<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission file number 1-14482
-----------------
UNISOURCE WORLDWIDE, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-5369500
- --------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Cassatt Road, Berwyn, Pennsylvania 19312
----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 296-4470
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $.001 Par Value New York Stock Exchange
Philadelphia Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
On November 30, 1998, the aggregate market value of the registrant's Common
Stock, $.001 par value, held by non-affiliates of the registrant was
$545,906,057. Such amount was calculated by excluding all shares held by
directors and executive officers without conceding that all such persons are
"affiliates" of the registrant for purposes of the federal securities laws.
On November 30, 1998, there were 70,229,530 shares of the registrant's Common
Stock, $.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part II - Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended September 30, 1998 are incorporated by reference into Items 7
and 8, inclusive.
Part III - Portions of the Proxy Statement for the Annual Meeting of
Stockholders to be held on January 27, 1999 are incorporated by reference in
Items 10, 11, 12 and 13.
<PAGE>
UNISOURCE WORLDWIDE, INC.
Form 10-K
For the Fiscal Year Ended September 30, 1998
<TABLE>
<CAPTION>
Page of
Form 10-K
---------
<S> <C>
Part I
Item 1. Business........................................................ 3
Item 2. Properties...................................................... 10
Item 3. Legal Proceedings............................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............. 10
Item 4.1 Executive Officers of the Registrant............................ 11
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 12
Item 6. Selected Financial Data......................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 14
Item 8. Financial Statements and Supplementary Data..................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 14
Part III
Item 10. Directors and Executive Officers of the Registrant.............. 15
Item 11. Executive Compensation.......................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 15
Item 13. Certain Relationships and Related Transactions.................. 15
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 16
</TABLE>
2
<PAGE>
Part I
Item 1. Business
--------
Unisource Worldwide, Inc., a Delaware corporation (hereinafter referred to as
"Unisource" or the "Company"), was incorporated in August 1975. Prior to
December 31, 1996, Unisource was a wholly-owned subsidiary of Alco Standard
Corporation ("Alco"), now known as IKON Office Solutions, Inc. ("IKON").
Effective December 31, 1996, pursuant to Alco's spin-off of Unisource, the
Company became a separate public company.
Unisource is a leading distributor of Printing & Imaging papers and Supply
Systems in North America. The Company distributes various types of paper,
sanitary maintenance equipment and supplies, packaging equipment and supplies,
shipping room supplies and food service supplies. The Company maintains a
leading market position in the Printing & Imaging market with an estimated 18%
share in the U.S. and 42% in Canada. The Company maintains a leading share of
the Supply Systems market with an estimated 8% share in the U.S. and 12% in
Canada. In fiscal 1998, Unisource generated $7.4 billion in revenues.
Printing & Imaging papers and Supply Systems represented the following
percentage of the Company's revenues:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Printing & Imaging 64% 65% 68%
Supply Systems 36% 35% 32%
</TABLE>
CUSTOMERS AND PRODUCTS
Printing & Imaging. Printing & Imaging revenues were $4.7 billion in fiscal
1998, or 64% of the Company's total revenues. The Printing & Imaging business
involves the sale and distribution of high quality printing, writing and copying
papers to printers, publishers, business forms manufacturers and direct mail
firms, as well as corporate and retail copy centers, in-plant print facilities,
government institutions and other paper-intensive businesses. These products
are used in a variety of catalogs, brochures, advertising supplements, annual
reports, business forms and other imaging or copying requirements.
Supply Systems. Supply Systems revenues were $2.7 billion in fiscal 1998, or
36% of the Company's total revenues. The Supply Systems business involves the
sale and distribution of a broad range of supplies, equipment and service,
principally to manufacturers, food processors and retail and other institutional
customers. Products distributed include disposable paper and plastic products;
sanitary maintenance supplies and equipment such as towels, tissues, can liners
and sanitation chemicals; packaging supplies and equipment such as carton
erectors, baggers and fillers as well as films, shrinkwrap and cushioning
materials; shipping room supplies such as corrugated boxes, cushioning
materials, tapes and labeling; and foodservice supplies such a films and food
wraps, food containers and disposable apparel for foodservice workers.
3
<PAGE>
Unisource serves a diverse customer base, from both a geographic and industry
perspective. The Company believes that the critical factors for success in the
markets in which it competes include prompt and accurate delivery of orders,
close contact with customers and the ability to provide a full array of products
and services in the Printing & Imaging and Supply Systems businesses. The
Company offers next day service to most customer locations and has the
capability of delivering special orders on short notice. The Company has more
than 3,000 sales and marketing representatives that actively market current and
new product offerings to fulfill customer requirements. Unisource's extensive
distribution network and national presence enable it to service national
accounts, and the Company's large size gives it important economies of scale in
purchasing and other functions.
No single customer accounted for more than 2% of Unisource's sales for its
fiscal year ended September 30, 1998.
DISTRIBUTION AND LOGISTICS
Unisource distributes Printing & Imaging and Supply Systems products from
warehouses located throughout North America and through mill-direct deliveries
(i.e., deliveries directly from manufacturers to Unisource customers). Supply
Systems products are distributed primarily through Unisource warehouses.
Approximately 47% of the Company's $4.7 billion of Printing & Imaging revenues
in fiscal 1998 were effected through its own distribution facilities, and 53%
were 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.
STRATEGY
Restructuring and Business Improvement Actions
On July 29, 1998, Unisource announced an extensive restructuring program
designed to improve service to customers, decrease costs, increase financial
flexibility and grow profitable market segments. The Company recorded a $131.5
million pre-tax restructuring charge in fiscal 1998 (see Item 8, Note 15 to the
Consolidated Financial Statements of the Annual Report).
The restructuring plan is comprised of six major initiatives:
. Moving from a highly decentralized regional structure to a centrally managed
functional organization.
. Separating and functionally aligning the field sales and distribution
responsibilities within each market area.
. Creating an efficient "hub-and-spoke" distribution network that reduces the
total number of U.S. locations by approximately 40% (from 424 to 253) and
facilities space by approximately 20%.
. Expanding the Company's Customer Service Center concept and aligning customer
service within the sales organization.
. Establishing a new corporate marketing function to drive focused marketing
initiatives throughout the organization.
. Creating a corporate procurement department to direct company-wide purchasing
and national contracts.
As a result of the new organizational structure and hub-and-spoke configuration,
Unisource expects to reduce its U.S. workforce by more than 1,500 or
approximately 15%.
4
<PAGE>
When fully implemented, management believes the restructuring plan will result
in an annual operating income improvement of $150-170 million. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 8, Note 15 of Unisource's Consolidated Financial Statements
of the Annual Report, which describes the estimated costs and benefits of the
restructuring plan.
In prior years, acquisitions played an important role in the Unisource growth
strategy. The Company's traditional operating philosophy was to give newly
acquired business units significant autonomy. As a result, acquisitions were
not immediately integrated and many of the companies acquired over the past few
years were managed independently. The Company's current focus is on the
integration of previously acquired companies into the core operation rather than
on additional acquisitions.
Unisource's long-term strategy includes a focus on its U.S. and Canadian
businesses, as well as a commitment to increase the contribution of its Supply
System business, increase account penetration through sales segmentation and
cross selling and leverage its distribution infrastructure to increase sales
and profitability.
Unisource is pursuing this long-term strategy through the following means:
Focus on its U.S. and Canadian Businesses
- -----------------------------------------
Unisource has streamlined its operations from five U.S. regions and 150
divisions to 14 market areas that report directly to corporate headquarters. In
addition, based upon emerging market disruptions, the weakening peso and the
concern that Mexico would not meet the Company's long-term return requirements,
Unisource announced in September 1998 that it intends to divest its business
in Mexico and focus on its U.S. and Canadian operations. Proceeds from the
divestiture will be reinvested to grow the U.S. and Canadian businesses and to
reduce debt.
Increased Contribution from Supply Systems
- ------------------------------------------
Unisource is committed to increase, through internal growth, the contribution
from its Supply Systems business. The Supply Systems market is highly
fragmented and is comprised of many small competitors that do not have the broad
infrastructure, economies of scale and breadth of product line enjoyed by
Unisource. By increasing its focus on the Supply Systems market, the Company
believes its will establish greater revenue balance between the Supply Systems
and Printing & Imaging businesses, reduce its exposure to the cyclical business
trends associated with the paper industry and enhance overall gross margins.
Increase Account Penetration through Sales Segmentation and Cross Selling
- -------------------------------------------------------------------------
Unisource's goal is to provide a broad range of products and services to
customers, and to increase its share of each customer's purchases within that
product range. This will be achieved by a combination of sales segmentation and
cross selling.
Through sales segmentation, each member of the company's sales force will focus
on one of three product specialties: Printing & Imaging, Packaging, and
Maintenance Supplies, increasing their value to the customer by virtue of their
specialized knowledge of the customer's needs.
Through cross selling, Unisource will maximize account penetration by assembling
a group of segment specialists to provide a broad-based solution for customers.
5
<PAGE>
This combination of sales segmentation and cross selling enables Unisource to
match the know-how of the company's specialized competitors while adding value
as a single-source supplier.
Leverage its Distribution Infrastructure to Increase Profitability
- ------------------------------------------------------------------
Hub warehouses will stock a full range of products while spoke warehouses will
stock frequently ordered items and customer-specific products. The "hub-and-
spoke" warehouse network will allow the Company to maintain a substantially
reduced inventory investment while still providing next-day delivery in all of
Unisource's markets.
SOURCE OF SUPPLY
The Company's Printing & Imaging suppliers include the major North American
paper producers. The Company's ten largest suppliers accounted for more than
80% of its Printing & Imaging purchases in fiscal 1998, and Unisource is one of
the leading Printing & Imaging customers for each of its ten largest suppliers.
Unisource does not anticipate a supply interruption from any significant
Printing & Imaging provider. However, if any such termination were to occur,
management believes the Company would be able to arrange comparable alternative
supply arrangements.
The Company has numerous Supply Systems suppliers. The Company's twenty largest
suppliers accounted for more than 40% of Supply Systems product purchases and
Unisource is one of the leading Supply Systems customers for most of its major
suppliers. Unisource does not anticipate a supply interruption from any
significant Supply Systems relationships. However, if any such termination were
to occur, management believes the Company would be able to arrange comparable
alternative supply arrangements.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; SENSITIVITY TO PAPER PRICES
Unisource's revenues and net income have fluctuated from quarter to quarter due
to a combination of factors, including changes in pulp and paper prices. Changes
in pulp and paper prices can significantly impact the Company's Printing &
Imaging business, which accounted for 64% of revenues in fiscal 1998. In fiscal
1995, average prices for the Company's Printing & Imaging products increased by
more than 24% over average fiscal 1994 levels. In fiscal 1996 and 1997, average
pricing decreased by 5% and 8%, respectively compared to the immediately
preceding fiscal year. In fiscal 1998, average pricing increased 1.5% as
compared to fiscal 1997.
Rising pulp and paper prices can produce higher gross profits, and generally
represent favorable market conditions, for Unisource, especially when market
conditions allow the Company to quickly pass along increased product costs to
customers and maintain gross trading margin percentage. However, in fiscal 1998,
operating results were adversely affected by increases in paper prices because
the Company was unable to pass the increases on to customers due to price
competition in the industry.
Declining pulp and paper prices produce lower revenues and gross profits for
Unisource even when volume and trading margin percentages remain constant.
The resulting decrease in revenues and gross profits provide less coverage for
the Company's fixed expenses. Declines 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.
6
<PAGE>
Unisource's results may be adversely affected in the future by pulp and paper
price changes. Although the Company does not produce paper products and are not
directly exposed to the production and raw materials risk associated therewith,
industry overcapacity and overproduction by paper suppliers also adversely
affect the Company's revenues and net income to the extent such factors produce
lower paper prices.
COMPETITION
The Company's Printing & Imaging and Supply Systems businesses operate within
highly competitive markets. One of the characteristics that both markets share
is strong price competition. The Company's Printing & Imaging competitors
consist of the distribution units of large paper manufacturers (e.g.,
International Paper's xpedx and Champion's Nationwide Paper) and independent
distributors. While Unisource is one of the largest distributors in this
market, certain Printing & 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, Unisource competes with a large number of local and regional
distributors, as well as the larger mill-owned distribution companies. The
Company believes that the principal competitive factors in these markets include
price, responsiveness to customer needs, quality of 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 1998, the Company's international revenues were $905
million, including $773 million attributable to Canadian operations, $125
million attributable to Mexican operations (see "Acquisitions and Divestitures"
below) and $7 million in revenues attributable to other foreign sales offices.
In fiscal 1998, foreign operations represented approximately 12% of revenues.
At September 30, 1998, approximately 16% of total assets were attributable to
these operations.
For further information regarding international operations, see Item 8, Note 17
to the Consolidated Financial Statements of the Annual Report and Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations. There are certain risks attendant to foreign operations, including,
but not limited to, risks with respect to currency fluctuations and the
political environment.
ACQUISITIONS AND DIVESTITURES
As discussed in "Strategy -- Restructuring and Business Improvement Actions"
above, Unisource's current focus is on the integration of previously acquired
companies into the core operation rather than on additional acquisitions.
In fiscal 1998, Unisource acquired six companies (predominantly Supply Systems)
with approximately $20 million in annualized revenues.
In September 1998, Unisource announced its intent to divest its business in
Mexico and focus on its U.S. and Canadian operations. The decision was based on
emerging market disruptions, the weakening peso and the concern that Mexico
would not meet the Company's long-term return requirements. Revenues in Mexico
totaled $125 million in fiscal 1998. The Company is actively marketing the
business and does not anticipate regulatory or other obstacles to a sale. As a
result of the planned sale, the Company recorded a pre-tax valuation charge of
$70 million in fiscal 1998 (see Item 8, Note 15 to the Consolidated Financial
Statements of the Annual Report).
7
<PAGE>
In October 1997, the Company divested its U.S. Grocery Supply Systems ("GSS")
business. Unisource entered this business in 1993 and grew it to nearly $300
million in revenues. However, this business was unprofitable and unlikely to
achieve adequate returns in the near future. Sales to grocery stores are
integrated into the core operations in Canada and represent nearly 25% of that
region's Supply Systems revenues. In addition, the Company sold two other
divisions with annual revenues of approximately $40 million in fiscal 1997 as
part of the restructuring plan.
In fiscal 1997, Unisource acquired 14 companies with more than $550 million in
annualized revenues, consisting predominantly of Supply Systems companies with
approximately $495 million in revenues. The largest of these was National
Sanitary Supply Company, a sanitary maintenance supply company with annual
revenues in excess of $310 million, which was acquired on September 30, 1997.
In fiscal 1996, Unisource acquired 41 companies with $854 million in annualized
revenues, predominantly Supply Systems companies with approximately $750 million
in annualized revenues.
INFORMATION TECHNOLOGY SYSTEM
Unisource made significant investments in the design, testing and implementation
of its proposed enterprise-wide information technology system (North American
Distribution System - "NADS"). This SAP-based system had been under development
since 1994. In fiscal 1998, based upon an in-depth study to reevaluate the
system, the Company concluded that the system would not cost effectively meet
its future information technology needs. Consequently, the Company recorded a
$168 million pre-tax charge to write-off all associated deferred costs and to
accrue for existing outsourcing contracts and other related costs (see Item 8,
Note 15 to the Consolidated Financial Statements of the Annual Report).
Unisource is now utilizing a number of existing information systems that it
believes are adequate for current needs. However, the Company intends to
continue to significantly modify these systems in order to meet anticipated
future needs. Major steps under way to modify the systems include further
consolidation of IT platforms, establishing a centralized data processing center
and upgrading or remediating current systems for Year 2000 compliance.
Unisource entered fiscal 1998 with 23 major systems and 27 smaller systems
resulting from acquisitions in recent years. The Company plans to consolidate
these systems into fewer platforms, and ultimately to migrate to one company-
wide system. Unisource anticipates that more than 20 of its smaller-scale
systems will be eliminated as a result of restructuring-related facility
closures and consolidations.
As the various IT platforms are consolidated, the operations will be migrated to
a newly established corporate data processing center. This strategy eliminates
redundant costs and facilitates standardization. Currently about 15% of the
operations are managed from the data center.
EMPLOYEES
Unisource employs approximately 13,400 people, of whom approximately 15% are
unionized. In the United States, approximately 14% of the Company's employees
are unionized. There are 51 separate collective bargaining agreements in the
U.S., with a total of eight unions covering 1,478 employees; 11% of these
unionized employees are covered under collective bargaining agreements with the
International Brotherhood of Teamsters. In Canada and Mexico, approximately 13%
and 28%, respectively, of the employees are unionized under collective
bargaining agreements.
8
<PAGE>
Approximately 80% of Unisource's total workforce is employed in the United
States, 14% of the work force is in Canada and the remaining 6% 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.
See "Strategy--Restructuring and Business Improvement Actions" above.
PROPRIETARY MATTERS
Unisource uses a number of trademarks, service marks, and trade names which are
important to its business. The Unisource name and logo and the mark, "One
Source. Many Solutions," are Unisource's most important marks. Unisource uses
these marks throughout its business. The trademark on the Unisource name and
logo is registered throughout North America, and the mark "One Source. Many
Solutions" is registered in the United States and Canada with the Spanish
version of such mark being registered in Mexico. Unisource's rights in these
marks may generally be renewed an unlimited number of times. Other trademarks
and trade names which the Company uses in its business are registered throughout
North America and certain of which are maintained in other countries.
ENVIRONMENTAL REGULATION
The primary business of Unisource is distribution, which does not generate
significant hazardous waste. Unisource's distribution facilities have tanks for
storage of diesel fuel and other petroleum products which are subject to laws
regulating such storage tanks. In addition, the Company markets a line of
chemical cleaning, sanitation, and maintenance compounds under the "National
Sanitary Supply Co." proprietary label. Sales of such products during fiscal
1998 were less than 1% of Unisource's consolidated revenues. Most of these
products are manufactured by the Company in its facility in Los Angeles, with
some being manufactured for the Company under contract. 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.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, made in, or
incorporated into, this report including, without limitation, (i) statements
relating to the implementation of the restructuring plan and the timing thereof
(including the planned reduction of employees, facilities closures, and
reduction of warehouse space), the projected costs and expenses associated with
the restructuring plan and the implementation thereof and the financial results
and benefits to be realized from such restructuring (including projected
increased operating income and improved financial performance), (ii) statements
relating to the planned divestiture of its Mexican operations and the benefits
to be derived therefrom, (iii) statements relating to the modification and
consolidation of its information technology systems, including its remediation
of such systems for Year 2000 compliance and (iv) statements qualified by the
words "believes," "anticipates," "expects," "intends," "may," "estimates,"
"will," and other words similar thereto, are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes these statements
are based upon reasonable assumptions with respect to future events and
circumstances, such statements are subject to risks and uncertainties which
could cause actual results or circumstances to differ materially. Such risks
and uncertainties include, without limitation, delays, difficulties, or
increased costs associated with the implementation of the restructuring plan,
the ability to find a buyer for its Mexican operations and to sell such
operations upon terms favorable to the Company, leverage and debt service
requirements (including sensitivity to interest rate fluctuations), operating in
a competitive environment, general economic and market conditions, the ability
to attract and retain qualified personnel, changes or volatility in pulp and
paper prices, and delays or difficulties with the consolidation of its
information technology systems and the
9
<PAGE>
upgrading of such systems to be year 2000 compliant. For further detail and
information concerning such risks and uncertainties, see the above description
of the Company's business.
Item 2. Properties
----------
Unisource leases its current principal executive office, located in Berwyn,
Pennsylvania. This facility consists of approximately 44,000 square feet of
office space.
As of September 30, 1998, Unisource had a total of 455 facilities in North
America, consisting of 148 primary warehouses (greater than 30,000 square feet),
155 other warehouses, 69 retail locations, 11 U.S. regional customer service
centers and 72 offices and other facilities. Of the total facilities, 397 were
located in the United States, 34 in Canada, and 24 in Mexico. Of the total
facilities, leased facilities comprised approximately 13.1 million square feet
of space and owned facilities comprised approximately 5.7 million square feet of
space.
As of November 30, 1998, in connection with the Company's restructuring plan
(see Item 1 - "Business" - Strategy), the total number of facilities in North
America has been reduced to 427. Such facilities consist of 144 primary
warehouses, 145 other warehouses, 67 retail locations, 11 U.S. regional customer
service centers and 60 offices and other facilities. Of the total facilities,
369 are located in the U.S., 34 in Canada and 24 in Mexico. In accordance with
the restructuring plan, the Company will continue to consolidate its U.S.
facilities. Upon full implementation of the restructuring plan, the Company
expects to operate 253 facilities in the U.S.
Unisource believes that such facilities are generally suitable for the operation
of its business. However, the net reduction in the number of facilities in
connection with the restructuring plan will allow the Company to reduce its
operating costs. 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 from time to time depending upon the
nature of the product that is being distributed, the degree of automation and
the utilization of the labor force in the facility. If necessary, Unisource
believes it maintains the flexibility to expand its distribution capacity to
meet increased customer demand.
Item 3. Legal Proceedings
-----------------
Unisource is party to litigation arising in the ordinary course of business.
Unisource does not believe the results of such litigation, even if the outcome
is unfavorable to the Company, would have a material adverse effect on its
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
10
<PAGE>
Item 4.1 Executive Officers of the Registrant
------------------------------------
The executive officers of Unisource are as follows:
<TABLE>
<CAPTION>
Name Age Position and Professional Experience
---- --- ------------------------------------
<S> <C> <C>
Ray B. Mundt.......... 70 Chairman and Chief Executive Officer (August
1996-Present), Unisource; Chairman (1986-1995),
Chief Executive Officer (1980-1993) and President
(1974-1988), Alco
Richard H. Bogan...... 47 President and Chief Financial Officer (October
1998 - Present), Senior Vice President and Chief
Financial Officer (August 1997 - October 1998),
Unisource; Senior Vice President - Finance,
Strategy and Information Systems (1995-1997),
Philip Morris Miller Brewing Division; Vice
President - Information Systems and Financial
Analysis (1994-1995), Vice President - Corporate
Audit (1992-1994), Director - Corporate Audit
(1986-1992), Philip Morris
Hugh G. Moulton....... 65 Executive Vice President and Chief Administrative
Officer (January 1997 - Present), Unisource;
Executive Vice President (1992-1996), General
Counsel (1979-1994), Senior Vice President
Administration (1983-1992), Alco
Thomas A. Decker...... 52 Senior Vice President, General Counsel and
Secretary (January 1997 - Present), Unisource;
Executive Vice President, Chief Operating Officer
and General Counsel (1996-1997), Executive Vice
President and General Counsel (1994-1996), Vice
President, General Counsel and Secretary (1991-
1994), Saint-Gobain Corporation; Vice President,
General Counsel and Secretary (1974-1991),
Certainteed Corporation
Kenneth F. Vuylsteke.. 52 Senior Vice President - Sales (August 1998 -
Present), Unisource; Executive Vice President
(1992-1998), National Sanitary Supply Company
George D. Timchal..... 46 Senior Vice President - Procurement (August 1998 -
Present), Unisource; Vice President Sourcing &
Procurement (1996-1998), Sunbeam Corporation;
Director - Procurement (1986-1996), Scott Paper
Company
Kathleen M. Burns..... 46 Vice President and Treasurer (January 1997 -
Present), Unisource; Vice President (1994-1996)
and Treasurer (1989-1996), Alco
Robert M. McLaughlin.. 41 Vice President Finance (November 1998 - Present),
Vice President and Controller (May 1997 -
November 1998), Controller (1993-1997), Assistant
Controller (1992-1993), Unisource
</TABLE>
11
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
---------------------------------------------------------------------
The Company's Common Stock is listed and traded on the New York, Philadelphia
and Chicago Stock Exchanges (symbol: UWW). The following table sets forth, for
the fiscal periods indicated, the high and low sale prices of the Company's
common stock together with information concerning cash dividends paid per share
during those periods. The high and low sale prices for each quarterly period
since the Company commenced "when issued" trading are:
<TABLE>
<CAPTION>
Dividends
Fiscal 1998 High Low Per Share (2)
- -------------------- -------- ------- -------------
<S> <C> <C> <C>
Fourth Quarter 11 1/2 5 5/8 .20
Third Quarter 14 3/16 10 1/2 .20
Second Quarter 15 15/16 12 1/8 .20
First Quarter 20 1/8 13 5/8 .20
Fiscal 1997
- --------------------
Fourth Quarter 19 3/4 16 7/16 .20
Third Quarter 17 3/4 13 3/4 .20
Second Quarter 22 5/8 15 3/8 .20
First Quarter (1) 22 1/8 18 5/8 -
</TABLE>
(1) On December 9, 1996, the Company commenced "when issued" trading, which
continued through December 31, 1996, at which time the spin-off from IKON
became effective, and the stock began "regular way" trading on
January 2, 1997.
(2) As part of the restructuring plan, Unisource announced a quarterly
dividend reduction to $0.05 per share or $.20 per share annually, beginning
with the dividend payable in December 1998.
On November 30, 1998, the last sale price for the Company's Common Stock was $7-
7/8. As of November 30, 1998, the Company had 10,464 shareholders of record of
its Common Stock.
12
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following table summarizes certain selected historical consolidated
financial information of Unisource that has been derived from the audited
consolidated financial statements of Unisource for each of the five years in the
period ended September 30, 1998. The financial information may not be indicative
of Unisource's future performance. The information set forth below should be
read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 8, Unisource's
Consolidated Financial Statements and notes thereto of the Annual Report.
<TABLE>
<CAPTION>
(in millions, except per share data)
1998 1997 1996 1995 1994
----------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Printing & Imaging $ 4,715.3 $4,591.0 $4,782.2 $5,048.2 $4,112.3
Supply Systems 2,702.0 2,517.4 2,240.6 1,939.1 1,644.2
---------- -------- -------- -------- --------
Total Revenues 7,417.3 7,108.4 7,022.8 6,987.3 5,756.5
========== ======== ======== ======== ========
Gross Profit:
Printing & Imaging 603.2 647.7 665.9 684.0 600.6
Supply Systems 641.8 548.9 460.7 378.1 330.2
---------- -------- -------- -------- --------
Total Gross Profit 1,245.0(1) 1,196.6 1,126.6 1,062.1 930.8
---------- -------- -------- -------- --------
Expenses:
Selling and administrative 1,156.0 1,051.9 942.1 855.8 782.3
Special charges 346.5(1) - 50.0(1) - -
---------- -------- -------- -------- --------
Total Expenses 1,502.5 1,051.9 992.1 855.8 782.3
---------- -------- -------- -------- --------
Income (loss) from operations (257.5) 144.7 134.5 206.3 148.5
Interest expense 45.5 41.6 31.5 33.6 26.2
---------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting change (303.0) 103.1 103.0 172.7 122.3
Income tax expense (benefit) (71.2) 44.4 43.0 67.5 47.8
---------- -------- -------- -------- --------
Income (loss) before cumulative effect
of accounting change (231.8) 58.7 60.0 105.2 74.5
Cumulative effect of change in method
of accounting for income taxes - - - - 14.0
---------- -------- -------- -------- --------
Net income (loss) $ (231.8) $ 58.7 $ 60.0 $ 105.2 $ 88.5
========== ======== ======== ======== ========
Basic earnings (loss) per share(2) $ (3.36) $ .88 - - -
Diluted earnings (loss) per share(2) (3.36) .87 - - -
Pro Forma earnings per share(2) - - $ .81 - -
Dividends per share .80 .60(3) - - -
</TABLE>
- ------------------
(1) See Note 15 to the Consolidated Financial Statements, included as an Exhibit
to this Form 10-K, for a description of special charges. Additionally, gross
profit has been adjusted for a $23 million inventory write-down which was
recorded as part of the restructuring plan.
(2) Historical earnings per share has been omitted for the fiscal years 1994
through 1996 because Unisource was a wholly-owned subsidiary of IKON during
these periods and was recapitalized as part of the spin-off. Pro forma
earnings per share for fiscal 1996 was calculated as if the spin-off had
occurred on October 1, 1995. See Note 3 to the Company's Consolidated
Financial Statements per "Item 8" within this Form 10-K.
(3) Represents dividends for three quarters (January 1, 1997 through September
30, 1997).
13
<PAGE>
Item 6. Selected Financial Data (Cont.)
-------------------------------
<TABLE>
<CAPTION>
(in millions, except employees)
1998 1997 1996 1995 1994
-------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTARY INFORMATION
Capital expenditures $ 29.7 $ 25.3 $ 35.8 $ 50.1 $ 33.9
Depreciation and amortization 58.2 46.8 40.0 33.4 32.5
Working capital 466.0 667.4 750.8 815.1 549.8
Total assets 1,966.7 2,558.8 2,191.7 2,019.0 1,720.0
Total debt 510.0 806.9(1) 60.3 71.0 75.2
Total stockholders' equity 698.4 984.4 935.5 415.9 353.5
Employees (unaudited) 13,400 14,200 11,800 11,800 11,200
-------- -------- -------- -------- --------
</TABLE>
(1) Increase in debt from 1996 to 1997 relates to the recapitalization of
Unisource in connection with the Company's spin-off from IKON effective
December 31, 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Incorporated herein by reference are pages 26 through 31 of the Company's Annual
Report to Shareholders for the fiscal year ended September 30, 1998 (the "1998
Annual Report"), which pages are included as part of Exhibit 13 to this Form 10-
K.
Item 7A. Market Risk Disclosures
-----------------------
Incorporated herein by reference is page 31 of the 1998 Annual Report, which
page is included as part of Exhibit 13 to this Form 10-K.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Incorporated herein by reference are pages 10 through 25 of the 1998 Annual
Report, which pages are included as part of Exhibit 13 to this Form 10-K.
Incorporated herein by reference is the Quarterly Financial Summary on page 34
of the 1998 Annual Report, which page is included as part of Exhibit 13 to this
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
14
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by this Item, except that which is presented in Item
4.1 in Part I above, is included in the sections entitled "Nominees for Election
as Directors" on pages 1 through 2 and "Section 16(a) Beneficial Ownership
Reporting Compliance" on page 11 of the Proxy Statement for the Annual Meeting
of Stockholders to be held January 27, 1999 (the "Proxy Statement"), and is
incorporated herein by reference.
Item 11. Executive Compensation
----------------------
The information required by this Item is included in the sections entitled
"Executive Compensation" on pages 4 through 8, "Human Resources Committee Report
on Executive Compensation" on pages 8 through 10, and "Performance of Unisource
Common Stock" on page 11 of the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by this Item is included in the section entitled
"Security Ownership of Unisource Common Stock by Certain Beneficial Owners,
Directors and Executive Officers of Unisource" on page 3 of the Proxy Statement
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by this Item is included in the subsection entitled
"Loan Program" on page 8 of the Proxy Statement and is incorporated herein by
reference.
15
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. Consolidated Financial Statements
---------------------------------
The following consolidated financial statements of Unisource Worldwide,
Inc., included in the Annual Report to Shareholders for the fiscal year
ended September 30, 1998, are incorporated by reference in Item 8 of Part
II of this Form 10-K.
Consolidated Statements of Income - fiscal years ended September 30, 1998,
1997 and 1996;
Consolidated Balance Sheets - as of September 30, 1998 and 1997;
Consolidated Statements of Changes in Stockholders' Equity - fiscal years
ended September 30, 1998, 1997 and 1996;
Consolidated Statements of Cash Flows - fiscal years ended September 30,
1998, 1997 and 1996;
Notes to Consolidated Financial Statements - September 30, 1998.
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts for fiscal years ended
September 30, 1998, 1997 and 1996 is included on page 16 of this Form 10-K.
Other schedules have been omitted because they are not applicable or the
required information is shown in or can be derived from the financial
statements and notes thereto.
16
<PAGE>
UNISOURCE WORLDWIDE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended September 30, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Column C
Column A Column B Additions Column D Column E
------------ ---------- ------------------------------- ------------- ------------
Balance at Charged to Charged to Additions Balance at
Beginning Costs and Other (Deductions) End of
Description of Period Expenses Accounts(1) (Describe)(2) Period
----------- ---------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1998:
Allowance for doubtful accounts $24,583 $12,686 ($2,423) $(12,133) $22,713
Year ended September 30, 1997:
Allowance for doubtful accounts 19,927 15,232 3,037 (13,613) 24,583
Year ended September 30, 1996:
Allowance for doubtful accounts 15,772 17,204 4,009 (17,058) 19,927
</TABLE>
- -------------
(1) Represents effect of beginning balances of acquired companies, net of
divestitures.
(2) Represents amounts written off as uncollectible, net of recoveries.
17
<PAGE>
3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
2.1 Distribution Agreement between Alco Standard Corporation and
Unisource and certain of its subsidiaries, incorporated by
reference to Form 10 Registration Statement dated November 26,
1996 (file #1-14482).
3.1 Restated Certificate of Incorporation of Unisource, incorporated
by reference to Unisource's S-4 Registration Statement dated
April 25, 1997 (file #333-25897).
3.2 Amended and Restated By-laws of Unisource, incorporated by
reference to Unisource's S-4 Registration Statement dated April
25, 1997 (file #333-25897).
4.1 Rights Agreement dated as of December 30, 1996 between Unisource
and National City Bank, as rights agent, incorporated by
reference to Registration Statement on Form 8-A dated April 24,
1997 (file #1-14482).
10.1 Tax Sharing Agreement between Alco Standard Corporation and
Unisource and certain of its subsidiaries, incorporated by
reference to Form 10 Registration Statement dated November 26,
1996 (file #1-14482).
10.2 Unisource Worldwide, Inc. Directors' Stock Option Plan (as
amended and restated as of January 28, 1998), incorporated by
reference to Exhibit 99 to Form S-8 filed on August 13, 1998
(file #333-61347).
10.3 Unisource Worldwide, Inc. Supplemental Employee Retirement Plan,
incorporated by reference to Form 10 Registration Statement dated
November 26, 1996 (file #1-14482).
10.4 Information Technology Services Agreement between Unisource and
Integrated Systems Solutions Corporation, incorporated by
reference to Exhibit 10.19, Alco Standard Corporation Form 10-K
for fiscal year ended 1995. See Termination Agreement relating
hereto (Exhibit 10.17).
10.5 Benefits Agreement between Alco Standard Corporation and
Unisource dated November 20, 1996, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996 (file #1-
14482).
10.6 Unisource Worldwide, Inc. Incentive Compensation Plan, (as
amended and restated as of January 28, 1998) incorporated by
reference to Exhibit 99 to Form S-8 Registration Statement filed
on August 13, 1998 (File #333-61349).
10.7 Partners Stock Purchase Plan, incorporated by reference to Form
S-8 Registration Statement dated December 13, 1996 (file #333-
17947).
10.8 Restricted Stock Plan for Directors (as amended and restated as
of January 28, 1998), incorporated by reference to Exhibit 99 to
Form S-8 Registration Statement filed on August 13, 1998 (file
#333-61359).
10.9 1997 Deferred Compensation Plan, incorporated by reference to
Form 10 Registration Statement dated November 26, 1996 (file #1-
14482).
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
10.10 Amended and Restated Credit Agreement among Unisource, Unisource
Capital Corporation, Unisource Canada, Inc., the Chase Manhattan
Bank, as administrative agent, and the lenders party thereto,
dated September 25, 1998.
10.11 Partners Loan Program, incorporated by reference to Form 10
Registration Statement dated November 26, 1996 (file #1-14482).
10.12 Southpoint Five Office Building Lease agreement dated February 1,
1997 by and between Terramics/Southpoint Associates V Limited
Partnership and Unisource, incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (file # 1-14482).
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 by reference (file #1-05964).
10.14 Unisource Worldwide, Inc. Stock Option Plan for employees, as
amended and restated as of January 28, 1998, incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (file # 1-14482).
10.15 Unisource Worldwide, Inc. Retirement Savings Plan incorporated by
reference to Form S-8 Registration Statement filed on August 13,
1998 (file #333-61345).
10.16 Receivables Sale Agreement dated as of October 1, 1997 among
Unisource Worldwide, Inc., Asset Securitization Cooperative
Corporation and Canadian Imperial Bank of Commerce, incorporated
by reference to Exhibit 10.16 to the Quarterly Report on Form
10-Q for the quarter ended December 31, 1997 (file # 1-14482).
10.17 Termination Agreement between Unisource Worldwide, Inc. and
International Business Machines Corporation dated July 1, 1998.
13 Portions of the Annual Report to Shareholders for the fiscal year
ended September 30, 1998 specifically incorporated by reference
as part of this Form 10-K.
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24.1 Form of Power of Attorney Executed by Certain Directors of
Unisource Worldwide, Inc.
27 Financial Data Schedules
</TABLE>
19
<PAGE>
(b) Reports on Form 8-K
-------------------
<TABLE>
<CAPTION>
Financial
Statement Date of
Items Reported Filed Report File Date
-------------- ----- ------ ---------
<S> <C> <C> <C>
Unisource issued five press releases: No July 29, 1998 July 29, 1998
Press release reporting third quarter earnings;
Press release announcing restructuring details;
Press release announcing the approval of the quarterly
dividend;
Press release announcing Senior Vice President of
Sales;
Press release announcing Senior Vice President of
Procurement.
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Unisource Worldwide, Inc.
-------------------------
(Registrant)
By: /s/ Robert M. McLaughlin
------------------------
Robert M. McLaughlin
Vice President Finance
Date: December 21, 1998
21
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman, Chief Executive Officer December 21, 1998
- ----------------------
Ray B. Mundt and Director
President and Chief Financial December 21, 1998
- ----------------------
Richard H. Bogan Officer
Vice President Finance December 21, 1998
- ----------------------
Robert M. McLaughlin (Principal Accounting Officer)
Director December 21, 1998
- ----------------------
Gary L. Countryman*
Director December 21, 1998
- ----------------------
Paul J. Darling, II*
Director December 21, 1998
- ----------------------
James J. Forese*
Director December 21, 1998
- ----------------------
James P. Kelly*
Director December 21, 1998
- ----------------------
Dana G. Mead*
Director December 21, 1998
- ----------------------
Rogelio G. Sada*
Director December 21, 1998
- ----------------------
James W. Stratton*
</TABLE>
* By /s/ Thomas A. Decker, Senior Vice President, General Counsel and
Secretary, as attorney in-fact pursuant to power of attorney filed as an
exhibit to this Form 10-K.
22
<PAGE>
Unisource Worldwide, Inc.
Annual Report on Form 10-K for the Year Ended September 30, 1998
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.10 Amended and Restated Credit Agreement among Unisource, Unisource
Capital Corporation, Unisource Canada, Inc., the Chase Manhattan
Bank, as administrative agent, and the lenders party thereto, dated
September 25, 1998.
10.17 Termination Agreement between Unisource Worldwide, Inc. and
International Business Machines Corporation dated July 1, 1998.
13 Portions of the Annual Report to Shareholders for the fiscal
year ended September 30, 1998
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24.1 Form of Power of Attorney Executed by Certain Directors of Unisource
27 Financial Data Schedule for the Twelve Months Ended
September 30, 1998
27 (a) Financial Data Schedule for the Twelve Months Ended
September 30, 1997
</TABLE>
23
<PAGE>
CONFORMED COPY
UNISOURCE WORLDWIDE, INC.
$900,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
September 25, 1998
The Toronto-Dominion Bank
as Canadian Agent and Canadian Collateral Agent
Toronto Dominion (Texas) Inc.
as Documentation Agent
THE CHASE MANHATTAN BANK
AS ADMINISTRATIVE AGENT AND U.S. COLLATERAL AGENT
________________
CHASE SECURITIES INC.
