with you, all
aspects of the syndication, including selection of Lenders, determination of
when CSI will approach potential Lenders, any naming rights, the allocations of
the commitments among the Lenders and the
<PAGE>
3
amount and distribution of fees among the Lenders. To assist CSI in its
syndication efforts, you agree promptly to prepare and provide to CSI and Chase
all written information with respect to the Company and the other transactions
contemplated hereby, including all financial information and projections (the
"Projections"), as they may reasonably request in connection with the
arrangement and syndication of the Facility. You hereby represent and covenant
that (a) all information, taken as a whole, other than the Projections (the
"Information") that has been or will be made available to Chase or CSI by you or
any of your authorized representatives is or will be, when furnished, complete
and correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made
and (b) the Projections that have been or will be made available to Chase or CSI
by you or any of your authorized representatives have been or will be prepared
in good faith based upon reasonable assumptions. You agree to supplement the
Information and the Projections from time to time until the closing of the
Facility so that the representations in the preceding sentence remain correct.
In arranging the Facility, including the syndication of the Facility, Chase and
CSI will be using and relying primarily on the Information and the Projections
without independent verification thereof.
As consideration for Chase's commitment hereunder and CSI's agreement
to structure, arrange and syndicate the Facility and to provide advisory
services in connection therewith, you agree to pay to Chase the fees set forth
in Annex I to the Term Sheet and in the Fee Letter dated the date hereof and
delivered herewith (the "Fee Letter"). Once paid, such fees shall not be
refundable under any circumstances.
Chase's commitment hereunder is subject to (a) there not occurring or
becoming known to us any material adverse condition or material adverse change
in or affecting the business, assets, operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole,
(b) there not having occurred a material disruption of or material adverse
change in financial, banking or capital market conditions that, in Chase's
judgment, would be likely to impair the syndication of the Facility, (c) Chase's
satisfaction that prior to and
<PAGE>
4
during the syndication of the Facility, there shall be no competing offering,
placement or arrangement or any debt securities or bank financing by or on
behalf of the Company, ALCO or any subsidiaries thereof, (d) Chase's continuing
satisfaction in all respects with all legal, tax and accounting matters relating
to the Spin-Off and the proposed capitalization and structure of the Company and
its subsidiaries, (e) the negotiation, execution and delivery of definitive
documentation with respect to the Facility satisfactory to Chase and its counsel
and (f) the other conditions set forth in the Term Sheet. The terms and
conditions of Chase's commitment hereunder and of the Facility are not limited
to those set forth herein and in the Term Sheet. Those matters that are not
covered by or made clear under the provisions hereof and of the Term Sheet are
subject to the approval and agreement of Chase, CSI and the Company.
You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors and
agents from and against any and all losses (excluding opportunity costs),
claims, damages, liabilities and expenses, joint or several, to which any such
person may become subject arising out of or in connection with this Commitment
Letter, the Facility or the transaction contemplated hereby or thereby or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any such indemnified party is a party thereto, and to
reimburse each of such indemnified parties upon demand for any reasonable legal
or other expenses incurred in connection with investigating or defending any of
the foregoing, provided that the foregoing indemnity will not, as to any
indemnified party, apply to losses, claims, damages, liabilities or related
expenses to the extent they are found by a final judgment of a court to have
resulted from the willful misconduct or gross negligence of such indemnified
party, and (b) to reimburse Chase, CSI and their affiliates from time to time
for all reasonable out-of-pocket expenses (including due diligence expenses,
syndication expenses, travel expenses, and fees, charges and disbursements of
counsel incurred in connection with the Facility and any related documentation
(including this Commitment Letter, the Term Sheet, the Fee Letter and the
definitive financing documentation)). No indemnified person shall be liable for
any indirect or consequential damages in connection with its activities related
to the Facility.
<PAGE>
5
This Commitment Letter and Chase's commitment shall not be assignable
by you without the prior written consent of Chase and any attempted assignment
without such consent shall be void. This Commitment Letter may not be amended or
any provision hereof waived except by an instrument in writing signed by you,
Chase and CSI. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed counterpart of
a signature page of this Commitment Letter by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof. This Commitment
Letter is intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in favor of, any
person other than the parties hereto. This Commitment Letter shall be governed
by, and construed in accordance with, the laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
signing in the appropriate space below and in the Fee Letter and returning to us
the enclosed duplicate originals of this Commitment Letter and the Fee Letter
not later than 5:00 p.m., New York City time, on October 23, 1996. In the event
that the execution and delivery of definitive documentation for the Facility
shall not occur by January 31, 1997, then this Commitment Letter and Chase's
commitment hereunder shall automatically terminate unless Chase and CSI shall
agree to an extension. The compensation, reimbursement and indemnification
provisions contained herein and in the Fee Letter shall remain in full force and
effect regardless of whether definitive documentation for the Facility shall be
executed and delivered and notwithstanding the termination of this Commitment
Letter or Chase's commitment hereunder.
<PAGE>
6
Chase and CSI are pleased to have been given the opportunity to
assist you in connection with this financing.
Very truly yours,
THE CHASE MANHATTAN BANK,
by
---------------------------
Name:
Title:
CHASE SECURITIES INC.,
by
---------------------------
Name:
Title:
Accepted and agreed to
as of the date first
written above by:
UNISOURCE WORLDWIDE, INC.,
by
----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
=========
UNISOURCE WORLDWIDE, INC.
Competitive Advance and Revolving Credit Facility
-------------------------------------------------
Summary of Terms
----------------
Borrowers: Unisource Worldwide, Inc. (the "Company"), a wholly-
- - --------- owned subsidiary of the Company to be incorporated in
the State of Delaware ("Delaware Borrower"), and
Unisource Canada, Inc., a Canadian corporation (the
"Canadian Borrower" and, together with the Delaware
Borrower and the Company, the "Borrowers").
Guarantee: All obligations of the Delaware Borrower and the
- - --------- Canadian Borrower will be unconditionally guaranteed by
the Company.
Advisor and Chase Securities Inc ("CSI").