AS ARRANGER
- --------------------------------------------------------------------------------
[LOGO] CHASE
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms............................................ 1
SECTION 1.02. Classification of Loans and Borrowings................... 28
SECTION 1.03. Terms Generally.......................................... 29
SECTION 1.04. Accounting Terms; GAAP................................... 29
SECTION 1.05. Canadian Exchange Rate................................... 30
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments.............................................. 30
SECTION 2.02. Loans and Borrowings..................................... 31
SECTION 2.03. Requests for Revolving Borrowings........................ 32
SECTION 2.04. Competitive Bid Procedure................................ 34
SECTION 2.05. Swingline Loans.......................................... 37
SECTION 2.06. Funding of Borrowings.................................... 39
SECTION 2.07. Interest Elections....................................... 40
SECTION 2.08. Termination and Reduction of Commitments................. 43
SECTION 2.09. Repayment of Loans; Evidence of Debt..................... 44
SECTION 2.10. Prepayment of Loans...................................... 46
SECTION 2.11. Fees..................................................... 48
SECTION 2.12. Interest................................................. 51
SECTION 2.13. Alternate Rate of Interest............................... 52
SECTION 2.14. Increased Costs; Illegality.............................. 53
SECTION 2.15. Break Funding Payments................................... 56
SECTION 2.16. Taxes.................................................... 57
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs............................................... 59
SECTION 2.18. Mitigation Obligations; Replacement of Lenders........... 62
SECTION 2.19. Acceptances.............................................. 63
SECTION 2.20. Letters of Credit........................................ 70
</TABLE>
<PAGE>
2
<TABLE>
ARTICLE III
Representations and Warranties
------------------------------
<S> <C>
SECTION 3.01. Organization; Powers..................................... 78
SECTION 3.02. Authorization; Enforceability............................ 78
SECTION 3.03. Governmental Approvals; No Conflicts..................... 78
SECTION 3.04. Financial Condition; No Material Adverse Change.......... 79
SECTION 3.05. Properties............................................... 79
SECTION 3.06. Litigation and Environmental Matters..................... 80
SECTION 3.07. Compliance with Laws and Agreements...................... 80
SECTION 3.08. Investment and Holding Company Status.................... 81
SECTION 3.09. Taxes.................................................... 81
SECTION 3.10. ERISA.................................................... 81
SECTION 3.11. Disclosure............................................... 81
SECTION 3.12. Subsidiaries............................................. 82
SECTION 3.13 Solvency................................................. 82
SECTION 3.14. Federal Reserve Requirements............................. 82
SECTION 3.15. Security Documents....................................... 83
SECTION 3.16. Millennium Compliance.................................... 83
ARTICLE IV
Conditions
----------
SECTION 4.01. Amendment Effective Date................................. 84
SECTION 4.02. Each Credit Event........................................ 85
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information............... 87
SECTION 5.02. Notices of Material Events............................... 88
SECTION 5.03. Existence; Conduct of Business........................... 89
SECTION 5.04. Payment of Obligations................................... 89
SECTION 5.05. Maintenance of Properties; Insurance..................... 89
SECTION 5.06. Books and Records; Inspection Rights..................... 90
SECTION 5.07. Compliance with Laws..................................... 90
SECTION 5.08. Use of Proceeds and Letters of Credit.................... 90
SECTION 5.09. Ownership of Delaware Borrower and Canadian Borrower..... 91
SECTION 5.10. Further Assurances....................................... 91
</TABLE>
<PAGE>
3
<TABLE>
<S> <C>
SECTION 5.11. Permitted Notes Offering................................. 92
SECTION 5.12. Security................................................. 92
SECTION 5.13. SunTrust Documents....................................... 92
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness............................................. 93
SECTION 6.02. Liens.................................................... 94
SECTION 6.03. Sale and Lease-Back Transactions......................... 96
SECTION 6.04. Fundamental Changes...................................... 97
SECTION 6.05. Leases................................................... 98
SECTION 6.06. Transactions with Affiliates............................. 98
SECTION 6.07. Restrictive Agreements................................... 98
SECTION 6.08. Leverage Ratio........................................... 99
SECTION 6.09. Minimum Consolidated Net Worth........................... 99
SECTION 6.10. Interest Coverage Ratio.................................. 99
ARTICLE VII
-----------
Events of Default
-----------------
ARTICLE VIII
------------
The Agents
----------
ARTICLE IX
----------
Guarantee
---------
ARTICLE X
---------
Miscellaneous
-------------
SECTION 10.01. Notices.................................................. 109
SECTION 10.02. Waivers; Amendments...................................... 109
SECTION 10.03. Expenses; Indemnity; Damage Waiver....................... 111
SECTION 10.04. Successors and Assigns................................... 113
SECTION 10.05. Survival................................................. 117
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
SECTION 10.06. Counterparts; Integration; Effectiveness................. 117
SECTION 10.07. Severability............................................. 117
SECTION 10.08. Right of Setoff.......................................... 118
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service
of Process............................................. 118
SECTION 10.10. WAIVER OF JURY TRIAL..................................... 119
SECTION 10.11. Headings................................................. 119
SECTION 10.12. Confidentiality.......................................... 119
SECTION 10.13. Conversion of Currencies................................. 120
SECTION 10.14. Lenders Bound by Decision to Exercise Remedies........... 121
</TABLE>
SCHEDULES:
- ---------
Schedule 1.01(b) -- Subsidiary Guarantors
Schedule 2.01 -- Commitments
Schedule 2.20(a) -- Letters of Credit and Issuing Bank
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
<PAGE>
5
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 B-3 -- Form of Opinion of Quebec Counsel
Exhibit C -- Form of Discount Note
Exhibit D -- Form of Amended and Restated Subsidiary
Guarantee Agreement
Exhibit E -- Form of Amended and Restated Indemnity,
Subrogation and Contribution Agreement
Exhibit F -- Form of Security Agreement
Exhibit G -- Form of Quebec Hypothec
Exhibit H -- Form of Bank Act Security
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 25,
1998 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 and U.S. Collateral Agent, THE
TORONTO-DOMINION BANK, as Canadian Agent and Canadian Collateral
Agent, and TORONTO DOMINION (TEXAS) INC., as Documentation Agent.
The parties hereto wish to replace the Prior Agreement with this
Amended and Restated Credit Agreement (this "Agreement") in order to modify
certain covenants and to make certain other changes as set forth herein. For
administrative convenience, and in order to reduce associated expenses, the
parties hereto have agreed to draft this Agreement as an amendment and
restatement of the Prior Agreement. Accordingly, the parties hereto agree that
the Prior Agreement is hereby amended and restated in its entirety 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 and includes a depository bill within the meaning of the
Depository Bills and Notes Act (Canada), as provided herein, in each case
conforming to the requirements of Section 2.19 and accepted by such Canadian
Lender in accordance with Section 2.19(c). As the context
<PAGE>
2
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 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.
"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.
"Amendment Effective Date" shall mean the date on which the conditions
------------------------
specified in Section 4.01 of this Agreement are satisfied (or waived in
accordance with Section 10.02).
<PAGE>
3
"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.
"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 until the Company shall have delivered financial statements
for the fiscal year ending September 30, 1998 pursuant to Section 5.01, based
upon Category 7 and (b) for any day thereafter, based upon the ratings by
Moody's and S&P, respectively, applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Index Debt Eurocurrency Spread/ Facility Fee
---------- -------------------- ------------
Leverage Ratio Ratings Stamping Fee Rate Rate
-------------- ------- ----------------- ----
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Category 1 Less than or A3 or better from
- ------------ equal to 30% Moody's/A- or better
from S&P .275% .100%
- ---------------------------------------------------------------------------------------------
Category 2 Greater than 30% Baa1 from
- ------------ but less than or Moody's/BBB+ from
equal to 45% S&P .350% .150%
- ---------------------------------------------------------------------------------------------
Category 3 Greater than 45% Baa2 from
- ------------ but less than or Moody's/BBB from
equal to 50% S&P .425% .200%
- ---------------------------------------------------------------------------------------------
Category 4 Greater than 50% Baa3 from
- ------------ but less than or Moody's/BBB- from
equal to 55% S&P .625% .250%
- ---------------------------------------------------------------------------------------------
Category 5 Greater than 55% Ba1 from
- ------------ but less than or Moody's/BB+ from
equal to 60% S&P .700% .300%
- ---------------------------------------------------------------------------------------------
Category 6 Greater than 60% Ba2 from
- ------------ but less than or Moody's/BB from
equal to 62.5% S&P .900% .350%
- ---------------------------------------------------------------------------------------------
Category 7 Greater than 62.5% Ba3 from
- ------------ but less than or Moody's/BB- from
equal to 64% S&P 1.100% .400%
- ---------------------------------------------------------------------------------------------
Category 8 Greater than 64% Less than or equal to
- ------------ B1 from Moody's/B+
from S&P 1.250% .500%
- ---------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
4
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; (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 64%
during the period from the applicable due date to the date when such financial
statements are delivered; and (v) in the event the Company has not received by
October 31, 1998 gross proceeds (or in the case of the issuance of equity, gross
cash proceeds) of at least $300,000,000 from the issuance of the Permitted Notes
or equity of the Company (other than equity issued in connection with the
Company's employee benefit and compensation plan) in a public offering or in a
Rule 144A or other private placement, each of the rates per annum set forth
above under the caption "Eurocurrency Spread/Stamping Fee Rate" shall be
increased by 25 basis points until the Company shall have received such gross
proceeds. 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 of this Agreement, 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
<PAGE>
5
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 (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
-------------------
Amendment Effective Date to but excluding the earlier of the Maturity Date and
the date of termination of the Commitments pursuant to the terms of this
Agreement.
"Bank Act (Canada)" means the Bank Act (Canada), as amended from time
-----------------
to time.
"Bank Act Security" means the documents in the form of Exhibit H
-----------------
hereto creating security under Section 427 of the Bank Act (Canada) with respect
to all present and future inventory of the Canadian Borrower to secure all of
its Obligations (as defined therein) to each Canadian Lender, including all
amendments, restatements, modifications and supplements thereto 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.
<PAGE>
6
"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 dollar deposits in the applicable Committed Currency in the
London interbank market.
"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 Applicable Percentage" means, with respect to any Canadian
------------------------------
Lender, the percentage of the total Canadian Commitments represented by such
Lender's Canadian Commitment. If the Canadian Commitments have terminated or
expired, the Canadian Applicable Percentages shall be determined based upon the
Canadian Commitments most recently in effect, giving effect to any assignments.
"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 Collateral Agent" means The Toronto-Dominion Bank, in its
-------------------------
capacity as Canadian collateral agent for the Canadian Lenders hereunder.
"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
$60,000,000.
"Canadian Dollar Equivalent" means, on any date of determination, with
--------------------------
respect to any amount in Canadian Dollars, the equivalent in dollars of such
amount,
<PAGE>
7
determined by the Canadian Agent pursuant to Section 1.05(a) using the Canadian
Exchange Rate with respect to Canadian Dollars then in effect.
"Canadian Dollars" or "Cdn.$" 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 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 LC Disbursement" means a payment made by an Issuing Bank
------------------------
pursuant to a Canadian Letter of Credit.
"Canadian LC Exposure" means, at any time, the sum of (a) the
--------------------
aggregate undrawn amount of all outstanding Canadian Letters of Credit at such
time plus (b) the aggregate amount of all Canadian LC Disbursements that have
not yet been reimbursed by or on behalf of the Canadian Borrower at such time.
The Canadian LC Exposure of any Canadian Lender at any time shall be its
Canadian Applicable Percentage of the total Canadian LC Exposure at such time.
"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
<PAGE>
8
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 Letter of Credit" means any Letter of Credit denominated in
-------------------------
dollars or Canadian Dollars and issued for the account of the Canadian Borrower.
"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.
"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).
<PAGE>
9
"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 of this Agreement)
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 Issuing Bank (or, for purposes of Section 2.14(b), by any lending
office of such Lender or by such Lender's or Issuing Bank'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.
"Collateral" means the property, assets or undertaking of a Loan Party
----------
subject to any Security Document including any and all "Collateral" as defined
in any applicable Security Document.
"Collateral Agents" means The Chase Manhattan Bank in its capacity as
-----------------
U.S. Collateral Agent for the Lenders hereunder and The Toronto-Dominion Bank in
its capacity as Canadian Collateral Agent for the Canadian Lenders hereunder.
"Commitment" means, with respect to each Lender, the commitment of
----------
such Lender to make Revolving Loans and to acquire participations in Letters of
Credit and Swingline
<PAGE>
10
Loans hereunder, 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 $900,000,000.
"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 Cash Interest Expense" means, for any period,
----------------------------------
Consolidated Interest Expense for such period less the sum of (a) pay-in-kind or
accreted Consolidated Interest Expense not involving any payment of cash, (b) to
the extent included in Consolidated Interest Expense, the amortization of fees
paid by the Company or any Subsidiary in connection with the incurrence of any
Indebtedness and (c) the amortization of debt discounts, if any, or fees in
respect of any interest rate cap agreement or other agreement or arrangement
entered into by the Company or any Subsidiary designed to protect the Company or
such Subsidiary against fluctuations in interest rates.
<PAGE>
11
"Consolidated EBITDA" means, for any period, Consolidated Net Income
-------------------
plus, to the extent deducted in computing such Consolidated Net Income, without
duplication, the sum of (a) income tax expense, (b) Consolidated Interest
Expense, (c) depreciation and amortization expense, (d) restructuring
implementation costs and expenses incurred in the fiscal years ending September
30, 1999 and September 30, 2000 to the extent the aggregate amount of such costs
and expenses does not exceed $49,000,000, (e) any extraordinary or non-recurring
losses and (f) other non-cash items reducing Consolidated Net Income, minus, to
the extent added in computing such Consolidated Net Income, without duplication,
the sum of (i) interest income, (ii) any extraordinary or non-recurring gains
and (iii) other non-cash items increasing Consolidated Net Income, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company and
-----------------------------
Subsidiaries on a consolidated basis for any period, interest and fees accrued,
accreted or paid by the Company and Subsidiaries during such period in respect
of the Indebtedness of the Company and Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including (a) the amortization of
debt discounts to the extent included in interest expense in accordance with
GAAP, (b) the amortization of all fees (including fees with respect to interest
rate cap agreements or other agreements or arrangements entered into by the
Company or any Subsidiary designed to protect the Company or such Subsidiary
against fluctuations in interest rates) payable in connection with the
incurrence of Indebtedness to the extent included in interest expense in
accordance with GAAP and (c) the portion of any rents payable under capital
leases allocable to interest expense 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.
"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>
12
"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.
"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.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"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.
"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
<PAGE>
13
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 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 as
to which Plan assets are insufficient to satisfy all benefit liabilities; (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.
<PAGE>
14
"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.
"Excluded Taxes" means, with respect to the Administrative Agent, the
--------------
Canadian Agent, the Collateral Agents, any Issuing Bank, 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 Issuing Bank or 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 Collateral Agents, such Issuing Bank or 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 or Issuing Bank issuing Canadian Letters of Credit, 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
<PAGE>
15
that is a Business Day, the average (rounded upwards, if 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>
16
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 of business), (e)
all Indebtedness of others secured by (or
<PAGE>
17
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 obliga tions, 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 Amended
-------------------------------------------------
and Restated 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 Coverage Ratio" means for any fiscal quarter, the ratio of
-----------------------
Consolidated EBITDA for the period of four consecutive fiscal quarters ending on
the last day of such fiscal quarter to Consolidated Cash Interest Expense for
the period of four consecutive fiscal quarters ending on the last day of such
fiscal quarter.
"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
<PAGE>
18
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 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.
<PAGE>
19
"Issuing Bank" means (a) The Chase Manhattan Bank, in its capacity as
------------
the issuer of U.S. Letters of Credit hereunder, and its successors in such
capacity as provided in Section 2.20(i) and (b) any other Lender approved by the
Administrative Agent (and, in the case of an Issuing Bank issuing Canadian
Letters of Credit, the Canadian Agent) and the Borrower; provided that, such
--------
approval, by the Administrative Agent and the Canadian Agent shall not be
unreasonably withheld. Any Issuing Bank may, in its discretion, arrange for one
or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in
which case the term "Issuing Bank" shall include any such Affiliate with respect
to Letters of Credit issued by such Affiliate. In addition, each of Lenders
listed on Schedule 2.20(a) shall be deemed an Issuing Bank in respect of the
Letters of Credit listed opposite its name on Schedule 2.20(a) and any
successive renewals thereof.
"Judgment Currency" has the meaning assigned to such term in Section
-----------------
10.13.
"LC Disbursement" means a payment made by an Issuing Bank pursuant to
---------------
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount (or, in the case of Canadian Letters of Credit, the Canadian Dollar
Equivalent of the aggregate undrawn amount) of all outstanding Letters of Credit
at such time plus (b) the aggregate amount of all LC Disbursements (or, in the
case of Canadian LC Disbursements, the Canadian Dollar Equivalent of such
Canadian LC Disbursements) that have not yet been reimbursed by or on behalf of
the Borrower at such time. The LC Exposure of any Lender at any time shall be
the sum of (x) the Canadian Dollar Equivalent of its Canadian LC Exposure at
such time and (y) its Unused Applicable Percentage of the total LC Exposure
(other then Canadian LC Exposure) at such time.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement and each Letter of Credit listed in Schedule 2.20(a) and any
successive renewals thereof.
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a 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
<PAGE>
20
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 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 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 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 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 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, the Security
Agreement, the other Security Documents and each Acceptance, promissory note or
Discount Note delivered pursuant to this Agreement.
<PAGE>
21
"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 and
---------------------
reimbursement obligations in respect of Letters of Credit), 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, BRT, Inc., a Delaware corporation, 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 the Securities and Exchange Commission as
in effect on the date of this Agreement.
"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.
<PAGE>
22
"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, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and
(iii) 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.
"Perfection Certificate" means a certificate in the form of Annex 2 to
----------------------
the Security Agreement or any other form approved by the Collateral Agents.
"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;
(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;
<PAGE>
23
(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 for borrowed money.
"Permitted Notes" means general, unsecured obligations of the Company,
---------------
with a maturity date later than the Maturity Date, with covenants no more
restrictive to the Company and its Subsidiaries than the covenants under this
Agreement, and with events of default no more extensive than the Events of
Default.
"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.
"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 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.
<PAGE>
24
"Prior Agreement" means the Credit Agreement dated as of November 22,
---------------
1996 among the Borrowers, the Lenders party thereto, The Chase Manhattan Bank,
as Administrative Agent, The Toronto-Dominion Bank, as Canadian Agent, and
Toronto Dominion (Texas) Inc., as Documentation Agent.
"Quebec Hypothec" means the agreement in the form of Exhibit G among
---------------
the Canadian Borrower, the Canadian Collateral Agent and the Canadian Lenders,
pursuant to which the Canadian Borrower hypothecates certain of its movable
properties to secure all of the Obligations (as defined therein) of the Canadian
Borrower, including all amendments, restatements, modifications and supplements
thereto from time to time.
"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).
----------
<PAGE>
25
"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 Canadian Dollar Equivalent thereof in the case of Canadian Loans)
and its LC Exposure and Swingline Exposure at such time.
"Revolving Loan" means a Loan made pursuant to Section 2.01 or 2.19.
--------------
"Secured Parties" has the meaning assigned to such term in the
---------------
Security Agreement.
"Securitization" means the transfer or pledge of assets or interests
--------------
in assets to a trust, partnership, 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.
"Security Agreement" means the Security Agreement in the form of
------------------
Exhibit F, among the grantors named therein and the Collateral Agents.
"Security Documents" means the Security Agreement, the Quebec
------------------
Hypothec, the Bank Act Security and each other security agreement or other
instrument or document executed and delivered pursuant to Section 5.10 or 5.12
or Section 4.04 of the Security Agreement to secure any indebtedness, liability
or obligation of any Loan Party or Loan Parties including any of the
"Obligations" as defined in the Security Agreement.
"S&P" means Standard & Poor's Ratings Services.
---
"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
<PAGE>
26
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 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 Amended and Restated
------------------------------
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
<PAGE>
27
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
-----------------
National Trust and Savings Association, First Union National Bank, PNC Bank,
N.A. and Toronto Dominion Bank or any successor thereto pursuant to Section
2.05(d), each in its capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan in dollars made pursuant to Section
--------------
2.05.
"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, the use of the
proceeds thereof and the issuance of Letters of Credit hereunder.
"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
<PAGE>
28
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 Applicable Percentage" means, with respect to any Lender, the
----------------------------
percentage of the total Unused Commitments represented by such Lender's Unused
Commitment. If the Commitments have terminated or expired, the Unused Applicable
Percentages shall be determined based upon the Unused Commitment most recently
in effect, giving effect to any assignments.
"Unused Commitments" means the total Commitments less (a) the
------------------
aggregate outstanding principal amount of all outstanding Revolving Loans and
(b) the LC Exposure, 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 and
LC Exposure.
"U.S. Borrowers" has the meaning assigned to such term in the
--------------
preamble.
"U.S. Collateral Agent" means The Chase Manhattan Bank, in its
---------------------
capacity as U.S. collateral agent for the Lenders hereunder.
"U.S. Letter of Credit" means any Letter of Credit that is not a
---------------------
Canadian Letter of Credit.
"U.S. LC Disbursement" means any LC Disbursement that is not a
--------------------
Canadian LC Disbursement.
"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
---- ----
<PAGE>
29
"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 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 of this Agreement 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.
<PAGE>
30
SECTION 1.05. Canadian Exchange Rate. (a) Not later than 1:00 p.m.,
-----------------------
New York City time, on each Calculation Date, if any Canadian Loan is
outstanding or there is any Canadian LC Exposure, 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 Canadian Exchange Rate so determined shall become
effective on the first Canadian Business Day 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 Canadian Exchange Rate) be the Canadian Exchange
Rate, as employed in converting any amounts between dollars and Canadian
Dollars.
(b) Not later than 5:00 p.m., New York City time, on each Reset Date
and each borrowing date with respect to Canadian Loans and each date of an
issuance of a Canadian Letter of Credit, the Canadian Agent shall (i) determine
the Canadian Dollar Equivalent of the aggregate principal amount of the Canadian
Loans and Canadian LC Exposure then outstanding (after giving effect to any
Canadian Loans or Canadian LC Disbursements to be made or repaid on such date
and to any Canadian Letters of Credit to be issued 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 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 or (ii) the sum of
the total Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans exceeding the total Commitments.
(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
<PAGE>
31
from time to time during the Availability Period in an aggregate principal
amount that will not result in (i) the Canadian Dollar Equivalent of the
aggregate principal amount of outstanding Canadian Loans made by such Canadian
Lender and such Canadian Lender's Canadian LC Exposure (or, if applicable, the
Canadian Dollar Equivalent thereof) 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 sum of the Canadian Dollar Equivalent of the
aggregate principal amount of all Canadian Loans and the Canadian LC Exposure
(or, if applicable, the Canadian Dollar Equivalent thereof) exceeding
$60,000,000. 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 Lender at its option may make
any Eurocurrency Loan by
<PAGE>
32
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 $250,000 and not less than $5,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $250,000 and not less than $5,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
- --------
equal to the entire unused balance of the total Commitments or that is required
to finance the reimbursement of an LC Disbursement as contemplated by Section
2.20(e). 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 $250,000 and not less than
$1,000,000. 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, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing, or (b) 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 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
10:30 a.m., Toronto
<PAGE>
33
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
(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 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
<PAGE>
34
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;
(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
<PAGE>
35
(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.
(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
<PAGE>
36
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.
(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
<PAGE>
37
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 to a dollar account designated in writing by the
Borrower not less than one Business Day prior to such Loan (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.20(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline 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
<PAGE>
38
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 Swingline Loan
pursuant to this paragraph shall not relieve the relevant Borrower of any
default in the payment thereof.
(d) Replacement of Swingline Lender. At any time there are no
--------------------------------
outstanding Swingline Loans for a Swingline Lender, such Swingline Lender may be
replaced by written agreement among the Company, the Administrative Agent, the
replaced Swingline Lender and the successor Swingline Lender. The
Administrative Agent shall notify the Lenders of any such replacement of a
Swingline Lender. From and after the effective date of any such replacement,
(i) the successor Swingline Lender shall have all the rights and
<PAGE>
39
obligations of such Swingline Lender under this Agreement and (ii) references
herein to the term "Swingline Lender" shall be deemed to include such successor.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan (other than 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; provided that ABR Revolving Loans made to finance
--------
the reimbursement of an LC Disbursement as provided in Section 2.20(e) shall be
remitted by the Administrative Agent to the Issuing Bank. 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 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
<PAGE>
40
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 Canadian Agent to be the
cost to it of funding such amount (in the case of a Borrowing in Canadian
Dollars) 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.
(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.
<PAGE>
41
(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.
(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. 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
and (ii) unless repaid, each Eurocurrency Revolving Borrowing in dollars shall
be converted to an ABR
<PAGE>
42
Borrowing at the end 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 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
<PAGE>
43
(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.
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
<PAGE>
44
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.
(d) The total Commitments shall be automatically and permanently
reduced by an amount, not in excess of $300,000,000, equal to the gross proceeds
of any issuance of Permitted Notes or the gross cash proceeds of any issuance of
equity of the Company (other than equity issued in connection with the Company's
employee benefit and compensation plan) after the date of this Agreement. The
Commitment reductions required by this Section 2.08(d) shall be effective as of
the date of the receipt by the Company or any Related Party of proceeds from the
issuance of the Permitted Notes or equity of the Company. To the extent the
total Revolving Credit Exposure and the aggregate principal amount of
outstanding Competitive Loans, after giving effect to such Commitment
reductions, would exceed the total Commitments, the Borrowers shall prepay such
principal amount of Loans as would cause the total Revolving Credit Exposure and
the aggregate principal amount of outstanding Competitive Loans to be equal to
or less than the total Commitments. All prepayments under this Section 2.08(d)
shall be subject to Section 2.15, but shall otherwise be without premium or
penalty and shall be accompanied by accrued interest on the principal amount
being prepaid to but excluding the date of payment. 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.
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>
45
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 relevant Borrower shall prepare, execute
and deliver to such
<PAGE>
46
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, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, (ii) 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 (iii) 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 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
<PAGE>
47
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 Borrowing of
Canadian Loans, the Canadian Dollar Equivalent of the aggregate principal amount
of outstanding Canadian Loans and Canadian LC Exposure exceeds $60,000,000 (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 Canadian Dollar
Equivalent of the sum of the aggregate principal amount of outstanding Canadian
Loans and the Canadian LC Exposure exceeds 105% of $60,000,000 (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 Canadian Dollar Equivalent of the
aggregate principal amount of the sum of the outstanding Canadian Loans and the
Canadian LC Exposure (as of such date of repayment) over $60,000,000 (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
<PAGE>
48
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 of
this Agreement 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. Facility
fees accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day commencing on the first such date to occur after the Amendment
Effective Date; provided that all unpaid facility fees shall be payable on the
--------
date on which the Commitments terminate and 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 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.
(c) The Company agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
<PAGE>
49
Letters of Credit, which shall accrue at the same Applicable Rate as interest on
Eurocurrency Revolving Loans, on the average daily amount of such Lender's LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Amendment Effective Date
to but excluding the later of the date on which such Lender's Commitment
terminates and the date on which such Lender ceases to have any LC Exposure, and
(ii) to each Issuing Bank a fronting fee, which shall accrue at the rate or
rates per annum separately agreed upon between the Company and such Issuing Bank
on the average daily amount of the LC Exposure attributable to Letters of Credit
issued by such Issuing Bank (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Amendment Effective Date to but excluding the later of the date of termination
of the Commitments and the date on which there ceases to be any such LC
Exposure, as well as such Issuing Bank's standard fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder. Participation fees and fronting fees accrued through
and including the last day of March, June, September and December of each year
shall be payable on the third Business Day following such last day, commencing
on the first such date to occur after the Amendment Effective Date; provided
--------
that all such fees shall be payable on the date on which the Commitments
terminate and any such fees accruing after the date on which the Commitments
terminate shall be payable on demand. Any other fees payable to any Issuing
Bank pursuant to this paragraph shall be payable within 10 days after demand.
All participation fees and fronting fees (other than participation fees and
fronting fees with respect to the Canadian LC Exposure) 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).
(d) The Company agrees to pay to each of the Administrative Agent and
the Canadian Agent for its own account, fees payable in the amounts and at the
times separately agreed upon between the Company and the Administrative Agent or
the Canadian Agent, as the case may be.
(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 (or to the Issuing Bank, in the
<PAGE>
50
case of fees payable to it) for distribution, in the case of facility fees, to
the Lenders. Fees paid shall not be refundable under any circumstances.
(f) With respect to Canadian Loans and fees relating thereto and the
fronting fees and participation fees relating to the Canadian LC Exposure,
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.
(h) On each day on which the aggregate Loans outstanding (or Dollar
Equivalent thereof) exceed 66 2/3% of the Commitments, a portion of the interest
on the outstanding Loans equal to .05% of all outstanding Loans (based on a year
of 360 days and payable for the actual number of days elapsed) shall be deemed
to be a utilization fee. Such utilization fee shall be allocated among payments
of interest so that there is no utilization fee outstanding immediately
following the last day of March, June, September and December of each year. If
the payments of interest prior to such last day of March, June, September or
December are insufficient to allow such allocation of the utilization fee, the
Borrowers shall prepay interest on the last day of March, June, September or
December, as applicable, in an amount so that when such amount is allocated to
the utilization fee there is no utilization fee outstanding following such date.
This clause (h) shall not affect the aggregate amount of payments to be made
under this Agreement or, except as set forth in the immediately preceding
sentence the timing of any payments to be made under this Agreement.
<PAGE>
51
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.
(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
<PAGE>
52
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 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 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;
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 shall be
ineffective, and any Eurocurrency Borrowing so requested
<PAGE>
53
to be continued shall be converted to an ABR Borrowing on the last day of the
then current Interest Period with respect thereto, (ii) if any Borrowing Request
requests a Eurocurrency Revolving Borrowing, such Borrowing shall be made as an
ABR Borrowing and (iii) any request by any Borrower for a Eurocurrency
Competitive Borrowing 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 or to increase the cost to such Lender
or any Issuing Bank of participating in, issuing or maintaining any Letter of
Credit in such currency, and such Lender or Issuing Bank 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 Issuing Bank with respect to each affected
Letter of Credit such additional amount or amounts as will compensate such
Issuing Bank for such additional costs incurred and 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 any condition affecting this Agreement or Eurocurrency Loans,
Fixed Rate Loans or Acceptances made by such Lender or any Letter of Credit or
participation therein (other than any reserve, liquid asset or similar
requirement referred to in paragraph (a) above), and the result thereof shall be
to
<PAGE>
54
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 the Issuing Bank
of participating in, issuing or maintaining any Letter of Credit or to reduce
the amount of any sum received or receivable by such Lender or Issuing Bank
hereunder (whether of principal, interest or otherwise), then the Company will
pay or cause the applicable Borrower to pay to such Lender or Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or Issuing Bank, as the case may be, 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 or
Issuing Bank for any additional costs incurred or reduction suffered as a result
of any Change in Law affecting Excluded Taxes.
(c) If any Lender or Issuing Bank 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 or Issuing Bank's capital or on the capital of such
Lender's or Issuing Bank's holding company, if any, as a consequence of this
Agreement or the Loans made by, or participations in Letters of Credit held by,
such Lender, or the Letters of Credit issued by such Issuing Bank, to a level
below that which such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company could have achieved but for such Change in Law (taking into
consideration such Lender's or Issuing Bank's policies and the policies of such
Lender's or Issuing Bank's holding company with respect to capital adequacy),
then from time to time the Company will pay or cause the applicable Borrower to
pay to such Lender or Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or Issuing Bank or such Lender's or
Issuing Bank's holding company for any such reduction suffered.
(d) A certificate of a Lender or Issuing Bank setting forth (i) the
amount or amounts necessary to compensate such Lender or Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a), (b) or (c)
of this Section shall be delivered to the Company 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 or Issuing Bank, as the case
may be, the
<PAGE>
55
amount shown as due on any such certificate within 10 days after receipt
thereof.
(e) Failure or delay on the part of any Lender or Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that neither the Company nor any other Borrower shall be required to compensate
a Lender or Issuing Bank pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that such Lender or
Issuing Bank, as the case may be, notifies the Company of the Change in Law
giving rise to such increased costs or reductions and of such Lender's or
Issuing Bank's intention to claim compensation therefor; provided further that,
-------- -------
if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
(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 of this Agreement, 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, then,
by written notice to the Company and to the Administrative Agent:
(i) such Lender may declare that Eurocurrency Loans 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 (or to convert an ABR Borrowing to a
Eurocurrency Borrowing or to continue a Eurocurrency Borrowing, 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 request
<PAGE>
56
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
(ii) such Lender may require that all outstanding Eurocurrency Loans
made by it be converted to ABR Loans, in which event all such Eurocurrency
Loans shall be automatically converted to ABR Loans, 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 made by such Lender in lieu of, or resulting from the conversion
of, such Eurocurrency Loans, 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 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 2.10(b) and is revoked in accordance therewith), (d) the failure
to borrow any Competitive Loan after accepting the Competitive Bid to make such
Loan, or (e) 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 for the loss, cost and
expense attributable to such event. In the case of a Eurocurrency Loan, such
loss, cost or expense to any Lender
<PAGE>
57
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, each Collateral Agent, each
Issuing Bank 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.
(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, each Issuing Bank, each Collateral 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
<PAGE>
58
Agent, the Canadian Agent, such Issuing Bank, such Collateral 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, such Issuing
Bank, such Collateral 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, Collateral Agent or
Issuing Bank or by the Administrative Agent or the Canadian Agent on its own
behalf or on behalf of a Lender, Collateral Agent or Issuing Bank shall be
conclusive absent manifest error.
(ii) If the Administrative Agent, the Canadian Agent, an Issuing
Bank, either of the Collateral Agents 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, an Issuing Bank, either of the Collateral Agents or
any Lender receives a refund of any Indemnified Taxes or Other Taxes for which
the Administrative Agent, the Canadian Agent, such Issuing Bank, such Collateral
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 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
<PAGE>
59
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 reimbursement of LC Disbursements, or
of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) from a
Payment Location in the United States prior to 12:00 noon, New York City time,
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 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 to the Canadian Agent in Canadian Dollars at its office at 55 King
Street at Bay Street, Toronto, as applicable, except payments to be
<PAGE>
60
made directly to any Issuing Bank or 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 Administra tive
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
and facility 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 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, unreimbursed LC Disbursements, 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 then due to such parties,
and (ii) second, towards payment of principal and unreimbursed LC Disbursements
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal and unreimbursed LC Disbursements then due to such
parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or any right under any Security Document 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 LC
Disbursements (or Canadian LC Disbursements, in the case of Canadian Lenders) or
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 LC Disbursements (or
Canadian LC Disbursements, in the case of Canadian Lenders) and Swingline Loans
and accrued interest thereon than the
<PAGE>
61
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 LC Disbursements (or Canadian LC Disbursements, in the case of
Canadian Lenders) and 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 LC Disbursements (or Canadian LC Disbursements,
in the case of Canadian Lenders) and 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 or
participations in LC Disbursements 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 or such
rights under any Security Document 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 date on which any payment is due to the
Administrative Agent for the account of the Lenders or any Issuing Bank
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 or such Issuing Bank, as the case may be, the amount due. In such
event, if such Loan Party has not in fact made such payment, then each of the
Lenders or such Issuing Bank, as the case may be, severally agrees to repay to
the
<PAGE>
62
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank 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, in the case of a Borrowing in dollars, at the
Federal Funds Effective Rate.
(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 or any Issuing Bank 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 or such Issuing Bank, as the case may be, the amount due. In such
event, if the Canadian Borrower has not in fact made such payment, then each of
the Canadian Lenders or such Issuing Bank, as the case may be, severally agrees
to repay to the Canadian Agent forthwith on demand the amount so distributed to
such Canadian Lender or Issuing Bank 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 or Issuing Bank 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 or Issuing Bank
to satisfy such Lender's or Issuing Bank'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 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
<PAGE>
63
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
applicable Issuing Banks and 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 LC Disbursements and 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 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,
<PAGE>
64
(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 and Canadian LC Exposure, 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 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;
<PAGE>
65
(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 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
<PAGE>
66
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
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
<PAGE>
67
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 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.
<PAGE>
68
(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 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
<PAGE>
69
Canadian Lender's outstanding Acceptances for all purposes of this
Agreement.
(j) At the option of any Canadian Lender, Acceptances under this
Agreement to be accepted by that Canadian Lender may be issued in the form of
depository bills for deposit with The Canadian Depository for Securities Limited
pursuant to the Depository Bills and Notes Act (Canada). All depository bills
------------------------------
so issued shall be governed by the provisions of this Section 2.19.
(k) Cash Collateralization. If any Event of Default shall occur and
-----------------------
be continuing, on the Business Day that the Canadian Borrower receives notice
from the Canadian Agent or the Required Lenders (or, if the maturity of the
Loans has been accelerated, Canadian Lenders with Acceptance Obligations
representing greater than 50% of the total Acceptance Obligations) demanding the
deposit of cash collateral pursuant to this paragraph, the Canadian Borrower
shall deposit in an account with the Canadian Agent, in the name of the Canadian
Agent and for the benefit of the Lenders, an amount in cash equal to the
outstanding Acceptance Obligations as of such date plus any accrued and unpaid
interest thereon; provided that the obligation to deposit such cash collateral
--------
shall become effective immediately, and such deposit shall become immediately
due and payable, without demand or other notice of any kind, upon the occurrence
of any Event of Default with respect to the Borrowers described in clause (h) or
(i) of Article VII. Such deposits shall be held by the Canadian Agent as
collateral for the payment and performance of the obligations of the Canadian
Borrower under this Agreement. The Canadian Agent shall have exclusive dominion
and control, including the exclusive right of withdrawal, over such accounts.
Other than any interest earned on the investment of such deposits, which
investments shall be, with respect to deposits held by the Canadian Agent, made
at the option and sole discretion of the Canadian Agent and at the Canadian
Borrower's risk and expense, such deposits shall not bear interest. Interest or
profits, if any, on such investments shall accumulate in such accounts. Moneys
in such accounts shall be applied by the Canadian Agent to reimburse the
Canadian Lenders for each Acceptance Obligation not paid when due, to the extent
not so applied, shall be held for the satisfaction of the other Acceptance
Obligations at such time or, if the maturity of the Loans has been accelerated
(but subject to the consent of Canadian Lenders with Acceptance Obligations
representing greater than 50% of the total Acceptance Obligations), be applied
to
<PAGE>
70
satisfy other obligations of the Canadian Borrower under this Agreement. If the
Canadian Borrower is required to provide an amount of cash collateral hereunder
as a result of the occurrence of an Event of Default, such amount (to the extent
not applied as aforesaid) shall be returned to the Canadian Borrower, as the
case may be, within three Canadian Business Days after all Events of Default
have been cured or waived.
SECTION 2.20. Letters of Credit. (a) General. Subject to the terms
------------------ --------
and conditions set forth herein, any U.S. Borrower may request the issuance of
Letters of Credit denominated in dollars for its own account, in a form
reasonably acceptable to the Administrative Agent and the Issuing Bank, at any
time and from time to time during the Availability Period. Subject to the terms
and conditions set forth herein and there being an Issuing Bank willing to issue
Canadian Letters of Credit, the Canadian Borrower may request the issuance of
Canadian Letters of Credit for its own account, in a form reasonably acceptable
to the Canadian Agent and the Issuing Bank, at any time and from time to time
during the Availability Period. The Letters of Credit heretofore issued by the
Lenders listed on Schedule 2.20(a), for the account of the Company, which are
listed in Schedule 2.20(a) (and any successive renewals from time to time
thereof) shall, from and after the Amendment Effective Date, be deemed to be
Letters of Credit issued pursuant to this Agreement in respect of which the
relevant Lender listed on Schedule 2.20(a) will be an Issuing Bank hereunder.
In the event of any inconsistency between the terms and conditions of this
Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the applicable Borrower to, or
entered into by such Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a Letter of Credit (or the amendment,
- -----------
renewal or extension of an outstanding Letter of Credit), the applicable
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent or, in the case of a
Canadian Letter of Credit, the Canadian Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit, or identifying the Letter of Credit to be
amended, renewed or
<PAGE>
71
extended, and specifying the date of issuance, amendment, renewal or extension
(which shall be a Business Day), the date on which such Letter of Credit is to
expire (which shall comply with paragraph (c) of this Section), the amount of
such Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit. If requested by the Issuing Bank, the applicable Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Company shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed $25,000,000
and (ii) the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans shall not exceed the total
Commitments. In addition to the requirements set forth in the preceding
sentence, a Canadian Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Canadian Letter of Credit the Canadian Borrower shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or
extension, the sum of the Canadian LC Exposure plus the aggregate principal
amount of all outstanding Canadian Loans shall not exceed $60,000,000.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
----------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date, provided that any Letter
--------
of Credit may provide for the renewal thereof for additional one-year periods
(which shall in no event extend beyond the date referred to in clause (ii)
above).
(d) Participations. By the issuance of a U.S. Letter of Credit (or
---------------
an amendment to a U.S. Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Bank or the Lenders, the
Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from
the Issuing Bank, a participation in such U.S. Letter of Credit equal to such
Lender's Unused Applicable Percentage of the aggregate amount available to be
drawn under such U.S. Letter of Credit. In consideration
<PAGE>
72
and in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Lender's Unused Applicable Percentage of each U.S. LC
Disbursement made by the Issuing Bank and not reimbursed by the applicable
Borrower on the date due as provided in paragraph (e) of this Section, or of any
reimbursement payment required to be refunded to any Borrower for any reason.
By the issuance of a Canadian Letter of Credit (or an amendment to a Canadian
Letter of Credit increasing the amount thereof) and without any further action
on the part of the Issuing Bank or the Canadian Lenders, the Issuing Bank hereby
grants to each Canadian Lender, and each Canadian Lender hereby acquires from
the Issuing Bank, a participation in such Canadian Letter of Credit equal to
such Canadian Lender's Canadian Applicable Percentage of the aggregate amount
available to be drawn under such Canadian Letter of Credit. In consideration
and in furtherance of the foregoing, each Canadian Lender hereby absolutely and
unconditionally agrees to pay to the Canadian Agent, for the account of the
Issuing Bank, such Canadian Lender's Canadian Applicable Percentage of each
Canadian LC Disbursement made by the Issuing Bank and not reimbursed by the
Canadian Borrower on the date due as provided in paragraph (e) of this Section,
or of any reimbursement payment required to be refunded to the Canadian Borrower
for any reason. Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or 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; provided, however,
--------
that no Lender shall be obligated to make any payment to the Administrative
Agent or the Canadian Agent, as the case may be, for any wrongful LC
Disbursement made by an Issuing Bank as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Issuing
Bank.
(e) Reimbursement. If the Issuing Bank shall make any U.S. LC
--------------
Disbursement in respect of a U.S. Letter of Credit, the applicable Borrower
shall reimburse such U.S. LC Disbursement by paying to the Administrative Agent
an amount equal to such U.S. LC Disbursement not later than 12:00 noon, New York
City time, on the date that such U.S. LC Disbursement is made, if such Borrower
shall have received
<PAGE>
73
notice of such U.S. LC Disbursement prior to 10:00 a.m., New York City time, or,
if such notice has not been received by such Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that such Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that such Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
--------
if such U.S. LC Disbursement is not less than $1,000,000, such Borrower may,
subject to the conditions to borrowing set forth herein, request in accordance
with Section 2.03 or 2.05 that such payment be financed with an ABR Revolving
Borrowing or Swingline Loan in an equivalent amount and, to the extent so
financed, such Borrower's obligation to make such payment shall be discharged
and replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the
Issuing Bank shall make any Canadian LC Disbursement in respect of a Canadian
Letter of Credit, the Canadian Borrower shall reimburse such Canadian LC
Disbursement by paying to the Canadian Agent an amount equal to such Canadian LC
Disbursement, in like funds, not later than 12:00 noon, Toronto time, on the
date that such Canadian LC Disbursement is made, if the Canadian Borrower shall
have received notice of such Canadian LC Disbursement prior to 10:00 a.m.,
Toronto time, or, if such notice has not been received by the Canadian Borrower
prior to such time on such date, then not later than 12:00 noon, Toronto time,
on (i) the Canadian Business Day that the Canadian Borrower receives such
notice, if such notice is received prior to 10:00 a.m., Toronto time, on the day
of receipt, or (ii) the Business Day immediately following the day that the
Canadian Borrower receives such notice, if such notice is not received prior to
such time on the day of receipt; provided that, in the case of Canadian LC
--------
Disbursements denominated in Canadian Dollars, if such Canadian LC Disbursement
is not less than Cdn.$5,000,000, the Canadian Borrower may, subject to the
conditions to borrowing set forth herein, request in accordance with Section
2.03 that such payment be financed with a Canadian Prime Rate Loan in an
equivalent amount and, to the extent so financed, the Canadian Borrower's
obligation to make such payment shall be discharged and replaced by the
resulting Canadian Prime Rate Loan. If any Borrower fails to make such payment
under this Section 2.20(e) when due, the Administrative Agent or the Canadian
Agent, as the case may be, shall notify each Lender of the applicable LC
Disbursement, the payment then due from such Borrower in respect thereof and
such Lender's Unused
<PAGE>
74
Applicable Percentage or Canadian Applicable Percentage thereof. Promptly
following receipt of such notice, each Lender shall pay to the Administrative
Agent or the Canadian Agent, as the case may be, its Unused Applicable
Percentage or Canadian Applicable Percentage of the payment then due from such
Borrower, 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 or the
Canadian Agent, as the case may be, shall promptly pay to the Issuing Bank the
amounts so received by it from the Lenders. Promptly following receipt by the
Administrative Agent or the Canadian Agent of any payment from any Borrower
pursuant to this paragraph, the Administrative Agent or the Canadian Agent, as
the case may be, shall distribute such payment to the Issuing Bank or, to the
extent that Lenders have made payments pursuant to this paragraph to reimburse
the Issuing Bank, then to such Lenders and the Issuing Bank as their interests
may appear. Any payment made by a Lender pursuant to this paragraph to
reimburse the Issuing Bank for any LC Disbursement (other than the funding of
ABR Revolving Loans, Canadian Prime Rate Loans or a Swingline Loan as
contemplated above) shall not constitute a Loan and shall not relieve the
applicable Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrowers' obligations to reimburse LC
---------------------
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with
the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein or herein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrowers' obligations hereunder.
Neither the Administrative Agent, the Canadian Agent, the Lenders nor the
Issuing Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in
<PAGE>
75
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
--------
Issuing Bank from liability to any Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrowers to the extent permitted by applicable law) suffered by
such Borrower that are caused by the Issuing Bank's failure to exercise care
when determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
------------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent or the Canadian Agent, in the case of a Canadian
Letter of Credit, and the applicable Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
--------
delay in giving such notice shall not relieve the applicable Borrower of its
obligation to reimburse the Issuing Bank and the Lenders with respect to any
such LC Disbursement.
<PAGE>
76
(h) Interim Interest. If the Issuing Bank shall make any LC
-----------------
Disbursement, then, unless the applicable Borrower shall reimburse such LC
Disbursement in full on the date such LC Disbursement is made, the unpaid amount
thereof shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the such Borrower reimburses
such LC Disbursement, at the rate per annum then applicable to ABR Revolving
Loans or, in the case of a Canadian LC Disbursement, in Canadian Dollars, at the
rate per annum then applicable to Canadian Prime Rate Loans; provided that, if
--------
any Borrower fails to reimburse such LC Disbursement when due pursuant to
paragraph (e) of this Section, then Section 2.12(f) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing Bank,
except that interest accrued on and after the date of payment by any Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. An Issuing Bank may be replaced
--------------------------------
at any time by written agreement among the Company, the Administrative Agent,
the Canadian Agent, the replaced Issuing Bank and the successor Issuing Bank.
The Administrative Agent shall notify the Lenders of any such replacement of an
Issuing Bank. At the time any such replacement shall become effective, the
Company shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(c). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of such Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
-----------------------
be continuing, on the Business Day that the Company receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposure
<PAGE>
77
representing greater than 50% of the total LC Exposure) demanding the deposit of
cash collateral pursuant to this paragraph, the Company shall deposit in an
account with the Administrative Agent, in the name of the Administrative Agent
and for the benefit of the Lenders, an amount in cash equal to the LC Exposure
with respect to U.S. Letters of Credit as of such date plus any accrued and
unpaid interest thereon and the Canadian Borrower shall deposit in an account
with the Canadian Agent, in the name of the Canadian Agent and for the benefit
of the Canadian Lenders, an amount in cash equal to the Canadian LC Exposure;
provided that the obligation to deposit such cash collateral shall become
- --------
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrowers described in clause (h) or (i) of
Article VII. Such deposits shall be held by the Administrative Agent and the
Canadian Agent as collateral for the payment and performance of the obligations
of the Borrowers under this Agreement. The Administrative Agent and the
Canadian Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such accounts. Other than any interest
earned on the investment of such deposits, which investments shall be (i) with
respect to deposits held by the Administrative Agent, in direct short-term
obligations of, or short-term obligations the principal of and interest on which
are unconditionally guaranteed by, the United States of America, in each case
maturing no later than the expiry date of the Letter of Credit giving rise to
the relevant LC Exposure and (ii) with respect to deposits held by the Canadian
Agent, made at the option and sole discretion of the Canadian Agent and, in each
case, at the Borrowers' risk and expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
accounts. Moneys in such accounts shall be applied by the Administrative Agent
to reimburse the Issuing Bank for U.S. LC Disbursements for which it has not
been reimbursed and by the Canadian Agent to reimburse the Issuing Bank for
Canadian LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the U.S. Borrowers or the Canadian Borrower, as the case may be,
for the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the U.S. Borrowers or the Canadian Borrower, as the case may be,
under this Agreement. If the Company or
<PAGE>
78
the Canadian Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Company or the
Canadian Borrower, as the case may be, within three Business Days after all
Events of Default have been cured or waived. Notwithstanding any other provision
of this Section 2.20(j) any cash collateral provided by the Canadian Borrower
shall only be applied to satisfy the obligations of the Canadian Borrower.
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 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
<PAGE>
79
or approval of, registration or filing with, or any other action by, any
Governmental Authority, except (i) such as have been obtained or made and are in
full force and effect, (ii) those contemplated in connection with the creation
of the Liens under the Loan Documents and (iii) the filing of the Loan Documents
with such regulatory agencies or authorities as may be required by applicable
law, (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 or agreement for borrowed money or other
material agreement or 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) except
for the Liens in favor of the Collateral Agents, for the benefit of the Secured
Parties, created under the Loan Documents, 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 (i) as of and
for the fiscal year ended September 30, 1997, reported on by Ernst & Young LLP,
independent public accountants, and (ii) as of and for each of the fiscal
quarters and the portions of the fiscal year ended December 31, 1997, March 31,
1998 and June 30, 1998, certified by its chief financial officer. 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,
subject to year-end audit adjustments and the absence of footnotes in the case
of the statements referred to in clause (ii) above.
(b) Except for the restructuring plan (and related charges) as
announced by the Company on July 29, 1998 and as disclosed in filings with the
Securities and Exchange Commission prior to the date hereof, since June 30,
1998, 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
<PAGE>
80
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, 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
<PAGE>
81
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.
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 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
<PAGE>
82
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 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
-------------
Amendment 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
Amendment Effective Date all Material Subsidiaries that are incorporated within
the United States of America. As of the Amendment 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 Amendment Effective Date (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
Amendment Effective Date.
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,
<PAGE>
83
Regulation U or X thereof. Not more than 25% of the assets subject to the
restrictions of Sections 6.02 and 6.03 will at any time consist of Margin Stock.
SECTION 3.15. Security Documents. The Security Agreement and the
-------------------
other Security Documents are effective to create in favor of the Collateral
Agents, for the ratable benefit of the Secured Parties, and in favor of the
Canadian Lenders, as applicable, a valid and enforceable security interest and
Lien, as applicable, in the Collateral and, when financing statements or other
filings, recordings or registrations in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement and other Security Documents shall each constitute a perfected Lien
on, and security interest in, all right, title and interest of the grantors
thereunder in such Collateral, in each case prior and superior in right to any
other Person, other than with respect to (i) Liens expressly permitted by
Section 6.02 and (ii) Liens, security interests, Uniform Commercial Code
financing statements and other filings, recordings and registrations not yet
required to be terminated pursuant to Section 5.10(b).
SECTION 3.16. Millennium Compliance. Any reprogramming required to
----------------------
permit the proper functioning, in and following the year 2000, of (i) the
computer systems of the Borrowers and their respective subsidiaries and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others or with which the systems of the Borrowers or their
respective subsidiaries interface) and the testing of all such systems and
equipment, as so reprogrammed, is reasonably expected to be completed by
September 30, 1999. The cost to the Borrowers and their respective subsidiaries
of such reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to the Borrowers and their respective subsidiaries (including,
without limitation, reprogramming errors and the failure of others' systems or
equipment) will not result in a Material Adverse Effect. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrowers and their
respective subsidiaries are and, with ordinary course upgrading and maintenance,
will continue to be, sufficient to permit the Borrowers and their respective
subsidiaries to conduct their business without Material Adverse Effect.
<PAGE>
84
ARTICLE IV
Conditions
----------
SECTION 4.01. Amendment Effective Date. The obligations of the
-------------------------
Lenders to make Loans and of the Issuing Banks to issue Letters of Credit
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 of the Borrowers, the Required Lenders, the Administrative Agent,
the Canadian Agent and the Documentation Agent 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, the Canadian Agent and the
Collateral Agents and the Lenders and dated the Amendment Effective Date)
of (i) Pepper Hamilton LLP, U.S. Counsel for the U.S. Borrowers and
Subsidiary Guarantors, (ii) Patricia E. Armstrong, Canadian counsel for the
Canadian Borrower, and (iii) Goodman, Phillips & Vineberg, Quebec counsel
for the Canadian Borrower, substantially in the form of Exhibits B-1, B-2
and B-3 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 and the Transactions, all in form and substance satisfactory to
the Administrative Agent and its counsel.
<PAGE>
85
(d) The Administrative Agent shall have received a certificate, dated
the Amendment Effective Date and signed by the President, a Vice President
or a Financial Officer of the Company or the relevant Loan Party,
confirming compliance with the conditions set forth in paragraphs (a) and
(b) of Section 4.02.
(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 Amendment 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 Collateral Agents shall have received the Security Agreement,
the Quebec Hypothec and the Bank Act Security duly executed by all parties
thereto, together with the following:
(i) all documents and instruments, including Uniform Commercial
Code financing statements or other appropriate filings, recordings or
registrations required by all applicable law or reasonably requested
by the Administrative Agent to be filed, recorded or registered in
order to create in favor of the Collateral Agents for the benefit of
the Secured Parties and in favor of the Canadian Lenders, as
applicable, a valid and perfected first priority security interest in
and Lien on the Collateral (subject to any Lien expressly permitted by
Section 6.02) described in the Security Agreement, the Quebec Hypothec
and the Bank Act Security shall have been delivered to the Collateral
Agents; and
(ii) a completed Perfection Certificate dated the Amendment
Effective Date and signed by a Financial Officer and a legal officer
of the Company, together with all attachments contemplated thereby,
including the results of a
<PAGE>
86
search of the Uniform Commercial Code (or equivalent) filings made
with respect to the Loan Parties in the jurisdictions contemplated by
the Perfection Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence reasonably
satisfactory to the Collateral Agents that the Liens indicated by such
financing statements (or similar documents) are permitted by Section
6.02 or have been released.
(i) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.05 and the
applicable provisions of the Security Agreement is in effect.
(j) The Administrative Agent shall have received all accrued interest
(whether or not at the time due and payable), fees and other amounts
outstanding or payable as of the Amendment Effective Date hereunder or
under the Prior Agreement, 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 in writing of
the Amendment Effective Date, and such notice shall be conclusive and binding.
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, 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 or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to
<PAGE>
87
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.
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 and all Letters of Credit have expired or
terminated and all LC Disbursements have been reimbursed, 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
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
<PAGE>
88
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) 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, 6.09 and 6.10,
(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, 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;
(d) 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
(e) 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;
<PAGE>
89
(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 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
<PAGE>
90
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 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 and Letters of Credit. The proceeds of
--------------------------------------
the Loans will be used only for working capital and other 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 U and X. Letters of Credit will be issued only to support working
capital and other general corporate purposes.
<PAGE>
91
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. (a) The Company will cause any
-------------------
subsequently acquired or organized Material Subsidiary that is organized within
the United States of America (and any other such Subsidiary organized within the
United States of America that hereafter becomes such a Material Subsidiary) to
execute and deliver to the Administrative Agent a supplement to the Subsidiary
Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement
under which it will become a party to and a "Subsidiary Guarantor" under such
agreements. The Company will cause any subsequently acquired or organized
Material Subsidiary that is organized within Canada (and any other such
Subsidiary organized within Canada that hereafter becomes such a Material
Subsidiary) to execute and deliver to the Canadian Agent a subsidiary guarantee
agreement in form reasonably satisfactory to the Canadian Agent. The Company
will cause each subsequent Loan Party not party to the Security Agreement as of
the date hereof to execute and deliver to the Administrative Agent a supplement
to the Security Agreement under which it will become a party to and a "Grantor"
under the Security Agreement or any additional documents required to grant an
effective and perfected first priority Lien in favor of the Collateral Agents
and the Lenders, if applicable, in respect of any Collateral under the laws of
the applicable jurisdictions where such Collateral is located.
(b) Within 30 days following the Amendment Effective Date, the Loan
Parties will execute, acknowledge, deliver and cause to be duly filed all such
further instruments, agreements and documents, including Uniform Commercial Code
financing statements or termination statements or other appropriate filings,
recordings or registrations, and take all such other action necessary, or that
the Administrative Agent may reasonably request, in order (i) to remove any
Liens and otherwise terminate any security interests, Uniform Commercial Code
financing statements or other filings, recordings or registrations not permitted
by this Agreement and (ii) to grant, preserve, publish notice of and protect the
validity of and to establish a valid and perfected first priority security
<PAGE>
92
interest or Lien in favor of the Canadian Collateral Agent in respect of all
Collateral in which the Security Interest or Lien may be perfected by filing,
recording or registration in Canada (or any political subdivision thereof) and
its territories and possessions; provided that, with respect to Uniform
--------
Commercial Code or other applicable financing statements referenced in clause
(i) above which (x) were filed solely as a precautionary measure in connection
with the lease of capital or fixed assets, (y) evidence a Lien permitted
pursuant to Section 6.02(d) or (z) evidence past Indebtedness which the
Administrative Agent is satisfied is no longer outstanding, the Loan Parties
shall have 90 days to take any actions requested by the Administrative Agent
pursuant to this Section 5.10(b).
SECTION 5.11. Permitted Notes Offering. The Company shall use its
-------------------------
best efforts to consummate a public offering or Rule 144A or other private
placement of Permitted Notes of the Company by March 31, 1999 yielding gross
proceeds to the Company in an amount (together with the gross cash proceeds to
the Company of any issuance of the Company's equity other than equity issued in
connection with the Company's employee benefit and compensation plan) of at
least $300,000,000.
SECTION 5.12. Information Regarding Collateral. The Company will
---------------------------------
furnish or cause to be furnished to the Administrative Agent and the Collateral
Agents the information required to be delivered to them pursuant to the Security
Documents.
SECTION 5.13. SunTrust Documents. The Company will not permit an
-------------------
unwaived default arising from the Transactions to exist at any time under any of
the SunTrust Documents (as defined in the Security Agreement) and shall, within
30 days following the Amendment Effective Date, cause each relevant SunTrust
Document (i) to be amended, on terms not inconsistent with the terms of this
Agreement, to permit the Transactions or (ii) to be terminated and all
obligations of the Company or any Subsidiary thereunder repaid or prepaid in
full.
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
<PAGE>
93
and all Letters of Credit have expired or terminated and all LC Disbursements
have been reimbursed, 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 of this Agreement 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;
(f) Indebtedness of any Person that becomes a Subsidiary after the
date of this Agreement; 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
<PAGE>
94
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;
(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; and
(h) the Permitted Notes.
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 of this Agreement 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 secure only
those obligations which it secures on the date of this Agreement and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
<PAGE>
95
(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 of
this Agreement 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 (x) fixed or capital assets acquired, constructed or
improved by the Company or any Subsidiary or (y) goods for resale in the
possession of the Company or any Subsidiary pursuant to consignments or
substantially similar transactions; provided that (i) such security
--------
interests (except in the case of such goods referenced in clause (y)
directly above) secure Indebtedness permitted by clause (e) of Section 6.01
(or Indebtedness of the Company which would be permitted by clause (e) of
Section 6.01 if the Company were a Subsidiary), (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 or goods 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; provided that
--------
<PAGE>
96
the terms of the Securitizations permitted by this clause (e) shall be
reasonably satisfactory to and shall have been approved in writing by the
Administrative Agent;
(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 trade 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 trade letter of credit;
(h) any attachment or judgment Lien, unless (i) the judgment it
secures shall not within 30 days after the entry thereof, have been
discharged or (ii) in the case of any Lien securing a judgment in an amount
no greater than $50,000, not stayed pending appeal, and if such stay
expires, not discharged within 30 days of such expiration;
(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 of this Agreement and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;
(j) any Lien created under the Loan Documents; and
(k) other Liens securing obligations not exceeding, in the aggregate,
$1,000,000 at any time outstanding.
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
<PAGE>
97
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).
SECTION 6.04. Fundamental Changes. The Company will not, and will
--------------------
not permit any Material Subsidiary to, merge into or consolidate or amalgamate
with any other Person, or permit any other Person to merge into or consolidate
or amalgamate 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
(A) no Default shall have occurred and be continuing, (B) prior notice of any of
the foregoing matters shall have been given to the Administrative Agent and (C)
prior to the occurrence of any of the foregoing matters, the Loan Parties shall
have taken such action as the Administrative Agent may request under Section
5.10 hereof and Section 4.04 of the Security Agreement, (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 or amalgamated entity is a Subsidiary,
(iii) any Material Subsidiary (other than (x) the Delaware Borrower unless (A)
to any Loan Party located in the United States or (B) such Borrower first repays
all its Obligations hereunder and agrees in writing not to effect any additional
Borrowings hereunder or (y) the Canadian Borrower unless 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
<PAGE>
98
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 of this Agreement; 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 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 and (b) transactions between or among the Company and/or
its wholly owned Subsidiaries not involving any other Affiliate.
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 of this Agreement 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
<PAGE>
99
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 at any time during
---------------
any "Test Period" set forth below shall not equal or exceed the ratio set forth
opposite such Test Period:
<TABLE>
<CAPTION>
Test Period Ratio
----------- -----
<S> <C>
Quarter ending September 30, 1998 .65 to 1
Quarter ending December 31, 1998 .65 to 1
Quarter ending March 31, 1999 .65 to 1
Quarter ending June 30, 1999 .65 to 1
Quarter ending September 30, 1999 .60 to 1
Quarter ending December 31, 1999 .60 to 1
Quarter ending March 31, 2000 .60 to 1
Quarter ending June 30, 2000 .60 to 1
Quarter ending September 30, 2000 and .55 to 1
each Quarter thereafter
</TABLE>
SECTION 6.09. Minimum Consolidated Net Worth. Consolidated Net Worth
------------------------------
shall not at any date be less than the sum of (i) $575,000,000 plus (ii) 50% of
the Consolidated Net Income, if positive, for each fiscal year ending on or
after September 30, 1999, 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 (commencing
with the fiscal year ending September 30, 1999) that have ended on or before
such date.
SECTION 6.10. Interest Coverage Ratio. The Interest Coverage Ratio
-----------------------
for any fiscal quarter ending during any "Test Period" set forth below shall not
be less than the ratio set forth opposite such Test Period:
<TABLE>
<CAPTION>
Test Period Ratio
----------- -----
<S> <C>
Quarter ending September 30, 1998 2.25 to 1
Quarter ending December 31, 1998 2.25 to 1
</TABLE>
<PAGE>
100
<TABLE>
<S> <C>
Quarter ending March 31, 1999 2.25 to 1
Quarter ending June 30, 1999 2.50 to 1
Quarter ending September 30, 1999 2.50 to 1
Quarter ending December 31, 1999 2.75 to 1
Quarter ending March 31, 2000 2.75 to 1
Quarter ending June 30, 2000 3.00 to 1
Quarter ending September 30, 2000 3.00 to 1
Quarter ending December 31, 2000 3.25 to 1
Quarter ending March 31, 2001 3.25 to 1
Quarter ending June 30, 2001 and each 3.50 to 1
Quarter thereafter
</TABLE>
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 or any
reimbursement obligation in respect of any LC Disbursement 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
reimbursement obligation in respect of any LC Disbursement 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;
<PAGE>
101
(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 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
<PAGE>
102
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 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 fore going;
(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;
(n) a Change in Control shall occur; or
(o) any security interest or Lien purported to be created by
any Security Document shall cease to be, or
<PAGE>
103
shall be asserted by any of the Loan Parties not to be, a valid, perfected,
first priority (except as otherwise expressly provided in this Agreement or
such Security Document) security interest or Lien in the assets (other than
assets with an aggregate fair market value no greater than $1,000,000)
covered thereby, except as a result of the sale or other disposition of the
applicable Collateral in a transaction permitted under the Loan Documents;
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 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 and the Issuing Banks hereby irrevocably appoints
the Administrative Agent, and each of the Canadian Lenders and the Issuing Banks
of Canadian Letters of Credit 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
<PAGE>
104
delegated to such Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto. Each of the Lenders and the Issuing
Banks hereby (a) irrevocably appoints the U.S. Collateral Agent and the Canadian
Collateral Agent as its agent and authorizes such Collateral Agent to take such
actions on its behalf and to exercise such powers as are delegated to such
Collateral Agent by the terms of the Security Documents and (b) agrees to be
bound by the terms of the Security Agreement, including Section 7.17 thereto, as
if such Lender or Issuing Bank were a party 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.
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.
None of the Agents 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
<PAGE>
105
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 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
subagent 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, any Agent may resign at any time by notifying the
Lenders, the other Agents, the Issuing Banks 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
<PAGE>
106
Lenders and the Issuing Bank, 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 any of the Agents or any other Lender and based on such documents
and information as 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 any of the Agents 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
<PAGE>
107
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, any Issuing Bank, the Administrative Agent, the Canadian
Agent or either of the Collateral Agents 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, either of the Collateral Agents,
any Issuing Bank 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 be had by any Lender or Issuing Bank to any
balance of any deposit account or credit on the books of any Lender or Issuing
Bank 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, either of the
Collateral Agents, any Issuing Bank 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,
<PAGE>
108
either of the Collateral Agents, any Issuing Bank 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, either of the
Collateral Agents, any Issuing Bank 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
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 or Issuing
Bank, not consistent with the protection of its rights or interests, then, at
the election of such Lender or Issuing Bank, the Company shall make payment of
such Obligation in dollars (based upon the applicable Canadian Exchange Rate in
effect on the date of payment) and/or in New York and shall indemnify such
Lender or Issuing Bank against any losses or expenses that it shall sustain as a
result of such alternative payment.
Upon payment by the Company of any Obligation, the applicable Lender
or Issuing Bank 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 or Issuing Bank and without any representation or warranty by any
Lender) or Issuing Bank.
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 and the
Issuing Banks.
<PAGE>
109
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 1100 Cassatt
Road, Berwyn, PA 19312, Attention of Treasury Department (Telecopy No.
(610) 722-3569);
(b) if to the Administrative Agent, The Chase Manhattan Bank as an
Issuing Bank or the U.S. Collateral Agent, to The Chase Manhattan Bank, The
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New
York, New York 10081, Attention of Laura Rebecca (Telecopy No. (212) 552-
7490), with a copy to The Chase Manhattan Bank, 10 South Lasalle Street,
23rd floor, Chicago, Illinios 60642, Attention of John Twichell (Telecopy
No. (312) 807-4550);
(c) if to the Canadian Agent or the Canadian Collateral Agent, to it
at 9/F TD Bank Tower, TD Center, Toronto, Ontario M5K 1A2, Attention of
Manager, Agency (Telecopy No. 416-982-5535); and
(d) if to any other Lender or Issuing Bank, 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, any Issuing Bank, either of the
Collateral Agents 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,
<PAGE>
110
the Issuing Banks, the Collateral Agents 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 or issuance of a Letter of Credit shall not be construed as a waiver of
any Default, regardless of whether the Administrative Agent, any Lender, any
Issuing Bank, either of the Collateral Agents or the Canadian Agent may have had
notice or knowledge of such Default at the time.
(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 LC Disbursement 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 LC
Disbursement, 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, any Issuing
Bank, the Collateral Agents or the Swingline Lender hereunder without the prior
written consent of the Administrative
<PAGE>
111
Agent, the Canadian Agent, such Issuing Bank, such Collateral Agent or the
Swingline Lender, as the case may be.
SECTION 10.03. Expenses; Indemnity; Damage Waiver. (a) The Company
-----------------------------------
shall pay (i) the reasonable fees, charges and disbursements of counsel for the
Administrative Agent in connection with the syndication of the credit facilities
provided for herein and the preparation of the Loan Documents, (ii) all
reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Canadian Agent and the Collateral Agents and their respective Affiliates,
including the reasonable fees, charges and disbursements of counsel for the
Administrative Agent, the Canadian Agent or either Collateral Agent in
connection with the 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 consummated), (iii) all
reasonable out-of-pocket expenses incurred by the Canadian Agent, any Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (iv) all reasonable
out-of-pocket expenses incurred by the Administrative Agent, the Canadian Agent,
any Issuing Bank, either Collateral Agent or any Lender, including the
reasonable fees, charges and disbursements of any counsel for the Administrative
Agent, the Canadian Agent, such Issuing Bank, either Collateral 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 or Letters of Credit issued hereunder,
including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) The Company shall indemnify the Administrative Agent, the
Canadian Agent, each Issuing Bank, each of the Collateral Agents 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
<PAGE>
112
hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by an Issuing Bank to honor a demand for payment under a
Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (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, any Issuing
Bank, either of the Collateral Agents or the Swingline Lender under paragraph
(a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent, the Canadian Agent, such Issuing Bank, such Collateral
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, such Issuing Bank, such Collateral
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 Letter of Credit 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.
<PAGE>
113
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 (including any
Affiliate of an Issuing Bank that issues any Letter of Credit), except that,
other than as may be permitted pursuant to Section 6.04, 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 (including any Affiliate of an Issuing Bank that issues any
Letter of Credit) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Canadian Agent, the Issuing
Banks, the Collateral Agents 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/or 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 any
Lender's obligations in respect of its LC Exposure or Swingline Exposure, each
Issuing Bank and 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
<PAGE>
114
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 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 and LC Disbursements 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,
the Issuing Banks 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, the Issuing Banks and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
<PAGE>
115
(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 and Canadian LC
Disbursements 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, the Issuing Banks 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, the Issuing Banks 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, 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, any Issuing Bank, the Collateral
Agents 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 and LC Disbursements 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, the Issuing Banks, the Collateral Agents 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
<PAGE>
116
(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 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.
<PAGE>
117
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
and issuance of any Letters of Credit, regardless of any investigation made by
any such other party or on its behalf and notwithstanding that the
Administrative Agent, the Canadian Bank, any Issuing Bank, either of the
Collateral Agents 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 shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or LC Disbursement or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding 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 LC Disbursements, the expiration or termination of the Letters of Credit 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, and the Canadian 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
<PAGE>
118
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 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, any Issuing Bank, either of the Collateral Agents 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.
<PAGE>
119
(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 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, the Issuing Banks, the Collateral Agents 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
<PAGE>
120
or proceeding relating to any Loan Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement 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, any Issuing Bank, either of the
Collateral Agents 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, any Issuing Bank, either of the
Collateral Agents 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 of this Agreement,
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, any
Issuing Bank, the Collateral Agents 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>
121
"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.
SECTION 10.14. Lenders Bound by Decision to Exercise Remedies. Each
-----------------------------------------------
Lender agrees not to exercise its rights and remedies provided under any of the
Security Documents without the consent of the Required Lenders (or, in the case
of the Security Agreement, the Secured Parties as provided therein) and agrees
to be bound by a decision of the Required Lenders (or, in the case of the
Security Agreement, the Secured Parties as provided therein) to exercise or to
refrain from exercising the rights and remedies provided in any of the Security
Documents. Each Lender shall, subject to applicable law, do all acts and things
as may be necessary or reasonable to enable the Administrative Agent, the
Canadian Agent and the Collateral Agents to act pursuant to any decision of the
Required Lenders (or, in the case of any act under the Security Agreement, the
Secured Parties).
<PAGE>
122
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 /s/ Kathleen M. Burns
-----------------------------
Name: Kathleen M. Burns
Title: Attorney-In-Fact
UNISOURCE CAPITAL CORPORATION,
by /s/ Kathleen M. Burns
-----------------------------
Name: Kathleen M. Burns
Title: Attorney-In-Fact
UNISOURCE CANADA, INC.,
by /s/ Kathleen M. Burns
-----------------------------
Name: Kathleen M. Burns
Title: Attorney-In-Fact
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent and U.S.
Collateral Agent,
by /s/ Lawrence Palumbo, Jr.
-----------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
123
THE TORONTO-DOMINION BANK, as
Canadian Agent and Canadian
Collateral Agent,
by /s/ Derek Hannon
-----------------------------
Name: Derek Hannon
Title: Manager - Agency
Syndicated Loans
TORONTO DOMINION (TEXAS), INC., as
Documentation Agent,
by /s/ Jimmy Simien
-----------------------------
Name: Jimmy Simien
Title: Vice President
<PAGE>
124
THE TORONTO-DOMINION BANK,
by
/s/ David Pankhurst
-------------------------------
Name: David Pankhurst
Title: Vice President
Other Lenders
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by
/s/ John W. Pocalyko
-------------------------------------
Name: John W. Pocalyko
Title: Managing Director
MELLON BANK, N.A.,
by
/s/ Gilbert Mateer
-------------------------------------
Name: Gilbert Mateer
Title: Vice President
NATIONSBANK, N.A.,
by
/s/ Michael L. Short
-------------------------------------
Name: Michael L. Short
Title: Senior Vice President
DEN DANSKA BANK, AKTIESELSKAB,
CAYMAN ISLANDS BRANCH,
by
/s/ Dennis. T. Shugrue
-------------------------------------
Name: Dennis T. Shugrue
Title: International Banking Officer
THE NORTHERN TRUST COMPANY,
by
/s/ David L. Love
-------------------------------------
Name: David L. Love
Title: Second Vice President
PNC BANK, N.A.,
by
/s/ Vicky Ziff
-------------------------------------
Name: Vicky Ziff
Title: Vice Preident
<PAGE>
THE ROYAL BANK OF CANADA,
by
/s/ Shreyl L. Greenberg
--------------------------------------
Name: Sheryl L. Greenberg
Title: Senior Manager
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, SPA,
by
/s/ Lock Sacchi
--------------------------------------
Name: Lock Sacchi
Title: Vice President
THE SANWA BANK, LIMITED,
by
/s/ Joseph E. Leo
--------------------------------------
Name: Joseph E. Leo
Title: Vice President and Area Manager
THE BANK OF NOVA SCOTIA,
by
/s/ J. Alan Edwards
--------------------------------------
Name: J. Alan Edwards
Title: Authorized Signatory
SUNTRUST BANK, ATLANTA
by
/s/ W. D. Wisdom
--------------------------------------
Name: W. David Wisdom
Title: Group Vice President
SUNTRUST BANK, ATLANTA
by
/s/ Laura G. Harrison
--------------------------------------
Name: Laura G. Harrison
Title: Assistant Vice President
<PAGE>
UBS, AG, NEW YORK BRANCH
by
/s/ Eric C. Hanson
--------------------------------------
Name: Eric C. Hanson
Title: Assistant Director
/s/ Leo L Bahz
-------------------------------
Name: Leo L Bahz
Title: Director
WELLS FARGO BANK, N.A.,
by
/s/ Greg Richardson
--------------------------------------
Name: Greg Richardson
Title: Vice President
THE BANK OF NEW YORK,
by
/s/ Walter C. Parelli
--------------------------------------
Name: Walter C. Parelli
Title: Vice President
THE BANK OF TOKYO - MITSUBISHI
TRUST COMPANY,
by
/s/ M. R. Marron
--------------------------------------
Name: M. R. Marron
Title: Vice President
CIBC OPPENHEIMER,
by
/s/ Gerald Girardi
--------------------------------------
Name: Gerald Girardi
Title: Executive Director
CIBC Oppenheimer Corp., As
Agent
<PAGE>
FLEET NATIONAL BANK,
by
/s/ Jeff Lynch
--------------------------------------
Name: Jeff Lynch
Title: Senior Vice President
<PAGE>
FUJI BANK, LIMITED, NEW YORK BRANCH,
by
/s/ Toshiaki Yakura
--------------------------------------
Name: Toshiaki Yakura
Title: Senior Vice President
FIRST UNION NATIONAL BANK,
by
/s/ Thomas C. Woodward
--------------------------------------
Name: Thomas C. Woodward
Title: Vice President
THE YASUDA TRUST AND
BANKING COMPANY LIMITED,
NEW YORK BRANCH,
by
/s/ Junichiro Kawamura
--------------------------------------
Name: Junichiro Kawamura
Title: Vice President
BANK OF MONTREAL,
by
/s/ R. J. McClorey
--------------------------------------
Name: R. J. McClorey
Title: Director
BANQUE NATIONALE DE PARIS,
by
/s/ Richard L. Sted
--------------------------------------
Name: Richard L. Sted
Title: Senior Vice President
BAYERISCHE LANDESBANK GIROZENTRALE,
by
/s/ Peter Obermann
--------------------------------------
Name: Peter Obermann
Title: Senior Vice President
<PAGE>
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
by
/s/ John Dippo
--------------------------------------
Name: John Dippo
Title: Senior Vice President
DUETSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
by
/s/ Hans-Josef Thiele
--------------------------------------
Name: Hans-Josef Thiele
Title: Director
by
/s/ Stephan A. Wiedmann
--------------------------------------
Name: Stephan A. Wiedmann
Title: Director
<PAGE>
SCHEDULE 1.01(B)
Subsidiary Guarantors
---------------------
BRT, Inc.
National Sanitary Supply Company
Paper Corporation of North America
Unisource Capital Corporation
<PAGE>
Schedule 2.01
<TABLE>
<CAPTION>
Lenders Commitments
(U.S. dollars)
<S> <C>
1. First Union National Bank $ 81,000,000
2. The Chase Manhattan Bank 49,500,000
3. The Toronto-Dominion Bank and/or Toronto Dominion (New
York), Inc. 49,500,000
4. Bank of America, Illinois 45,000,000
5. Deutsche Bank AG, New York Branch and/or Cayman Islands Branch 45,000,000
6. Fleet National Bank 45,000,000
7. NationsBank, N.A. 67,500,000
8. Canadian Imperial Bank of Commerce 36,000,000
9. The Fuji Bank, Limited, New York Branch 36,000,000
10. PNC Bank, National Association 36,000,000
11. Royal Bank of Canada 36,000,000
12. The Sanwa Bank Limited 36,000,000
13. Bank of Montreal 22,500,000
14. The Bank of New York 22,500,000
15. The Bank of Nova Scotia 22,500,000
16. Bank of Tokyo-Mitsubishi Trust Company 22,500,000
17. Banque Nationale de Paris 22,500,000
18. Bayerische Landesbank Girozentrale, Cayman Islands Branch 22,500,000
19. Den Danske Bank Aktieselskab, Cayman Islands Branch 22,500,000
20. The Industrial Bank of Japan Trust Company 22,500,000
21. Mellon Bank, N.A. 22,500,000
22. The Northern Trust Company 22,500,000
23. Istituto Bancario San Paolo di Torino, Spa 22,500,000
24. SunTrust Bank, Atlanta 22,500,000
25. Union Bank of Switzerland, New York Branch 22,500,000
26. Wells Fargo Bank, N.A. 22,500,000
27. The Yasuda Trust and Banking Company Limited 22,500,000
Total $900,000,000
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
Canadian
Commitments
Canadian Lenders (U.S. dollars)
<S> <C>
1. The Toronto-Dominion Bank $ 18,000,000
2. Bank of Montreal 12,000,000
3. Canadian Imperial Bank of Commerce 12,000,000
4. Royal Bank of Canada 12,000,000
5. The Chase Manhattan Bank and/or The Chase Manhattan Bank of Canada 6,000,000
Total $ 60,000,000
</TABLE>
<TABLE>
<CAPTION>
Swingline
Commitments
Swingline Lenders (U.S. dollars)
<S> <C>
1. The Chase Manhattan Bank $ 30,000,000
2. The Toronto-Dominion Bank 30,000,000
3. PNC Bank, National Association 15,000,000
4. Bank of America National Trust and Savings Association 25,000,000
5. First Union National Bank. 22,500,000
Total $122,500,000 *
</TABLE>
______________
* Subject to Section 2.05(a)(ii) limitation.
<PAGE>
Schedule 2.20(a)
Unisource Worldwide, Inc.
Letter of Credit Summary
September 23, 1998
<TABLE>
<CAPTION>
Date Letter of Expiration
Opened Bank Credit Amount Beneficiary Location Date
- -------- ------------ ----------- ------------ --------------------------------- -------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
08/17/98 First Union 406440 600,000.00 Automatic Data Processing, Inc. Corporate 08/17/99
03/12/98 Fleet Bank FS1094031 307,800.00 Town of Babylon Ind. Development Spiro Wallach 03/12/99
04/01/98 Den Danske 5618-97NY 2,437,500.00 Lumbermens Mutual Casualty Company Corporate Self Insurance Program 04/01/99 (2)
01/16/97 Fleet Bank FS1053472 2,708,160.00 Liberty Mutual Insurance Company Corporate Self Insurance Program 12/31/98 (2)
11/30/94 NationsBank (1) 41130 5,700,000.00 Norwest Bank Columbus IRB 11/30/98 (2)
-------------
$5,700,000.00
=============
(1)-Shown as IRB debt on Balance Sheet
(2)-Annual Evergreen
</TABLE>
<PAGE>
SCHEDULE 3.06
-------------
Disclosed Matters
-----------------
The following Disclosed Matters (as such term is defined in the Credit
Agreement to which this Schedule is attached) are being disclosed pursuant to
Section 3.06 of the Credit Agreement. The inclusion of any such matters should
not be construed as an expression of any view as to the materiality of any such
matters individually or in the aggregate.
1. TRU-TECH GROUP, INC. V. UNISOURCE WORLDWIDE, INC.
-------------------------------------------------
Plaintiff brought suit against the Company in the Circuit Court of the
Fifteenth Judicial Circuit (Palm Beach County, Florida) alleging breach of
contract and fraud in connection with the Company's termination of a
licensing agreement to manufacture products using a technology relating to
the lamination of paper to film and/or foil. Plaintiff has submitted a
Proposal for Settlement in the amount of $4.5 million. Company does not
believe exposure will be over $5 million.
<PAGE>
CORPORATE CHART
<TABLE>
<CAPTION>
----------------------------
UNISOURCE WORLDWIDE, INC.
(DE) ("UWW")
----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------- --------------- ------------------- ------------------
UniMadison Packaging National Sanitary The Unisource
Inc. Concepts Supply Foundation (PA) ----------------
(WI) International Corporation (DE) (non-profit corp.) BRT, Inc. (DE)*
------------- Corp. (NJ) ------------------- ------------------ ----------------
---------------
- ----------------- -------------- ------------- -------------------- ------------------ ------------------
Unisource Capital Unisource Unisource Portfolio Receiv- Portfolio Receiv- Paper
Corporation* International,Inc Sales ables, LLC ables, Inc. (DE) Corporation of
(DE) (DE) ("UI") Corporation (DE ("PR") North America (DE)
- ----------------- -------------- (DE) (99.9999% by UWW; ------------------ ("PCNA")
------------- .0001% by PR ------------------
--------------------
- ----------------- ------------------ ------------------- ------------------- ---------------- -------------------
Unisource Unisource Unisource Unisource Interna- Unisource Canada Unisource
International International International Hong tional (South East Inc.* Distribudora, S.A de
Limited (Jamaica) Handelgesellschaft Kong Limited (Hong Asia) PTE Limited (Canada) C.V. (Mexico)
(99.95% owned m.b.H. (Austria) Kong) (99% (Singapore) (99% ---------------- ("USDA")
by UI; .05% (99% owned by owned by UI; 1% owned by UI; 1% -------------------
owned by third UI; 1% owned by owned by third owned by third
party) third party) party) party)
- ----------------- ------------------ ------------------- -------------------
--------------------- ---------------------
Unisource Planeacion, Unisource del Bajio y
S.A. de C.V. (Mexico) Occidente (Mexico)
(99.99% owned by (99.99% owned by
USDA; .01% owned USDA; .01% owned
by US) by US)
--------------------- ---------------------
--------------------- ----------------------
Unisource Sevicos, Unisource del Pacifico
S.A. de C.V. (Mexico) S.A. de C.V. (Mexico)
("US") (99.99% (99.99% owned by
owned by USDA; USDA; .01% owned by
.01% owned US)
by PCNA) -----------------------
---------------------
<CAPTION>
<S> <C> <C> <C> <C>
-------------- --------------- -------------------
Unisource Alco Realty, Unisource
Partners Loan Inc. (DE) Realty, Inc. (DE)
Company (DE) --------------- -------------------
--------------
----------------- ---------------- ----------------
The Unisource Alco Canada Facility Works,
Corporation (TX) Realty Ltd LLC (IL) (48%
----------------- (Canada) ("ACR") owned by UWW;
---------------- 51% owned by
third party)
----------------
------------------
Braces Properties
Corporation
(Canada)
(50% owned by
ACR; 50% owned
by third party)
------------------
--------------------- ---------------------- -----------------------
Unisource Pimsa, S.A Unisource del Centro, Servicios Corporativos,
de C.V. (Mexico) S.A. de C.V. (Mexico) Unisource, S.A. de C.V.