- - -----------
Arranger:
- - --------
Administrative The Chase Manhattan Bank ("Chase") will act as
- - -------------- Administrative Agent for a syndicate of lenders
Agent: arranged by CSI (together with Chase, the "Lenders").
- - -----
Documentation Agent: Toronto Dominion Bank ("Toronto Dominion").
- - --------------------
Canadian Agent: Toronto Dominion (the "Canadian Agent") will act as
- - -------------- administrative agent in connection with the Canadian
Subfacility described below.
Facility: Five-Year Competitive Advance and Revolving Credit
- - -------- Facility in an amount of $1 billion (the "Facility").
The Facility will incorporate two borrowing options:
(i) an unsecured Competitive Advance option (the "CAF")
and (ii) an unsecured Revolving Credit
<PAGE>
2
option (the "Revolving Credit"). Availability under
each option will be reduced by usage under the other
option on a dollar-for-dollar basis.
The Revolving Credit will include a multicurrency
option pursuant to which the Company and the Delaware
Borrower may borrow up to $100,000,000 in Pounds
Sterling, Deutsch Marks and French Francs ("Available
Currencies") from all Lenders ("Multicurrency Loans")
The Revolving Credit will include a Canadian Dollar
subfacility (the "Canadian Subfacility") pursuant to
which the Canadian Borrower may borrow up to the
equivalent of U.S. $100,000,000 in Canadian Dollars
("Canadian Loans") from certain of the Lenders
("Canadian Lenders").
Except as otherwise provided herein, Loans under the
Facility will be made by each Lender on a pro rata
basis in accordance with its unutilized commitments.
The CAF will be provided on an uncommitted competitive
advance basis through an auction mechanism. The
Revolving Credit will be provided on a committed basis.
In addition to Revolving Credit loans to be made by all
the Lenders, the Revolving Credit will include a
swingline borrowing option under which Chase, Toronto
Dominion or certain other Lenders to be determined
(each, a "Swingline Lender") will commit to make
swingline loans to the Company and the Delaware
Borrower ("Swingline Loans") in a maximum aggregate
principal amount
<PAGE>
3
outstanding at any time not in excess of $100,000,000.
Swingline Loans will be payable no later than the fifth
business day after the borrowing date, will be
denominated in U.S. Dollars only, will be made on short
notice on a same-day basis and may not exceed the
excess of the aggregate commitments of all Lenders over
the aggregate amount of outstanding loans of all
Lenders.
In making Swingline Loans, the Swingline Lender will be
acting on behalf of all Lenders, and upon notice from
the Swingline Lender, each Lender will be
unconditionally obligated to purchase a participation
in each Swingline Loan.
Purpose: To repay approximately $600 million (subject to
- - ------- adjustment) of intercompany debt to ALCO Standard
Corporation ("ALCO") and for general corporate purposes
of the Borrowers.
Commitment The commitment termination and the final maturity of
- - ---------- the Facility will occur five years from the date of
Termination and execution and delivery of the definitive documentation
- - --------------- for the Facility (the "Closing Date").
Final Maturity:
- - ---------------
Availability: Loans under the Facility will be available at any time
- - ------------ prior to the final maturity of such Facility. Amounts
repaid under the Facility may be reborrowed.
Under the CAF option, each of the Company and the
Delaware Borrower will be permitted to borrow in U.S.
Dollars up to the full aggregate amount of the
commitments, less the sum of the aggregate principal
<PAGE>
4
amount of loans outstanding under the Revolving Credit
(including Swingline Loans, Multicurrency Loans and
Canadian Loans) and the CAF. CAF bids will be made at
the discretion of the Lenders. Loans under the CAF may
be borrowed, repaid and reborrowed in minimum amounts
of $20 million and in integral multiples of $1 million.
Each of the Company and the Delaware Borrower will be
permitted to borrow up to the full aggregate amount of
the commitments under the Revolving Credit option, less
the sum of the aggregate principal amount of loans
outstanding under the CAF and the Revolving Credit
(including Swingline Loans, Multicurrency Loans and
Canadian Loans). Each of the Company and the Delaware
Borrower will be permitted to borrow up to the
equivalent of U.S. $100,000,000, provided that the
Multicurrency Loans will constitute utilization of the
Revolving Credit commitments to the extent of their
U.S. Dollar equivalent. The Canadian Borrower will be
permitted to borrow up to the equivalent of U.S.
$100,000,000 under the Canadian Subfacility, provided
that Canadian Loans will constitute utilization of the
Revolving Credit commitments to the extent of their
U.S. Dollar equivalent. Loans under the Revolving
Credit option may be borrowed, repaid and reborrowed in
minimum amounts of $10 million and in integral
multiples of $1 million.
Interest Rates and As set forth in the attached Annex I.
- - ------------------
Fees:
- - ----
CAF Mechanics: Pursuant to the CAF, each of the
- - -------------
<PAGE>
5
Company and the Delaware Borrower shall have the option
to request that the Lenders bid for CAF loans bearing
interest at an absolute rate with specified maturities
ranging from 7 to 360 days or bearing interest at a
margin over LIBOR (as defined in Annex I) for tenors of
1, 2, 3, 6, 9 or 12 months. Each Lender shall have the
right, but not the obligation, to submit bids at its
discretion. In each request for competitive bids, the
Company or the Delaware Borrower, as the case may be,
shall specify the proposed date of borrowing, the
interest period, the amount of the CAF loan and the
maturity date thereof and the interest rate basis to be
used by the Lenders in bidding. The Administrative
Agent shall promptly advise the Lenders of the terms of
the notice, and, in the event the Company or the
Delaware Borrower, as the case may be, accepts bids,
bids shall be accepted in ascending order from the
lowest bid to the highest bid acceptable to the Company
or the Delaware Borrower, as the case may be.
Repayment: The principal amount of each borrowing under the
- - --------- Revolving Credit will be due and payable at final
maturity of the Facility. Swingline Loans will be due
and payable on the fifth business day after the
borrowing date. CAF loans will be due and payable at
the end of each interest period.
In the event that the U.S. Dollar equivalent of all
outstanding Loans (including Swingline Loans,
Multicurrency Loans and Canadian Loans) at any time
exceeds the total commitments of the Lenders,
<PAGE>
6
the Borrowers will prepay Loans to the extent necessary
to eliminate said excess.