(99.99% owned by (99.99% owned by (Mexico)
USDA; .01% owned USDA; .01% owned (99.99% owned by
by US) by US) USDA; .01% owned
--------------------- --------------------- by US)
-----------------------
----------------------- ------------------------
Unisource Empaque Unisource del Noreste,
S.A. de C.V. (Mexico) S.A. de C.V. (Mexico)
(99.99% owned by (99.99% owned by
USDA; .01% owned by USDA; .01% owned
by US) by US)
---------------------- ------------------------
</TABLE>
Unless otherwise noted, companies are owned 100% by the entity above them.
*Denotes material subsidiary.
Prepared by the Law Department.
as of 6/98
<PAGE>
SCHEDULE 6.01
-------------
Existing Indebtedness
---------------------
1. Continuing Guaranty dated July 17, 1997 of Unisource Worldwide, Inc. in
favor of Bank of America National Trust and Savings Association,
guaranteeing the obligations of Unisource Distribuidora, S.A. de C.V.,
Unisource del Bajio y Occidente, S.A. de C.V., Unisource del Noreste, S.A.
de C.V. and Unisource del Centro, S.A. de C.V. to Bank of America National
Trust and Savings Association under a certain agreement dated July 16,
1997, relating to a $10,000,000 Credit Facility (see item #11 below).
2. First Union Letter of Credit (#172958) for $36,921.60 for the benefit of
K-Line/Kerr Steamship Co.
3. SunTrust Letter of Credit F500716, for $3,565,000.00, in favor of Paper
Corporation of America and Alco Standard Corporation, pursuant to a Letter
of Credit Agreement dated as of June 1, 1991 among Paper Corporation of
America, Alco Standard Corporation and Trust Company Bank.
4. Swap Agreements dated September 23, 1996 and September 12, 1996 between
Unisource Worldwide, Inc. and NationsBank, N.A. pursuant to a Master
Agreement dated as of September 10, 1996.
5. Swap Agreements dated October 17, 1996 and November 27, 1997 between
Unisource Worldwide, Inc. and Bank of America National Trust and Savings
Association pursuant to a Master Agreement dated as of October 10, 1996.
6. Swap Agreement between Unisource Worldwide, Inc. and Deutsche Bank pursuant
to a Letter Agreement dated October 10, 1996.
7. Master Swap Agreement between Unisource Worldwide, Inc. and Lehman Brothers
Inc. dated as of September 11, 1996.
8. Swap Agreement dated June 30, 1997 between Unisource Worldwide, Inc. and
Royal Bank of Canada, pursuant to a Confirmation Agreement of even date
therewith.
9. Swap Agreement dated September 23, 1996 between Unisource Worldwide, Inc.
and The Chase Manhattan Bank, pursuant to a Master Agreement dated as of
even date therewith.
<PAGE>
10. Uncommitted $8,000,000.00 Loan Facility Agreement dated June 6, 1997
between Unisource Worldwide, Inc. and SunTrust Bank, Atlanta.
11. Agreement dated July 16, 1997 regarding $10MM Credit Facility for Mexican
Subsidiary.
12. Any other indebtedness reflected in Schedule 2.20(a).
13. Any other indebtedness reflected below:
Maturity
Description Date Amount
------------------------------- ---------------- -----------
Industrial Revenue Bond 2000 $ 56
Capital leases - phones various $ 20
Capital leases - vehicles various $ 429
Capital leases - forklift December 98 $ 2
Capital leases - real estate various $ 11,091
Capital leases - other various $ 367
Loan - insurance policy $ 140
Miscellaneous various $ 1,518
-----------
$ 13,623
===========
2
<PAGE>
SCHEDULE 6.02
-------------
Existing Liens
--------------
1. Liens securing indebtedness reflected in item nos. 3 and 13 of Schedule
6.01.
2. Landlord lien against assets located on leased real property in Quebec,
Canada: Rue Newton, Quebec City, Quebec, Canada; and Cote de Liesse, St.
Laurent, Quebec, Canada.
3. Liens under SunTrust Synthetic Lease: Lease and Development Agreement,
dated as of November 8, 1994, as modified from time to time and as assigned
to SunTrust Bank by PPI SPV, L.P., pursuant to the Loan Agreement dated as
of November 8, 1994, as amended from time to time, between PPI SPV, L.P.
and SunTrust.
4. Lien evidenced by the financing statements reflected on attached list on
the specific collateral covered by such financing statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DEBTOR PARTY SECURED PARTY WHAT FOR FILE NUMBER DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Clark Group Modern Handling forklift 1739749 12/18/96
Limited, (Inc.), Equipment of N.J., Inc.,
East Rutherford, Edison, NJ
NJ
- --------------------------------------------------------------------------------------------------------------
Clark Group Modern Handling forklift 1725065 10/02/96
Limited, (Inc.), Equipment of N.J., Inc.,
East Rutherford, Edison, NJ
NJ
- --------------------------------------------------------------------------------------------------------------
Clark Group Associates Leasing Inc., forklift 1634968 03/07/95
Limited, Kearny, Cleveland, OH
NJ
- --------------------------------------------------------------------------------------------------------------
Clark Group Associates Leasing Inc., forklift 1611518 01/03/95
Limited, Kearny, Cleveland, OH
NJ
- --------------------------------------------------------------------------------------------------------------
Clark Group LTD, Modern Handling forklift 1631832 04/27/95
East Rutherford, Equipment of N.J., Inc.,
NJ Edison, NJ
- --------------------------------------------------------------------------------------------------------------
Clark Group LTD, Modern Handling forklift 1617742 02/09/95
East Rutherford, Equipment of N.J., Inc.,
NJ Edison, NJ
- --------------------------------------------------------------------------------------------------------------
Columbia Monterey Leasing, equipment 963460234 12/11/96
Packaging, Pasco, Yakima, WA
WA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 9712060544 04/28/97
Company (Inc.), CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 9712060558 04/28/97
Company (Inc.), CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent RJMS Corp. dba Toyota equipment 9712060537 04/28/97
Company (Inc.), Material Handling
Richmond, CA Northern California,
Hayward, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 9524360195 08/28/95
Company, Inc., CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 9524360203 08/28/95
Company, Inc., CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Tenant Company, power sweeper and 9517860367 06/23/95
Company, Inc., Minneapolis, MN options
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Hewlett-Packard equipment 9525760316 09/08/95
Company, Company, Finance &
Richmond, CA Remarketing Division,
Sunnyvale, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 93244326 12/06/93
Company, CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 93244327 12/06/93
Company, CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Conifer Crent Perin Co., Inc., Hayward, forklift 94163349 08/10/94
Company, CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Perin Co., Inc., Hayward, forklift 94163350 08/10/94
Company, CA
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Siemens Credit telephone system lease 93190248 09/17/93
Company, Corporation, Boca Raton, and installation
Richmond, CA FL
- --------------------------------------------------------------------------------------------------------------
Conifer Crent Yale Financial Services, equipment 93128920 06/24/93
Company, Inc., Flemington, NJ
Richmond, CA
- --------------------------------------------------------------------------------------------------------------
Engineered Cargill Leasing equipment D125389 08/07/96
Packaging Systems, Corporation, Minneapolis,
a Division of MN
Unisource
Worldwide,
Oshtemo, MI
- --------------------------------------------------------------------------------------------------------------
Foremost Ferdon Equipment forklifts 1705474 06/19/96
Corrugated Company, Union, NJ
Company, Inc.,
Moonachie, NJ
- --------------------------------------------------------------------------------------------------------------
Foremost Ferdon Equipment forklifts 1636968 05/26/9(?)
Corrugated Company, Union, NJ
Company, Inc.,
Moonachie, NJ
- --------------------------------------------------------------------------------------------------------------
National Sanitary Federal Sign, Division of roof sign 172305 08/29/96
Supply Co., Federal Signal
Houston, TX Corporation, Houston, TX
- --------------------------------------------------------------------------------------------------------------
National Sanitary Federal Sign, Division of sign, letters and 913866 09/09/96
Supply Co., Federal Signal overlay face
Houston, TX Corporation, Houston, TX
- --------------------------------------------------------------------------------------------------------------
National Sanitary Portman Equipment lift trucks 9802002459 04/30/98
Supply Company, Company, Monroe, OH
Fairfield, OH
- --------------------------------------------------------------------------------------------------------------
National Sanitary General Electric Co., lamps and bulbs M87854 09/16/88,
Supply Company, Lighting Business Group, continued
Los Angeles, CA Cleveland, OH
- --------------------------------------------------------------------------------------------------------------
National Sanitary General Electric Co., lamps and bulbs 545989 09/15/88,
Supply Company, Lighting Business Group, continued
Los Angeles, CA Cleveland, OH
- --------------------------------------------------------------------------------------------------------------
National Sanitary State Board of tax lien 961569178 09/24/96
Supply Company, Equalization, Sacramento,
Los Angeles, CA CA
- --------------------------------------------------------------------------------------------------------------
Packaging Minnesota Lift Truck, forklift 1626526 11/01/93
Consultants, Inc., Brooklyn Park, MN
Minneapolis, MN
- --------------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93122665 06/21/93
of America, Providence, RI
Carson, CA
- --------------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor trailer and 93146366 07/22/93
of America, Providence, RI accessories
Carson, CA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paper Corporation Fleet Credit Corporation, van and accessories 93258721 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258722 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258723 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258754 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258755 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 932587556 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258757 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258758 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258759 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258761 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, van and accessories 93258762 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258763 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258765 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258766 12/27/93
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 94020760 02/03/94
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 94022911 02/09/94
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 94028639 02/16/94
of America, Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258743 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258744 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258745 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258746 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258747 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258748 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, van and accessories 93258749 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, van and accessories 93258750 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258751 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258752 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258753 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 93258724 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, van and accessories 93258726 12/27/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractor and accessories 748246 06/21/93
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation Fleet Credit Corporation, tractors 783825 04/25/94
of America, Providence, RI
Carson, CA
- ---------------------------------------------------------------------------------------------------------
Paper Corporation General Electric lights 223018 08/10/93
of America, Unijax Company, GE Lighting
Sloan, Cleveland, OH
Jacksonville, FL
- ---------------------------------------------------------------------------------------------------------
Paper Plus, Southwestern Bell equipment 229263 11/29/95
Houston, TX Telecommunications, Inc.
dba Southwestern Bell
Telecom, Richardson, TX
- ---------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peerless Products Legacy Financial dba conveyor dishmachine 438358 05/12/95
Company, Salt Legacy Leasing, Murray,
Lake City, UT UT
- ---------------------------------------------------------------------------------------------------------
Peerless Products Legacy Financial Inc., equipment 428053 02/23/95
Company, Salt Murray, UT
Lake City, UT
- ---------------------------------------------------------------------------------------------------------
Rollsource, a International Paper paper 3474311 11(?)/29/95
division of Company, Memphis, TN
Unisource
Worldwide, Des
Plaines, IL
- ---------------------------------------------------------------------------------------------------------
Rollsource, a International Paper paper 3474311 (?)/29/95
division of Company, Memphis, TN
Unisource
Worldwide, Des
Plaines, IL
- ---------------------------------------------------------------------------------------------------------
Rollsource, a International Paper envelope paper 3723618 08/01/97
Unisource division, Company, Memphis, TN
Des Plaines, IL
- ---------------------------------------------------------------------------------------------------------
Santa Rosa Paper Bay West Paper paper towels 408719 02/03/98
Company, Santa Corporation
Rosa, CA
- ---------------------------------------------------------------------------------------------------------
Santa Rosa Paper Bay West Paper paper towels and 9800260299 12/29/97
Company, Santa Corporation, a Mosinee accessories
Rosa, CA subsidiary, Harrodsburg,
KY
- ---------------------------------------------------------------------------------------------------------
Santa Rosa Paper Warren Capital forklifts and ramp 9633760088 11/27/96
Company, Santa Corporation, Novato, CA system
Rosa, CA
- ---------------------------------------------------------------------------------------------------------
Santa Rosa Paper Warren Capital computer equipment and 9706961371 03/05/97
Company, Santa Corporation, Novato, CA building materials
Rosa, CA
- ---------------------------------------------------------------------------------------------------------
Set Point Paper Lewis/Boyle, Inc., pallet truck and 9859 01/17/95
Co., Inc., Waltham, MA accessories
Mansfield, MA
- ---------------------------------------------------------------------------------------------------------
Set Point Paper Lewis/Boyle, Inc., order picker and 9793 10/11/94
Co., Inc., Waltham, MA accessories
Mansfield, MA
- ---------------------------------------------------------------------------------------------------------
Set Point Paper Lewis/Boyle, Inc., pallet truck and 9811 10/31/94
Co., Inc., Waltham, MA accessories
Mansfield, MA
- ---------------------------------------------------------------------------------------------------------
Set Point Inc., Crellin Handling equipment 221510 03/14/94
Mansfield, MA Equipment, E.
Providence, RI
- ---------------------------------------------------------------------------------------------------------
Set Point Inc., Crellin Handling equipment 9664 03/14/94
Mansfield, MA Equipment, E.
Providence, RI
- ---------------------------------------------------------------------------------------------------------
Spiro-Wallach Advanta Leasing Corp., cameras and video 942089 12/27/94
Company, Inc., Voorhees, NJ equipment
Glendale, NY
- ---------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sunland Sanitary Forklift Systems, Inc., forklift 960212011 02/12/96
Supply, Inc., Denver, CO
Albuquerque, NM
- ------------------------------------------------------------------------------------------------
Sunland Sanitary Forklift Systems, Inc., forklift 962003074 01/11/96
Supply, Inc., Denver, CO
Pueblo, CO
- ------------------------------------------------------------------------------------------------
Turnquist, Inc., National City Bank of equipment 1672556 05/09/94
A/k/a Turnquist Minneapolis
Paper Company,
Brooklyn Park,
MN
- ------------------------------------------------------------------------------------------------
Unisource Atlas Lift Truck Rentals forklift and equipment 3387556 04/12/95
Worldwide dba & Sales, Inc., Schiller
RollSource, Des Park, IL
Plaines, IL
- ------------------------------------------------------------------------------------------------
Unisource Atlas Lift Truck Rentals forklift 3387556 04/12/95
Worldwide dba & Sales, Inc., Schiller
RollSource, Des Park, IL
Plaines, IL
- ------------------------------------------------------------------------------------------------
Unisource Yale/Chase Materials forklift and accessories 9821060070 07/27/98
Worldwide, Handling, Inc., City of
Huntington Beach, Industry, CA
CA
- ------------------------------------------------------------------------------------------------
Unisource Triangle Home Products, foam blocks 3469348 11/13/95
Worldwide, Inc., Inc., Chicago, IL
Dba Fleetwood
Paper Company,
Addison, IL
- ------------------------------------------------------------------------------------------------
Unisource Rock-Tenn Converting hot melt midget sealer 053144 10/15/97
Worldwide, Inc., Company, Norcross, GA
Dba Mack-Pak
Division,
Oklahoma City,
OK
- ------------------------------------------------------------------------------------------------
Unisource Rock-Tenn Converting hot melt midget sealer 233521 11/12/97
Worldwide, Inc., Company, Norcross, GA
Dba Mack-Pak
Division,
Oklahoma City,
OK
- ------------------------------------------------------------------------------------------------
Unisource Rock-Tenn Converting hot melt midget sealer 053144 10/15/97
Worldwide, Inc., Company, Norcross, GA
Dba Mack-Pak
Division,
Oklahoma City,
OK
- ------------------------------------------------------------------------------------------------
Unisource Rock-Tenn Converting hot melt midget sealer 233521 11/12/97
Worldwide, Inc., Company, Norcross, GA
Dba Mack-Pak
Division,
Oklahoma City,
OK
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource NFC Financial, Corte equipment 198731 10/10/94
Worldwide, Inc. Madera, CA
dba Unisource
Paper Company,
Houston, TX
- ----------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation tractor and accessories 94061730 04/06/94
Worldwide, Inc. Providence, RI
fka Paper
Corporation of
America, Carson,
CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation tractor and accessories 9404436 04/14/94
Worldwide, Inc. Providence, RI
fka Paper
Corporation of
America, Carson,
CA
- ----------------------------------------------------------------------------------------------
Unisource First Access, Bedford forklift 3759238 11/04/97
Worldwide, Inc., Park, IL
Addison, IL
- ----------------------------------------------------------------------------------------------
Unisource First Access, Bedford forklift 3851676 05/18/98
Worldwide, Inc., Park, IL
Addison, IL
- ----------------------------------------------------------------------------------------------
Unisource Triangle Home Products, foam blocks (?) (?)
Worldwide, Inc., Chicago, IL
Addison, IL
- ----------------------------------------------------------------------------------------------
Unisource Siemens Credit telephone equipment 172736 08/11/98
Worldwide, Inc., Corporation, Bridgewater,
Berwyn, PA NJ
- ----------------------------------------------------------------------------------------------
Unisource Siemens Credit telephone system 98014751 08/18/98
Worldwide, Inc., Corporation, Bridgewater, upgrade
Berwyn, PA NJ
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, van and accessories B806932 08/06/98
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor trailers (?) 04/20/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor and accessories 94120531 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor and accessories 94120532 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor and accessories 94120533 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor and accessories 94120534 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
Unisource Fleet Capital Corporation, tractor and accessories 94120535 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource Fleet Credit Corporation, tractor and accessories 94120536 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94120537 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94120538 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94120539 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94120540 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94120542 06/14/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94151253 (?)/(?)/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94154762 07/29/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 94174728 08/26/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560225 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560227 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560230 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560236 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560239 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9433960371 11/17/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9433960376 11/17/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 9429560242 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- ----------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource Fleet Credit Corporation, tractor and accessories 9429560247 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 224662 06/16/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 224663 06/16/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 224664 06/16/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 224665 06/16/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 224666 06/16/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories 235526 09/(?)/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Fleet Credit Corporation, tractor and accessories B631569 10/06/94
Worldwide, Inc., Providence, RI
Carson, CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck and accessories 94178443 08/30/94
Worldwide, Inc., Corporation, Costa Mesa,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck and accessories 94178448 08/30/94
Worldwide, Inc., Corporation, Costa Mesa,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck and accessories 9434660568 11/22/94
Worldwide, Inc., Corporation, Costa Mesa,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck with van body and B636534 11/18/94
Worldwide, Inc., Corporation, Costa Mesa, tractor
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9501861157 01/03/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9501861162 01/03/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9501861170 01/03/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9507661030 03/15/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9500081 01/03/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource Pitney Bowes Credit tractor and accessories 9500082 01/03/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- --------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit tractor and accessories 9503559 03/15/95
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- --------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck and accessories 408825 08/29/94
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- --------------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit truck and accessories 408826 08/29/94
Worldwide, Inc., Corporation, Seal Beach,
Carson, CA CA
- --------------------------------------------------------------------------------------------------------------
Unisource El Camino Resources, master lease and 94-133726 08/01/94
Worldwide, Inc., Ltd., Woodland Hills, CA equipment thereunder
Cincinnati, OH
- --------------------------------------------------------------------------------------------------------------
Unisource El Camino Resources, master lease and 95-8542 01/23/95
Worldwide, Inc., Ltd., Woodland Hills, CA equipment thereunder
Cincinnati, OH
- --------------------------------------------------------------------------------------------------------------
Unisource Potlatch Corporation, paper roll stock 9620860456 07/24/96
Worldwide, Inc., Santa Ana, CA
City of Commerce,
CA
- --------------------------------------------------------------------------------------------------------------
Unisource Raymond Leasing reach trucks and 9814060238 05/18/98
Worldwide, Inc., Corporation, Greene, NY batteries
Commerce, CA
- --------------------------------------------------------------------------------------------------------------
Unisource Raymond Leasing reach trucks and 9814060241 05/18/98
Worldwide, Inc., Corporation, Greene, NY batteries
Commerce, CA
- --------------------------------------------------------------------------------------------------------------
Unisource Raymond Leasing orderpickers and 9814060247 05/18/98
Worldwide, Inc., Corporation, Greene, NY batteries
Commerce, CA
- --------------------------------------------------------------------------------------------------------------
Unisource Raymond Leasing fork truck 9814060256 05/18/98
Worldwide, Inc., Corporation, Greene, NY
Commerce, CA
- --------------------------------------------------------------------------------------------------------------
Unisource Raymond Leasing fork trucks 9814060258 05/18/98
Worldwide, Inc., Corporation, Greene, NY
Commerce, CA
- --------------------------------------------------------------------------------------------------------------
Unisource American Business control station with 089353 05/06/96
Worldwide, Inc., Leasing, Inc., Bala accessories
Dallas, TX Cynwyd, PA
- --------------------------------------------------------------------------------------------------------------
Unisource CLG, Inc., Raleigh, NC equipment lease 191458 09/26/96
Worldwide, Inc.,
Dallas, TX
- --------------------------------------------------------------------------------------------------------------
Unisource Vanguard Financial inkjet plotter 238967 12/14/95
Worldwide, Inc., Service Corp., Lombard,
Dallas, TX IL
- --------------------------------------------------------------------------------------------------------------
Unisource Hewlett-Packard equipment 28850159 04/23/98
Worldwide, Inc., Company, Finance &
Exton, PA Remarketing Division,
Atlanta, GA
- --------------------------------------------------------------------------------------------------------------
Unisource Hewlett-Packard equipment ST98-1180 04/23/98
Worldwide, Inc., Company, Finance &
Exton, PA Remarketing Division,
Atlanta, GA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource M&SD Financial telecommunications 28250139 11/21/97
Worldwide, Inc., Services, a Division of equipment and lease of
Exton, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 28550227 02/10/98
Worldwide, Inc., Services, a Division of equipment and lease of
Exton, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 29050637 06/16/98
Worldwide, Inc., Services, a Division of equipment and lease of
Exton, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications ST97-3788 11/21/97
Worldwide, Inc., Services, a Division of equipment and lease of
Exton, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 418502 04/16/98
Worldwide, Inc., Services, a Division of equipment and lease of
Exton, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource Portfolio Receivables receivables 28060896 10/03/97
Worldwide, Inc., LLC, Wilmington, DE
Exton, PA
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 940000142951 07/15/94
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 950000046311 03/08/95
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 950000160184 08/10/95
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 960000063193 03/28/96
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 970000169895 07/30/97
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 980000015067 01/22/98
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource First Fleet Corporation, trucks and tractor 980000173779 08/05/98
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, tractors 950000015124 01/24/95
Worldwide, Inc., Ft. Lauderdale, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource IBM Credit Corporation, computer equipment 980000145914 07/02/98
Worldwide, Inc., Aramonk, NY
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource Sun Financial Group, Inc., equipment 950000184112 09/13/95
Worldwide, Inc., Tampa, FL
Jacksonville, FL
- --------------------------------------------------------------------------------------------------------------
Unisource The CIT Group/ assignment of tractors 950000203187 10/09/95
Worldwide, Inc., Equipment Financing, on 950000015124
Jacksonville, FL Inc., Atlanta, GA
- --------------------------------------------------------------------------------------------------------------
Unisource Servco Financial Corp., 7 Mobile Radios 95-089967 (?) July (?), 1995
Worldwide, Inc., Equipment Leasing 2 Portable Radios
Kapolei, HI Group, Honolulu, HI 2 Remote Speaker Mic
7 Mobile Installation
- --------------------------------------------------------------------------------------------------------------
Unisource Arbor Handling Services, equipment 24110766 03/23/95
Worldwide, Inc., Inc., Willow Grove, PA
Norristown, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Arbor Handling Services, equipment 24370495 06/13/95
Worldwide, Inc., Inc., Willow Grove, PA
Norristown, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Ameritech Credit telecommunications and 2110280 03/11/97
Worldwide, Inc., Corporation, Rolling data equipment
Wayne, PA Meadows, IL
- --------------------------------------------------------------------------------------------------------------
Unisource Ameritech Credit telecommunications and 26450345 03/11/97
Worldwide, Inc., Corporation, Rolling data equipment
Wayne, PA Meadows, IL
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., prime mover and 26311017 01/28/97
Worldwide, Inc., Irving, TX equipment
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., equipment 26311018 01/28/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., equipment 26311019 01/28/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., equipment 26311028 01/28/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., equipment 26311029 01/28/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., equipment 26311133 01/28/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Associates Leasing, Inc., forklift 28330112 12/18/97
Worldwide, Inc., Irving, TX
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unisource First Fleet Corporation, trucks (tractors) 23190941 06/03/94
Worldwide, Inc., Fort Lauderdale, FL
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource First Fleet Corporation, trucks (tractors) 23190942 (?)/(?)/94
Worldwide, Inc., Fort Lauderdale, FL
Wayne, PA
- --------------------------------------------------------------------------------------------------------------
Unisource Integrated Systems ISSC Inventory 25210654 03/01/96
Worldwide, Inc., Solutions Corporation, Management System
Wayne, PA White Plains, NY
- --------------------------------------------------------------------------------------------------------------
Unisource Integrated Systems inventory management 96-200464 03/05/96
Worldwide, Inc., Solutions Corporation, system
Wayne, PA White Plains, NY
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 3686037 05(?)/06/97
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 24670474 09/14/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, Pa Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 24911140 11/27/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 25011274 12/26/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 26651463 05/07/97
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 9526160763 09/14/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 9536160245 12/26/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 178118 09/14/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 950000235362 11/22/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 950000241232 12/04/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 256391 09/18/95
Worldwide, Inc., Servics, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 258117 12/29/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------
Unisource M&SD Financial telecommunications 471213 09/14/95
Worldwide, Inc., Services, a Division of equipment and lease of
Wayne, PA Electronic Data Systems same
Corporation, Lyndhurst,
NJ
- --------------------------------------------------------------------------------------------------------
Unisource O/E Systems, Inc. dba equipment and personal 25660084 07/15/96
Worldwide, Inc., M/C Leasing, Troy, MI property
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource O/E Systems, Inc. dba equipment and personal 105246 05/28/96
Worldwide, Inc., M/C Leasing, Troy, MI property
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PA Industrial Equipment, forklifts 23041334 04/20/94
Worldwide, Inc., Inc., Pottstown, PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PA Industrial Equipment, forklifts trucks 247143 04/27/94
Worldwide, Inc., Inc., Pottstown, PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, property and buildings 23711381 11/15/94
Worldwide, Inc., PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, property and buildings 23711384 11/15/94
Worldwide, Inc., PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, land, property and 23731645 11/22/94
Worldwide, Inc., PA buildings
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, buildings and land 9433760230 11/15/94
Worldwide, Inc., PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, buildings and property 22038 11/15/94
Worldwide, Inc., PA
Wayne, PA
- --------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., Bensalem, real estate 00146515 11/15/94
Worldwide, Inc., PA
Wayne, PA
- -----------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., property and buildings 24650342 09/07/95
Worldwide, Inc., Jenkintown, PA
Wayne, PA
- -----------------------------------------------------------------------------------------------------------
Unisource PPI SPV, L.P., buildings and property 172806 09/07/95
Worldwide, Inc., Jenkintown, PA
Wayne, PA
- -----------------------------------------------------------------------------------------------------------
Unisource Q/E Systems, Inc. dba equipment and personal 2250607 05/29/96
Worldwide, Inc., K/C Leasing, Troy, MI property
Wayne, PA
- -----------------------------------------------------------------------------------------------------------
Unisource Amplicon, Inc., Santa trucks and truck bodies 23430085 08/16/94
Worldwide, Inc./ Ana, CA
Weiss Miquon
Division, West
Point, PA
- -----------------------------------------------------------------------------------------------------------
Unisource Pitney Bowes Credit equipment 1638602 08/14/95
Windsor, CT Corporation, Norwalk, CT
- -----------------------------------------------------------------------------------------------------------
Weiss Bros. Amplicon, Inc., Santa trucks and truck bodies 22441786 10/01/93
Miquon, Ana, CA
Incorporated, West
Point, PA
- -----------------------------------------------------------------------------------------------------------
National Sanitary (?) equipment AN05138 09/23/96
Supply, Cincinnati,
OH
- -----------------------------------------------------------------------------------------------------------
National Sanitary IBM Corporation, White IBM equipment and AN28976 12/27/96
Supply, Cincinnati, Plains, NY upgrades
OH
- -----------------------------------------------------------------------------------------------------------
Unisource EL Camino Resources, master lease and AL18082 07/29/94
Worldwide, Inc., Ltd., Woodland Hills, CA computer equipment
Cincinnati, OH thereunder
- -----------------------------------------------------------------------------------------------------------
Unisource El Camino Resources master lease and AL57464 01/19/95
Worldwide, Inc., Ltd., Woodland Hills, CA computer equipment
Cincinnati thereunder
- -----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
SCHEDULE 6.07
Existing Restrictions
---------------------
1. Uncomitted Loan Facility Agreement by between Unisource
Worldwide, Inc. ("Sponsor") and SunTrust Bank, Atlanta ("Bank"):
2. Receivables Purchase Agreement and Guarantee between Unisource
Canada, Inc. ("Seller"), The Trust Company of Bank of Montreal ("Trustee"),
Unisource Worldwide, Inc. ("Guarantor"), Nesbitt Burns, Inc. ("Securitization
Agent") and IKON Office Solutions, dated September 24, 1992.
3. Receivables Sale Agreement among Profolio Receivable LLC
("Seller"), Unisource Worldwide, Inc. ("Collection Agent"), Asset Securitization
Cooperative Corporation ("Purchaser") and Canadian Imperial Bank of Commerce
("Servicing Agent"), dated as of October 1, 1997.
4. Lease and Development Agreement dated as of November 8, 1994
between PPISPV, L.P., as Lessor, and Unisource Worldwide, Inc., as Lessee
5. Reimbursement Agreement between Alco Standard Corporation
("Company") and NationsBank of North Carolina, N.A., dated as of November 30,
1994
6. Related documents to the documents listed in items 1 through 5
above.
<PAGE>
Exhibit A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit Agreement dated
as of September 25, 1998 (as amended, modified, supplemented or waived, the
"Credit Agreement"), among Unisource Worldwide, Inc., Unisource Capital
----------------
Corporation, Unisource Canada, Inc., the Lenders party thereto, The Chase
Manhattan Bank, as Administrative Agent and U.S. Collateral Agent, The Toronto-
Dominion Bank, as Canadian Agent and Canadian Collateral Agent, and The Toronto
Dominion (Texas), Inc., as Documentation Agent. Capitalized terms used but not
defined herein shall have the meanings specified in the Credit Agreement.
1. The Assignor named below hereby sells and assigns, without
recourse to the Assignor, to the Assignee named below, and the Assignee hereby
purchases and assumes, without recourse to the Assignor, from the Assignor,
effective as of the Assignment Date set forth below, the interests set forth
below (the "Assigned Interest") in the Assignor's rights and obligations under
-----------------
the Credit Agreement, including, without limitation, the interests set forth
below in the Commitment [and the Canadian Commitment] of the Assignor on the
Assignment Date, [and all Loans [(other than Competitive Loans)] owing to the
Assignor which are outstanding on the Assignment Date. The Assignee hereby
acknowledges receipt of a copy of the Credit Agreement. From and after the
Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the interests assigned
by this Assignment and Acceptance, have [(in addition to such rights and
obligations theretofore held by it)] the rights and obligations of a Lender [and
Canadian Lender] thereunder and (ii) the Assignor shall, to the extent of the
interests assigned by this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement.
2. This Assignment and Acceptance is being delivered [(a)] to the
Administrative Agent, in the case of any Commitment, together with (i) if the
Assignee is a Foreign Lender, any documentation required to be delivered by the
Assignee pursuant to Section 2.16(e) of the Credit Agreement, (ii) if the
Assignee is not already a Lender under the Agreement, an Administrative
Questionnaire in the form provided by the Administrative Agent and (iii) a
processing and recording fee of $3,500 [and (b) to the Canadian Agent, in the
case of any Canadian Commitment,
<PAGE>
2
together with (i) if the Assignee is not already a Canadian Lender under the
Agreement, an Administrative Questionnaire in the form provided by the Canadian
Agent and (ii) a processing and recording fee of Cdn.$4,500 in addition to the
fee referred to in clause (iii) above].
3. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date"): _____
---------------
<PAGE>
3
Percentage Assigned
of Commitment [and
Canadian Commitment]
(set forth, to at least
8 decimals, as a
percentage of the
Principal Amount facility and the
Assigned (and aggregate Commitments
identifying information of all Lenders [and
as to individual Canadian Commitments of
Competitive Loans, all Canadian Lenders]
Facility if any) thereunder)
- -------- -------- -----------
Commitment Assigned: $ %
[Canadian Commitment $
Assigned:
Revolving Loans [other $ %
than Canadian Loans]:
[Canadian Loans] C$ %
[Competitive Loans: $ %]
The terms set forth
herein are hereby agreed
to:
Accepted (if required):
____________________, as Assignor, UNISOURCE WORLDWIDE, INC.,
By:_____________________ By:_____________________
Name: Name:
Title: Title:
____________________, as Assignee,
THE CHASE MANHATTAN BANK,
By:_____________________ as Administrative Agent
Name: and U.S. Collateral Agent,
Title:
By:_____________________
Name:
Title:
TORONTO DOMINION BANK, as
Canadian Agent and
Canadian Collateral Agent,
By:____________________
Name:
Title:
<PAGE>
4
[ ], as a
Swingline Lender,
By:____________________
Name:
Title:
[ ], as an
Issuing Bank,
By:____________________
Name:
Title:
<PAGE>
EXHIBIT B-1
September 25, 1998
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
Agent Bank Services Group
One Chase Manhattan Plaza, 8th Floor
New York, NY 10081
Re: $900,000,000 Amended and Restated Credit Agreement by and among
Unisource Worldwide, Inc. (the "Company"), The Toronto-Dominion
Bank, as Canadian Agent and Canadian Collateral Agent, Toronto
Dominion (Texas), Inc., as Documentation Agent, and The Chase
Manhattan Bank, as Administrative Agent and U.S. Collateral Agent
("Agent") and the Lenders described therein (the "Agreement")
-----------------------------------------------------------------
Ladies and Gentlemen:
We have acted as U.S. Counsel for Unisource Worldwide, Inc.,
Unisource Capital Corporation, National Sanitary Supply Company, Paper
Corporation of North America and BRT, Inc. ("Relevant Parties") in connection
with the above-referenced transaction. As such, we have reviewed the following
documents all of even date herewith (collectively, the "Loan Documents"):
1. $900,000,000 Amended and Restated Credit Agreement;
2. Subsidiary Guarantee Agreement;
3. Security Agreement;
4. Indemnity, Subrogation and Contribution Agreement; and
4. the Financing Statements each substantially in the form
attached hereto as Exhibit A hereto (the "Financing
---------
Statements") listing the Relevant Parties as "Debtors" and
Bank as "Secured Party" to be filed in the offices listed on
Exhibit B attached hereto (the "Filing Offices").
---------
In addition, we have examined such corporate documents, records
and certificates of the officers of the Relevant Parties and of public officials
as we have considered necessary in the circumstances. In such examination, we
have assumed the genuineness of all signatures, the due execution and delivery
by all parties to each of the Loan Documents other than the Relevant Parties,
that the Agreement and the other Loan Documents constitute valid and legally
binding agreements and obligations of all parties thereto other than the
Relevant Parties, the authenticity of all documents submitted to us as originals
and the conformity to original documents of documents submitted to us as
certified or photostatic copies and the completeness of all minute books and
stock books furnished to us.
<PAGE>
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
September 25, 1998
Page 2
We have assumed the accuracy and correctness of all statements of fact
contained in certificates of and discussions with officers of the Relevant
Parties and certificates of public officials and the representations and
warranties contained in the Agreement and the other Loan Documents. To the
extent that our opinion is based on matters known to us or of which we have
knowledge, we have relied on a review of such certificates, discussions and the
Loan Documents and our opinion is, therefore, as to factual matters, based
solely thereon. We have not undertaken any independent investigation to verify
such certificates, discussions or representations and warranties. We have not
reviewed the dockets or records of any courts. Nothing contrary to the facts
contained in such certificates, discussions or representations and warranties,
however, has come to the attention of the current partners or associates of
Pepper Hamilton LLP who have devoted substantive attention to the transactions
contemplated by the Agreement.
Notwithstanding any of the foregoing, with respect to the opinion set
forth in paragraph 1 of this opinion, we have relied solely on the certificates
of the Secretaries of the State or Commonwealth of the states in which the
Relevant Parties were incorporated, copies of which are attached hereto as
Exhibit C.
- ---------
Our opinions are limited in all respects to matters subject to the
substantive laws of the Commonwealth of Pennsylvania, the State of New York, the
State of Delaware and the federal laws of the United States. References to the
UCC shall be deemed to be references to the Uniform Commercial Code of
Pennsylvania, unless otherwise stated. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Agreement and the
Security Agreement.
1. Each of the Relevant Parties is duly organized and in good
standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to carry on its business as now conducted.
2. The execution and delivery by the Relevant Parties of the Loan
Documents and Financing Statements, the borrowing of Loans and the issuance of
Letters of Credit pursuant to the Credit Agreement and the grant by the Relevant
Parties of security interests pursuant to the Security Agreement are within each
Relevant Party's corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action. Each of the Loan Documents to
which a Relevant Party is a party has been duly executed and delivered by such
Relevant Party and constitutes a legal, valid and binding obligation of such
Relevant Party, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, 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.
3. The transactions contemplated by the Loan Documents, the
execution and delivery by the Relevant Parties of the Financing Statements and
the grant by the Relevant Parties of
<PAGE>
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
September 25, 1998
Page 3
security interests pursuant to the Security Agreement (a) do not require any
consent or approval of, registration or filing with, or any action by, any
Governmental Authority, except (i) such as have been obtained or made and are in
full force and effect, (ii) filings of the Financing Statements in appropriate
offices in order to perfect certain security interests granted under the
Security Agreement, and (iii) filings with the Securities and Exchange
Commission and with such other regulatory agencies and authorities as may be
required by applicable law, (b) will not violate any law or regulation material
to the conduct of the business of the applicable Relevant Party or the charter,
by-laws or other organizational documents of any Relevant Party or any of its
Subsidiaries or any order of any Governmental Authority, (c) except with respect
to such defaults and rights as are subject to any consent, waiver or amendment
which has been obtained or made and is in full force and effect and is listed on
Schedule 1 hereto, will not violate or result in a default or give rise to the
right to accelerate or require the prepayment, repurchase or redemption of any
obligation under any indenture, agreement or other instrument listed on Exhibit
-------
D hereto, and (d) will not result in the creation or imposition of any Lien on
- -
any asset of any Relevant Party or any of its Subsidiaries, other than the Liens
in favor of the U.S. Collateral Agent, for the benefit of the Secured Parties,
contemplated by the Security Agreement.
4. To our knowledge, there are no actions, suits or proceedings by
or before any arbitrator or Governmental Authority pending against or threatened
against or affecting any Relevant Party 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 any Loan Document or the transactions contemplated
thereby, the execution and delivery by the Relevant Parties of the Financing
Statements or the grant by the Relevant Parties of security interests pursuant
to the Security Agreement.
5. None of the Relevant Parties nor any of its,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.
6. (a) None of the Relevant Parties nor any of their respective
Subsidiaries 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) None of the transactions contemplated by the Loan Documents
(including without limitation the use of the proceeds under the Agreement), the
execution and delivery by the Relevant Parties of the Financing Statements or
the grant by the Relevant Parties of security interests pursuant to the
Security Agreement will result in a violation of the provisions of the
Regulations of the Board, including, without limitation, Regulation U or X
thereof.
<PAGE>
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
September 25, 1998
Page 4
7. Assuming in every case that all filing fees required to be paid
in respect to the execution, recording or filing of the Agreement, the Security
Agreement, the other Loan Documents and the Financing Statements are paid, the
filing of the Financing Statements in the Filing Offices is sufficient to
perfect under the Uniform Commercial Code as enacted in Pennsylvania and New
York (the"UCC") a security interest in such personal property of the Relevant
Parties described therein with respect to, and to the extent to which a security
interest may be perfected under the UCC by filing a Financing Statement in such
Filing Office.