In the event that the U.S. Dollar equivalent of the
outstanding Multicurrency Loans at any time exceeds
$100,000,000, the Company and the Delaware Borrower
will promptly prepay Multicurrency Loans to the extent
necessary to eliminate such excess.
In the event the U.S. Dollar equivalent of the
outstanding Canadian Loans at any time exceeds the
amount of the Canadian Subfacility, the Canadian
Borrower will promptly prepay Canadian Loans to the
extent necessary to eliminate such excess.
Prepayment: CAF loans will not be prepayable.
- - ----------
All or a portion of the loans under the Revolving
Credits may be prepaid at any time at the applicable
Borrower's option, subject to reimbursement for
redeployment costs in the case of LIBOR borrowings, if
such prepayment occurs other than at the end of the
applicable interest period. ABR loans, Swingline Loans
and Canadian Prime loans may be prepaid at any time
without penalty.
Optional Commitment At the option of the Company, the Facility may be
- - ------------------- permanently reduced in minimum amounts of $25 million
Reduction: at any time on a pro rata basis with respect to each
- - --------- Lender. The Facility may be reduced to an amount no
less than the sum of the aggregate amount of loans
outstanding under the CAF and the Revolving Credit. The
commitments
<PAGE>
7
of the Canadian Lenders to make Canadian Loans will be
automatically reduced to the extent necessary to ensure
that such commitments (expressed in U.S. Dollars) do
not exceed the commitments of such Lenders under the
Facility.
Representations Usual for facilities and transactions of this type and
- - --------------- others to be reasonably specified by Chase, including
and Warranties: but not limited to accuracy of financial statements; no
- - -------------- material adverse change; absence of material
litigation; no conflict with agreements, instruments or
laws; corporate existence, good standing and powers;
authorization, validity and enforceability; third party
and governmental approvals; compliance with laws and
regulations (including ERISA, margin regulations and
environmental laws); taxes; subsidiaries;
inapplicability of the Investment Company Act and
Public Utility Holding Company Act; solvency after
giving effect to the initial borrowing and to ALCO's
spin off of the Company to the stockholders of ALCO
(the "Spin-Off") and related transactions;
effectiveness of regulatory approvals; environmental
matters; absence of default and liens; and accuracy of
information (including with respect to the Form 10
referred to below).
Conditions Precedent Usual for facilities of this type and others to be
- - -------------------- reasonably specified by Chase, including but not
to Initial limited to: execution and delivery of a satisfactory
- - ---------- definitive documentation; evidence of authority;
Borrowing: receipt of financial statements (including pro forma
- - ---------
<PAGE>
8
financial statements) and projections; opinions of
counsel; accuracy of representations and warranties;
absence of defaults and events of defaults, absence of
material litigation; absence of material adverse change
in business, assets, operations, prospects or condition
(financial or otherwise), of the Company and its
subsidiaries, taken as a whole, since June 30, 1996.
Proceeds of the initial borrowing shall be applied to
repay approximately $600 million (subject to
adjustment) of intercompany debt of the Company to ALCO
and the balance of intercompany debt owed to ALCO
(approximately $500 million at June 30, 1996) shall
have been converted to equity (other than any amount to
be agreed upon), and the Administrative Agent shall be
satisfied with arrangements for effecting the
foregoing.
All material assets to be transferred by ALCO to the
Company in connection with the Spin-Off shall be
transferred on or before the date of the initial
borrowing.
All governmental and third party approvals necessary or
advisable in connection with the Spin-Off, the
financing contemplated hereby and the continuing
operations of the Company and its subsidiaries shall
have been obtained and be in full force and effect, and
all applicable waiting periods shall have expired
without any action being taken or threatened by any
competent authority which would restrain, prevent or
otherwise impose adverse conditions on the
<PAGE>
9
Spin-Off or the financing contemplated hereby.
The Lenders shall have received a certification from an
appropriate officer of the Company, in form and
substance reasonably satisfactory to the Lenders, as to
the solvency of the Company and its subsidiaries on a
consolidated basis after giving effect to the initial
borrowings and the use of the proceeds thereof.
Conditions Precedent Each borrowing under the Facility shall be conditioned
- - -------------------- on the continued accuracy in all material respects of
to Each Borrowing: all representations and warranties (including without
- - ----------------- limitation the material adverse change and litigation
representations) and the absence of defaults and events
of default. The Spin-Off will not in itself be deemed a
material adverse change.
Affirmative Usual for facilities and transactions of this type and
- - ----------- others to be reasonably specified by Chase (to be
Covenants: applicable to the Company and its subsidiaries)
- - --------- including but not limited to maintenance of corporate
existence and material rights, licenses, franchises and
privileges; delivery of audited financial statements,
other financial information, SEC filings and notices of
default, litigation and other material events;
maintenance of reasonably satisfactory insurance;
compliance with laws, including environmental laws;
financial record-keeping and inspection by Lenders of
books and properties; and payment of taxes and other
governmental obligations; use of proceeds; ERISA; and
ownership of the Canadian Borrower.
<PAGE>
10
Financial Covenants: The Credit Agreement will contain the following
- - ------------------- financial covenants (with definitions of financial
terms to be agreed upon to the extent not defined
herein):
(a) The consolidated ratio of Funded Debt to
Capitalization shall not equal or exceed .55 to
1.00.
(b) The minimum consolidated Net Worth shall not at
any time be less than the sum of (i) $745,000,000
and (ii) 50% of net income (without deduction for
losses).
Negative Covenants: Usual for facilities and transactions of this type and
- - ------------------ the following (to be applicable to the Company and its
subsidiaries) including but not limited to limitations
on mergers, consolidations and certain asset sales and
dispositions (with an exception for (i) an existing
securitization program in Canada in an amount not
exceeding at any time C$95 million of sold receivables
outstanding and (ii) sales of receivables pursuant to
any additional securitization transactions in an amount
not exceeding at any time $200 million of sold
receivables outstanding), limitations on indebtedness
and guarantees; limitations on liens and sale
leasebacks; limitations on affiliate transactions; and
limitations on subsidiary indebtedness.