The opinions expressed in this letter are subject to the following
qualifications:
a. A security interest, in after-acquired property is only
perfected when the debtor has obtained rights in the collateral.
b. We express no opinion as to, and our opinion is limited by,
the effect of non-compliance with, the Assignment of Claims Act.
c. No opinion is given as to any provision in the Agreement or
any Loan Document that purports to:
(1) Define, waive or set standards for good faith,
reasonableness, commercial reasonableness, fair dealing, diligence or the like;
(2) Provide the right to exercise remedies upon the
happening of a non-material breach of the Agreement or any other Loan Document
(including material breaches of non-material provisions thereof);
(3) Govern the election of remedies or provide that
remedies are cumulative;
(4) Authorize any party to the Loan Documents to use force
or cause a breach of the peace in enforcing the rights or remedies;
(5) Release, exculpate or exempt a party from or require
indemnification of a party for, liability for its own action or inaction or
provide any indemnity or hold harmless to the extent such indemnity or hold
harmless is with respect to any activity contrary to public policy;
(6) Require the payment or reimbursement of any fee, cost,
expense or other item that is unreasonable in nature or amount; or
<PAGE>
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
September 25, 1998
Page 5
(7) Waive or restrict the right to a jury trial,
specify a means for service of process, select venue or consent to personal
jurisdiction.
d. The rights of the Agent and the other banks party to
the Loan Documents ("Banks") under the Agreement and other Loan Documents are
subject to the requirement that the Banks act reasonably and in good faith and,
in connection with collateral, in a commercially reasonable manner. The rights
of the Banks are further subject to any requirements of fair dealing and
conscionability.
e. We express no opinion as to the priority of any
security interest in, or the quality of title in, any property. In addition, the
priority of security interests perfected under the UCC or other applicable law
may be affected by the rules of priority established under federal laws, such as
laws applicable to federal tax liens, liens of the Pension Benefit Guaranty
Corporation and bankruptcy.
f. The priority of security interests in a debtor's
after-acquired property may be affected by the creation of purchase money
security interests therein.
g. In the case of property in which the Relevant Parties
acquire rights after the date hereof, Section 552 of the United States
Bankruptcy Code limits the extent to which property acquired by a debtor after
the commencement of a case under the United States Bankruptcy Code may be
subject to a security interest arising from a security agreement entered into by
the debtor before the commencement of such case.
h. We have assumed that the Banks shall not charge, accrue
or collect interest at a rate in excess of that permitted by applicable law.
i. The enforceability of the Loan Documents may be limited
by deficiency judgment laws, other laws restricting or setting forth the rights
and remedies of a secured party or lienor in enforcing its interests in and
disposing of collateral, and the manner and order in which the Banks seek to
exercise their rights under the Loan Documents.
j. No opinion is given with respect to any waivers to the
extent such waivers may be limited by Section 9-501(c) of the U.C.C. or to the
extent such waivers purport to waive the duties of the secured party under
Sections 9-207(a) and (c) of the U.C.C.
k. No opinion is given with respect to the enforceability
of any provision of any Loan Document that purports to preclude modification of
any Loan Document through conduct, custom or course of performance, action or
dealing.
We also call to your attention the following limitations on the
foregoing opinion:
<PAGE>
The Chase Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent
September 25, 1998
Page 6
(i) A financing statement will be effective to perfect a
security interest for no longer than five years except in extremely limited
circumstances.
(ii) A security interest may become unperfected by various
actions of the debtor including, but not limited to, the opening or closing of a
place of business within a particular state, a change of location of the
collateral to another county and the change of name, identity or corporate
structure of the debtor.
(iii) The perfection of a security interest in proceeds (as
defined in the UCC) of collateral is governed and restricted by UCC Section
9-306.
(iv) Although the filing of a financing statement will perfect
a security interest in chattel paper and negotiable documents, the perfected
security interest is subject to the rights of subsequent holders of purchasers
(including secured parties) without actual knowledge of the security interests.
(v) Buyers and purchasers of the Collateral may, in certain
circumstances, acquire the Collateral free of Banks' security interests.
(vi) Persons who provide materials or services with respect to
the Collateral may obtain senior liens on the Collateral in certain
circumstances.
This opinion is rendered to you in connection with the Agreement
and may be relied on by you, the Banks, and their respective successors and
assigns as provided in the Agreement, only in connection therewith. No other
person may rely on this opinion. This opinion may not be quoted by you or any
other person without the prior written consent of this firm.
Our rendering of this opinion to you does not obligate us to
render any further opinion to you or to update this opinion at any time in the
future.
Very truly yours,
Pepper Hamilton LLP
<PAGE>
EXHIBIT D
1. $10,000,000 Uncommitted Loan Facility Agreement dated June 6,
1997, between Unisource Worldwide, Inc., and SunTrust Bank, Atlanta
2. Participation Agreement dated as of November 8, 1994, among
Unisource Worldwide, Inc. and AOP, Inc., Alco Standard Corporations, PPI SPV,
L.P., Pitcairn SPV, Inc. and Trust Company Bank
3. Lease and Development Agreement dated as of November 8, 1994,
between PPI SPV, L.P., as Lessor, and Unisource Worldwide, Inc., as Lessee
4. Continuing Guaranty dated July 17, 1997 of Unisource Worldwide,
Inc. in favor of Bank of America National Trust and Savings Association,
guaranteeing the obligations of Unisource Distribuidora, S.A. de C.V., Unisource
del Bajio y Occidente, S.A. de C.V., Unisource del Noreste, S.A. de C.V. and
Unisource del Centro, S.A. de C.V. to Bank of America National Trust and Savings
Association under a certain agreement relating to a $10,000,000 credit facility,
dated July 16, 1997.
5. NationsBank Irrevocable Letter of Credit No. 41130 for
$5,781,986.30 in favor of Alco Standard Corporation pursuant to that certain
Trust Indenture dated as of November 15, 1994 between the County of Franklin,
Ohio and Norwest Bank Minnesota, National Association.
6. Loan Agreement between County of Franklin, Ohio and Alco Standard
Corporation, Dated as of November 15, 1994, pursuant to that certain Trust
Indenture dated as of November 15, 1994 between the County of Franklin, Ohio and
Norwest Bank Minnesota, National Association.
7. Reimbursement Agreement between Alco Standard Corporation and
NationsBank of North Carolina, N.A., dated as of November 30, 1994 pursuant to
that certain Trust Indenture dated as of November 15, 1994 between the County of
Franklin, Ohio and Norwest Bank Minnesota, National Association.
8. SunTrust Letter of Credit F500716 for an amount not exceeding
$3,565,000, for in favor of Paper Corporation of America and Alco Standard
Corporation, pursuant to a Letter of Credit Agreement dated as of June 1, 1991
among Paper Corporation of America, Alco Standard Corporation and Trust Company
Bank.
9. Swap Agreements dated September 23, 1996 and September 12, 1996
between Unisource Worldwide, Inc. and NationsBank, N.A. pursuant to a Master
Agreement dated as of September 10, 1996.
<PAGE>
10. Swap Agreements dated October 17, 1996 and November 27, 1997
between Unisource Worldwide, Inc. and Bank of America National Trust and Savings
Association pursuant to a Master Agreement dated as of October 10, 1996.
11. Swap Agreement between Unisource Worldwide, Inc. and Deutsche
Bank Aktiengesellschaft pursuant to a Letter Agreement dated October 10, 1996.
12. Master Swap Agreement between Unisource Worldwide, Inc. and
Lehman Brothers Inc. dated as of September 11, 1996.
13. Swap Agreement dated June 30, 1997 between Unisource Worldwide,
Inc. and Royal Bank of Canada, pursuant to a Confirmation Agreement of even date
therewith.
14. Swap Agreement dated September 23, 1996 between Unisource
Worldwide, Inc. and The Chase Manhattan Bank, pursuant to a Master Agreement
dated as of even date therewith.
-2-
<PAGE>
EXHIBIT B-2
UNISOURCE September 25, 1998
To each of the Lenders party to the
Credit Agreement dated as of
September 25, 1998 among
Unisource Worldwide, Inc.,
Unisource Capital Corporation,
Unisource Canada, Inc., the
Lenders party thereto, The Chase
Manhattan Bank, as Administrative
Agent and U.S. Collateral Agent, The Toronto-Dominion Bank,
as Canadian Agent and Canadian Collateral Agent, and Toronto Dominion
(Texas) Inc., as Documentation Agent
Ladies and Gentlemen:
[logo This opinion is furnished to you pursuant to Section 4.01 (b) of
appears the Amended and Restated Credit Agreement, dated as of September 25,
here] 1998 (the "Credit Agreement"), among Unisource Worldwide, Inc., a
Delaware corporation, Unisource Capital Corporation, a Delaware
corporation, Unisource Canada, Inc., a Canadian corporation (the
"Company"), the Lenders party thereto, The Chase Manhattan Bank, as
Administrative Agent and U.S. Collateral Agent. The Toronto-Dominion
Bank, as Canadian Agent and Canadian Collateral Agent, and Toronto
Dominion (Texas) Inc., as Documentation Agent. Except as otherwise
defined herein, terms defined in the Amended and Restated Credit
Agreement are used herein as therein defined.
I have acted as Canadian Counsel on behalf of the Company
relating to the Credit Agreement. In this connection I have examined
the following, namely:
(a) executed copies of the Credit Agreement, the Indemnity,
Subrogation and Contribution Agreement, the Security
Agreement, the Bank Act Security and the Quebec Hypothec
(together, the "Agreements");
(b) the resolution of the Board of Directors of the Company
dated September 24, 1998;
(c) the minutes of the meetings of directors and of shareholders
of the Company, the shareholders' register and all such laws
and regulations of Canada and Ontario as may be relevant to
the Agreements; and
(d) all such other agreements, documents, instruments and
matters as I have considered necessary or desirable in order
to express the opinion hereinafter
<PAGE>
-2-
set forth.
Based upon the foregoing and subject to the qualifications and assumptions
mentioned below, I am of the opinion that with respect to the Company:
(1) It is a body corporate duty organized and validly existing under the
laws of Canada;
(2) It has the power to execute and deliver the Agreements, to perform its
obligations under each of the Agreements and to grant the security
interests and Liens contemplated by the Agreements and has taken all
necessary action to authorize such execution and delivery and
performance of such obligations and grant of such security interests
and Liens;
(3) Its execution and delivery of each of the Agreements and its
performance of its obligations under each of the Agreements and each
transaction thereunder and its grants of the security interests and
Liens contemplated thereunder do not contravene any provision of its
[Logo charter or by-laws or any law, regulation, rule, decree, order,
appears judgment or, to the best of my knowledge, contractual restriction
here] binding on or affecting it or its undertakings, properties or assets;
(4) all consents, authorizations, and approvals requisite for its due
execution and delivery of each of the Agreements (other than the
Quebec Hypothec and the Bank Act Security) or the performance of its
obligations under each of the Agreements (other than the Quebec
Hypothec and the Bank Act Security) and each transaction thereunder or
its grants of the security interests and Liens contemplated thereunder
have been obtained and remain in full force and effect and all
conditions thereof have been and will be duly complied with and no
other action by, and no notice to or filing with, any governmental,
judicial or regulatory authority or body is required for such
execution, delivery or performance or grant, except filing of a
financing statement (the "Financing Statement") pursuant to the
Personal Property Security Act (Ontario) (the "PPSA") in order to
perfect the security interests granted under the Security Agreement
which are located in the Province of Ontario;
(5) each of the Agreements has been duly executed and delivered and each
of the Agreements and each transaction thereunder is and will be its
valid and legally binding obligation enforceable against it in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general
application relating to or affecting creditors' rights and to general
equitable principles, if the laws of Ontario are applied, subject to
the laws of the state of New York (in the case of the Credit Agreement
and the Indemnity, Subrogation and Contribution Agreement), upon which
I express the opinion;
<PAGE>
-3-
(6) to the best of my knowledge, the ultimate determination of any
action, suit or
proceeding pending or threatened against it at law or in
equity, or before any court, tribunal, arbitrators,
governmental body, agency or official, will not materially
impair its ability to perform, or render it unable to perform
any of its obligations under any of the Agreements or any
Transaction thereunder and there is no such proceeding which
purports to affect the legality, validity or enforceability of
any of the Agreements or the Transactions, and
(7) the provisions of the Security Agreement are effective to
create in favour of the Canadian Collateral Agent a valid
security interest in such of the Collateral (as defined in the
Security Agreement) as constitutes "accounts", documents of
title, "inventory" and "proceeds" within the meaning of the
PPSA (such of the Collateral being hereinafter referred to as
the "Specified Collateral"), to the extent that the creation of
security interests in the Specified Collateral is governed by
the laws of the Province of Ontario. Upon the filing of the
Financing Statement and the payment of any requisite filing
fees, the security interest granted to the Collateral Agent in
[Logo the Specified Collateral will be perfected, to the extent
appears perfection may be accomplished by filing of financing
here] statements under the PPSA.
I am qualified to practice law in the Province of Ontario and I
express no opinion as to the laws of any other jurisdiction.
The foregoing opinions are subject to the following assumptions and
qualifications:
(a) I have assumed the genuineness of all signatures (whether on
originals or copies of documents), the authenticity of all
documents submitted to me as originals, the conformity to
original documents of all documents submitted to me as
notarial, conformed, photostatic or telecopied copies thereof
and the authenticity of the originals of such documents;
(b) I have assumed that each of the Agreements is a legal, valid
and binding obligation of, and is enforceable in accordance
with its terms against, each of the parties thereto, other than
the Company.
(c) the enforceability of each of the Agreements and the rights and
remedies set out therein may be limited by the obligation to
act in a reasonable manner and in good faith, and no opinion is
given as to any specific remedy that may be granted, imposed or
rendered (including equitable remedies such as those of
specific performance and injunction);
(d) the enforcement of each of the Agreements is subject to the
discretion of a court of competent jurisdiction to impose
restrictions on the rights of creditors to enforce immediate
payment of amounts stated to be payable on demand;
<PAGE>
-4-
(e) a court may not treat as conclusive those certificates and
determinations which any of the Agreements states are to be
so treated;
(f) the ability to recover or claim for certain costs or
expenses may be subject to judicial discretion;
(g) any requirement in any of the Agreements that interest be
paid at a higher rate after default than before default may
not be enforceable;
(h) any requirement that interest (including all fees and costs
of borrowing) be paid at a rate in excess of 60% per annum
may contravene Section 347 of the Criminal Code (Canada) and
may not be enforceable;
(i) the sale or assignment of any debt due by the Crown in Right
of Canada or Her Majesty in Right of any province may be
restricted or prohibited or unenforceable, and any grant of
security interest or Lien in respect thereof may be
restricted, prohibited or unenforceable; and
(j) the priority of security interests may be affected by rules
of priority outside of the scheme of the PPSA, and I express
no opinion as to the priority of the security interests
created as contemplated pursuant to the Agreements.
[LOGO
APPEARS The opinions expressed herein are provided solely for the benefit
HERE] of the addressees in connection with the transaction described above.
This opinion letter may not be relied upon by or disclosed to anyone
else (other than proper assignees of the Lenders) or used for any
other purpose, without my prior written consent.
Yours truly,
Patricia E. Armstrong
General Counsel
PEA.jal
<PAGE>
EXHIBIT B-3
September __, 1998
THE TORONTO-DOMINION BANK
as Canadian Agent and Canadian Collateral
Agent under the Credit Agreement (as defined
below). Commercial Banking Center
1 King Street West and Yonge
Toronto, Ontario
MSH 1A1
- -and to-
Each Person that is or may from
time to time be a Lender under
the Credit Agreement (as defined
below)
- -and to-
McMillan Binch
Barristers and Solicitors
Royal Bank Plaza, South Tower
Suite 3800
Toronto, Ontario
M5J 2J7
- -and to-
Cravath, Swaine & Moore
worldwide Plaza
825 Eighth Avenue
New York, New York
U.S.A. 10019-7475
RE: QUEBEC SECURITY BY UNISOURCE CANADA, INC.
---------------------------------------------
We have acted as special Quebec counsel on half of Unisource Canada, Inc.
("Unisource) in connection with the execution and delivery documents hereinafter
described
<PAGE>
-2-
in favor of The Toronto-Dominion Bank ("TD"), Bank of Montreal ("BM"), Canadian
Imperial Bank of Commerce ("CIBC") and Royal Bank of Canada ("RBC") (TD, BM,
CIBC and RBC, collectively the "LENDERS") relating to the provision by the
Lenders of a credit facility pursuant to a credit agreement made as of September
__, 1998 among Unisource, the Lenders and others (the "CREDIT AGREEMENT").
Each capitalized term used but not defined in this opinion letter has the
meaning set forth in the Quebec Documents.
A. EXAMINATIONS
- -----------------
In connection with this transaction, we have examined originally executed copies
or telecopied copies of each of the following documents:
1. a deed of movable hypothec dated September __, 1998, by Unisource, as
grantor, in favour of the Lenders, as creditors, hypothecating the
Collateral (as defined therein) for a principal amount of Cdn
$200,000,000.00 as security for various obligations of Unisource to the
Lenders (the "HYPOTHEC");
2. a Notice of Intention dated as of September 18, 1998 signed by Unisource
and whereby Unisource has given notice of its intention to give security to
TD under Section 427 of the Bank Act (Canada); (the "TD NOTICE OF
INTENTION")
3. the Agreement as to Loans and Advances and the Security for such Loans and
Advances dated September __, 1998 signed by Unisource in favour of TD
(the "TD AGREEMENT AS TO LOANS AND ADVANCES");
4. the Application for Credit and Promise to give Security under Section 427
of the Bank Act (Canada) and Warehouse Receipts and/or Bills of Landing
dated September __, 1998 executed by Unisource in favour of TD (the "TD
APPLICATION FOR CREDIT");
5. the Assignment under Section 427 of the Bank Act (Canada) dated September
__, 1998 in favour of TD (the "TD ASSIGNMENT UNDER SECTION 427");
6. a Notice of Intention dated as of September 18, 1998 signed by Unisource
and whereby Unisource has given notice of its intention to give security to
BM under Section 427 of the Bank Act (Canada); (the "BM NOTICE OF
INTENTION")
7. the Agreement as to Loans and Advances and the Security for such Loans and
Advances dated September __, 1998 signed by Unisource in favour of BM (the
"BM AGREEMENT AS TO LOANS AND ADVANCES");
<PAGE>
-3-
8. the Application for Credit and Promise to give Security under Section 427
of the Bank Act (Canada) and Warehouse Receipts and/or Bills of Landing
dated September __, 1998 executed by Unisource in favour of BM (the "BM
APPLICATION FOR CREDIT");
9. the Assignment under Section 427 of the Bank Act (Canada) dated September
__, 1998 in favour of BM (the "BM ASSIGNMENT UNDER SECTION 427");
10. a Notice of Intention dated as of September 18, 1998 signed by Unisource
and whereby Unisource has given notice of its intention to give security to
CIBC under Section 427 of the Bank Act (Canada); (the "CIBC NOTICE OF
INTENTION");
11. the Agreement as to Loans and Advances and the Security for such Loans and
Advances dated September __, 1998 signed by Unisource in favour of CIBC
(the "CIBC AGREEMENT AS TO LOANS AND ADVANCES");
12. the Application for Credit and Promise to give Security under Section 427
of the Bank Act (Canada) and Warehouse Receipts and/or Bills of Landing
dated September __, 1998 executed by Unisource in favour of CIBC (the "CIBC
APPLICATION FOR CREDIT");
13. the Assignment under Section 427 of the Bank Act (Canada) dated September
__, 1998 in favour of CIBC (the "CIBC ASSIGNMENT UNDER SECTION 427");
14. a Notice of Intention dated as of September 18, 1998 signed by Unisource
and whereby Unisource has given notice of its intention to give security to
RBC under Section 427 of the Bank Act (Canada); (the "RBC NOTICE OF
INTENTION")
15. the Agreement as to Loans and Advances and the Security for such Loans and
Advances dated September __, 1998 signed by Unisource in favour of RBC (the
"RBC AGREEMENT AS TO LOANS AND ADVANCES");
16. the Application for Credit and Promise to give Security under Section 427
of the Bank Act (Canada) and Warehouse Receipts and/or Bills of Landing
dated September __, 1998 executed by Unisource in favour of RBC (the "RBC
APPLICATION FOR CREDIT"); and
17. the Assignment under Section 427 of the Bank Act (Canada) dated September
__, 1998 in favour of RBC (the "RBC ASSIGNMENT UNDER SECTION 427").
The TD Notice of Intention, the BM Notice of Intention, the CIBC Notice of
Intention and the RBC Notice of Intention are hereinafter collectively referred
to as the "Notices of Intention". The TD Assignment under Section 427, the BM
Assignment under Section 427, the CIBC Assignment under Section 427 and the RBC
Assignment under Section 427 are hereinafter
<PAGE>
-4-
collectively referred to as the "Assignments under Section 427". The Notices of
Intention, the Assignments under Section 427, the TD Agreement as to Loans and
Advances, the TD Application for Credit, the BM Agreement as to Loans and
Advances, the BM Application for Credit, the CIBC Agreement as to Loans and
Advances, the CIBC Application for Credit, the RBC Agreement as to Loans and
Advances and the RBC Application for Credit are hereinafter collectively
referred to as the "Bank Act Security". The Hypothec and the Bank Act Security
are hereinafter collectively referred to as the "Quebec Documents" and each
individually may be referred to as a "Quebec Document".
We have also examined such documents and public records and have made such
further investigations, searches and inquiries as we have deemed necessary for
the opinions expressed herein and we have considered such questions of law, as
we have considered relevant and necessary as the basis for the opinions
hereinafter expressed. In connection with our opinion in paragraph 20(i) below,
we have also relied with your permission, without any independent verification
or investigation as to the accuracy of the facts stated therein, upon a
certificate of an officer of Unisource, a copy of which is attached hereto in
Schedule A, which provides that the principal place of business of Unisource is
- ----------
located in Richmond Hill, Ontario.
B. ASSUMPTIONS
- ----------------
For the purposes of the opinions expressed herein, we have assumed without
independent verification or investigation:
a. the genuineness of all signatures of all parties and the legal capacity of
all individuals;
b. the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified or
photostatic or electronically transmitted copies of facsimiles thereof and
the authenticity of the originals of such certified, photostatic or
electronically transmitted copies or facsimiles;
c. the accuracy, currency and completeness of the indices and filing systems
maintained by the public offices and registries where we have searched or
enquired or have caused searches or enquiries to be made and of the
information and advice provided to us by appropriate government, regulatory
or other like officials with respect to those matters referred to herein;
d. that Unisource (i) is a subsisting company under the laws of its
jurisdiction of incorporation, (ii) has the corporate power and capacity to
own its property and assets and to carry on its business as it is now being
carried on by it, (iii) has the corporate power and capacity to execute and
deliver each of the Quebec Documents and to exercise its rights and perform
its obligations thereunder, (iv) has taken all necessary corporate
<PAGE>
-5-
action to authorize the execution and delivery of each of the Quebec
Documents and the exercise of its rights and the performance of its
obligations thereunder, and (v) has duly executed and delivered each of the
Quebec Documents;
e. the Quebec Documents constitute legal, valid and binding obligations of,
and are enforceable against, the Lenders, in accordance with their terms;
and
f. that all of the obligations of Unisource which are secured by the Quebec
Documents (other than obligations created under Quebec Documents)
constitute legal, valid and binding obligations, under the laws governing
such obligations, enforceable against Unisource according to their terms.
C. OPINIONS
- -------------
Based on and subject to the foregoing and the further assumptions and
qualifications set out at the end of this opinion, we are of the opinion that,
on the date hereof:
18. Each of the Quebec Documents constitutes a legal, valid and binding
obligation of Unisource enforceable against it in accordance with its terms and
the Hypothec creates, in favour of the Lenders, a valid and enforceable hypothec
in the movable property of Unisource to the extent that the validity and
enforceability of a hypothec on such property is governed by the Civil Code of
Quebec;
19. Each of the Assignments under Section 427 validly vests in the Lender in
favour of whom it is granted, in respect of the property therein described,
present and future, of which Unisource is or becomes the owner, the same rights
and powers as if such Lender had acquired a warehouse receipt or a bill of
lading in which sum property was described, the whole to secure all present and
future obligations of Unisource intended to be secured thereby pursuant to the
terms thereof, including, without limitation, all present and future Obligations
of Unisource arising out of the Credit Agreement in favour of such Lender;
20. No authorization of, or giving of notice to, or registration with any
governmental body or authority of Canada or the Province of Quebec is required
in connection with the execution, delivery and enforceability of the Quebec
Documents or otherwise to ensure the effectiveness and validity (including,
without limitation, as against third parties) of the security created pursuant
to the Quebec Documents, save for the followings publications and filings,
namely: (i) in respect of the hypothec created by the Hypothec, the publication
of such hypothec in the Register of personal and movable real rights of the
Province of Quebec (the "RPMR"), which publication was made by us, the
particulars of which are set out in Schedule B, and (ii) in respect of the
----------
security constituted pursuant in Section 427 of the Bank Act (Canada) by virtue
<PAGE>
-6-
of the Bank Act Security, the filing of the Notices of Intention at the office
of the Bank of Canada located in Toronto, Ontario, which publication was made by
McMillian Binch, the particulars of which are set out in Schedule C:
----------
21. The execution and delivery by Unisource of the Quebec Documents, and the
performance of its obligations thereunder do not violate, result in a breach of
or constitute a default under any statue or regulation of the Province of
Quebec, or any federal statue or regulation of Canada applicable therein, which
is binding on Unisource, or any of its property and assets in the Province of
Quebec.
22. Attached hereto as Schedule D is a report showing the results of the
----------
searches conducted pursuant to the Civil Code of Quebec ("C.C.Q.") at the RPMR
and pursuant to the Bank Act (Cananda) at the register of the Bank of Canada
for the province of Ontario against Unisource as of the currency date indicated
therein (which we note may not be the date of this opinion). Such statutes are
the only statues of the Province of Quebec and the only federal statues of
Canada applicable therein (other than the statues relating to hypothecs on
intellectual property), where liens of the types expressed to be created by or
under the Quebec Documents would ordinarily or customarily be the subject of a
filing, registration or recording in order to create, preserve, perfect and
protect the charges and liens expressed to be created thereby or thereunder. The
only filings, registration or recordings against the current name of Unisource
disclosed by such searches are set out in Schedule D.
----------
D. QUALIFICATIONS
- -----------------
The opinions expressed above are subject to the following limitations and
qualifications:
(a) no opinion is herein expressed with respect to the ownership of or title to
any property, right, or interest owned or held or purported to be owned or
held by Unisource comprised in the property hypothecated or otherwise
encumbered under the Quebec Documents, or with respect to the priority or
ranking of the rights of the Lenders under the Quebec Documents;
(b) any hypothec created under the Hypothec in respect of future property ranks
from the time of its registration but after the vendor's hypothec, if any,
created in the grantor's act of acquisition, provided it is published
within fifteen (15) days after the sale;
(c) the enforceability and binding nature of each of the Quebec Documents and
the rights and remedies set out therin or in any judgment arising out of,
or in connection therewith, may be subject to and be affected by:
<PAGE>
-7-
i) applicable bankruptcy, insolvency, moratorium, winding-up,
rearrangement, reorganization or other laws of general application
affecting the rights, powers, privileges, remedies and/or interests of
creditors generally; and
ii) restrictions on the rights of creditors to enforce immediate payment
of amounts stated to be payable on demand and the discretion available
to the courts to decline to be bound by determinations of fact stated
to be conclusive by the contracting parties;
(d) the enforceability of each of the Quebec Documents is subject to or may be
affected by the general discretion of the courts to stay proceedings, to
grant relief from the consequences of breach or non-payment, to refuse to
grant equitable remedies and, in particular, specific performance and
injunctive relief. By way of example, to the extent that the obligations of
Unisource purport to be payable on demand, we point out that under doctrine
and jurisprudence a reasonable time must be given to a debtor to perform
any obligation, having regard to the nature thereof and the circumstances;
as well, pursuant to Articles 6, 7 and 1375 of the C.C.Q. the parties must
conduct themselves in good faith both at the time the obligation is created
and at the time it is performed or extinguished and may not exercise their
rights with the intent of injuring another or in an excessive or
unreasonable manner which is contrary to the requirements of good faith.
Moreover, the enforceability under the laws of the Province of Quebec of
any provisions of any of the Quebec Documents is subject to the court to
decline to enforce an obligation on the basis of default deemed technical
or immaterial by the court, and court decisions may limit the rights of
secured creditors to forcibly realize on the security without appropriate
judicial proceedings.
(e) any of the provisions of the Quebec Documents which entitle the Lenders to
accelerate any indebtedness following the occurrence of an "Event of
Default" (as defined in the Quebec Documents) may be limited by the
provisions of Article 2761 of the C.C.Q. which permit the debtor or other
interested persons to defeat the exercise of a creditor's hypothecary
rights by remedying the omission or breach set forth in the prior notice
relating to the exercise of such creditor's hypothecary rights and by
paying the costs incurred;
(f) no opinion is herein expressed as to the enforceability of any provision of
any of the Quebec Documents which provides that in the event of conflict,
the provisions of one or another agreement shall prevail;
(g) no opinion is herein expressed as to the enforceability of those provisions
of any of the Quebec Documents which purport to allow the severance of
invalid, illegal or unenforceable provisions or to restrict their effects;
<PAGE>
-8-
(h) no opinion is herein expressed as to the enforceability of any provisions
of any of the Quebec Documents which suggest or provide that modifications,
amendments or waivers that are not in writing will not be effective.
(i) any requirement that interest (including all fees and costs of borrowing)
be paid at a rate in excess of 60% per annum may contravene Section 347 of
the Criminal Code (Canada) and may not be enforceable.
(j) no opinion is herein expressed as to the enforceability of the provisions
of any of the Quebec Documents pursuant to which any party purports to
waive the application or effect of provisions of law which are mandatory or
of public order, including, without restricting the generality of the
foregoing, public order provisions of the C.C.Q. dealing with the
administration of the property of others or mandate generally;
(k) no opinion is herein expressed as to the legality, validity, binding nature
and enforceability of the irrevocability of any mandate, power of attorney
or proxy in any of the Quebec Documents, which mandate, power of attorney
or proxy is not given for a determinate term or to ensure the performance
of a special obligation;
(l) no opinion is herein expressed as to the legality, validity, binding nature
and enforceability of those provisions, if any, of any of the Quebec
Documents by which Unisource binds itself to waive any right to revoke a
mandate, power of attorney or proxy or not to defend any action brought
against it by any of the Lenders;
(m) limitations on the liability of a representative of the Lenders, including,
without limitation, an agent, receiver or receiver and manager, and
provisions constituting or deeming the actions of a representative of the
Lenders appointed under any of the Quebec Documents to be actions of an
attorney or agent of, or otherwise of or on behalf of, any other party
thereto, may be limited by a court and may not be enforceable;
(n) without restricting the generality of the foregoing, no opinion is herein
expressed as to the legality, validity, binding nature and enforceability
of any provisions of the Quebec Documents purporting to exclude or limit
the liability of any party or any agent thereof for bodily or moral injury
(for example, including, but not limited to, damage to reputation) caused
to another, in contravention of article 1474 C.C.Q.;
(o) no opinion is herein expressed as to the enforceability of the Quebec
Documents in respect of any books of account, titles of debt and other
papers in the possession of the
<PAGE>
-9-
grantor, and agreements, leases, debts, licenses, permits, quotas,
approvals or other rights which by their terms or pursuant to law are not
assignable or may not be hypothecated;
(p) a hypothec on shares of the share capital of a legal person subsists on the
shares or other securities received or issued on the purchase, redemption,
conversion or cancellation or any other transformation of the hypothecated
shares, provided the registration of the hypothec is renewed against the
shares or other securities received or issued, as required by article 2677
of the C.C.Q.;
(q) the only cost and expenses secured by the hypothecs created by the Quebec
documents are the legitimate costs incurred for recovering or conserving
the hypothecated property under the Quebec Documents;
(r) the registration of the hypothec created in virtue of the Hypothec
preserves, in favor of the Lenders, the same rank for interest due for the
current year and the three (3) preceding years as for the capital, under
Article 2959 of the C.C.Q.; under Article 2960 C.C.Q.; the Lenders have a
hypothec for the surplus of interest due from the time of registration of a
notice setting forth the amount claimed.
(s) pursuant to article 2676 of the C.C.Q., the hypothecation of a universality
of claims does not extend to: (i) new debts resulting from the sale of the
other property of the grantor made by a third person exercising his rights;
or (ii) claims under an insurance contract on property of such grantor
other than property hypothecated pursuant to such hypothecation;
(t) no opinion is herein expressed as to the legality, validity, binding nature
or enforceability of the hypothec contained in the Hypothec as to tangible
property not legally situated in the Province of Quebec or as to any
property purportedly hypothecated under the Hypothec, but owned by a person
or entity other than Unisource;
(u) under the rules of the Province of Quebec pertaining to conflict of laws
and more specifically, Article 3105 of the C.C.Q., the validity of movable
security and its publication and its effects in respect of corporeal
movable property ordinarily used in more than one jurisdiction and
incorporeal movable property (e.g. claims, contractual rights) are governed
by the laws of the jurisdiction in which the grantor of such security has
its domicile;
(v) no opinion is herein expressed as to the enforceability or perfection of
any hypothec pursuant to the Hypothec in trademarks, trade names,
copyrights, patents, industrial designs or other intellectual property;
<PAGE>
-10-
(w) to the extent that Unisource now or at any time in the future becomes
creditor of (i) a debt due by, or (ii) a chose in action in respect of
which there is a right of recovery enforceable by action against, the Crown
in Right of Canada, the hypothecs thereby created on such debt or chose in
action may not be enforceable against the Crown under the provisions of the
Financial Administration Act (Canada);
(x) to the extent that Unisource now or at any time in the future becomes
creditor of any amount owing by Her Majesty in right of the Province of
Quebec in respect of a fiscal law (as that term is defined in An act
respecting the Ministere du Revenu (Quebec)), the hypothecs thereby created
on such amount may not be enforceable against Her Majesty in the right of
the Province of Quebec under the provisions of An act respecting the
Ministere du Revenu (Quebec);
(y) subsections 224(1.2) and 227(4) of the Income Tax Act (Canada) and 317(3)
of the Excise Tax Act (Canada) provide that in certain circumstances
specified therein, where the Minister of National Revenue has knowledge or
suspects that a particular person is or will become liable to make a
payment to a secured creditor who has a right to receive a payment that,
but for a security interest in favour of the secured creditor, would be
payable to a tax debtor, the Minister may require the particular person to
pay the monies otherwise payable to the secured creditor to the Receiver
General of Canada. A similar provision exists in favour of the Minister of
Revenue of Quebec under the Act respecting the Ministere du Revenu
(Quebec);
(z) a hypothec is merely an accessory right, and subsists only as long as the
obligation whose performance it secures continues to exist, in accordance
with Article 2661 of the C.C.Q.;
(aa) no opinion is herein expressed as to the enforceability of any assignment
or hypothec created under the Quebec Documents on rights resulting from a
contract of insurance until the insurer has received notice thereof;
(ab) pursuant to article 2497 of the C.C.Q., indemnities due to an insured are
apportioned among prior creditors holding hypothecs on the damaged
property, according to their rank and without express delegation, upon mere
notice and proof by them. However, payments made in good faith, before
notice by such creditors, discharge the insurer;
(ac) no opinion is herein expressed as to the enforceability of any hypothec
under the Hypothec on a claim held by Unisource, where the claim is itself
secured by a registered hypothec against the property of the debtor of
such claim, unless such hypothec is registered against such claim;
<PAGE>
-11-
(ad) a hypothec under the Hypothec on any claim held by Unisource may not
be set up against the debtor or the guarantor of such claim until that
debtor or, that guarantor, as the case may be, of such claim has
received evidence of, or has acquiesced in, such hypothec;
(ae) with respect to claims, rents, accounts or other fruit and revenues
produced by hypothecated property which Unisource is authorized to
collect under the Hypothec, in order for the Lenders to withdraw such
authorization, Unisource and the debtors of the hypothecated claims,
rents, accounts and other fruit and revenues must be notified of
such withdrawal of such authority and it must be registered in the
appropriate register;
(af) the exercise by any of the Lenders of any hypothecary rights pursuant
to the Hypothec is subject to the filing of a prior notice at the
registry office, together with evidence of said notice having been
served on Unisource, as the case may be, and on any other person
against whom any of the Lenders intends to exercise its rights, all as
provided in article 2757 (et seq.) of the C.C.Q.;
(ag) notwithstanding any provision of the Hypothec to the contrary, the
only hypothecary rights which the Lenders have in connection with the
enforcement and realization of the hypothecs are those set forth in
Chapter V of Title III of Book VI of the C.C.Q., in addition to their
personal rights of action and the provisional measures provided in the
Code of Civil Procedure (Quebec);
(ah) the hypothec upon property hypothecated under the Hypothec represented
by a bill of lading or other negotiable instrument or upon claims may
be set up against the creditors of Unisource from the time the
creditor gives value, provided it is registered within the following
ten (10) days;
(ai) no opinion is herein expressed as to the enforceability of a hypothec
(under the Hypothec) that is registered under the name of Unisource,
upon movable property forming part of the property when such movable
property is alienated other than in the ordinary course of business of
Unisource, unless such hypothec is preserved by filing a notice of
preservation of hypothec in the RPMR, within fifteen (15) days after
the Lenders are informed in writing of the transfer of such movable
property and the name of the purchaser, or after each Lender consents
in writing to the transfer;
(aj) to the extent any provision of any of the Quebec Documents constitutes
an indemnity contemplated by article 2762 of the C.C.Q., such article
provides that the creditor, having given prior notice of the exercise
of a hypothecary right is not entitled to demand any indemnity from
the debtor except interest owing and costs;
(ak) the alienation in the ordinary course of business of movable property
hypothecated under the Hypothec discharges such property so alienated
from the hypothecs created pursuant
<PAGE>
-12-
thereto. Pursuant to article 2674 of the C.C.Q., a hypothec on a
universality of property subsists but extends to any property of the same
nature which replaces property that has been alienated in the ordinary
course of business of an enterprise. A hypothec on an individual property
alienated in the ordinary course of business of an enterprise extends to
property that replaces it, by the registration of a notice identifying the
new property. If no property replaces the alienated property, the hypothec
subsists but extends only to the proceeds of the alienation, provided that
they may be identified;
(al) should a present or future movable asset of Unisource, which is purported
to be hypothecated under the Hypothec be transferred, mixed or combined
with the movable property of a third party so as to form a new movable, the
appropriate Hypothec, as the case may be, would have to be registered
against such resulting new movable in accordance with the provisions of
article 2953 of the C.C.Q.;
(am) a movable hypothec is extinguished on the Date d'extreme effet specified in
the certified statement of its registration which can be no later than ten
(10) years after the date of its registration or the registration of a
notice giving it effect or renewing it; furthermore, the validity of each
of the assignments made pursuant to the Assignments under Section 427 and
to the Bank Act Security beyond the five year period from the date of
registration of each of the Notices of Intention is subject to all
appropriate action which may be required to maintain in effect the
registration of each of the Notices of Intention, respectively, with the
Bank of Canada beyond such period;
(an) with respect to any assignment of a claim secured by the Hypothec to a
person other than a Lender currently named in the Hypothec, Article 3003 of
the C.C.Q. states that where a hypothec is acquired by subrogation or
assignment, publication of the subrogation or assignment is made at the
registry office where the immovable hypothec was published or, in the case
of a movable hypothec, in the RPMR. A certified statement of registration
in the appropriate register shall be furnished to the debtor. If these
formalities are not observed, the subrogation or assignment may not be set
up against a subsequent assignee who has observed them; and
(ao) no opinion is herein expressed as to the legality, validity and
enforceability of the Hypothec to the extent it secures or purports to
secure payment of notes, bonds or other titles of indebtedness in a manner
contrary to Article 2692 of the C.C.Q.; and
(ap) the Currency Act (Canada) precludes a court in Canada from giving a
judgment in any currency other than Canadian currency.
We draw to your attention that it is the responsibility of the Lenders to make
appropriate diary entries to ensure that all required renewals mentioned above
are made in a timely manner. We assume no responsibility for the failure to make
any such renewals as and when required.
<PAGE>
-13-
We are qualified to practice law only in the Province of Quebec and do not
purport to express any opinion concerning the laws of any other jurisdiction
other than the laws of the Province of Quebec and the federal laws of Canada
applicable therein. The opinions expressed herein relate only to the laws of the
Province of Quebec and the federal laws of Canada applicable therein at the date
hereof.
This opinion is provided solely for the benefit of each addressee of this
opinion, and is not to be relied upon for any purpose other than in connection
with the transactions described herein. It should not and may not be relied upon
by any other person or for any other purpose.
Yours truly,
<PAGE>
SCHEDULE B
----------
REGISTRATION REPORT
1. We have conducted, subject to the limitations mentioned in this opinion, a
search for encumbrances on movable property registered in the Province of
Quebec against Unisource Canada, Inc. in the Register of Personal and
Movable Real Rights of the Province of Quebec (the "RPMR"). We have also
caused to be conducted, subject to the limitations mentioned in this
opinion, a search for encumbrances registered in the Bank Act Security
Register for the province of Ontario (the "BAR") against Unisource Canada,
Inc.
2. The search results reported herein are based upon computer printouts and
indices, the accuracy of which we have not independently verified. We
cannot, and do not, render any opinion whatsoever with respect to the
accuracy, currency or completeness of the indices and filing systems
maintained by the offices of the public records and registries where we
have searched or enquired. Therefore, the search results referred to
herein are not conclusive as to the absence of other entries and/or
security interests on the movable property of Unisource. Moreover, we
express no opinion as to the existence or inexistence of any registrations,
encumbrances, charges, hypothecs, security interests, liens, prior claims,
claims under any trust deed or deed of trust, proceedings or other
interests (being collectively hereinafter referred to as the
"Encumbrances") affecting the movable property of Unisource, including,
without limitation, any such Emcumbrances of a claimant under non-
consensual or unregistered hypothecs of claims or under hypothecs or claims
created or imposed by statute or by law which need not be registered.