Events of Default: To include nonpayment of principal, interest, fees or
- - ----------------- other amounts, violation of covenants (subject to grace
periods to be agreed as to
<PAGE>
11
appropriate covenants), material breach of
representations and warranties, cross default and
cross acceleration, certain bankruptcy events,
material judgments, ERISA, invalidity of guarantee
and Change of Control (other than Spin-Off).
Voting: Amendments and waivers with respect to the credit
- - ------ agreement will require the approval of Lenders
holding commitments representing not less than 51%
of the aggregate commitments under the Facility,
except that (a) the consent of each Lender
affected thereby shall be required for amendments
or waivers with respect to (i) reductions in the
amount, or extensions of the scheduled date of
maturity, of any loan amount due, (ii) reductions
in the rate of interest or any fee or extensions
of any due date thereof and (iii) increases in the
amount or extensions of the expiry date of any
Lender's commitment (including commitments in
respect of Canadian Loans) and (b) the consent of
100% of the Lenders shall be required with respect
to modifications to any of the voting percentages.
Assignments and The Lenders shall be permitted to assign and sell
- - --------------- participations in their loans and commitments
Participations: subject, in the case of assignments (other than to
- - -------------- another Lender or to an affiliate of the assigning
Lender), to the consent of the Administrative
Agent and the Company (which consent in each case
shall not be unreasonably withheld). Assignments
shall be made in a minimum amount of $10 million
and shall not result in any Lender's commitment
being less than $10 million. Participants will
have the same benefits as the
<PAGE>
12
Lenders with respect to yield protection and
increased cost provisions; provided, however that
-------- -------
(i) the relevant Lender will notify the Company of
any participation and (ii) participants will not
have any additional benefits that cannot be
claimed by the relevant Lender. Voting rights of
participants shall be limited to those matters
with respect to which the affirmative vote of each
affected lender would be required as described
under "Voting" above. Pledges of loans in
accordance with applicable law shall be permitted
without restriction.
Yield Protection: The credit agreement shall contain customary
- - ---------------- provisions (a) protecting the Lenders against
increased costs or reduced returns resulting from
changes in reserve, tax, capital adequacy and
other requirements of law or from the imposition
of or changes in withholding or other taxes and
(b) indemnifying the Lenders for "breakage costs"
incurred in connection with, among other things,
prepayment of a LIBOR loan or Fixed Rate CAF loan
on a day other than the last day of an interest
period with respect thereto.
Expenses and The Company shall pay (a) all reasonable out-of-
- - ------------ pocket expenses of the Administrative Agent and
Indemnification: the Arranger associated with the syndication of
- - --------------- the Facility and the preparation, execution,
delivery and administration of the credit
agreement and any amendment or waiver with respect
thereto (including the reasonable fees,
disbursements and other charges of counsel) and
(b) all reasonable out-of-pocket expenses of the
<PAGE>
13
Administrative Agent and the Lenders in connection
with the enforcement of the credit agreement or
preservation of rights thereunder.
The Company will indemnify the Arranger, the
Administrative Agent, the Lenders and their
respective officers, directors, employees,
affiliates, representatives, agents and
controlling persons and hold them harmless from
and against all costs, expenses (including
reasonable fees, disbursements and other charges
of counsel) and liabilities of any such
indemnified person arising out of or relating to
any claim or any litigation or other proceedings
(regardless of whether any such indemnified person
is a party thereto) that relate to the proposed
transactions, including the financing contemplated
hereby or any transactions connected therewith,
provided that no such indemnified person will be
indemnified from any costs, expenses or
liabilities to the extent found by a final
decision of a court to have resulted from its own
gross negligence or willful misconduct.
Counsel for the Cravath, Swaine & Moore.
- - ---------------
Arranger and the
- - ----------------
Agent:
- - -----
Governing Law and New York.
- - -----------------
Forum:
- - -----
<PAGE>
ANNEX I
Facility Fee: A Facility Fee shall be payable on the full amount
- - ------------ of the Facility, regardless of usage, quarterly in
arrears, to each of the Lenders pro rata on their
--- ----
respective shares of the Facility. The Facility
Fee will commence to accrue on the Closing Date
and be based (i) initially on Company's
consolidated ratio of Funded Debt to
Capitalization as of the last day of the most
recent fiscal quarter and (ii) after S&P and
Moody's have rated the Company's senior,
unsecured, non-credit enhanced long-term debt (the
"Ratings"), on such Ratings as set forth in the
table below.
Utilization Fee: A Utilization Fee equal to five basis points per
- - --------------- annum, payable quarterly in arrears, will accrue
on the aggregate amount of the outstanding loans
during the initial 6 months and thereafter on any
day when the aggregate outstanding loans
(including CAF loans, Swingline Loans and Canadian
Loans) exceed 2/3 of the aggregate commitments.
For purposes of paying the Utilization Fee,
principal amounts of CAF outstandings will be
deemed to have been borrowed pro rata from each
Lender in accordance with its unutilized
commitments.
Interest Rates: CAF
- - -------------- ---
The rates obtained from bids selected by a
Borrower in accordance with the procedures
outlined in the Term Sheet.
Revolving Credit
----------------
<PAGE>
2
The following committed pricing will apply to
loans under the Revolving Credit:
(a) ABR Loans--the Alternate Base Rate
---------
(b) Swingline Loans--the Swingline Rate
---------------
(c) LIBOR Loans--LIBOR plus a spread which will
-----------
be based on Category 2 as set forth in the
table below during the initial six months and
thereafter will be based on the Company's
consolidated ratio of Funded Debt to
Capitalization as of the last day of the most
recent fiscal quarter and, after the Ratings
are in effect, on such Ratings, as set forth
in the table below.
(d) Canadian Loans -- at the option of the
--------------
Canadian Borrower:
(i) Canadian Prime
(ii) Bankers' Acceptances discounted at the
Bankers' Acceptance Discount Rate ("BA") plus
a stamping fee equal to a spread which will
be based on Category 2 as set forth in the
table below during the initial six months and
thereafter will be based on the Company's
consolidated ratio of Funded Debt to
Capitalization as of the last day of the most
recent fiscal quarter and, after the Ratings
are in effect, on such Ratings, in each case
as set forth in the table below.
<PAGE>
3
<TABLE>
<CAPTION>
====================================================================================================================================
Facility LIBOR/BA
Funded Debt/ Fee (basis Spread (basis
Capitalization Ratings points) points)
-------------- ------- ---------- -------------
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Category 1 greater than or equal to 30% greater than or equal to A-/A3 8.0 14.5
- - ------------------------------------------------------------------------------------------------------------------------------------
Category 2 greater than 30% BBB+/
less than or equal to 45% Baa1 9.0 18.5
- - ------------------------------------------------------------------------------------------------------------------------------------
Category 3 greater than 45%
less than or equal to 50% BBB/Baa2 11.0 24.0
- - ------------------------------------------------------------------------------------------------------------------------------------
Category 4 greater than 50% less then BBB/Baa2 15.0 30.0
====================================================================================================================================
</TABLE>
If there are two Ratings outstanding which
are split Ratings, the Facility fee and
LIBOR/BA spread will be based upon the higher
Rating, provided that if one of such Ratings
--------
is two or more categories lower than the
other such Rating, then the Facility Fee and
LIBOR/BA spread will be based upon the
Category next below that of the higher
Rating.
As used herein:
"ABR" or "Alternate Base Rate" means the
highest of (i) the rate of interest publicly
announced by Chase as its prime rate in
effect as its principal office in New York
City (the "Prime Rate"), (ii) the secondary
market rate for three-month certificates of
deposit (adjusted for statutory reserve
requirements) plus 1% and (iii) the federal
funds effective rate from time to time plus
0.5%.
"Bankers' Acceptance" means those drafts or
bills of exchange in Canadian Dollars drawn
by the Canadian Borrower and accepted by a
Canadian Lender that is a bank chartered
under the Bank Act
<PAGE>
4
(Canada) and that stamps and accepts Bankers'
Acceptances.
"Bankers' Acceptance Discount Rate" or "BA"
means, in respect of a bankers' acceptance of
a draft of the Canadian Borrower having a
maturity of 30, 60 or 90 (or, if available,
120 or 180) days, at the Canadian Borrower's
option, the rate quoted by the Canadian Agent
on the date of acceptance of such bankers'
acceptance (based on a year of 365 days), as
the discount rate at which it would purchase
on such date its own bankers' acceptance
having a maturity similar to the maturity of
such bankers' acceptance.
"Canadian Prime Rate" means the higher of (i)
the rate of interest publicly announced by
the Canadian Agent as its prime rate, being a
reference rate then in effect on that day for
Canadian Dollar denominated commercial loans
in Canada and (ii) the average 30-day
bankers' acceptance rate as quoted on the
Reuters Service CDOR Page determined as of
10:00 a.m. on such day plus 0.625%.
"LIBOR" means the London interbank offered
rate (adjusted for statutory reserve
requirements for eurocurrency liabilities)
for eurodollar deposits of one, two, three or
six (or, if available, nine or twelve) months
determined on the basis of the applicable
Telerate Screen at 11:00 a.m., London time,
two business days prior to the relevant
interest period.
"Swingline Rate" means, on any day, the
overnight money market rate
<PAGE>
5
determined by the Swingline Lender in good
faith.
Interest Payment In the case of loans bearing interest based
- - ---------------- upon the ABR or Canadian Prime, quarterly in
Dates: arrears.
- - -----
In the case of loans bearing interest based
upon LIBOR, on the last day of each relevant
interest period and, in the case of any
interest period longer than three months, on
each successive date three months after the
first day of such interest period.
Default Rate: The principal amount of any loans not paid
- - ------------ when due shall bear interest at 2% above the
rate otherwise applicable thereto. Overdue
interest, fees and other amounts shall bear
interest at 2% above the rate applicable to
ABR loans.
Rate and Fee Basis: All per annum rates shall be calculated on
- - ------------------ the basis of a year of 360 days (or 365/366
days, in the case of BA loans, Canadian Price
Rate loans and ABR loans then bearing
interest based on the Prime Rate) and actual
days elapsed.
<PAGE>
Exhibit 10.13
UNISOURCE WORLDWIDE, INC.
PARTNERS' LOAN PROGRAM
Partners Loan Company ("PLC") is a Delaware corporation wholly-owned by
Unisource Worldwide, Inc. ("Unisource"). It is offering to make loans (in
multiples of $1,000) under the Partners' Loan Program (the "Program") to full-
time employees of Unisource or an Unisource subsidiary who are "Partners" of
Unisource (as designated by Unisource), upon the terms described in this
document.
Minimum principal amount: $5,000 (Subsequent additional loans may be in
----------------------------------
lesser multiples of $1,000).
Maximum principal amount: One-half of the salary and any bonus paid to the
---------------------------------------------------------------
Partner by Unisource or a Unisource company during the most recent full calendar
year preceding the loan. Partners not employed with Unisource during the entire
preceding calendar year may borrow one-half of the greater of their salary and
any bonus for that year or their current annual salary. Salary and any bonus
shall be as shown on the Partner's Form W-2. A subsequent decline in
compensation will not affect the maximum amount of an existing loan but would
affect the maximum amount of a future loan.
Collateral security: Unisource Worldwide, Inc. stock owned of record and
-----------------------------------------------------
beneficially solely by the Partner or jointly with the Partner's spouse
(including any shares being purchased using the loan proceeds) with value of at
----------------
least twice the principal amount of the loan, shall be pledged by the Partner
- - --------------------------------------------
(alone or with spouse) as collateral security for the loan. A Partner may not
-----------------
pledge stock purchased but not yet distributed or withdrawn under Unisource's
- - -----------------------------------------------------------------------------
stock purchase plans. Thus, stock purchased under the PSPP or RSP (or any other
- - ---------------------
company-sponsored plan) may not be used until certificates for the stock have
been received, and a desire to obtain a loan shall not itself entitle the
Partner to accelerate receipt of such certificates. However, a Partner may use
--------------------------
option stock which he or she will purchase using the proceeds of the loan
- - -------------------------------------------------------------------------
itself. This requirement of "2 to 1 coverage" is the same as the present
- - -------
Federal Reserve 50% margin requirement.