3. Subject to the foregoing, we report that our search of movable security
registered in the RPMR, revealed, as at ____ p.m. on September ____ ,
1998, the registrations listed below:
i. Registration no: 94-0085374-0001
Nature of charge: legal hypothec
Grantor: Unisource Canada, Inc.
Holder: Alexis Nihon Corporation
Subject matter: the universality of all movable property, present or
future, located in premises at 555, Montee-de-Liesse, Saint-Laurent
Amount: $1,627,281
(Former landlord privilege)
<PAGE>
-15-
ii. Registration no: 94-0075282-0003
Nature: legal hypothec
Grantor: Unisource Canada, Inc.
Holder: Alexis Nihon (C.D.L.) Inc.
Subject matter: the universality of all moveable property, present to
future, located in premises at 555, Montee-de-Liesse, Saint Laurent.
Amount: $1,627,281
(Former landlord privilege)
iii. Registration no: 97-0011314-0001
Nature: Rights resulting from a lease
Grantor: Lessee, being Unisource Canada, Inc.
Holder: Lessor, being Imation Canada Inc.
Subject matter: a "developpeuse" Color-key III, model 2425,serial no:
101285
This property is located in the premises of Vision Graph at 9851
Parkway Boulevard, City of Anjou, Quebec. The Lease is a term of 24
months.
iv. Registration no: 96-0066195-0001
Nature: assignment of a universality of claims
Assignor: Unisource Canada, Inc.
Assignee: Start Trust, a trust established under the laws of the
province of Alberta, 393 University Avenue, Toronto, Ontario. Another
assignee is Bank of Montreal in its capacity of servicing agent for
Start Trust, 19/th/ Floor, First Canadian Place, Toronto, Ontario.
Subject matter: subject to the terms and conditions of a sale of
accounts receivable agreement dated as of September 4, 1992 between
the assignor and the assignee (the "Agreement") and for good and
valuable consideration, the assignor hereby sells, assigns and
transfers, pursuant to that certain receivable purchase
<PAGE>
-16-
agreement and guaranty dated as of September 4, 1992 (the "Receivables
Purchase Agreement"), onto the assignee, hereto accepting, all right,
title and interest of the assignor in and to the assets as defined in
the Receivables Purchase Agreement and referred to in the Agreement.
4. Subject to the foregoing, we report that the search we caused to be made in
the BAR revealed, as at ____ p.m. on September ____, 1998, the
registrations listed below:
(i) 01012915 (the TD Notice of Intention);
(ii) 01012918 (the RBC Notice of Intention);
(iii) 01012921 (the CIBC Notice of Intention); and
(iv) 01012934 (the BM Notice of Intention).
<PAGE>
OFFICER'S CERTIFICATE
---------------------
TO: GOODMAN PHILLIPS & VINEBERG, S.E.N.C.
I, the undersigned, Patricia Armstrong, do hereby certify that as of the date
hereof;
1. I am the duly appointed Vice-President and Assistant-Secretary of
Unisource Canada, Inc. (the "Company") and as such have personal
knowledge of the following;
2. the Company is a body corporate continued under the Canada Business
Corporations Act, 1985 R.S.C., c. C-44, which has more than one place
of business in Canada and its places of business are not all in the
same province; and
3. the head office of the Company, according to its charter, by-laws and
articles, is located at 50 East Wilmot Street, Richmond Hill, Ontario,
L4B 3Z3, and has been so located since January 1997.
The undersigned hereby acknowledges that this certificate is to be relied
upon by Goodman Phillips & Vineberg in rendering their opinion dated as of the
date hereof to The Toronto-Dominion Bank, McMillan Binch and Cravath, Swaine &
Moore and others in connection with the execution and delivery of certain
security documents.
DATED THIS ____ DAY OF SEPTEMBER, 1998.
_________________________
PATRICIA E. ARMSTRONG
<PAGE>
Exhibit C
[FORM OF]
DISCOUNT NOTE
Cdn.$ Date:
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay on
_____________________, ______, to or to the order of [NAME OF CANADIAN LENDER]
("Holder"), the sum of Cdn.$_____________________ with no interest thereon.
------
The undersigned hereby waives presentment, protest and notice of every
kind and waives any defense based upon indulgences which may be granted by the
holder thereof to any party liable hereon and any days of grace.
This promissory note evidences an Acceptance Equivalent Loan, as
defined in the Amended and Restated Credit Agreement dated as of September 25,
1998 (as amended, modified, extended or restated from time to time, the "Credit
------
Agreement") among Unisource Worldwide, Inc., Unisource Capital Corporation,
- ---------
Unisource Canada, Inc., the financial institutions party thereto, The Chase
Manhattan Bank, as Administrative Agent and U.S. Collateral Agent, The Toronto-
Dominion Bank, as Canadian Agent and Canadian Collateral Agent, and The Toronto
Dominion (Texas), Inc., as Documentation Agent, and constitutes evidence of
indebtedness to the Holder arising from such Acceptance Equivalent Loan.
Payment of this promissory note shall be made to the Holder.
UNISOURCE CANADA, INC.
by _________________________
Name:
Title:
<PAGE>
EXHIBIT D
AMENDED AND RESTATED SUBSIDIARY GUARANTEE AGREEMENT dated as
of September 25, 1998 (as amended, supplemented or otherwise
modified from time to time, this "Agreement"), among each of the
---------
subsidiaries listed on Schedule I hereto (each such subsidiary
individually, a "Subsidiary Guarantor" and collectively, the
--------------------
"Subsidiary Guarantors") of Unisource Worldwide, Inc., a Delaware
---------------------
corporation (the "Company"), and THE CHASE MANHATTAN BANK, as
-------
administrative agent (the "Administrative Agent") for the Lenders
--------------------
(as defined in the Credit Agreement referred to below).
Reference is made to the Amended and Restated Credit Agreement dated
as of September 25, 1998 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement") among the Company, Unisource Capital
----------------
Corporation, Unisource Canada, Inc., the lenders from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as Administrative Agent and U.S.
-------
Collateral Agent, The Toronto-Dominion Bank, as Canadian Agent and Canadian
Collateral Agent, and Toronto Dominion (Texas), Inc., as Documentation Agent.
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
The Lenders have agreed to extend credit to the Borrowers pursuant to,
and upon the terms and subject to the conditions specified in, the Credit
Agreement dated as of November 22, 1996 among the Company, Unisource Capital
Corporation, Unisource Canada, Inc., the Lenders, The Chase Manhattan Bank, as
Administrative Agent, The Toronto-Dominion Bank, as Canadian Agent, and Toronto
Dominion (Texas), Inc., as Documentation Agent (the "Prior Credit Agreement").
----------------------
The Borrowers have requested that the Administrative Agent and the Lenders amend
and restate the Prior Credit Agreement in the manner provided in the Credit
Agreement. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of
the Company and acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders. The obligations of the Lenders to make
Loans and to issue or participate in Letters of Credit under the Credit
Agreement are conditioned on, among other things, the execution and delivery by
the Subsidiary Guarantors of one or more Amended and Restated Subsidiary
Guarantee Agreements in the form hereof. As consideration therefor and in order
to induce the Lenders to amend and restate the Prior Credit Agreement as
provided in the Credit Agreement and to make Loans and issue or participate in
Letters of
<PAGE>
2
Credit under the Credit Agreement, the parties hereto agree to amend and
restate, and do hereby amend and restate, the Subsidiary Guarantee Agreement
dated as of November 22, 1996, among the Subsidiary Guarantors and the
Administrative Agent to read in its entirety as follows:
SECTION 1. Guarantee. Each Subsidiary Guarantor unconditionally
----------
guarantees, jointly with the other Subsidiary Guarantors and severally, as a
primary obligor and not merely as a surety, (a) the due and punctual payment of
(i) the principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Loans made to the Borrowers, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by any Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral, and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrowers to the Lenders and the Agents
under the Loan Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrowers under or pursuant to
the Loan Documents, (c) all obligations of the Borrowers under each Hedging
Agreement entered into with any counterparty that was a Lender (or an Affiliate
of a Lender) at the time such Hedging Agreement was entered into and (d) all
obligations of the Company under Article IX of the Credit Agreement (all the
monetary and other obligations referred to in the preceding clauses (a), (b),
(c) and (d) being collectively called the "Obligations"). Each Subsidiary
-----------
Guarantor further agrees that 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 notwithstanding any extension or renewal of any
Obligation.
Anything contained in this Agreement to the contrary notwithstanding,
the obligations of each Subsidiary Guarantor hereunder shall be limited to a
maximum aggregate amount equal to the greatest amount that would not render such
Subsidiary Guarantor's obligations hereunder subject to
<PAGE>
3
avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11
of the United States Code or any provisions of applicable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving effect
------------------------
to all other liabilities of such Subsidiary Guarantor, contingent or otherwise,
that are relevant under the Fraudulent Transfer Laws (specifically excluding,
however, any liabilities of such Subsidiary Guarantor (a) in respect of
intercompany indebtedness to the Company or Affiliates of the Company to the
extent that such indebted ness would be discharged in an amount equal to the
amount paid by such Subsidiary Guarantor hereunder and (b) under any Guarantee
of senior unsecured indebtedness or Indebtedness subordinated in right of
payment to the Obligations which Guarantee contains a limitation as to maximum
amount similar to that set forth in this paragraph, pursuant to which the
liability of such Subsidiary Guarantor hereunder is included in the liabilities
taken into account in determining such maximum amount) and after giving effect
as assets to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation, contribution,
reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant
to (i) applicable law or (ii) any agreement providing for an equitable
allocation among such Subsidiary Guarantor and other Affiliates of the Company
of obligations arising under Guarantees by such parties (including the
Indemnity, Subrogation and Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted
-----------------------
by applicable law, each Subsidiary Guarantor waives presentment to, demand of
payment from and protest to the Borrowers of any of the Obligations and also
waives notice of acceptance of its guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure
of any Agent or any Lender to assert any claim or demand or to enforce or
exercise any right or remedy against the Company or any other Subsidiary
Guarantor under the provisions of the Credit Agreement or otherwise, (b) any
rescission, waiver, amendment or modification of, or any release from any of the
terms or provisions of, this Agreement, any other Guarantee or any other
agreement, including with respect to any other Subsidiary Guarantor under this
Agreement, (c) the failure of the Company or any Material Subsidiary to comply
with Section 19, or (d) the failure to perfect, or the release of, any security
interest in any Collateral (as defined in any Security Document).
<PAGE>
4
SECTION 3. Guarantee of Payment. Each Subsidiary Guarantor further
---------------------
agrees that its guarantee constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Administrative Agent, the Canadian Agent or any Lender to any balance of any
deposit account or credit on the books of the Administrative Agent, the Canadian
Agent or any Lender in favor of any Borrower or any other Person.
SECTION 4. No Discharge or Diminishment of Guarantee. The
------------------------------------------
obligations of each Subsidiary Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason (other than the
indefeasible payment in full in cash of the Obligations), including any claim of
waiver, release, surrender, alteration or compromise of any of the Obligations,
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 or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of any Agent or any Lender to assert any claim or demand or to enforce
any remedy under any Loan Document or any other instrument or agreement, by any
waiver or modification of any provision 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 that may or might in any manner or to any extent vary the
risk of any Subsidiary Guarantor or that would otherwise operate as a discharge
of each Subsidiary Guarantor as a matter of law or equity (other than the
indefeasible payment in full in cash of all the Obligations).
SECTION 5. Defenses of the Borrowers Waived. To the fullest extent
---------------------------------
permitted by applicable law, each of the Subsidiary Guarantors waives any
defense based on or arising out of any defense of any Borrower or the
unenforceability of the Obligations or any part thereof from any cause, or the
cessation from any cause of the liability of any Borrower, other than the final
and indefeasible payment in full in cash of the Obligations. The Agents and the
Lenders may, at their election, foreclose on any security held by one or more of
them by one or more judicial or nonjudicial sales, accept an assignment of any
such security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with any Borrower or any other
guarantor or exercise any other right or remedy available to them against any
Borrower or any other
<PAGE>
5
guarantor, without affecting or impairing in any way the liability of any
Subsidiary Guarantor hereunder except to the extent the Obligations have been
fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each
of the Subsidiary Guarantors waives any defense arising out of any such election
even though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Subsidiary Guarantor against any Borrower or any other Subsidiary Guarantor
or guarantor, as the case may be, or any security.
SECTION 6. Agreement to Pay; Subordination. In furtherance of the
--------------------------------
foregoing and not in limitation of any other right that the Administrative
Agent, the Canadian Agent or any Lender has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of any Borrower to pay
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor
hereby promises to and will forthwith pay, or cause to be paid, to the
Administrative Agent, the Canadian Agent or such Lender as designated thereby in
cash the amount of such unpaid Obligations. Upon payment by any Subsidiary
Guarantor of any sums to the Administrative Agent, the Canadian Agent or any
Lender as provided above, all rights of such Subsidiary Guarantor against any
Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of any
Borrower now or hereafter held by any Subsidiary Guarantor is hereby
subordinated in right of payment to the prior payment in full of the
Obligations. If any amount shall erroneously be paid to any Subsidiary
Guarantor on account of (i) such subrogation, contribution, reimbursement,
indemnity or similar right or (ii) any such indebtedness of any Borrower, such
amount shall be held in trust for the benefit of the Lenders and Agents and
shall forthwith be paid to the Administrative Agent to be credited against the
payment of the Obligations, whether matured or unmatured, in accordance with the
terms of the Credit Agreement.
SECTION 7. Information. Each of the Subsidiary Guarantors assumes
------------
all responsibility for being and keeping itself informed of the Borrowers'
financial condition and assets and of all other circumstances bearing upon the
risk of nonpayment of the Obligations and the nature, scope and extent of the
risks that such Subsidiary Guarantor assumes
<PAGE>
6
and incurs hereunder, and agrees that none of the Agents and the Lenders will
have any duty to advise any of the Subsidiary Guarantors of information known to
it or any of them regarding such circumstances or risks.
SECTION 8. Representations and Warranties; Agreements. Each of the
-------------------------------------------
Subsidiary Guarantors represents and warrants as to itself that all
representations and warranties relating to it contained in the Credit Agreement
or any other Loan Document to which it is a party are true and correct in all
material respects. Each of the Subsidiary Guarantors agrees to be bound by
Sections 2.16 and 2.17 of the Credit Agreement.
SECTION 9. Termination. The Guarantees made hereunder (a) shall
------------
terminate when all the Obligations have been indefeasibly paid in full, the LC
Exposure is zero and the Lenders have no further commitment to extend credit
under the Credit Agreement and (b) 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 or any Subsidiary Guarantor upon the
bankruptcy or reorganization of any Borrower, any Subsidiary Guarantor or
otherwise. Each Subsidiary Guarantor shall automatically be released from its
obligations hereunder in the event that all the capital stock of such Subsidiary
Guarantor shall be sold, transferred or otherwise disposed of to a Person that
is not an Affiliate of the Company in accordance with the terms of the Credit
Agreement.
SECTION 10. Binding Agreement; Assignments. Whenever in this Agreement
-------------------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Subsidiary Guarantors that are contained
in this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Subsidiary Guarantor when a counterpart hereof executed on behalf of
such Subsidiary Guarantor shall have been delivered to the Administrative Agent,
and a counterpart hereof shall have been executed on behalf of the
Administrative Agent, and thereafter shall be binding upon such Subsidiary
Guarantor and the Administrative Agent and their respective successors and
assigns, and shall inure to the benefit of such Subsidiary Guarantor, the
Administrative Agent, the other Agents and the Lenders, and their respective
successors and assigns, except that no
<PAGE>
7
Subsidiary Guarantor shall have the right to assign its rights or obligations
hereunder or any interest herein (except in connection with any transaction
permitted by Section 6.04 of the Credit Agreement), and any such attempted
assignment shall be void.
SECTION 11. Waivers; Amendment. (a) No failure or delay of the
-------------------
Administrative Agent, any other Agent or any Lender 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 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, any other Agents or any Lender
hereunder or under the other Loan Documents 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 Subsidiary
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Subsidiary Guarantors with respect to which such waiver, amendment or
modification relates and the Administrative Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder shall
--------
be in writing and given as provided in Section 10.01 of the Credit Agreement.
All communications and notices hereunder to each Subsidiary Guarantor shall be
given to it in care of the Company.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
------------------------------------
agreements, representations and warranties made by the Subsidiary Guarantors
herein and in the certificates or other instruments prepared or delivered
<PAGE>
8
in connection with or pursuant to this Agreement shall be considered to have
been relied upon by the Administrative Agent, other Agents and the Lenders and
shall survive the making by the Lenders of the Loans and other extensions of
credit under the Credit Agreement regardless of any investigation made by any of
them or on their behalf, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any other fee or amount
payable under this Agreement is outstanding and unpaid or the LC Exposure does
not equal zero and as long as the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 15. Counterparts. This Agreement may be executed in
-------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute a single contract, and shall become effective as
provided in Section 10. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of interpretation
------------------------
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 17. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State court
or Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, 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
<PAGE>
9
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, any other Agent or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement against any
Subsidiary Guarantor or its properties in the courts of any jurisdiction.
(b) Each Subsidiary Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any New
York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 13. 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 18. 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 RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. 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 19. Additional Subsidiary Guarantors. Pursuant to Section
---------------------------------
5.10 of the Credit Agreement, each U.S. Material Subsidiary of the Company that
was not in existence on the date of the Credit Agreement is required to enter
into this Agreement as a Subsidiary Guarantor upon becoming a Material
Subsidiary. Upon execution and delivery after the date hereof by the
Administrative Agent and such a
<PAGE>
10
Material Subsidiary of an instrument in the form of Annex 1, such Material
Subsidiary shall become a Subsidiary Guarantor hereunder with the same force and
effect as if originally named as a Subsidiary Guarantor herein. The execution
and delivery of any instrument adding an additional Subsidiary Guarantor as a
party to this Agreement shall not require the consent of any other Subsidiary
Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor
hereunder shall remain in full force and effect notwithstanding the addition of
any new Subsidiary Guarantor as a party to this Agreement.
SECTION 20. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each of the Administrative Agent, the Canadian Agent
and the Lenders is hereby authorized at any time 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 Indebtedness at any time owing by such Person to or for the credit or the
account of any Subsidiary Guarantor against any or all the obligations of such
Subsidiary Guarantor now or hereafter existing under this Agreement held by such
Person, irrespective of whether or not such Person shall have made any demand
under this Agreement and although such obligations may be unmatured. The rights
of each Person under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Person may have.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
by
-----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent,
by
-----------------------------
Name:
Title:
<PAGE>
Schedule I to the
Guarantee Agreement
Subsidiary Guarantor
--------------------
National Sanitary Supply Company
Paper Corporation of North America
Unisource Capital Corporation
BRT, Inc.
<PAGE>
Annex 1 to the
Guarantee Agreement
SUPPLEMENT NO. [ ] dated as of [ ], to the AMENDED AND
RESTATED SUBSIDIARY GUARANTEE AGREEMENT dated as of September 25,
1998 (as amended, supplemented or otherwise modified from time to
time, the "Guarantee Agreement"), among each of the Subsidiaries
-------------------
listed on Schedule I thereto or party to any supplement thereto
executed and delivered prior to the date hereof (each such
subsidiary individually, a "Subsidiary Guarantor" and
--------------------
collectively, the "Subsidiary Guarantors") of Unisource
---------------------
Worldwide, Inc., a Delaware corporation (the "Company"), and THE
-------
CHASE MANHATTAN BANK, as administrative agent (the
"Administrative Agent") for the Lenders (as defined in the Credit
--------------------
Agreement referred to below).
A. Reference is made to the Amended and Restated Credit Agreement
dated as of September 25, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among the Company, Unisource Capital
----------------
Corporation, Unisource Canada, Inc., the lenders from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as Administrative Agent and U.S.
-------
Collateral Agent, The Toronto-Dominion Bank, as Canadian Agent and Canadian
Collateral Agent, and Toronto Dominion (Texas), Inc., as Documentation Agent.
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Guarantee Agreement and
the Credit Agreement.
C. The Subsidiary Guarantors have entered into the Guarantee
Agreement in order to induce the Lenders to extend credit under the Credit
Agreement. Pursuant to Section 5.10 of the Credit Agreement, each U.S. Material
Subsidiary of the Company that was not in existence or not a Material Subsidiary
on the date of the Credit Agreement is required to enter into the Guarantee
Agreement as a Subsidiary Guarantor upon becoming a Material Subsidiary. Section
19 of the Guarantee Agreement provides that additional Material Subsidiaries of
the Company may become Subsidiary Guarantors under the Guarantee Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Material Subsidiary of the Company (the "New Subsidiary Guarantor")
------------------------
is executing this Supplement in accordance with the requirements of the Credit
Agreement to become a Subsidiary Guarantor under the Guarantee Agreement in
order to induce the Lenders to extend additional credit
<PAGE>
2
and as consideration for extensions of credit previously made under the Credit
Agreement.
Accordingly, the Administrative Agent and the New Subsidiary Guarantor
agree as follows:
SECTION 1. In accordance with Section 19 of the Guarantee Agreement,
the New Subsidiary Guarantor by its signature below becomes a Subsidiary
Guarantor under the Guarantee Agreement with the same force and effect as if
originally named therein as a Subsidiary Guarantor and the New Subsidiary
Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee
Agreement applicable to it as a Subsidiary Guarantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Subsidiary Guarantor thereunder are true and correct on and as of the date
hereof. Each reference to a "Subsidiary Guarantor" in the Guarantee Agreement
shall be deemed to include the New Subsidiary Guarantor. The Guarantee
Agreement is hereby incorporated herein by reference.
SECTION 2. The New Subsidiary Guarantor represents and warrants to
the Administrative Agent, the other Agents and the Lenders that this Supplement
has been duly authorized, executed and delivered by it and constitutes its
legal, valid and binding obligation, enforceable against it 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. This Supplement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Administrative Agent shall have received counterparts of this Supplement that,
when taken together, bear the signatures of the New Subsidiary Guarantor and the
Administrative Agent. Delivery of an executed signature page to this Supplement
by facsimile transmission shall be as effective as delivery of a manually
executed counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Guarantee
Agreement shall remain in full force and effect.
<PAGE>
3
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein and in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7. All communications and notices hereunder shall be in
writing and given as provided in Section 13 of the Guarantee Agreement. All
communications and notices hereunder to the New Subsidiary Guarantor shall be
given to it at the address set forth under its signature below, with a copy to
the Company.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse the
Administrative Agent for its reasonable out-of-pocket expenses in connection
with this Supplement, including the fees, disbursements and other charges of
counsel for the Administrative Agent.
<PAGE>
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Administrative Agent
have duly executed this Supplement to the Guarantee Agreement as of the day and
year first above written.
[Name Of New Subsidiary
Guarantor],
by_________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by_________________________
Name:
Title:
<PAGE>
Exhibit E
AMENDED AND RESTATED INDEMNITY, SUBROGATION and CONTRIBUTION
AGREEMENT dated as of September 25 , 1998 (as amended,
supplemented or otherwise modified from time to time, this
"Agreement"), among UNISOURCE WORLDWIDE, INC., a Delaware
----------
corporation (the "Company"), UNISOURCE CAPITAL CORPORATION,
-------
UNISOURCE CANADA, INC., each Subsidiary of the Company listed on
Schedule I hereto (the "Subsidiary Guarantors") and THE CHASE
---------------------
MANHATTAN BANK, ("Chase"), as administrative agent (in such
-----
capacity, the "Administrative Agent") for the Lenders (as
--------------------
defined in the Credit Agreement referred to below).
Reference is made to (a) the Amended and Restated Credit Agreement
dated as of September 25, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among the Company, Unisource Capital
----------------
Corporation, Unisource Canada, Inc., the lenders from time to time party thereto
(the "Lenders"), Chase, as Administrative Agent and U.S. Collateral Agent, The
-------
Toronto-Dominion Bank, as Canadian Agent and Canadian Collateral Agent, and
Toronto Dominion (Texas), Inc., as Documentation Agent, and (b) the Amended and
Restated Subsidiary Guarantee Agreement dated as of September 25, 1998, among
the Subsidiary Guarantors and the Administrative Agent (as amended, supplemented
or otherwise modified from time to time, the "Guarantee Agreement"). Capitalized
-------------------
terms used herein and not defined herein shall have the meanings assigned to
such terms in the Credit Agreement.
The Lenders have agreed to extend credit to the Borrowers pursuant to,
and upon the terms and subject to the conditions specified in, the Credit
Agreement dated as of November 22, 1996 among the Company, Unisource Capital
Corporation, Unisource Canada, Inc., the Lenders, The Chase Manhattan Bank, as
Administrative Agent, The Toronto-Dominion Bank, as Canadian Agent, and Toronto
Dominion (Texas), Inc., as Documentation Agent (the "Prior Credit Agreement").
----------------------
The Borrowers have requested that the Administrative Agent and the Lenders amend
and restate the Prior Credit Agreement in the manner provided in the Credit
Agreement. The Subsidiary Guarantors have guaranteed the Loans made to the
Borrowers and the other Obligations (as defined in the Guarantee Agreement) of
the Borrowers under the Credit Agreement pursuant to the Guarantee Agreement.
The obligations of the Lenders to make Loans and to issue or participate in
Letters of Credit under the Credit Agreement are conditioned on, among other
things, the execution and delivery by the Borrowers and the Subsidiary
Guarantors of
<PAGE>
2
an amended and restated agreement in the form hereof. As consideration therefor
and in order to induce the Lenders to amend and restate the Prior Credit
Agreement as provided in the Credit Agreement and to make Loans and issue or
participate in Letters of Credit under the Credit Agreement, the parties hereto
agree to amend and restate, and do hereby amend and restate, the Indemnity,
Subrogation and Contribution Agreement dated as of November 22, 1996, among the
Borrowers, the Subsidiary Guarantors and the Administrative Agent to read in its
entirety as follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights
--------------------------
of indemnity and subrogation as the Subsidiary Guarantors may have under
applicable law (but subject to Section 3), each U.S. Borrower agrees that in the
event a payment shall be made by any Subsidiary Guarantor under the Guarantee
Agreement, such U.S. Borrower shall indemnify such Subsidiary Guarantor for the
full amount of such payment, and such Subsidiary Guarantor shall be subrogated
to the rights of the Person to whom such payment shall have been made to the
extent of such payment. In addition to all such rights of indemnity and
subrogation as the Subsidiary Guarantors may have under applicable law (but
subject to Section 3), the Canadian Borrower agrees that in the event a payment
shall be made by any Subsidiary Guarantor under the Guarantee Agreement with
respect to any Obligation of the Canadian Borrower, the Canadian Borrower shall
indemnify such Subsidiary Guarantor for the full amount of such payment, and
such Subsidiary Guarantor shall be subrogated to the rights of the Person to
whom such payment shall have been made to the extent of such payment.
SECTION 2. Contribution and Subrogation. Each Subsidiary Guarantor (a
----------------------------
"Contributing Subsidiary Guarantor") agrees (subject to Section 3) that, in the
---------------------------------
event a payment shall be made by any other Subsidiary Guarantor under the
Guarantee Agreement and such other Subsidiary Guarantor (the "Claiming
--------
Subsidiary Guarantor") shall not have been fully indemnified by the Borrowers as
- --------------------
provided in Section 1, the Contributing Subsidiary Guarantor shall indemnify the
Claiming Subsidiary Guarantor in an amount equal to the amount of such payment
or the greater of the book value or the fair market value of such assets, as the
case may be, in each case multiplied by a fraction of which the numerator shall
be the net worth of the Contributing Subsidiary Guarantor on the date hereof and
the denominator shall be the aggregate net worth of all the Subsidiary
Guarantors on the date hereof (or, in the case of any Subsidiary Guarantor
becoming a party hereto pursuant to Section 12, the date of the Supplement
hereto executed and delivered by such
<PAGE>
3
Subsidiary Guarantor). Any Contributing Subsidiary Guarantor making any payment
to a Claiming Subsidiary Guarantor pursuant to this Section 2 shall be
subrogated to the rights of such Claiming Subsidiary Guarantor under Section 1
to the extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this
-------------
Agreement to the contrary, all rights of the Subsidiary Guarantors under
Sections 1 and 2 and all other rights of indemnity, contribution or subrogation
under applicable law or otherwise shall be fully subordinated to the
indefeasible payment in full in cash of the Obligations. No failure on the part
of any Borrower or any Subsidiary Guarantor to make the payments required by
Sections 1 and 2 (or any other payments required under applicable law or
otherwise) shall in any respect limit the obligations and liabilities of any
Subsidiary Guarantor with respect to its obligations hereunder, and each
Subsidiary Guarantor shall remain liable for the full amount of the obligations
of such Subsidiary Guarantor hereunder. The subordination effected by this
Section 3 shall prohibit (i) any exercise of a set off in respect of the
subordinated obligations, (ii) the commencement of any action seeking to enforce
the subordinated obligations and (iii) the assignment of subordinated
obligations. Any Subsidiary Guarantor receiving any payment in respect of a
subordinated obligation in violation of this Section 3 shall be deemed to have
received such payment in trust for the benefit of the Administrative Agent and
immediately turn over such amount to the Administrative Agent for application in
respect of the Obligations.
SECTION 4. Termination. This Agreement shall survive and be in full
-----------
force and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash or the Commitments under the Credit Agreement
have not been terminated or the LC Exposure is not zero, and 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, any other Agent or any Lender or any Subsidiary
Guarantor upon the bankruptcy or reorganization of any Borrower, any Subsidiary
Guarantor or otherwise. Each Subsidiary Guarantor shall automatically be
released from its obligations hereunder in the event that all the capital stock
of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of
to a Person that is not an Affiliate of the Company in accordance with the terms
of the Credit Agreement
<PAGE>
4
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
--------------------
Administrative Agent or any Subsidiary Guarantor to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by the Administrative Agent or any Subsidiary Guarantor preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. None of the Administrative Agent and the Subsidiary
Guarantors shall be deemed to have waived any rights hereunder unless such
waiver shall be in writing and signed by such parties.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Borrowers, the Subsidiary Guarantors and the Administrative Agent, with the
prior written consent of the Required Lenders (except as otherwise provided in
the Credit Agreement).
SECTION 7. Notices. All communications and notices hereunder shall be
-------
in writing and given as provided in the Guarantee Agreement and addressed as
specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement
------------------------------
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the parties that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns. Neither any Borrower nor any Subsidiary Guarantor may assign or
transfer any of its rights or obligations hereunder (and any such attempted
assignment or transfer shall be void) without the prior written consent of the
Required Lenders, except in connection with any transaction permitted by Section
6.04 of the Credit Agreement. Notwithstanding the foregoing, at the time any
Subsidiary Guarantor is released from its obligations under the Guarantee
Agreement in accordance with such Guarantee Agreement and the Credit Agreement,
such Subsidiary Guarantor will cease to have any rights or obligations under
this Agreement.
<PAGE>
5
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
-----------------------------------
agreements made by the Borrowers and each Subsidiary Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement shall be considered to have been relied upon by the Administrative
Agent, the other Agents, the Lenders and each other Subsidiary Guarantor and
shall survive the making by the Lenders of the Loans and other extensions of
credit under the Credit Agreement and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loans or any other fee
or amount payable under the Credit Agreement or this Agreement is outstanding
and unpaid or the LC Exposure is not zero and as long as the Commitments have
not been terminated.
(b) In the event that any one or more of the provisions contained in
this Agreement should be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 10. Counterparts. 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 shall be effective with
respect to any Subsidiary Guarantor when a counterpart bearing the signature of
such Subsidiary Guarantor shall have been delivered to the Administrative Agent.
Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation
-----------------------
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 12. Additional Subsidiary Guarantors. Pursuant to Section 5.10
--------------------------------
of the Credit Agreement, each U.S. Material Subsidiary of the Company that was
not in existence or not such a Material Subsidiary on the date of the Credit
Agreement is required to enter into the Guarantee Agreement
<PAGE>
6
as a Subsidiary Guarantor upon becoming such a Material Subsidiary. Upon
execution and delivery, after the date hereof, by the Administrative Agent and
such a Material Subsidiary of an instrument in the form of Annex 1 hereto, such
Material Subsidiary shall become a Subsidiary Guarantor hereunder with the same
force and effect as if originally named as a Subsidiary Guarantor here under.
The execution and delivery of any instrument adding an additional Subsidiary
Guarantor as a party to this Agreement shall not require the consent of any
Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary
Guarantor hereunder shall remain in full force and effect notwithstanding the
addition of any new Subsidiary Guarantor as a party to this Agreement.
SECTION 13. Jurisdiction; Consent to Service of Process. (a) Each
-------------------------------------------
Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State court
or Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, 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,
any other Agent or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement against any Subsidiary Guarantor or its
properties in the courts of any jurisdiction.
(b) Each Subsidiary Guarantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any New
York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for
<PAGE>
7
notices in Section 7. 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 14. 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 RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers as of the date first appearing above.
UNISOURCE WORLDWIDE, INC.,
by
______________________________
Name:
Title:
UNISOURCE CAPITAL CORPORATION,
by
______________________________
Name:
Title:
UNISOURCE CANADA, INC.,
by
______________________________
Name:
Title:
EACH OF THE SUBSIDIARIES LISTED
ON SCHEDULE I HERETO, as a
Subsidiary Guarantor,
by
______________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent,
by
______________________________
Name:
Title:
<PAGE>
Schedule I
to the Indemnity, Subrogation
and Contribution Agreement
SUBSIDIARY GUARANTORS
---------------------
National Sanitary Supply Company
Paper Corporation of North America
Unisource Capital Corporation
BRT, Inc.
<PAGE>
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. [ ] dated as of [ ], to the
Amended and Restated Indemnity, Subrogation and Contribution
Agreement dated as of September 25, 1998 (as the same may be
amended, supplemented or otherwise modified from time to time,
the "Indemnity, Subrogation and Contribution Agreement"), among
-------------------------------------------------
UNISOURCE WORLDWIDE INC., a Delaware corporation (the "Company"),
-------
UNISOURCE CAPITAL CORPORATION, UNISOURCE CANADA, INC., each
Subsidiary of the Company listed on Schedule I thereto or party
to any supplement thereto executed and delivered prior to the
date hereof (the "Subsidiary Guarantors"), and THE CHASE
---------------------
MANHATTAN BANK, as administrative agent (the "Administrative
--------------
Agent") for the Lenders (as defined in the Credit Agreement
-----
referred to below).
A. Reference is made to (a) the Amended and Restated Credit Agreement
dated as of September 25, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among the Company, Unisource Capital
----------------
Corporation, Unisource Canada, Inc., the lenders from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as administrative agent for the
-------
Lenders (in such capacity, the "Administrative Agent") and U.S. Collateral
--------------------
Agent, The Toronto-Dominion Bank, as Canadian Agent and Canadian Collateral
Agent, and Toronto Dominion (Texas), Inc., as Documentation Agent, and (b) the
Amended and Restated Subsidiary Guarantee Agreement dated as of September 25,
1998, among the Subsidiary Guarantors and the Administrative Agent (as the same
may be amended, supplemented or otherwise modified, the "Guarantee
---------
Agreement").
B. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.
C. The Borrowers, the Subsidiary Guarantors and the Administrative
Agent have entered into the Indemnity, Subrogation and Contribution Agreement in
order to induce the Lenders to extend credit under the Credit Agreement.
Pursuant to Section 5.10 of the Credit Agreement, each U.S. Material Subsidiary
of the Company that was not in existence or not such a Material Subsidiary on
the date of the Credit Agreement is required to enter into the Guarantee
Agreement as a Subsidiary Guarantor upon becoming a Material Subsidiary.
Section 12 of the Indemnity, Subrogation and
<PAGE>
2
Contribution Agreement provides that additional U.S. Material Subsidiaries of
the Company may become Subsidiary Guarantors under the Indemnity, Subrogation
and Contribution Agreement by execution and delivery of an instrument in the
form of this Supplement. The undersigned Material Subsidiary of the Company
(the "New Subsidiary Guarantor") is executing this Supplement in accordance with
------------------------
the requirements of the Credit Agreement to become a Subsidiary Guarantor under
the Indemnity, Subrogation and Contribution Agreement in order to induce the
Lenders to extend additional credit and as consideration for extensions of
credit previously made under the Credit Agreement.
Accordingly, the Administrative Agent and the New Subsidiary Guarantor
agree as follows:
SECTION 1. In accordance with Section 12 of the Indemnity,
Subrogation and Contribution Agreement, the New Subsidiary Guarantor by its
signature below becomes a Subsidiary Guarantor under the Indemnity, Subrogation
and Contribution Agreement with the same force and effect as if originally named
therein as a Subsidiary Guarantor and the New Subsidiary Guarantor hereby agrees
to all the terms and provisions of the Indemnity, Subrogation and Contribution
Agreement applicable to it as a Subsidiary Guarantor thereunder. Each reference
to a "Subsidiary Guarantor" in the Indemnity, Subrogation and Contribution
Agreement shall be deemed to include the New Subsidiary Guarantor. The
Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Subsidiary Guarantor represents and warrants to
the Administrative Agent, the other Agents and the Lenders that this Supplement
has been duly authorized, executed and delivered by it and constitutes its
legal, valid and binding obligation, enforceable against it 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. This Supplement 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 Supplement shall become effective when the Administrative
Agent shall have received counterparts of this Supplement that, when taken
together,
<PAGE>
3
bear the signatures of the New Subsidiary Guarantor and the Administrative
Agent. Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In the event that any one or more of the provisions
contained in this Supplement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and in the Indemnity, Subrogation and Contribution
Agreement shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision in
any other jurisdiction). The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in
writing and given as provided in Section 7 of the Indemnity, Subrogation and
Contribution Agreement. All communications and notices hereunder to the New
Subsidiary Guarantor shall be given to it at the address set forth under its
signature.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse the
Administrative Agent for its reasonable out-of-pocket expenses in connection
with this Supplement, including the reasonable fees, other charges and
disbursements of counsel for the Administrative Agent.
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the
Administrative Agent have duly executed this
<PAGE>
4
Supplement to the Indemnity, Subrogation and Contribution Agreement as of the
day and year first above written.
[Name of New Subsidiary Guarantor],
by
_______________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Administrative Agent,
by
_______________________________
Name:
Title:
<PAGE>
Schedule I
to Supplement No.___ to the Indemnity,
Subrogation and Contribution Agreement
SUBSIDIARY GUARANTORS
---------------------
Name Address
- ---- -------
<PAGE>
EXHIBIT F
SECURITY AGREEMENT dated as of September 25, 1998, 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 subsidiaries of the Borrowers listed on
---------
Schedule I hereto (collectively, the "Subsidiary Grantors", the
-------------------
Borrowers and the Subsidiary Grantors being collectively called
the "Grantors"); THE CHASE MANHATTAN BANK, as U.S. collateral
--------
agent (in such capacity, the "U.S. Collateral Agent") for the
---------------------
Secured Parties, as defined herein; THE TORONTO-DOMINION BANK, as
Canadian collateral agent (in such capacity, the "Canadian
--------
Collateral Agent" and, together with the U.S. Collateral Agent,
----------------
the "Collateral Agents") for the Secured Parties, and SUNTRUST
-----------------
BANK, ATLANTA as a Secured Party.