<PAGE>
Loans of Unisource Partners Outstanding as of December 31, 1996 under Alco
---------------------------------------------------------------
Standard Corporation's Partners' Loan Program (and the Alco/IKON stock
collateralizing such loans) will be transferred to the Unisource Partners' Loan
Program effective January 1, 1997, and the terms of the Unisource Partners' Loan
Program will apply to such transferred loans. The Unisource dividend payable on
the Alco/IKON stock held as collateral for Unisource Partners' outstanding loans
will be received directly by PLC and will be held by PLC as collateral security
for such transferred loans in accordance with the terms of the Unisource
Partners' Loan Program. At the Partner's election, any Alco/IKON stock pledged
as security for such transferred loans may be replaced by the borrower's pledge
of Unisource stock.
Interest: 6% per year on the unpaid principal amount, payable quarterly as
---------------------- -----------------
stated in the promissory note to be signed; i.e., interest payments are due no
later than the last business day of March, June, September, and December. A
special charge of $100 will be assessed against the account of each Partner
whose check is not received by the due date. A second late payment will result
in the loan being called and the Partner being permanently ineligible for any
future loans. If you find you cannot meet the due date, a reasonable extension
may be granted provided you request an extension on or before the due date.
Payment of principal upon demand: Periodic amortization is not required.
---------------------------------
Although PLC presently does not intend to act as long as the required
collateral-to-loan ratio is maintained and the Partner remains employed in good
standing by Unisource or a Unisource company, a demand for payment may be made
--------------------------------
at any time. If employment ceases for any reason other than death or
- - ------------
disability, a demand for immediate payment should ordinarily be expected. If
employment ceases because of death or disability, PLC may agree (though it shall
not be obliged to do so) to receive regular principal payments over a period of
several years, as long as the collateral-to-loan ratio is maintained.
Maintenance of minimum collateral-to-loan ratio of greater than 1.25 to 1:
-------------------------------------------------------------------------
If the price of Unisource common stock (or the price of Alco/IKON stock held by
PLC as security for any loan) declines, the Partner shall be responsible for
maintaining a ratio of greater than 1.25 to 1 between the value of the
collateral and the unpaid principal amount of the loan. While PLC will endeavor
to notify the Partner of a decline in the ratio toward 1.25 to 1, it shall not
be obliged to do so. If the ratio declines to 1.25 to 1 or
-------------------------------------
<PAGE>
below, PLC shall have the right without notice (which it presently intends to
- - -----------------------------------------------------------------------------
exercise) to sell or take ownership of all or a portion of the collateral,
- - -------------------------------------------------------------------------
applying the proceeds of sale or the value of such collateral toward payment of
- - -------------------------------------------------------------------------------
the principal amount of the loan. To avoid such a result (which may involve,
- - --------------------------------
among other things, adverse tax effects for the Partner), the Partner may, prior
to PLC's taking such action, make a payment of principal and/or pledge
additional collateral to provide the required ratio of greater than 1.25 to 1.
Voluntary payments: The Partner may pay any part of the principal amount
-------------------
of the loan (in minimum amounts of $1,000 and in multiples of $100 above $1,000)
at any time without any premium or penalty.
Release of excess collateral: Prior to full payment of the loan, the
-----------------------------
Partner will ordinarily be entitled to have PLC release a portion of the
collateral to the extent that it exceeds the minimum required for a loan to
purchase margin stock under (a) the 2 to 1 ratio, or (b) if the Federal Reserve
imposes a higher ratio for the purchase of margin stock, the requirement which
is in effect at the time of the desired withdrawal, provided there has not
occurred any other change in applicable laws or regulations. Thus, absent such
a change and any increase in Federal Reserve margin requirements, a Partner
would ordinarily be able to have collateral released when the market value of
the Unisource stock has increased and/or loan prepayments have been made.
Purpose of loan; applicability of so-called "margin requirements": In
------------------------------------------------------------------
requesting a loan, the Partner must complete a so-called "purpose statement"
(Federal Reserve Form G-3) in which the Partner indicates whether the loan is
for the purpose of purchasing or carrying a margin security (which includes
Unisource stock, Alco/IKON stock, other securities listed on national stock
exchanges, selected over-the-counter securities, convertible debt securities and
warrants). PLC has determined that it will conservatively treat all loans as
though they were "purpose" loans in regard to compliance with the minimum margin
requirements of the Federal Reserve and related matters (although PLC will not
permit withdrawals of collateral in as many circumstances as the Federal Reserve
might permit). Accordingly, PLC has provided guidance as to how the Form G-3
should be completed, and if the Partner plans to use the loan to purchase, carry
or avoid selling Unisource or Alco/IKON stock, he may properly indicate that it
is a "purpose" loan. If the Partner is unsure whether he may be considered to
be
<PAGE>
making a "purpose" loan, he may properly resolve that uncertainty by treating
the loan as a "purpose" loan.
Regulation X: There is also a specific Federal Reserve requirement
-------------
(Regulation X) which is applicable to the Partner borrowing from PLC. Since PLC
intends to treat all the loans as subject to Regulation G, the borrowing Partner
should have no concern about compliance with Regulation X.
Taxation: Under current law, any excess over 6% rate of interest charged
---------
by PLC and interest calculated using a specified federal rate will be considered
compensation and included on your W-2.
- - ------------
If the applicable federal rate is 6% or below, no imputed interest would be
reportable on your W-2. When the federal rate is more than 6%, the amount
included on your W-2 would be calculated as follows:
Principal Loan Amount $20,000
Federal Interest Rate (example) 8%
Interest at Federal Rate $1,600
($20,000 at 8% for 12 months)
Less interest paid at 6% 1,200
-----
Reportable Income $ 400
======
Termination of loans: variations in terms of loans: The management of PLC
---------------------------------------------------
may decide to discontinue the making of loans at any time before they are
actually made, to change the interest rate as to any loans, to agree to various
terms for payment, to demand payment of any or all loans, and otherwise to vary
the terms of the loans, without regard to whether Partners are treated equally
or consistently. It is presently expected that loans will continue to be
available for an indefinite period, but there can be no assurance in this
regard.