Reference is made to the Amended and Restated Credit Agreement dated
as of September 25, 1998 (as amended or modified from time to time, the "Credit
------
Agreement"), among the Borrowers, the financial institutions party thereto as
- ---------
lenders (the "Lenders"), The Chase Manhattan Bank, as Administrative Agent (in
-------
such capacity, the "Administrative Agent") and U.S. Collateral Agent, The
--------------------
Toronto-Dominion Bank, as Canadian Agent (in such capacity, the "Canadian
--------
Agent") and Canadian Collateral Agent, and Toronto Dominion (Texas) Inc., as
Documentation Agent (in such capacity, the "Documentation Agent"). The Lenders
-------------------
have agreed to extend credit to the Borrowers pursuant to, and subject to the
terms and conditions specified in, the Credit Agreement. The obligations of the
Lenders to extend credit under the Credit Agreement are conditioned upon, among
other things, the execution and delivery by the Grantors of a security agreement
in the form hereof to secure (a) the due and punctual payment of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans made to the Borrowers, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise, (ii) each
payment required to be made by any
<PAGE>
2
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral, and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Borrowers to the Lenders under the Credit
Agreement and the other Loan Documents, (b) the due and punctual performance of
all covenants, agreements, obligations and liabilities of the Borrowers under or
pursuant to the Credit Agreement and the other Loan Documents, (c) all
obligations of the Borrowers under each Hedging Agreement entered into with any
counterparty that was a Lender (or an Affiliate thereof) at the time such
Hedging Agreement was entered into and (d) all obligations of the Company under
Article IX of the Credit Agreement (all the foregoing obligations in clauses (a)
through (d) above being collectively called the "Loan Document Obligations");
-------------------------
(e) the due and punctual payment of each payment required to be made by the
Company under the Uncommitted Loan Facility Agreement, dated as of June 6, 1997,
as hereafter amended or modified from time to time, the "SunTrust Loan Facility
----------------------
Agreement"), by and between the Company and SunTrust Bank, Atlanta ("SunTrust"),
- --------- --------
and all other Operative Documents (as defined in the SunTrust Loan Facility
Agreement), in each case when and as due, including all obligations to purchase
loans extended pursuant to the SunTrust Loan Facility Agreement and the due and
punctual performance of all other obligations of the Company and its
Subsidiaries under the SunTrust Loan Facility Agreement and all other Operative
Documents in an aggregate principal amount for all obligations listed in this
clause (e) not in excess of $8,000,000; (f) the due and punctual payment of each
payment required to be made by the Company under the Lease and Development
Agreement, dated as of November 8, 1994, as hereafter amended or modified from
time to time, the "SunTrust Synthetic Lease"), as assigned to SunTrust (formerly
------------------------
known as Trust Company Bank), by PPI SPV, L.P. pursuant to the Loan Agreement
dated as of November 8, 1994, as hereafter amended or modified from time to time
(the "PPI SPV Loan Agreement"), between PPI SPV, L.P. and SunTrust, when and as
----------------------
due, and the due and punctual performance of all other obligations of the
Company, its Subsidiaries and PPI SPV, L.P. under the SunTrust Synthetic Lease,
the PPI SPV Loan Agreement and all other Operative Documents (as defined in the
SunTrust Synthetic Lease), including without limitation the Participation
Agreement, dated as of
<PAGE>
3
November 8, 1994 (as hereafter amended or modified from time to time) among the
Company, AOP Inc., Alco Standard Corporation, PPI SPV, L.P., Pitcairn SPV, Inc.
and SunTrust in an aggregate principal amount for all obligations listed in this
clause (f) not in excess of $22,000,000; and (g) the due and punctual payment of
each payment required to be made by the Company under the Letter of Credit
Agreement, dated as of June 1, 1991, as hereafter amended or modified, the
"SunTrust Letter of Credit Agreement"), by and between Paper Corporation of
- ------------------------------------
America, the Company (as successor to ALCO Standard Corporation) and SunTrust
(formerly known as Trust Company Bank) and all other Operative Documents (as
defined in the SunTrust Letter of Credit Agreement), in each case when and as
due, including payments in respect of reimbursement of disbursements, interest
thereon and obligations to provide cash collateral, and the due and punctual
performance of all other obligations of the Company and its Subsidiaries under
the SunTrust Letter of Credit Agreement and all other Letter of Credit Documents
(as defined in the SunTrust Letter of Credit Agreement) in an aggregate
principal amount for all obligations listed in this clause (g) not in excess of
$3,565,000 (the SunTrust Loan Facility Agreement, the Operative Documents (as
defined in the SunTrust Loan Facility Agreement), the SunTrust Synthetic Lease,
the Operative Documents (as defined in the SunTrust Synthetic Lease), the
SunTrust Letter of Credit Agreement and the Operative Documents (as defined in
the SunTrust Letter of Credit Agreement) are hereinafter collectively referred
to as the "SunTrust Documents"); (all the foregoing obligations in clauses (a)
------------------
through (g) above being collectively called the "Obligations").
-----------
Accordingly, the Grantors, the Collateral Agents and SunTrust hereby
agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Terms Defined in the Credit Agreement. Terms used
--------------------------------------
herein and not otherwise defined herein shall have the meanings set forth in the
Credit Agreement.
<PAGE>
4
SECTION 1.02. Definition of Certain Terms Used Herein. As used
----------------------------------------
herein, the following terms shall have the following meanings:
"Account Debtor" shall mean any Person who is or who may become
--------------
obligated to a Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all rights of any Grantor to payment for
--------
goods or services sold or leased, including any such right evidenced by chattel
paper, whether due or to become due, whether or not earned by performance and
whether now existing or arising in the future, including accounts receivable
from Affiliates of the Grantors. Notwithstanding the foregoing, the term
"Accounts" shall not include any accounts sold to any Person who is not a
Grantor pursuant to any Securitization permitted by Section 6.02(e) of the
Credit Agreement, except to the extent such accounts are transferred back to a
Grantor.
"Accounts Receivable" shall mean all Accounts and all rights in any
-------------------
returned goods, together with all rights, titles, securities and guarantees with
respect thereto, including any rights to stoppage in transit, replevin,
reclamation and resales, and all related security interests, liens and pledges,
whether voluntary or involuntary.
"Canadian Grantor" means the Canadian Borrower and any other Loan
----------------
Party that becomes an additional Grantor in accordance with Section 7.16 and may
from time to time have Obligations outstanding to a Canadian Lender, the
Canadian Agent or the Canadian Collateral Agent.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents,
----------
(c) Inventory and (d) Proceeds.
"Credit Agreement" shall have the meaning assigned to such term in the
----------------
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets
---------
and documents covering or relating to any of the Collateral.
"Indemnitees" shall mean (a) each Indemnitee as defined in Section
-----------
10.03(b) of the Credit Agreement and (b) SunTrust and its successors and
assigns.
"Inventory" shall mean all goods of a Grantor, whether now owned or
---------
hereafter acquired, held for sale or lease, or furnished or to be furnished by a
Grantor under
<PAGE>
5
contracts of service, or consumed in a Grantor's business, including raw
materials, intermediates, work in process, packaging materials, finished goods,
semifinished inventory, scrap inventory, manufacturing supplies and spare parts,
and all such goods that have been returned to or repossessed by or on behalf of
any Grantor.
"Obligations" shall have the meaning assigned to such term in the
-----------
preliminary statement of this Agreement.
"Perfection Certificate" means a certificate substantially in the form
----------------------
of Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and a legal
officer of the Company.
"Proceeds" shall mean any consideration received from the sale,
--------
exchange, license, lease or other disposition of any asset or property which
constitutes Collateral, any value received as a consequence of the possession of
any Collateral and any payment received from any insurer or other Person as a
result of the destruction, loss, theft, damage or other involuntary conversion
of whatever nature of any asset or property which constitutes Collateral and
shall include any and all amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders party to the Credit
---------------
Agreement, (b) each counterparty to a Hedging Agreement entered into with any of
the Borrowers, if such counterparty was a Lender (or an Affiliate of a Lender)
at the time such Hedging Agreement was entered into, (c) the Administrative
Agent, the Canadian Agent, the Documentation Agent and the Collateral Agents, in
their capacities as such under each Loan Document, (d) the Indemnitees (as
defined in Section 10.03(b) of the Credit Agreement), (e) SunTrust, in its
capacities as (i) the Bank under the SunTrust Loan Facility Agreement, (ii)
Lender under the SunTrust Synthetic Lease and (iii) the Bank under the SunTrust
Letter of Credit Agreement and (f) the successors and assigns of the foregoing.
"Security Interest" shall have the meaning assigned to such term in
-----------------
Section 2.01.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
------------------------
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE>
6
ARTICLE II
Security Interest
-----------------
SECTION 2.01. Security Interest. As security for the payment or
------------------
performance, as the case may be, of the Obligations, each U.S. Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the U.S. Collateral Agent, its successors and its assigns, and
each Canadian Grantor hereby bargains, sells, conveys, assigns, sets over,
mortgages, pledges, hypothecates and transfers to the Canadian Collateral Agent,
its successors and its assigns, for the ratable benefit of the Secured Parties,
and hereby grants to such Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest (a "Security
--------
Interest") in, all of such Grantor's right, title and interest in, to and under
- --------
the Collateral; provided that, notwithstanding the foregoing and any other
--------
provision of this Agreement, the Collateral owned by each Canadian Grantor shall
secure only the payment or performance, as the case may be, of its Obligations
and the proceeds of such Collateral owned by the Canadian Grantors shall only be
applied in respect of their Obligations and otherwise in accordance with Section
6.02. Without limiting the foregoing, each of the Collateral Agents is hereby
authorized to file one or more financing statements, continuation statements or
other documents for the purpose of perfecting, confirming, continuing, enforcing
or protecting the Security Interest granted by each Grantor, without the
signature of any Grantor, naming any Grantor or the Grantors as debtors and the
U.S. Collateral Agent or Canadian Collateral Agent, as the case may be, as
secured party.
The Grantors agree at all times to keep accurate and complete
accounting records with respect to the Collateral, including a record of all
payments and Proceeds received.
SECTION 2.02. No Assumption of Liability. Each Security Interest is
---------------------------
granted as security only and shall not subject the Collateral Agents or any
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of any of the Collateral.
<PAGE>
7
ARTICLE III
Representations and Warranties
------------------------------
The Grantors jointly and severally represent and warrant to the
Secured Parties that:
SECTION 3.01. Title and Authority. Each of the Grantors has good and
--------------------
valid rights in and title to the Collateral with respect to which it has
purported to grant a Security Interest hereunder and has full power and
authority to grant to the Collateral Agents a Security Interest in such
Collateral pursuant hereto and the Liens created under the other Security
Documents and to execute, deliver and perform its obligations in accordance with
the terms of this Agreement and the other Security Documents, without the
consent or approval of any other Person other than any consent or approval which
has been obtained.
SECTION 3.02. Filings. The Perfection Certificate has been duly
--------
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements or other appropriate filings, recordings or registrations containing
a description of the Collateral have been delivered to the Collateral Agents for
filing in each appropriate governmental, municipal or other office in each
jurisdiction where a Grantor has its chief executive office or principal place
of business or Collateral, which are all the filings, recordings and
registrations that are necessary to publish notice of and protect the validity
of and to establish a valid and perfected security interest or Lien in favor of
the U.S. Collateral Agent or Canadian Collateral Agent, as the case may be (for
the benefit of the Secured Parties), in respect of all Collateral in which a
Security Interest, and Liens created under the other Security Documents, may be
perfected by filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and possessions or in Canada
(or any political subdivision thereof) and its territories and possessions, and
no further or subsequent filing, refiling, recording, rerecording, registration
or reregistration is necessary in any such jurisdiction, except as provided
under applicable law with respect to the filing of continuation statements,
financing change statements or equivalent filings under other applicable laws;
provided that no filings, recordings or registrations need to be delivered to
- --------
the Collateral Agents with respect to Collateral located in any of the Yukon
Territory, the Northwest Territories, Newfoundland and Prince Edward Island
<PAGE>
8
as long as the fair market value of such Collateral does not exceed $1,000,000
for any such territory or province (and the Canadian Borrower agrees to promptly
notify the Canadian Collateral Agent if the fair market value of the Collateral
located in any such territory or province exceeds $1,000,000).
SECTION 3.03. Validity of Security Interest. Each of the Security
------------------------------
Interests and the Liens created under the other Security Documents constitutes
(a) a valid security interest or Lien, as applicable, in all the Collateral
securing the payment and performance of the Obligations and (b) subject to the
filings described in Section 3.02 above, a perfected security interest or Lien,
as applicable, in all Collateral in which a security interest, or Lien, as
applicable, may be perfected by filing, recording or registering a financing
statement or analogous document in the United States (or any political
subdivision thereof) and its territories and possessions or in Canada (or any
political subdivision thereof) and its territories and possessions other than
the Yukon Territory, the Northwest Territory, Newfoundland and Prince Edward
Island, to the extent that filings are not required to be delivered to the
Collateral Agents for filing in such provinces pursuant to Section 3.02 pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions.
Each of the Security Interests and the Liens created under the other Security
Documents is and shall be prior to any other Lien on any of the Collateral,
other than Liens that the Credit Agreement expressly permits to be prior to the
Security Interest and such other Liens.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
-----------------------
Grantors free and clear of any Lien, except for Liens expressly permitted by the
Credit Agreement. Other than as permitted by the Credit Agreement, none of the
Grantors has filed or consented to the filing of (a) any financing statement or
analogous document under the Uniform Commercial Code or any other applicable law
in each relevant jurisdiction covering any Collateral or (b) any assignment in
which any Grantor assigns any Collateral or any security agreement or similar
instrument covering any Collateral with any foreign governmental, municipal or
other office.
<PAGE>
9
ARTICLE IV
Covenants
---------
SECTION 4.01. Change of Name; Location of Collateral; Records; Place
------------------------------------------------------
of Business. (a) Each of the Grantors agrees to notify promptly the Collateral
- ------------
Agents of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business (other than the cessation of the use
of any trade name) or in the ownership of its properties at which any Collateral
is located, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility);
provided that no Grantor shall be required to notify the Collateral Agents of
- --------
any change in the location of any Collateral to the extent no Collateral is
moved to any locations but locations at which such Grantor has previously
informed the Collateral Agents it maintains Collateral; provided further that,
--------
with respect to Collateral with an aggregate fair market value for all Grantors
at no time greater than $10,000,000.00 (exclusive of Collateral at any location
of which the Collateral Agents have been informed pursuant to this proviso), the
applicable Grantor shall notify the Collateral Agents within two months of
changes in the location of such Collateral, (iii) in its identity or corporate
structure, or (iv) in its Federal Taxpayer Identification Number. Each of the
Grantors agrees not to effect or permit any change (other than any change
referenced in the second proviso to clause (ii) above) referred to in the
preceding sentence unless all filings have been made under the Uniform
Commercial Code or other applicable law in each relevant jurisdiction which are
required in order for the U.S. Collateral Agent or Canadian Collateral Agent, as
the case may be, and the Secured Parties to continue at all times following such
change to have a valid and perfected security interest and Lien in all the
Collateral. Each of the Grantors agrees to notify promptly the Collateral
Agents if any material portion of the Collateral is damaged or destroyed.
(b) Each of the Grantors agrees to maintain complete and accurate
records with respect to the Collateral owned by it and, at such time or times as
either Collateral Agent may reasonably request, promptly to prepare and deliver
to the Collateral Agents a duly certified schedule or schedules in form and
detail satisfactory to the
<PAGE>
10
Collateral Agents showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of
-----------------------
delivery of annual financial statements with respect to the preceding fiscal
year pursuant to Section 5.01 of the Credit Agreement, the Company shall deliver
to the Collateral Agents a certificate executed by a Financial Officer and a
legal officer of the Company setting forth the information required pursuant to
Section 2 of the Perfection Certificate or confirming that there has been no
change in such information since the date of the Perfection Certificate
delivered on the Amendment Effective Date or the date of the most recent
certificate delivered pursuant to this Section.
SECTION 4.03. Protection of Security. Each of the Grantors shall, at
-----------------------
its own cost and expense, take any and all actions necessary to defend title to
the Collateral against all Persons and to defend the Security Interests and the
other Liens created under the Security Documents of the Collateral Agents in the
Collateral and the priority thereof against any Lien not expressly permitted
under the Credit Agreement.
SECTION 4.04. Further Assurances. The Grantors will (i) execute,
-------------------
acknowledge, deliver and cause to be duly filed all such further instruments,
agreements and documents, including Uniform Commercial Code financing statements
or other appropriate filings, recordings or registrations necessary, or that the
Administrative Agent or any of the Collateral Agents may reasonably request, in
order to grant, preserve and protect the validity of and to establish a valid
and perfected first priority security interest (it being understood, however,
that Liens permitted under Section 6.02 of the Credit Agreement may have
priority over such security interest) and other applicable Liens in favor of the
Collateral Agents and in favor of the Canadian Lenders, as applicable, in
respect of all Collateral in which the Security Interests and such other
applicable Liens may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions or in Canada (or any political subdivision thereof) and its
territories and possessions and (ii) take all such actions as the Administrative
Agent or any of the Collateral Agents may from time to time reasonably request
to better assure, preserve, protect and perfect the Security Interests and such
other applicable Liens and the rights and remedies created by this Agreement and
all other Security Documents, including the payment of
<PAGE>
11
any fees and taxes required in connection with the execution and delivery of
this Agreement and all other Security Documents, the granting of the Security
Interests and other applicable Liens and the filing of any financing statements
or other documents in connection therewith; provided that no filings, recordings
--------
or registrations need to be delivered to the Collateral Agents with respect to
Collateral located in any of the Yukon Territory, the Northwest Territory,
Newfoundland and Prince Edward Island as long as the fair market value of all
such Collateral located in any such territory or province does not exceed
$1,000,000 (and the Canadian Borrower agrees to promptly notify the Canadian
Collateral Agent if the fair market value of the Collateral located in any such
territory or province exceeds $1,000,000). The Company agrees to provide such
evidence as the Administrative Agent or any of the Collateral Agents shall
reasonably request as to the perfection and priority status of the Security
Interests and such other applicable Liens. If any amount (other than amounts
not greater than $500,000 owed by any one obligor or $5,000,000 in the aggregate
for all obligors at any time) payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately pledged and delivered
to the U.S. Collateral Agent or Canadian Collateral Agent, as the case may be,
duly endorsed in a manner satisfactory to such Collateral Agent.
SECTION 4.05. Inspection and Verification. The Collateral Agents and
----------------------------
such Persons as the Collateral Agents may reasonably designate shall have the
right, upon reasonable notice, at any reasonable time or times and as often as
reasonably requested, to inspect the Collateral, all records related thereto
(and to make extracts and copies from such records), and the premises upon which
any of the Collateral is located, to discuss the Grantors' affairs with the
officers of the Grantors and, subject to a representative of the Company being
given the opportunity to be present, their independent accountants and to verify
under reasonable procedures the validity, amount, quality, quantity, value,
condition and status of, or any other matter relating to, the Collateral,
including, in the case of Accounts or Collateral in the possession of any third
Person, by contacting Account Debtors or the third Person possessing such
Collateral for the purpose of making such a verification; provided that unless
--------
an Event of Default shall have occurred and be continuing the Collateral Agents
may only contact such Account Debtors or third Persons with the consent of the
applicable Grantor, such consent not to be unreasonably withheld. Each of the
Collateral Agents shall
<PAGE>
12
have the absolute right to share any information it gains from such inspection
or verification with any Secured Party.
SECTION 4.06. Taxes; Encumbrances. At its option, either of the
--------------------
Collateral Agents may discharge past due taxes, assessments, charges, fees,
liens, security interests or other encumbrances at any time levied or placed on
the Collateral and not permitted under the Credit Agreement, and may pay for the
maintenance and preservation of the Collateral to the extent any of the Grantors
fails to do so as required by the Credit Agreement or this Agreement, and each
of the Grantors jointly and severally agrees to reimburse the Collateral Agents
on demand for any payment made or any expense incurred by the Collateral Agents
pursuant to the foregoing authorization; provided, however, that nothing in this
-------- -------
Section shall be interpreted as excusing any Grantor from the performance of, or
imposing any obligation on the Collateral Agents or any other Secured Party to
cure or perform, any covenants or other promises of any Grantor with respect to
taxes, assessments, charges, fees, liens, security interests or other
encumbrances and maintenance as set forth herein or in the Credit Agreement.
SECTION 4.07. Assignment of Security Interest. If at any time any of
--------------------------------
the Grantors shall take and perfect a security interest or other Lien in any
property of an Account Debtor or any other Person to secure payment and
performance of an Account (other than Accounts evidencing obligations owed to
the Grantors in an aggregate amount outstanding no greater than $500,000 owed by
any one obligor or $5,000,000 for all obligors at any time), such Grantor shall
promptly assign such security interest or other Lien to the U.S. Collateral
Agent or Canadian Collateral Agent, as the case may be. Such assignment need
not be filed of public record unless necessary to continue the perfected status
of the security interest or other Lien against creditors of and transferees from
the Account Debtor or other Person granting the security interest or other Lien.
SECTION 4.08. Continuing Obligations of the Grantors. Each of the
---------------------------------------
U.S. Grantors shall remain liable to observe and perform all the conditions and
obligations to be observed and performed by it under each contract, agreement or
instrument relating to the Collateral, all in accordance with the terms and
conditions thereof, and (a) the U.S. Grantors jointly and severally agree to
indemnify and hold harmless the Collateral Agents and the other Secured Parties
and (b) the Canadian Grantors jointly and severally agree to indemnify the
Canadian Agent and all other Secured Parties
<PAGE>
13
holding Obligations of the Canadian Grantors, in each case, from and against any
and all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors
----------------------------------
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral except as
expressly permitted by the Credit Agreement. None of the Grantors shall make or
permit to be made any transfer of the Collateral and each Grantor shall remain
at all times in possession of the Collateral owned by it, except that (a)
Inventory may be sold in the ordinary course of business and (b) unless and
until the U.S. Collateral Agent or Canadian Collateral Agent shall notify the
Grantors that an Event of Default has occurred and is continuing and that during
the continuance thereof the Grantors shall not sell, convey, lease, assign,
transfer or otherwise dispose of any Collateral (which notice may be given by
telephone if promptly confirmed in writing), the Grantors may use and dispose of
the Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document. Without limiting
the generality of the foregoing, each Grantor agrees that it shall not permit
any Inventory (other than Inventory with an aggregate fair market value for all
Grantors no greater than $250,000 at any time) to be in the possession or
control of any warehouseman, bailee, agent or processor at any time unless such
warehouseman, bailee, agent or processor shall have been notified of the
Security Interests and the other Liens created under the Security Documents and
shall have agreed in writing to hold the Inventory subject to the Security
Interests and such other Liens, as applicable, and the instructions of the U.S.
Collateral Agent or Canadian Collateral Agent, as the case may be, and to waive
and release any Lien held by it with respect to such Inventory, whether arising
by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
---------------------------------------
Grantors will, without the prior written consent of U.S. Collateral Agent or
Canadian Collateral Agent, as the case may be, grant any extension of the time
of payment of any of the Accounts Receivable, compromise, compound or settle the
same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof or allow any credit or discount whatsoever
thereon, other than extensions, credits, discounts, compromises or settlements
granted or made in the ordinary course of business of the Company and its
Subsidiaries.
<PAGE>
14
SECTION 4.11. Insurance. (a) The Company, at its own expense, shall
----------
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory in accordance with the provisions of the Credit Agreement. All
such policies of insurance shall be endorsed or otherwise amended to include a
lender's loss payable endorsement, in form and substance satisfactory to the
U.S. Collateral Agent or the Canadian Collateral Agent, as the case may be,
which shall provide that from and after the date, if any, on which the insurance
carrier receives written notice from such Collateral Agent that an Event of
Default has occurred, all proceeds in respect of any Collateral otherwise
payable to the Company or any other Grantor under such policies shall be payable
directly to such Collateral Agent for the benefit of the Secured Parties or the
Secured Parties, if required by the applicable Collateral Agent. Such
endorsement or an independent instrument furnished to the U.S. Collateral Agent
or Canadian Collateral Agent, as the case may be, shall provide that the
insurance carriers will give such Collateral Agent at least 30 days' prior
written notice before any such policy or policies of insurance shall be altered
or canceled and that no act or default of any Grantor or any other Person shall
affect the right of such Collateral Agent or the Secured Parties, as applicable
to recover under such policy or policies of insurance in case of loss or damage.
(b) Each U.S. Grantor irrevocably makes, constitutes and appoints the
U.S. Collateral Agent, and each Canadian Grantor irrevocably makes, constitutes
and appoints the Canadian Collateral Agent, (and all officers, employees or
agents designated by such Collateral Agent) as such Grantor's true and lawful
agent (and attorney-in-fact) for the purpose, during the continuance of an Event
of Default, of making, settling and adjusting claims in respect of Collateral
under policies of insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect thereto.
In the event that any Grantor at any time or times shall fail to obtain or
maintain any of the policies of insurance required hereby or to pay any premium
in whole or part relating thereto, the U.S. Collateral Agent or Canadian
Collateral Agent, as the case may be, may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as such Collateral Agent
deems advisable. All sums disbursed by the U.S. Collateral Agent or Canadian
<PAGE>
15
Collateral Agent, as the case may be, in connection with this Section, including
reasonable attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable, upon demand, by the Grantors to such Collateral Agent
and shall be additional Obligations secured hereby.
ARTICLE V
INTENTIONALLY OMITTED
---------------------
ARTICLE VI
Remedies
--------
SECTION 6.01. (a) Remedies upon Default. Upon the occurrence and
----------------------
during the continuance of an Event of Default, each of the Grantors agrees to
deliver each item of Collateral to the U.S. Collateral Agent or the Canadian
Collateral Agent, as the case may be, on demand and it is agreed that such
Collateral Agent shall have the right (subject to applicable law) to take any of
or all the following actions at the same or different times: with or without
legal process and with or without previous notice or demand for performance, to
take possession of the Collateral and without liability for trespass to enter
any premises where the Collateral may be located for the purpose of taking
possession of or removing the Collateral and, generally, to exercise any and all
rights afforded to a secured party under the Uniform Commercial Code or other
applicable law, including personal property security laws in each applicable
jurisdiction. Without limiting the generality of the foregoing, each of the
Grantors agrees that the U.S. Collateral Agent or the Canadian Collateral Agent,
as the case may be, shall have the right, subject to the mandatory requirements
of current law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale, for cash, upon credit or for future
delivery as such Collateral Agent shall deem appropriate. Each purchaser at any
such sale shall hold the property sold absolutely, free from any claim or right
on the part of any of the Grantors, and each of the Grantors hereby waives (to
the extent permitted by law) all rights of redemption, stay and appraisal which
such Grantor now has or may at any time in the future have under any rule of law
or statute now existing or hereafter enacted.
<PAGE>
16
The U.S. Collateral Agent or the Canadian Collateral Agent, as the
case may be, shall give the Grantors 10 days' written notice (which each of the
Grantors agrees is reasonable notice within the meaning of Section 9-504(3) of
the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other applicable jurisdictions) of such Collateral Agent's
intention to make any sale of Collateral, subject to the notice requirements
under personal property security laws in each applicable Canadian jurisdiction.
Such notice, in the case of a public sale, shall state the time and place for
such sale. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as such Collateral Agent may
fix and state in the notice (if any) of such sale. At any such sale the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as such Collateral Agent may (in its sole and absolute
discretion) determine. Such Collateral Agent shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. Such
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by such Collateral Agent until
the sale price is paid by the purchaser or purchasers thereof, but such
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may be sold again upon like notice. At any
public sale made pursuant to this Section, any Secured Party may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay, valuation or appraisal on the part of any of the Grantors (all said rights
being also hereby waived and released to the extent permitted by law), the
Collateral or any part thereof offered for sale and may make payment on account
thereof by using any claim then due and payable to such Secured Party from any
of the Grantors as a credit against the purchase price, and such Secured Party
may, upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to any of the Grantors therefor. For
purposes hereof, a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof; such Collateral Agent shall be
<PAGE>
17
free to carry out such sale pursuant to such agreement and none of the Grantors
shall be entitled to the return of the Collateral or any portion thereof subject
thereto, notwithstanding the fact that after such Collateral Agent shall have
entered into such an agreement all Events of Default shall have been remedied
and the Obligations paid in full. As an alternative to exercising the power of
sale herein conferred upon it, such Collateral Agent may proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell the Collateral
or any portion thereof pursuant to a judgment or decree of a court or courts
having competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.
(b) Appointment of Receiver. Upon the occurrence of and during the
-----------------------
continuance of any Event of Default, the Canadian Collateral Agent may appoint
or reappoint by instrument in writing, any Person or Persons, whether an officer
or officers or an employee or employees of such Collateral Agent or not, to be a
receiver or receivers (hereinafter called a "Receiver", which term when used
--------
herein shall include a receiver and manager) of any Collateral of any Canadian
Grantor (including any interest, income or profits therefrom) and may remove any
Receiver so appointed and appoint another in his/her/its stead. Any such
Receiver shall, so far as concerns responsibility for his/her/its acts, be
deemed the agent of the applicable Canadian Grantor and not such Collateral
Agent or any other Secured Party, and neither such Collateral Agent nor any
other Secured Party shall be in any way responsible for any misconduct,
negligence or non-feasance on the part of any such Receiver, his/her/its
servants, agents or employees. Subject to the provisions of the instrument
appointing any Receiver, such Receiver shall have power to take possession of
Collateral of any Canadian Grantor, to preserve such Collateral or its value, to
carry on or concur in carrying on all or any part of the business of the
applicable Canadian Grantor and to sell, lease, license or otherwise dispose of
or concur in selling, leasing, licensing or otherwise disposing of such
Collateral. To facilitate the foregoing powers, any such Receiver may, to the
exclusion of all others, including the applicable Canadian Grantor, enter upon,
use and occupy all premises owned or occupied by the applicable Canadian Grantor
wherein such Collateral may be situate, maintain such Collateral upon such
premises, borrow money on a secured or unsecured basis and use such Collateral
directly in carrying on the applicable Canadian Grantor's business or as
security for loans or advances to enable the Receiver to carry on the applicable
Canadian Grantor's business or otherwise, as such Receiver shall, in
<PAGE>
18
its discretion, determine. Except as may be otherwise directed by the Canadian
Collateral Agent, all money received from time to time by any Receiver in
carrying out such Receiver's appointment shall be received in trust for and paid
over to the Canadian Collateral Agent. Every Receiver may, in the discretion of
the Canadian Collateral Agent, be vested with all or any of the rights and
powers of such Collateral Agent. Upon and during the continuance of an Event of
Default, the Canadian Collateral Agent may, either directly or through its
agents or nominees, exercise any or all of the powers and rights given to a
Receiver by virtue of this Section.
(c) Power of Attorney. The U.S. Collateral Agent or Canadian
------------------
Collateral Agent, as the case may be, shall have the right, as the true and
lawful agent and attorney-in-fact of the Grantors, with power of substitution
for the Grantors and in each Grantor's name or otherwise, for the use and
benefit of such Collateral Agent and the Secured Parties, upon the occurrence
and during the continuance of an Event of Default (a) to receive, endorse,
assign and/or deliver any and all notes, acceptances, checks, drafts, money
orders or other evidences of payment relating to the Collateral or any part
thereof; (b) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (c) to sign the name of
any Grantor on any invoice or bill of lading relating to any of the Collateral;
(d) to send verifications of Accounts Receivable to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in respect of any
Collateral; (f) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to all or any of the Collateral; (g) to notify, or
to require the Grantors to notify, Account Debtors to make payment directly to
such Collateral Agent; and (h) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of the Collateral,
and to do all other acts and things necessary to carry out the purposes of this
Agreement, as fully and completely as though such Collateral Agent were the
absolute owner of the Collateral for all purposes; provided, however, that
-------- -------
nothing herein contained shall be construed as requiring or obligating such
Collateral Agent or any Secured Party to make any commitment or to make any
inquiry as to the nature or sufficiency of any payment received by such
Collateral Agent or any Secured Party, or to present or file any claim or
notice, or to take any action with respect to the Collateral or any part
<PAGE>
19
thereof or the moneys due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted to be taken by such Collateral
Agent or any Secured Party with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or to any claim or action against such Collateral Agent or any Secured Party.
For the purpose of enabling a Collateral Agent to exercise its rights and
remedies hereunder, each Grantor hereby grants to the U.S. Collateral Agent or
the Canadian Collateral Agent, as applicable, an irrevocable, non-exclusive
licence (exercisable without payment of royalty or other compensation to such
Grantor) to use, licence or sublicense any intellectual property now owned or
hereafter acquired by such Grantor, and wherever the same may be located, and
including in such licence access to all media in which any of the licenced items
may be recorded or stored and to all software used for the compilation or
printout thereof. It is understood and agreed that the appointment of the U.S.
Collateral Agent or the Canadian Collateral Agent, as the case may be, as the
agent and attorney-in-fact of the Grantors for the purposes set forth above is
coupled with an interest and is irrevocable. The provisions of this Section
shall in no event relieve any of the Grantors of any of its obligations
hereunder or under the Credit Agreement with respect to the Collateral or any
part thereof or impose any obligation on the Collateral Agents or any Secured
Party to proceed in any particular manner with respect to the Collateral or any
part thereof, or in any way limit the exercise by either of the Collateral
Agents or any Secured Party of any other or further right which it may have on
the date of this Agreement or hereafter, whether hereunder, under any other Loan
Document, under any SunTrust Document, by law or otherwise.
(d) The Collateral Agents shall exercise their remedies under this
Section 6.01 only upon the request of Secured Parties holding Obligations in an
amount sufficient to consent to an amendment in accordance with Section 7.09(b).
SECTION 6.02. Application of Proceeds. The U.S. Collateral Agent
------------------------
shall apply the proceeds of any collection or sale of the Collateral, as well as
any Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses permitted under this
Agreement incurred by the U.S. Collateral Agent or the Canadian Collateral
Agent (in its capacity as such hereunder) in connection with such
<PAGE>
20
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agents hereunder on behalf of any of the Grantors and any other
costs or expenses incurred in connection with the exercise of any right or
remedy hereunder;
SECOND, to the payment in full of the Obligations, including the
payment of all cash collateral required to be paid to secure contingent
Obligations such as guaranties and reimbursement of letter of credit draws
(the amounts so applied to be distributed among the Secured Parties pro
rata in accordance with the amounts of the Obligations owed to them on the
date of any such distribution). To the extent that any contingent
Obligation secured by cash collateral which was paid pursuant to this
paragraph SECOND is subsequently terminated and any cash collateral
remains, the Secured Party holding such cash collateral shall return it to
the U.S. Collateral Agent, which shall reallocate such cash collateral to
the payment of the Obligations in accordance with this Section 6.02; and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
(b) The Canadian Collateral Agent shall apply the proceeds of any
collection or sale of the Collateral, as well as any Collateral consisting of
cash, as follows:
FIRST, to the payment of all costs and expenses permitted under this
Agreement incurred by the Canadian Collateral Agent (in its capacity as
such hereunder or under any other Security Document) in connection with
such collection or sale or otherwise in connection with this Agreement
including all court costs and the fees and expenses of its agents and legal
counsel, the repayment of all advances made by the Canadian Collateral
Agent hereunder or under any other Security Document on behalf of any of
the Canadian Grantors and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under any
other Security Document;
SECOND, to the payment in full of the Loan Document Obligations of the
Canadian Grantors , including the payment of all cash collateral required
<PAGE>
21
to be paid to secure contingent Loan Document Obligations of the Canadian
Grantors such as guaranties and reimbursement of letter of credit draws
(the amounts so applied to be distributed among the Secured Parties pro
rata in accordance with the amounts of such Loan Document Obligations owed
to them on the date of any such distribution). To the extent that any
contingent Loan Document Obligation secured by cash collateral which was
paid pursuant to this paragraph SECOND is subsequently terminated and any
cash collateral remains, the Secured Party holding such cash collateral
shall return it to the Canadian Collateral Agent, which shall reallocate
such cash collateral to the payment of the Loan Document Obligations in
accordance with this Section 6.01(b); and
THIRD, to the Canadian Grantors, their successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
(c) The Collateral Agents shall have absolute discretion as to the
time of application of any such proceeds, moneys or balances in accordance with
this Agreement. Upon any sale of the Collateral by the U.S. Collateral Agent or
Canadian Collateral Agent, as the case may be, (including pursuant to a power of
sale granted by statute or under a judicial proceeding), the receipt of such
Collateral Agent or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to such Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
ARTICLE VII
Miscellaneous
-------------
SECTION 7.01. Notices. All communications and notices hereunder
--------
shall (except as otherwise expressly permitted herein) be in writing and given
as provided in Section 10.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Grantor shall be given to it in care of the
Company.
SECTION 7.02. Security Interest Absolute. All rights of the
---------------------------
Collateral Agents hereunder, the Security Interests and all obligations of the
Grantors hereunder
<PAGE>
22
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreements any other Loan Document, any Hedging
Agreement, any SunTrust Agreement, any other agreement with respect to any of
the Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document, any Hedging Agreement, any SunTrust Document or any other agreement or
instrument, (c) any exchange, release or nonperfection of any Lien on other
collateral, or any release or amendment or waiver of or consent under or
departure from any guarantee, securing or guaranteeing all or any of the
Obligations, or (d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
----------------------
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement, any other Loan Document, any Hedging Agreement or
any SunTrust Document shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans and the
other extensions of credit by the Secured Parties, and the execution and
delivery to the Lenders of the Notes evidencing such Loans, regardless of any
investigation made by the Secured Parties or on their behalf, shall survive the
execution and delivery by SunTrust of amendments dated as of the date hereof to
the SunTrust Documents, regardless of any investigation by SunTrust by or on its
behalf and shall continue in full force and effect until this Agreement shall
terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
----------------------------------
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agents and a
counterpart hereof shall have been executed on behalf of the Collateral Agents,
and thereafter shall be binding upon such Grantor and the Collateral Agents,
SunTrust and their respective successors and assigns, and shall inure to the
benefit of such Grantor, the Collateral Agents, SunTrust and the other Secured
Parties and their respective successors and assigns, except that no Grantor
shall have the right to assign its rights hereunder or any interest herein or in
the Collateral except as expressly contemplated by this
<PAGE>
23
Agreement or the Credit Agreement. This Agreement shall be construed as a
separate agreement with respect to each Grantor and may be amended, modified,
supplemented, waived or released with respect to any Grantor without the
approval of any other Grantor and without affecting the obligations of any other
Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any
-----------------------
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Collateral Agents that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns.
SECTION 7.06. Collateral Agents Appointed Attorney-in-Fact. Upon the
---------------------------------------------
occurrence of and during the continuance of any Event of Default, each of the
U.S. Grantors hereby appoints the U.S. Collateral Agent the attorney-in-fact of
such Grantor, and each of the Canadian Grantors hereby appoints the Canadian
Collateral Agent the attorney-in-fact of such Grantor, for the purpose of
carrying out the provisions of this Agreement and the other Security Documents
to which such Collateral Agent is a party and taking any action and executing
any instrument which such Collateral Agent may deem reasonably necessary or
advisable to accomplish the purposes hereof, which appointments are irrevocable
and coupled with an interest.
SECTION 7.07. Collateral Agents' Fees and Expenses; Indemnification.
------------------------------------------------------
(a) Each of the Grantors jointly and severally agrees to pay upon demand to
each Collateral Agent the amount of any and all reasonable expenses, including
the reasonable fees, charges and disbursements of its counsel and of any experts
or agents, which such Collateral Agent may incur in connection with (i) the
administration of this Agreement (including the customary fees of such
Collateral Agent for any audits conducted by it with respect to the Accounts
Receivable or Inventory), (ii) the custody or preservation of, or the sale of,
collection from or other realization upon any of the Collateral, (iii) the
exercise, enforcement or protection of any of the rights of the Collateral
Agents hereunder or (iv) the failure of the Grantors to perform or observe any
of the provisions hereof.
(b) Without limitation of their indemnification obligations under the
other Loan Documents and the SunTrust Documents, each of the Grantors jointly
and severally agrees
<PAGE>
24
to indemnify each of the Collateral Agents and the other Indemnitees against,
and hold each of them harmless from, any and all losses, claims, damages
(excluding special, indirect, consequential or punitive damages), liabilities
and related expenses, including reasonable fees, charges and disbursements of
any counsel for the Collateral Agents or any other Indemnitee, incurred by or
asserted against any of them arising out of, in connection with, or as a result
of, the execution, delivery or performance of this Agreement or any other
Security Document or any actual or prospective claim, litigation, investigation
or proceeding relating hereto or thereto or to the Collateral, whether based on
contract, tort or any other theory and regardless of whether or not any
Indemnitee is a party thereto; provided that such indemnity shall not, as to
--------
either Collateral Agent or any other 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) Any such amounts payable as provided under this Section 7.07
shall be additional Obligations secured hereby and by the other Security
Documents. The provisions of this Section shall remain operative and in full
force and effect regardless of the termination of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement, any other Loan Document or any SunTrust Document, or any
investigation made by or on behalf of the Collateral Agents or any other Secured
Party. All amounts due under this Section shall be payable promptly but in any
event not later than 10 days after written demand therefor.
SECTION 7.08. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
--------------
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT,
ALL PROVISIONS OF THIS AGREEMENT RELATING TO THE CANADIAN GRANTORS, THE
COLLATERAL OWNED BY EACH OF THEM, THEIR OBLIGATIONS UNDER THIS AGREEMENT, ALL
RIGHTS AND REMEDIES OF THE CANADIAN COLLATERAL AGENT IN RELATION TO THE CANADIAN
GRANTORS AND THE COLLATERAL OWNED BY EACH OF THEM, AND ALL DEFINITIONS AND OTHER
PROVISIONS OF THIS AGREEMENT RELATING TO ANY OF THE FOREGOING SHALL BE GOVERNED
BY THE LAWS IN EFFECT IN THE PROVINCE OF ONTARIO.
SECTION 7.09. Waivers; Amendment. (a) No failure or delay of either
-------------------
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver
<PAGE>
25
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 Collateral Agents hereunder and
of the Collateral Agents, the Administrative Agent, the Canadian Agent, the
Documentation Agent and the Lenders under the other Loan Documents and of
SunTrust under the SunTrust Documents are cumulative and are not exclusive of
any rights or remedies which they would otherwise have. No waiver of any
provisions of this Agreement or consent to any departure by any Grantor
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on any Grantor in any case shall entitle such Grantor or any other Grantor to
any other or further notice or demand in similar or other circumstances.