<PAGE>
There has been no determination as to the maximum frequency with which
loans may be requested by Partners who experience changes in circumstances, but
Partners are urged to be cognizant of the administrative difficulties which may
result from frequent changes. To the extent Partners receive more than one
loan, efforts will be made to consolidate the loans and the related paperwork
and recordkeeping.
Management: Administration: Loan applications and questions or
----------------------------
communications in regard to the administration of the loan program should be
addressed to Unisource Shareholder Services, Box 834, Valley Forge, PA 19482,
(610) 296-4470.
The Note and Collateral Security Agreement to be filed with the application
will become effective if and when the loan is made, and if it is not made will
be promptly returned to the Partner along with any stock powers and stock
certificates.
Revised 10/22/96
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS LOAN COMPANY
In applying for a loan, a partner must complete the following
documents (enclosed herewith):
1. Application
2. Promissory Note
3. Collateral Security
Agreement (two copies)
4. Stock power for the collateral
5. Form G-3 ("purpose
statement")
All of the above, along with the stock certificates for the
collateral, should be mailed to:
KARIN PAVLIK
UNISOURCE WORLDWIDE, INC.
P. O. BOX 834
VALLEY FORGE, PA 19482
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS' LOAN PROGRAM
APPLICATION
I hereby request a loan from Unisource Worldwide, Inc. Partners Loan
Company ("PLC"). Enclosed are a Note, two copies of a Collateral Security
Agreement, stock power, "purpose statement" on Form G-3, and stock
certificate(s) (if they are not presently available, the source from which the
certificate(s) will be delivered is: ).
--
The principal amount of the loan which I desire is $ (in multiples of
$1,000 and at least $5,000 if this is the initial loan). The aggregate of such
principal amount and the principal amount(s) of any presently outstanding
loan(s) (excluding LTIP loans) is $ and is not more than 50% of my
salary and any bonus (as shown on Form W-2) paid to me by Unisource Worldwide,
Inc. ("Unisource") or a Unisource company in calendar 19 (most recent full
calendar year) or, if I was not employed within Unisource during all of 19
then one-half of the greater of 19 W-2 salary and bonus from Unisource or a
Unisource company (most recent full calendar year) or my current annual salary.
The collateral security for the loan is to be Unisource or Alco/IKON stock
with value at the time the loan is made of at least twice the principal amount
of the loan. I understand that the amount of the loan may have to be adjusted
downward or the collateral may have to be liquidated or adjusted upward if the
stock price declines prior to the loan being made. Accordingly, I authorize PLC
to insert in the Note the date and principal amount of the loan (not to exceed
the desired amount indicated above). PLC is also authorized to insert the date
of the loan in the Collateral Security Agreement and in the stock power.
I also understand that a demand for payment may be made at any time.
Date:
Signature of Partner
Name of Employer (Unisource, Unisource
division or subsidiary).
Printed or typed name of Partner
THE FOLLOWING VERIFICATION MUST
BE COMPLETED BEFORE SENDING TO
PLC:
Home Address
The undersigned is aware of the salary
and any bonus paid to the Partner and hereby
verifies the accuracy of the foregoing state- City, State, Zip Code
ment of the Partner as to the aggregate principal
amount of all loans (excluding LTIP loans) not
exceeding one-half of the Partner's annual
Unisource compensation:
Signature of group or company president,
financial officer, paymaster or other knowl-
edgable person.
<PAGE>
Printed or typed name of such person.
(revised 10/28/96)
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS' LOAN PROGRAM
PROMISSORY NOTE
$
----------------------------
(Partners Loan Company will insert)
Principal amount of loan-
not to exceed desired amount
indicated in application)
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned hereby promise(s) to pay to the order of Partners Loan Company
("PLC"), Box 834, Valley Forge, Pennsylvania 19482, or at such other place as
the holder hereof may from time to time designate in writing, (a) the principal
amount indicated above on demand, upon not less than five days' written notice,
except as stated below, and (b) interest at 6% per year on the unpaid principal
amount payable March 31, June 30, September 30 and December 31 for each period
during which the loan is outstanding (based on a 360-day year). The undersigned
may pay any part of the principal amount of the loan (in minimum amounts of
$1,000 and in multiples of $100) without premium or penalty at any time.
If at any time the ratio of the market value of collateral securing this
obligation to the unpaid principal amount is 1.25 (or less) to 1, there shall be
considered to exist, without any notice being required, both a demand for
payment and a default in the payment of the principal amount. For this purpose,
the market value shall equal the number of shares held as collateral multiplied
by the most recent per share closing price reported on the Composite Tape (or
its successor).
If this Note is signed below by more than one person, this promise to pay
shall be the joint and several obligation of each of the undersigned persons.
This Note is executed by the undersigned as of the date of the
loan:
-----------------------------------
(Partners Loan Company will insert)
--------------------------------------------------------
Signature of Partner
--------------------------------------------------------
Partner's Name - Printed or typed
--------------------------------------------------------
Signature of Spouse, if collateral is owned jointly
--------------------------------------------------------
Spouse's Name - Printed or typed
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS LOAN PROGRAM
COLLATERAL SECURITY AGREEMENT
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned Partner (which term as used herein includes the Partner's Spouse if
the collateral is owned jointly), the "Debtor" herein, grant(s) to Partners Loan
Company, a Delaware corporation which is the "Secured Party" herein, a security
interest in the collateral herein specified ("the collateral") to secure payment
of the principal of and any interest on any promissory note heretofore or
hereafter made by Partner in favor of PLC, together with all expenses of
collection including costs and reasonable attorneys' fees.
Collateral. The collateral shall be shares of stock of Unisource
-----------
Worldwide, Inc. as evidenced by stock certificates which Partner shall have
pledged to PLC at any time prior to any default upon which PLC acts pursuant to
"Application of Collateral" below. The collateral shall include any shares
- - ---------------------------
resulting from any stock dividend, split or combination with respect to
previously pledged shares.
General. This agreement is intended to be a security agreement under the
--------
Uniform Commercial Code of the State of Delaware ("Code") and, except as may be
otherwise expressly provided herein, PLC shall have all the rights of a secured
party and Partner shall have all the rights of a debtor under the Code and any
other applicable law.
Application of Collateral. Upon any default under any promissory note
--------------------------
(which shall include, without limitation, any instance in which there is a ratio
of 1.25 (or less) to 1 between the market value of the collateral and the unpaid
principal amount of the note), PLC may at its sole option either transfer to
itself ownership of all or a portion of the collateral and apply the value
toward payment of the principal amount of the note or sell to another party all
or a portion of the collateral and apply the proceeds thereof toward payment of
the principal amount of the note, and in either such event PLC shall also be
entitled to transfer or sell collateral to the extent required to pay any unpaid
interest to the date of principal payment. PLC shall not be obliged to make any
particular selection of collateral as between solely and jointly owned stock. A
sale may be made to any party including any corporation directly or indirectly
owned by the same shareholders as directly or indirectly own PLC ("related
corporation") or to any benefit plan administered for employees of a related
corporation. Upon any transfer of ownership to PLC or sale to a related
corporation or its employee benefit plan, the collateral shall be valued at the
most recent per share closing price reported on the Composite Tape (or its
successor) prior to the application of the collateral. Partner expressly
acknowledges that any application of collateral in accordance with one or more
of the foregoing provisions shall be considered commercially reasonable.
(revised 10/28/96)
<PAGE>
-2-
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this agreement, which may be in two or more counterparts each of which shall be
considered an original, as of the date indicated below.
Secured
Party:
Debtor: PARTNERS LOAN COMPANY
BY:
(Partner) (Partners Loan Company will insert)
DATE:
(Spouse, if collateral is owned jointly) (Partners Loan Company will insert)
(revised 10/28/96)
<PAGE>
UNISOURCE WORLDWIDE, INC.
PARTNERS' LOAN PROGRAM
Instructions for stock power:
- - -----------------------------
This should be completed whether or not the partner is now delivering the
stock as collateral security.
Please follow these instructions:
(a) leave the space blank after "unto"
(b) the number of shares which are to be collateral
(c) the certificate number(s) if the stock is presently available - more than
one certificate may be covered by this single stock power (if the stock
is not yet available, PLC will later insert the certificate number)
(d) the date: please leave blank as PLC will insert the date of the loan
(e) the signature(s)
(f) guarantee of the signature(s) by a broker, bank or trust company
(Partners Loan Company has specifically reviewed whether such guarantee
is desirable, and has reluctantly concluded that it is)
STOCK POWER:
- - ------------
FOR VALUE RECEIVED, the undersigned
-------------------------------------------------------------
hereby sell(s), assign(s) and transfer(s) unto (a)
----------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(b) Shares of the Common/Preferred
- - ------------------------------------- -----------------------------
Capital Stock of the Unisource Worldwide, Inc.
-----------------------------------------------------------
standing in the undersigned's name(s) on the books of said
----------------------------
corporation represented by Certificate No. (c)
- - ------------------------- -----------------------
herewith and do hereby irrevocably constitute and appoint Partners Loan
--------------------
Company attorney to transfer the said stock on the books of the within
- - -------------
named Company with full power of substitution in the premises.
(d) Dated: , 19 (e)
---------------------- --------------------------------------------
(Partners Loan (Signature of Partner)
Company will insert)
(e)
-------------------------------------------------------------
(f) (Signature of Partners spouse, if collateral is owned jointly)
(revised 10/28/96)
<PAGE>
Exhibit 21.0
SUBSIDIARIES OF UNISOURCE WORLDWIDE, INC.
The following list of direct and indirect subsidiaries of Unisource Worldwide,
Inc. reflects record owners of the relevant subsidiaries:
<TABLE>
<CAPTION>
State/Country of
Company Incorporation Shareholder
- - ---------------------------------- ---------------- -----------
<S> <C> <C>
Paper Corporation of North America ("PCNA") Delaware 100%-UWI
AOP Canada Limited Canada 98%-PCNA
2%-Alco
Standard
Corporation
Unisource Brands, Inc. Delaware 100%-UWI
Unisource Canada, Inc. Canada 100%-PCNA
Unisource Capital Corporation Delaware 100%-UWI
Unisource Direct, Inc. Delaware 100%-UWI
Unisource International, Inc. Delaware 100%-UWI
Unisource Partners Loan Company Delaware 100%-UWI
Unisource Sales Corporation Delaware 100%-UWI
Unisource Realty, Inc. Delaware 100%-UWI
The Unisource Corporation Texas 100%-UWI
(Nameholder)
Unisource Distribudora S.A. de C.V. ("UDSA") Mexico 99% PCNA
1% UWI
Unisource Servicos S.A. de C.V. ("US") Mexico 99.99% UDSA
.01% PCNA
Unisource DePapel, S.A. de C.V. Mexico 99.99% UDSA
.01% US
Unisource Global Paper, S.A. de C.V. Mexico 99.99% UDSA
.01% US
Unisource Feyra, S.A. de C.V. Mexico 99.99% UDSA
.01% US
Unisource Grafipapel, S.A. de C.V. Mexico 99.99%UWI
.01% US
Unisource Centro del Papel, S.A. de C.V. Mexico 99.99%UWI
.01% US
Unisource Megapapel, S.A. de C.V. Mexico 99.99%UWI
.01% US
Mercantil Papelera, S.A. de C.V. Mexico 99.99%UWI
.01% US
Unisource Multiplasticos S.A. de C.V. Mexico 99.99%UDSA
.01% US
Unisource Empaque S.A. de C.V. Mexico 99.99%UDSA
.01% US
Servicos Corporativos Unisource S.A. de C.V. Mexico 99.99%UDSA
.01% US
Unisource Planeacion S.A. de C.V. Mexico 99.99%UDSA
.01% US
Unisource Pimsa, S.A. de C.V. Mexico 99.99%UDSA
.01% US
Unisource Sinie, S.A. de C.V. Mexico 99.99%UDSA
.01% US
</TABLE>