(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 Grantor or Grantors with respect to which such waiver,
amendment or modification is to apply and the Collateral Agents, subject to the
consent of Secured Parties holding Obligations, at the time of such consent (A)
if no Event of Default has occurred and is continuing, in an aggregate amount
equal to at least 51% of the sum of (1) the sum of total Revolving Credit
Exposures and Unused Commitments and (2) the Stated Amount (as defined in the
SunTrust Letter of Credit Agreement as in effect on the date hereof) in an
amount not in excess of $3,565,000 and (3) the aggregate Commitment (as defined
in the SunTrust Loan Facility Agreement as in effect on the date hereof) under
the SunTrust Loan Facility Agreement in an amount not in excess of $8,000,000
and (4) the aggregate principal amount of all outstanding Loans made by SunTrust
under the SunTrust Synthetic Lease in an amount not in excess of $22,000,000 or
(B) if an Event of Default has occurred and is continuing, in an aggregate
amount equal to at least 51% of the sum of (1) the sum of the total Revolving
Credit Exposure, (2) the Stated Amount (as defined in the SunTrust Letter of
Credit Agreement as in effect on the date hereof) in an amount not in excess of
$3,565,000, (3) the aggregate principal amount of all outstanding advances made
by SunTrust to Borrowers (as defined in the SunTrust Loan Facility Agreement as
in effect on the date hereof) pursuant to the terms of the SunTrust Loan
Facility Agreement in an amount not in excess of $8,000,000 and (4) the
aggregate principal amount of all
<PAGE>
26
outstanding Loans (as defined in the SunTrust Synthetic Lease as in effect on
the date hereof) made by SunTrust under the SunTrust Synthetic Lease in an
amount not in excess of $22,000,000; provided that no such agreement shall
--------
(A)(i) release all or substantially all of the Collateral under this Agreement,
(ii) change Section 6.02 in a manner that would alter the pro rata sharing of
proceeds and Collateral among the Secured Parties as set forth therein, (iii)
change this Section 7.09(b) in a manner which would alter the percentage of
Secured Parties required to grant a consent to any such agreement, (iv) change
the definition of "Loan Document Obligations", "Obligations" or "Secured
Parties" without the written consent of each of the Lenders and SunTrust or (B)
change the definition of "Indemnitees" in a manner which would affect the rights
of any Secured Party without the consent of such Secured Party; provided further
-------- -------
that no consent of the Secured Parties hereunder shall obligate any Collateral
Agent to enter into any such agreement which would amend, modify or otherwise
affect its rights or duties hereunder.
SECTION 7.10. 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, any of the other Loan Documents or any SunTrust
Document (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, the other Loan Documents and the SunTrust Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this Section.
SECTION 7.11. Severability. In the event any one or more of the
-------------
provisions contained in this Agreement or in any other Loan Document or any
SunTrust Document should be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
<PAGE>
27
SECTION 7.12 Counterparts. 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 (subject to Section 7.04), and shall become
effective as provided in Section 7.04.
SECTION 7.13. Headings. Article and Section headings used herein are
---------
for convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.14. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Grantor 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 this
Agreement or the other Loan Documents, 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 Canadian Grantor also hereby irrevocably and
unconditionally submits, for itself and its property, to the non-exclusive
jurisdiction of the courts located in the Province of Ontario in relation to any
hearing or determination of any action, claim or proceeding arising out of or
relating to this Agreement or any other Security Document. 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 either Collateral Agents or any other Secured Party may otherwise
have to bring any action or proceeding relating to this Agreement or the other
Loan Documents or any SunTrust Document against any Grantor or its properties in
the courts of any other jurisdiction.
(b) Each Grantor 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 this Agreement or the other Loan
Documents in any court referred to in paragraph (a) of this Section. Each of
the parties hereto
<PAGE>
28
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. 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 7.15. Termination. This Agreement and the Security Interests
------------
shall terminate when all the Obligations have been indefeasibly paid in full
and the Lenders have no further commitment to lend or to issue Letters of Credit
under the Credit Agreement, at which time the Collateral Agents shall execute
and deliver to the Grantors, at the Grantors' expense, all Uniform Commercial
Code termination statements and similar documents under all applicable laws of
any relevant jurisdiction which the Grantors shall reasonably request to
evidence such termination. Any execution and delivery of termination statements
or documents pursuant to this Section shall be without recourse to or warranty
by the Collateral Agents. Each Subsidiary Grantor shall automatically be
released from its obligations hereunder and the Security Interest in the
Collateral of such Subsidiary Grantor shall be automatically released in the
event that all the capital stock of such Subsidiary Grantor shall be sold,
transferred or otherwise disposed of to a Person that is not an Affiliate of the
Borrowers in accordance with the terms of the Credit Agreement.
SECTION 7.16. Additional Grantors. Upon execution and delivery by
--------------------
the Collateral Agents and a Loan Party of an instrument in the form of Annex 2
hereto, such Loan Party shall become a Subsidiary Grantor and Grantor hereunder
with the same force and effect as if originally named as a Subsidiary Grantor
and Grantor herein. The execution and delivery of any such instrument shall not
require the consent of any other Grantor hereunder. The rights and obligations
of each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.
SECTION 7.17 The Collateral Agent. Each of the Secured Parties
---------------------
hereby irrevocably appoints the U.S. Collateral Agent, and each of the Canadian
Lenders and the Issuing Banks with respect to Canadian Letters of Credit hereby
irrevocably appoints the Canadian Collateral Agent, as its agent and authorizes
such Collateral Agent to take
<PAGE>
29
such actions on its behalf and to exercise such powers as are delegated to such
Collateral Agent by the terms hereof, together with such actions and powers as
are reasonably incidental thereto.
Each Person serving as Collateral 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 a Collateral Agent, and each such Person
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 a Collateral Agent hereunder.
The Collateral Agents shall not have any duties or obligations except
those expressly set forth herein and in the other Security Documents. Without
limiting the generality of the foregoing, (a) the Collateral Agents shall not be
subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Collateral Agents shall not have
any duty to take any discretionary action or exercise any discretionary powers,
except discretionary rights and powers expressly contemplated hereby or by any
other Security Document that the applicable Collateral Agent is required to
exercise in writing by the Secured Parties holding Obligations in an amount
sufficient to consent to an amendment in accordance with Section 7.09(b), and
(c) except as expressly set forth herein or in any other Security Document, the
Collateral 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 such Collateral Agent or
any of its Affiliates in any capacity. None of the Collateral Agents shall be
liable for any action taken or not taken by it with the consent or at the
request of the Secured Parties holding Obligations in an amount sufficient to
consent to an amendment in accordance with Section 7.09(b) or in the absence of
its own gross negligence or wilful misconduct. The Collateral Agents shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Collateral Agents by the Company or a Lender, and the
Collateral 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 or SunTrust 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
<PAGE>
30
conditions set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document, any SunTrust Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth
herein, other than to confirm receipt of items expressly required to be
delivered to the Collateral Agents.
Each Collateral 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 Collateral 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 thereon. Each Collateral Agent may consult with legal counsel (who may
be counsel for any Grantor), 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 Collateral 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 Collateral Agent. Each Collateral 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 Collateral Agents and any such sub-agent.
Subject to the appointment and acceptance of a successor Collateral
Agent as provided in this paragraph, any Collateral Agent may resign at any time
by notifying the Secured Parties, the other Collateral Agent, the Administrative
Agent or Canadian Agent, as applicable, the Issuing Banks and the Company. Upon
any such resignation, the Secured Parties holding Obligations in an amount
sufficient to consent to an amendment in accordance with Section 7.09(b) of the
Security Agreement (or in the case of the Canadian Collateral Agent, Secured
Parties holding at least 51% of the total Obligations of the Canadian Grantors)
shall have the right, in consultation with the Company, to appoint a successor.
If no successor shall have been so appointed by the and shall have accepted such
appointment within 30 days after the retiring Collateral Agent gives notice of
its resignation, then the retiring Collateral Agent may, on
<PAGE>
31
behalf of the Secured Parties, appoint a successor Collateral 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 a Collateral Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations hereunder.
The fees payable by the Grantors to a successor Collateral Agent shall be the
same as those payable to its predecessor unless otherwise agreed between the
Company and such successor. After a Collateral Agent's resignation hereunder,
the provisions of this Section 7.17 and Section 10.03 of the Credit Agreement
shall continue in effect for the benefit of such retiring Collateral 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 Collateral Agent.
Each Secured Party also acknowledges that it will, independently and
without reliance upon any of the Collateral Agents or any other Secured Parties
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement 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:
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
as a Subsidiary Grantor
by
____________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as U.S. Collateral Agent,
by
____________________________
Name:
Title:
<PAGE>
THE TORONTO-DOMINION BANK, as Canadian Collateral
Agent,
by
____________________________
Name:
Title:
SUNTRUST BANK, ATLANTA, as a Secured Party,
by
____________________________
Name:
Title:
by
____________________________
Name:
Title:
<PAGE>
Schedule I to the
Security Agreement
Subsidiary Grantors
-------------------
National Sanitary Supply Company
Paper Corporation of North America
Unisource Capital Corporation
BRT, Inc.
<PAGE>
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Amended and Restated Credit Agreement dated as
of September 25, 1998 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement") among the Borrowers, the lenders from time to
----------------
time party thereto (the "Lenders"), The Chase Manhattan Bank, as administrative
-------
agent and U.S. collateral agent (in such capacities, the "Administrative Agent"
--------------------
and the "U.S. Collateral Agent"), The Toronto-Dominion Bank, as Canadian agent
---------------------
and Canadian collateral agent (in such capacities, the "Canadian Agent" and the
--------------
"Canadian Collateral Agent" and, together with the U.S. Collateral Agent, the
-------------------------
"Collateral Agents" ), and Toronto Dominion (Texas) Inc., as documentation agent
- ------------------
(in such capacity, the "Documentation Agent"), and (b) the Security Agreement
-------------------
dated as of September 25, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Security Agreement"), among the Borrowers, the
------------------
Subsidiary Grantors, The Chase Manhattan Bank, as U.S. Collateral Agent, The
Toronto-Dominion Bank, as Canadian Collateral Agent and SunTrust Bank, Atlanta
as a Secured Party. Capitalized terms used but not defined herein shall have
the meanings assigned them in the Credit Agreement.
The undersigned, a Financial Officer and a legal officer, respectively, of
the Company, hereby certify to the Collateral Agents and each other Secured
Party as follows:
1. Names. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had in
the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed its
identity or corporate structure in any way within the past five years. Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information to the extent requested by the Collateral Agents required by
Sections 1 and 2 of this certificate in such detail as the
<PAGE>
2
Collateral Agents have requested as to each acquiree or constituent party to a
merger or consolidation.
(d) The following is a list of all other names (including trade names or
similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of each
Grantor:
2. Current Locations. (a) The chief executive office of each Grantor is
located at the address set forth opposite its name below:
State/
------
Grantor Mailing Address County Province
- ------- --------------- ------ --------
(b) Set forth below opposite the name of each Grantor are all locations
where such Grantor maintains any books or records relating to any Accounts
Receivable (with each location at which chattel paper, if any, is kept being
indicated by an "*"):
State/
------
Grantor Mailing Address County Province
- ------- --------------- ------ --------
(c) Set forth below opposite the name of each Grantor are all the places
of business of such Grantor not identified in paragraph (a) or (b) above:
State/
------
Grantor Mailing Address County Province
- ------- --------------- ------ --------
(d) Set forth below opposite the name of each Grantor are all the
locations other than those covered by (e) below where such Grantor maintains any
Collateral not identified above:
State/
------
Grantor Mailing Address County Province
- ------- --------------- ------ --------
<PAGE>
3
(e) Set forth below opposite the name of each Grantor are the names and
addresses of all Persons other than such Grantor that have possession of any
material portion of the Collateral of such Grantor:
State/
------
Grantor Mailing Address County Province
- ------- --------------- ------ --------
3. Unusual Transactions. All Accounts Receivable have been originated by
the Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.
4. Filing Fees. All filing fees and taxes payable in connection with the
filings, recordings and registrations in the jurisdictions set forth in Section
2 above have been or will be paid.
IN WITNESS WHEREOF, the undersigned have duly executed this
certificate on this [ ] day of [ ].
UNISOURCE WORLDWIDE, INC.,
By___________________________
Name:
Title: [Financial Officer]
By___________________________
Name:
Title: [Legal Officer]
<PAGE>
Annex 2 to the
Security Agreement
SUPPLEMENT NO. [ ] dated as of [ ], to the
SECURITY AGREEMENT dated as of September 25, 1998, 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 subsidiaries of the Borrowers listed on
---------
Schedule I thereto or any supplement thereto executed and
delivered prior to the date hereof (collectively, the "Subsidiary
----------
Grantors", the Borrowers and the Subsidiary Grantors being
--------
collectively called the "Grantors"); THE CHASE MANHATTAN BANK, as
--------
U.S. collateral agent (in such capacity, the "U.S. Collateral
---------------
Agent") for the Secured Parties (as defined in the Security
-----
Agreement); THE TORONTO-DOMINION BANK, as Canadian collateral
agent (in such capacity, the "Canadian Collateral Agent") for the
-------------------------
Secured Parties; and SUNTRUST BANK, ATLANTA, as a Secured Party.
Reference is made to (a) the Amended and Restated Credit Agreement
dated as of September 25, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among the Borrowers, the lenders from
----------------
time to time party thereto (the "Lenders"), The Chase Manhattan Bank, as
-------
administrative agent (in such capacity, the "Administrative Agent") and U.S.
--------------------
Collateral Agent, The Toronto-Dominion Bank, as Canadian agent (in such
capacity, the "Canadian Agent") and Canadian Collateral Agent, and Toronto
--------------
Dominion (Texas) Inc., as documentation agent (in such capacity, the
"Documentation Agent"), and (b) the Security Agreement dated as of September 25,
- --------------------
1998 (as amended, supplemented or otherwise modified from time to time, the
"Security Agreement"), among the Borrowers, the Subsidiary Grantors, The Chase
- -------------------
Manhattan Bank, as U.S. Collateral Agent, The Toronto-Dominion Bank, as Canadian
Collateral Agent, and SunTrust Bank, Atlanta, as a Secured Party.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement.
<PAGE>
2
The Grantors have entered into the Security Agreement in order to
induce the Lenders to make Loans and the Issuing Banks to issue Letters of
Credit. Pursuant to Section 5.10 of the Credit Agreement, each Loan Party that
was not a Loan Party on the date of the Credit Agreement is required to enter
into the Security Agreement as a Subsidiary Grantor and Grantor upon becoming a
Loan Party. Section 7.16 of the Security Agreement provides that such Loan
Parties may become Subsidiary Grantors and Grantors under the Security Agreement
by execution and delivery of an instrument in the form of this Supplement. The
undersigned Loan Party (the "New Grantor") is executing this Supplement in
-----------
accordance with the requirements of the Credit Agreement to become a Subsidiary
Grantor and Grantor under the Security Agreement in order to induce the Lenders
to make additional Loans and the Issuing Banks to issue additional Letters of
Credit and as consideration for Loans previously made and Letters of Credit
previously issued.
The Grantors also entered into the Security Agreement to induce
SunTrust to make certain amendments to the SunTrust Documents and to continue
thereafter to extend credit to the Company or certain third parties in
accordance with the terms thereof. The SunTrust Loan Facility Agreement, the
SunTrust Synthetic Lease and the SunTrust Letter of Credit Agreement also
require that the New Grantor become a Subsidiary Grantor and Grantor in
accordance with the terms of Section 7.16 of the Security Agreement. The New
Grantor is executing this Supplement in accordance with the requirements of the
SunTrust Documents to become a Subsidiary Grantor and Grantor under the Security
Agreement in order to induce SunTrust to continue to extend credit to the
Company or certain third parties in accordance with the terms of the SunTrust
Documents and as consideration for the extensions of credit already made by
SunTrust thereunder.
Accordingly, the Collateral Agents and the New Grantor agree as
follows:
SECTION 1. In accordance with Section 7.16 of the Security Agreement,
the New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby agrees (a) to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does
<PAGE>
3
hereby create and grant to the [U.S.] [Canadian] Collateral Agent, its
successors and assigns, for the benefit of the Secured Parties [(subject to the
proviso in the first sentence of Section 2.01 of the Security Agreement)], their
successors and assigns, a security interest in and lien on all of the New
Grantor's right, title and interest in and to the Collateral (as defined in the
Security Agreement) of the New Grantor. Each reference to a "Subsidiary
Grantor" or a "Grantor" in the Security Agreement shall be deemed to include the
New Grantor, as appropriate. The Security Agreement is hereby incorporated
herein by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral
Agents and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agents shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Grantor and the Collateral
Agents. Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that set
forth on Schedule I attached hereto is a true and correct Perfection Certificate
with respect to the New Grantor in the form of Annex 2 to the Security
Agreement.
SECTION 5. Except as expressly supplemented hereby, the Security
Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK; EXCEPT IF THE NEW GRANTOR IS
A CANADIAN GRANTOR, THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS IN EFFECT IN THE PROVINCE OF ONTARIO.
SECTION 7. In case any one or more of the provisions contained in
this Supplement should be held invalid, illegal or unenforceable in any respect,
no party hereto shall be required to comply with such provision for
<PAGE>
4
so long as such provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in
writing and given as provided in Section 7.01 of the Security Agreement. All
communications and notices hereunder to the New Grantor shall be given to it c/o
of the Company at the address applicable to notices to the Company under the
Credit Agreement.
SECTION 9. The New Grantor agrees to reimburse the [U.S.] [Canadian]
Collateral Agent for its reasonable out-of-pocket expenses in connection with
this Supplement, including the reasonable fees, other charges and disbursements
of counsel for the [U.S.] [Canadian] Collateral Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral Agents have
duly executed this Supplement to the Security Agreement as of the day and year
first above written.
[NAME OF NEW GRANTOR],
By___________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as U.S. Collateral
Agent,
By___________________________
Name:
Title:
<PAGE>
5
THE TORONTO-DOMINION BANK, as Canadian Collateral
Agent,
By___________________________
Name:
Title:
<PAGE>
EXHIBIT G
HYPOTHEC ON A UNIVERSALITY OF MOVABLE PROPERTY
BETWEEN: UNISOURCE CANADA, INC., a legal person duly constituted
under the laws of Canada, having its registered office
and domicile at 50 East Wilmot Street, Richmond Hill,
Ontario L4B 323;
PARTY OF THE FIRST PART
AND: THE TORONTO-DOMINION BANK, a bank governed by the Bank
Act (Canada), having a place of business at 1 King
Street West and Youge, Toronto, Ontario M5H 1A1;
AND: BANK OF MONTREAL, a bank governed by the Bank Act
(Canada), having a place of business at 1 First,
Canadian Place, 19th Floor, Toronto, Ontario M5X 1A1;
AND: CANADIAN IMPERIAL BANK OF COMMERCE, a bank governed by
the Bank Act (Canada), having a place of business at
40 Dundas Street West, 5th Floor, Toronto, Ontario M5L
1A2;
AND: ROYAL BANK OF CANADA, a bank governed by the Bank Act
(Canada), having a place of business at 180 Wellington
Street West, 5th Floor, Toronto, Ontario, M5J 1J1;
AND: THE CHASE MANHATTAN BANK OF CANADA, a bank governed by
the Bank Act (Canada), having a place of business at 1
First Canadian Place, 100 King Street West, Suite 6900,
Toronto, Ontario M5X 1A4;
PARTY OF THE SECOND PART
WHICH PARTIES AGREE AS FOLLOWS:
<PAGE>
-2-
1. INTERPRETATION
1.1 DEFINITIONS. Terms used herein and not otherwise defined herein shall
have the meanings set forth in the Agreement.
1.2 The following words and phrases, wherever used in this Deed shall, unless
there be something in the context inconsistent therewith, have the following
meanings;
1.2.1 "ACCOUNTS" means any and all rights of the Company to payment for goods
or services sold or leased including any such right evidenced by chattel paper,
whether due or to become due, whether or not earned by performance and whether
now existing or arising in the future, including accounts receivable from
Affiliates of the Company. Notwithstanding the foregoing the "Accounts" shall
not include any account sold to any Person who is not the Company pursuant to
any Securitization permitted by Section 6.02 (e) of the Credit Agreement, except
to the extent such accounts are transferred back to the Company.
1.2.2 "ACCOUNTS RECEIVABLE" means all Accounts and all rights in any returned
goods, together with all rights, titles, securities and guarantees with respect
thereto, including any rights to stoppage in transit, replevin, reclamation and
resales, and all related hypothecs, security interests, liens and pledges,
whether voluntary or involuntary.
1.2.3 "AFFILIATES" 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 control with the person specified.
1.2.4 "CIVIL CODE" means the Civil Code of Quebec.
1.2.5 "CLAIMS" means the universality of the claims of the Company, including,
without limitation, all cash, cash equivalents (such as, by way of example only,
certificates of deposit, time deposits, commercial paper and marketable
obligations issued by the Government of Canada), bank accounts, Accounts
Receivable, claims, debts, accounts and monies of every nature which now are or
which may at any time hereafter be due, owing or accruing to or owned by the
Company, and also shall all securities, bills, notes, negotiable instruments and
other documents now held or owned or which may be hereafter taken, held or owned
by the Company or anyone on behalf of the Company in respect of any of the
foregoing or any part thereof.
1.2.6 "COLLATERAL" means, collectively the universality of all present and
future Accounts Receivable, Claims, Documents, Inventory and Proceeds
1.2.7 "CANADIAN COLLATERAL AGENT" means The Toronto-Dominion Bank.
1.2.8 "COLLATERAL AGENT" means The Chase Manhattan Bank or The Toronto-
Dominion Bank.
1.2.9 "COMPANY" means Unisource Canada, Inc. the Party of the First Part and
any successor corporation.
<PAGE>
-3-
1.2.10 "CREDIT AGREEMENT" means the amended and restated credit agreement
dated as of September 23, 1998, among Unisource Worldwide, Inc., Unisource
Capital Corporation and Unisource Canada, Inc. (collectively the "Borrowers"),
the financial institutions party thereto as lenders, (the "Lenders") The Chase
Manhattan Bank, in its capacity as Administrative Agent, and U.S. Collateral
Agent, The Toronto-Dominion Bank a Canadian Agent and Canadian Collateral
Agent, The Toronto-Dominion (Texas) Inc., in its capacity as Documentation
Agent, as amended, supplemented or restated from time to time.
1.2.11 "CREDITORS" means The Toronto-Dominion Bank, Bank of Montreal,
Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Chase Manhattan
Bank of Canada, the Party of the Second Part, and their successors and assigns.
1.2.12 "DEED", "herein", "hereby", "hereunder" and similar expressions refer
to this deed of hypothec or application for registration ("requisition a
"inscription") in implementation hereof, and "change hereof" and similar
expressions means the security constituted hereby.
1.2.13 "DOCUMENTS" means all instruments, files, records, ledger sheets and
documents covering or relating any of the Collateral.
1.2.14 "EVENT OF DEFAULT" has the meaning given to it in the Credit
Agreement.
1.2.15 "INVENTORY" means the universality of all movable goods of the
Company, whether now owned or hereafter acquired, held for sale or lease, or
furnished or to be furnished by the Company under contracts of service, or
consumed in the Company's business, including raw materials, intermediates, work
in process, packaging materials, finished goods, semifinished inventory, scrap
inventory, manufacturing supplies and spare parts, and all such goods that have
been returned to or repossessed by or on behalf of the Company.
1.2.16 "OBLIGATIONS" means all obligations, debts and liabilities of the
Company, present and future, direct or indirect, absolute or contingent, matured
or not under the Credit Agreement, any Loan Document or any Hedging Agreement
entered into with a Creditor as counterparty from time to time while such
Creditor is a Lender.
1.2.17 "PROCEEDS" means any identifiable or traceable consideration received
from the sale, exchange, license, lease or other disposition of any asset or
property which constitutes Collateral, any value received as a consequence of
the possession of any Collateral and any payment received from any insurer or
other person or entity as a result of the destruction, loss, theft, damage or
other involuntary conversion of whatever nature of any asset or property which
constitute Collateral, and shall include any and all amounts from time to time
paid or payable under or in connection with any of the Collateral.
1.2.18 "RECORDS" means the universality of all present and future deeds,
documents, books, manuals, papers, letters, invoices, writings and data
(electronic or otherwise) recording, evidencing or relating to the Collateral or
any part thereof.
<PAGE>
-4-
1.3 Reference herein to amounts of money or to currency shall mean lawful money
of Canada.
1.4 Words importing the singular number only shall include the plural and vice
versa and words importing the masculine gender shall include the feminine gender
and words importing persons shall include firms, associations and corporations
and vice versa when the context so requires.
2. CHARGING PROVISIONS
2.1 As continuing security for the due payment and performance of all present
and future Obligations of the Company to the Creditors, the Company does hereby
hypothecate the Collateral in favour of the Creditors for the sum of TWO HUNDRED
MILLION DOLLARS ($200,000,000) in lawful money of Canada, together with interest
thereon at the rate of twenty-five percent (25%) per annum from the date hereof.
2.2 The hypothec hereby made and created is continuing security and shall have
effect and subsist whether or not the moneys thereby secured or any part thereof
shall be advanced before or after or upon the date of execution or registration
hereof. The hypothec created herein will subsist notwithstanding any fluctuation
or repayment of the obligations hereby secured. The Company shall be deemed to
obligate itself again, as provided in Article 2797 of the Civil Code, with
respect to any future obligation hereby secured.
2.3 The Company shall be responsible for any taxes which may be a component of
the Claims or which have been levied or charged in respect of the underlying
goods or services which gave rise to such Claims and shall immediately reimburse
the Creditors for any such taxes which the Creditors are required to pay or
remit to a taxation authority.
2.4 The Company shall from time to time, forthwith upon the request of the
Creditors execute all deeds and documents and do all things which in the
reasonable opinion of the legal advisers of the Creditors are necessary or
advisable to confer upon the Creditors the rights and hypothec intended to be
conferred on the Creditors hereby and to give effect to the provisions hereof.
3. DEFAULTS AND RECOURSES
3.1 The Company shall be in default hereunder upon the occurrence and during
the continuance of an Event of Default.
3.2 Upon the occurrence and during the continuance of an Event of Default, the
Creditors shall be entitled to exercise any right or recourse which the
Creditors may choose to exercise in accordance with applicable law. In addition
to their rights under Section 4 of this Deed, the Creditors may exercise all
recourses available to the Creditors under applicable law and may realize on the
hypothec created hereunder, including enforcing the hypothecary rights provided
in the Civil Code. The Creditors shall only be required to exercise reasonable
care in the
<PAGE>
-5-
exercise of their rights or recourses and, in any event, shall only be liable
for their intentional or gross fault.
3.3 The Company shall be in default, within the meaning of Article 1594 of
the Civil Code, by the mere lapse of time for fulfilling obligations hereunder,
without the necessity of any notice of demand.
3.4 Upon the occurrence and during the continuance of an Event of Default
the Company agrees to assemble the Collateral and make such Collateral available
to the Creditors at places where the Creditors shall reasonably select, whether
at the premises of the Company or elsewhere.
4. RIGHTS OF THE CREDITORS
4.1 The Company hereby constitutes and appoints the Canadian Collateral
Agent as its irrevocable mandatary, with full power of substitution, in order to
perform any act and sigh any document necessary or useful to the exercise of the
rights and recourses conferred upon the Creditors hereunder. In the event that
the Creditors delegate to another person the exercise of their rights or
recourses arising from this Deed, the Creditors may provide that person with any
information they may have concerning the Company or the Collateral.
4.2 Without limiting the generality of Section 4.1 above, the Company
agrees that the Creditors may, during the enforcement of the security created
hereunder, but are not obliged to:
4.2.1 cease or continue the use or operation of the Collateral, including,
without limiting the generality of the foregoing:
4.2.1.1 pay on behalf of the Company any third person having legitimate
claims against the Collateral;
4.2.2 dispose of any of the Collateral likely to perish or to rapidly
decrease in value;
4.2.3 fulfil any of the undertakings of the Company relating to the
Collateral;
4.2.4 use, administer and exercise any right pertaining to the Collateral;
4.2.5 use the premises where the Collateral is located; and/or
4.2.6 exercise any right attached to any shares or other securities included
in the Collateral, including any right to vote and any right of conversion or
redemption.
4.3 The Creditors may at any time, but are not obligated to, cause the
Creditors to be registered as the holders of any shares or securities included
in the Collateral.
<PAGE>
-6-
4.4 If, at any time, the Creditors have possession of the Collateral, the
Creditors shall have no obligation to maintain the use for which the Collateral
is normally intended, to make it productive not to continue its use or
operation.
4.5 In the event of a waiver by the Creditors of their recourses,
hypothees or other rights against the Collateral, the Creditors may, in their
discretion, if the Collateral has been surrendered to them, return the remaining
Collateral to the Company, without any warranty or representation, express,
tacit or implied, on the part of the Creditors, but without prejudice to the
other rights and recourses of the Creditors.
4.6 In the event the Creditors exercise their hypothecary recourse of
taking in payment and the Company requires the Creditors to sell the Collateral,
the Company acknowledges that the Creditors shall not be disturbed in, or
required to renounce to or abandon, their recourse of taking in payment unless,
before the expiration of the time limit to surrender, the Creditors (i) shall
have received security, which they deem satisfactory, to the effect that the
sale will be made at a price high enough for the Creditors to be paid their debt
in full, (ii) shall have been reimbursed the costs incurred by the Creditors and
(iii) shall have been advanced all amounts necessary for the sale of the
Collateral.
4.7 In the event that, during the enforcement of the security created
hereunder, the Creditors sell the Collateral, the Creditors will not be required
to obtain a prior appraisal from a third party.
4.8 The Company agrees that in the event of a public sale or other sale of
the Collateral, following the enforcement of the security created hereunder, the
Creditors shall, to the extent permitted by law, have the right to purchase the
whole or any part of the Collateral so sold free of any right, including any
right of redemption by the Company, which rights are hereby waived and released
by the Company.
5. GENERAL PROVISIONS
5.1 This Deed shall not operate as a novation of the obligations of the
Company and the rights and recourses of the Creditors hereunder are in addition
to and not in substitution for and are without prejudice to any other rights,
recourses or security held by or available from time to time to the Creditors in
respect of the obligations of the Company.
5.2 The Creditors may grant extensions of time, take and give up security,
accept compromises, grant releases and discharges and otherwise deal with the
Company, with other parties and with the Collateral as the Creditors may see fit
without prejudice to the liability of the Company or the rights of the Creditors
in respect to the security hereby constituted.
5.3 Each provision of this Deed shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Deed
shall be prohibited by or invalid under any applicable law, such provision shall
be ineffective to the extent of such prohibition or
<PAGE>
-7-
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Deed.
5.4 This Deed shall be governed by and construed in accordance with the laws of
the Province of Quebec and the federal laws of Canada applicable therein.
5.5 To the extent that there is any conflict between the provisions of this
Deed and those of the Credit Agreement, the provisions of the Credit Agreement
will prevail except with respect to the provisions of this Deed contained in
Article 2 which shall prevail over the Credit Agreement. The exercise of the
rights and recourses of the Creditors under this Deed and the realization of the
security created under this Deed are subject to the terms of the Credit
Agreement including, without restricting the generality of the foregoing,
Section 10.14 of the Credit Agreement.
5.6 The parties hereto confirm that they have requested that this Deed and all
related documents be drafted in English. Les parties aux presentes ont exige
que le present acte et tous les documents connexes soient rediges en anglais.
<PAGE>
-8-
IN WITNESS WHEREOF, this Deed was signed by the Company and the Creditors at
_______________, __________________, on ___________________, 1998.
UNISOURCE CANADA, INC.
Per: ______________________________
Name:
Title:
THE TORONTO-DOMINION BANK
Per: ______________________________
Name:
Title:
BANK OF MONTREAL
Per: ______________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE
Per: ______________________________
Name:
Title:
ROYAL BANK OF CANADA
Per: ______________________________
Name:
Title:
<PAGE>
-9-
THE CHASE MANHATTAN BANK OF
CANADA
Per ______________________________
Name:
Title:
<PAGE>
EXHIBIT H
APPLICATION FOR CREDIT AND PROMISE TO GIVE SECURITY
UNDER SECTION 427 AND WAREHOUSE RECEIPTS
AND/OR BILLS OF LADING
To: [CANADIAN LENDER ____] September 25, 1998
[Branch Address]
___________________ __________________________________________________
(Branch/Unit) (Date)
The Bank is requested by the undersigned to grant a revolving line of
credit and to make loans or advances including, where applicable, loans and
advances by accepting, paying or making money available for the payment of bills
of exchange not payable on demand drawn on the Bank by and payable to the order
of the undersigned, on the security of all property of the kind(s) hereinafter
described of which the undersigned is now or may in the future become the owner,
to wit, (1) all goods and inventory of the undersigned, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
the undersigned under contracts of service, or consumed in the undersigned's
business, including raw materials, intermediates, work in progress, packaging
materials, finished goods, semifinished inventory, scrap inventory,
manufacturing supplies and spare parts, and all such goods and inventory that
have been returned to or repossessed by or on behalf of the undersigned and / or
on the security of warehouse receipts and / or bills of lading covering such
property.
And the undersigned promise(s) and agree(s) to give the Bank security for
all loans and advances by the Bank to the undersigned pursuant to this
application for credit and promise to give security by way of assignment under
section 427 of the Bank Act covering all the property described above which is
now or may in the future be in the place or places designated as follows: (2)
The place or places designated on Schedule "A" to this document and any
other place or places in Canada in which any of the said property may be
located: and the undersigned promise(s) and agree(s) to give the Bank from time
to time and as often as requested by the Bank warehouse receipts and/or bills of
lading covering all the property described above or any part of such property
which is now or may in the future be covered by warehouse receipts or bills of
lading, as security for all the said loans and advances.
The undersigned appoint(s) the person for the time being acting as manager
of the branch or unit of the Bank mentioned above, the attorney of the
undersigned, on behalf of the undersigned, to give from time to time to the Bank
any and all security mentioned above and to sign or endorse and deliver any and
all instruments and documents in connection with such security.
The Bank may from time to time take from the undersigned notes representing
the said loans and advances or any part of such loans and advances, and any
notes so taken will not extinguish or pay the indebtedness created by such loans
and advances but will represent the same only.
No security acquired by the Bank will be merged in any subsequent security
or be taken to be substituted for any security previously acquired.
(1) Here give general description of the kind or kinds of property to be
covered by the security, or if space insufficient, insert after (1) "the
property described on the reverse of this document" and set out the description
on the back of this form.
(2) Here designate the place or places where the property to be covered by the
security is or may be located or if space insufficient insert after (2) "the
place or places designated on the reverse of this document" and set out the
designation on the back of this form.
<PAGE>
-2-
(Applicable in the
Province of Quebec)
The undersigned has (have) expressly requested that
this document be drawn up in the English language. Le(s)
soussigne(s) a (ont) expressement demande que ce document
soit redige en langue anglaise.
UNISOURCE CANADA, INC.
By:_____________________
Name:
Title:
<PAGE>
SCHEDULE "A"
CHIEF EXECUTIVE AND REGISTERED OFFICES AND INVENTORY LOCATIONS OF
UNISOURCE CANADA, INC.
UNISOURCE EAST - PRINTING DIVISION
St. John's, NFLD
26 Austin Street
St. John's NFLD A1B 2M7
Saint John, NB
Old Black River Road
Grandview Industrial Park
Saint John, NB E21 3Y2
Dartmouth, NS
110 Simmonds Drive
Dartmouth, NS B3B 1N9
Quebec, PQ
1790 Rue Newton
Quebec, QC G1P 4J4
Lasalle, PQ
9440 Clement Street
Lasalle, QC H8R 3W1
Ottawa, ON
950 Ages Drive
Ottawa, ON K1G 6B3
Mississauga, ON
560 Hensall Circle
Mississauga, ON L5A 1Y1
Richmond Hill, ON
50 East Wilmot Street
Richmond Hill, ON L4B 3Z3
Windsor, ON
4050 E.C. Row Avenue
Windsor, ON N9A 6J3
London, ON
1505 Sise Road
London, ON N6A 4E3
<PAGE>
-2-
PAPER SHOPPES
The Paper Shoppe #3
1515 Matheson Blvd., Unit B-13
Mississauga, ON L4W 2P5
The Paper Shoppe #6
50 Shorting Road
Scarborough, ON M1S 2S3
Skara Brae
410 Chemin Des Critiques
Montebello, QC
Centre Island
Lake of the Woods
DAWSON PACKAGING
Dorval, QC
1850 Trans Canadienne
Dorval, QC
VALTECK PACKAGING
Dorval, QC
1470 Hymus Blvd.
Dorval, QC
ADELCO SUPPLY COMPANY INC.
Scarborough, ON
2321 McNicoll Avenue
Scarborough, ON
UNISOURCE EAST-SUPPLY SYSTEMS DIVISION
St. Johns, NFLD
44 Clyde Avenue
St. John's, NFLD A1B 4S1
<PAGE>
-3-
Moneton, NB
675 St. George Blvd.
Moneton, NB
St. Laurent, PQ
555 Montee de Liesses
St. Laurent, QC H4T 1P5
Toronto, ON
1475 Courtneypark Drive East
Mississauga, ON L5T 2R1
Thunder Bay, ON
100 Main Street
Thunder Bay, ON P7C 4X7
UNISOURCE WEST-SUPPLY SYSTEMS DIVISION
Vancouver, BC
1425 Derwent Way
New Westminster, BC V3L 5A9
Victoria, BC
2205 Keating Cross Road
Saanichton, BC V0S 1M0
Prince George, BC
1021 Eastern Street
Prince George, BC V2N 2X5
Edmonton, AB
16408-121 A Avenue
Edmonton, AB T5V 1J9
Winnipeg, MB
160 Omands Creek Blvd.
Winnipeg, MB R2R 1V7
UNISOURCE WEST-PRINTING DIVISION
Edmonton, AB
16310 121st A Avenue
Edmonton, AB T5V 1J9
<PAGE>
-4-
Winnipeg, MB (ICP)
1725 Inkster Blvd.
Winnipeg, MB
UNISOURCE WEST - DUAL DIVISION
Saskatoon, SK (Dual)
858 - 57 Street East
Saskatoon, SK
Calgary, AB (Dual)
2340-22nd Street N.E.
Calgary, AB T2M 4M8
Regina, SK (Dual)
420 Hoffer Drive
Regina, SK S4N 7A1
PAPER SHOPPES
The Paper Shoppe - AL#1
735-10 Ave. S.W.
Calgary, AB T2R 0B3
SUBLEASED/VACANT LOCATIONS
London, ON
1669 Oxford St. East
London, Ontario N5V 2Z5
Burnaby, BC
7260 Winston Street
Burnaby, BC V5A 4N2
<PAGE>
ASSIGNMENT UNDER SECTION 427 OF THE BANK ACT
SPECIAL SECURITY IN RESPECT OF SPECIFIED PROPERTY
OR CLASSES OF PROPERTY
FOR GOOD AND VALUABLE CONSIDERATION, the undersigned assigns to [CANADIAN
LENDER _____ ] (the "Bank") as continuing security for the payment of all loans
and advances that have been or may be made by the Bank to the undersigned or
renewals of such loans and advances or substitutions for such loans and
advances, and interest on such loans and advances and on any such renewals or
substitutions, all property and classes of property hereinafter described of
which the undersigned is now or may in the future become the owner, to wit, (1)
all goods and inventory of the undersigned, whether now owned or hereafter
acquired, held for sale or lease, or furnished or to be furnished by the
undersigned under contracts of service, or consumed in the undersigned's
business, including raw materials, intermediates, work in progress, packaging
materials, finished goods, semifinished inventory, scrap inventory,
manufacturing supplies and spare parts, and all such goods and inventory that
have been returned to or repossessed by or on behalf of the undersigned and
which is now or may in the future be in the place or places described as
follows: (2)
The place or places designated on Schedule "A" to this document and any
other place or places in Canada in which any of the said property may be
located, or where the said property consists in whole or in part of fishing
vessels, fishing equipment and supplies or products of the sea, lakes and
rivers, wherever such property may be.
The undersigned irrevocably constitute(s) and appoint(s) the Bank to make
on its behalf certain payments which may be owing to the undersigned's
creditor(s) as required from time to time out of such loans or advances.
This security is given under the provision of section 427 of the Bank Act.
The property now owned by the undersigned and hereby assigned is free from
any mortgage, lien or charge, other than previous assignments, if any, to the
Bank and the undersigned warrants that the property which may be acquired in the
future by the undersigned and is assigned hereby will be free from any mortgage,
lien or charge, other than previous assignments, if any, to the bank.
The undersigned has (have) expressly requested that this document be drawn
up in the English language. Le(s) soussigne(s) a(ont) expressement demande que
ce document soit redige en langue anglaise.
Dated at Toronto, Ontario this 25th day of September, 1998
UNISOURCE CANADA, INC.
By:___________________________
Name:
Title:
(1) Here give general description of the kind or kinds of property to be
covered by the security, or if space insufficient, insert after (1) "the
property described on the reverse of this document" and set out the description
on the back of this form.
(2) Here designate the place or places where the property to be covered by the
security is or may be located or if space insufficient insert after (2) "the
place or places designated on the reverse of this document and set out the
designation on the back of this form".
(Applicable in the Province of Quebec)
<PAGE>
SCHEDULE "A"
CHIEF EXECUTIVE AND REGISTERED OFFICES AND INVENTORY LOCATIONS OF
UNISOURCE CANADA, INC.
UNISOURCE EAST - PRINTING DIVISION
St. John's, NFLD
26 Austin Street
St. John's NFLD A1B 2M7
Saint John, NB
Old Black River Road
Grandview Industrial Park
Saint John, NB E2L 3Y2
Dartmouth, NS
110 Simmonds Drive
Dartmouth, NS B3B 1N9
Quebec, PQ
1790 Rue Newton
Quebec, QC G1P 4J4
Lasalle, PQ
9440 Clement Street
Lasalle, QC H8R 3W1
Ottawa, ON
950 Ages Drive
Ottawa, ON K1G 6B3
Mississauga, ON
560 Hensall Circle
Mississauga, ON L5A 1Y1
Richmond Hill, ON
50 East Wilmot Street
Richmond Hill, ON L4B 3Z3
Windsor, ON
4050 E.C. Row Avenue
Windsor, ON N9A 6J3
London, ON
1505 Sise Road
London, ON N6A 4E3
<PAGE>
-2-
PAPER SHOPPES
The Paper Shoppe #3
1515 Matheson Blvd., Unit B-13
Mississauga, ON L4W 2P5
The Paper Shoppe #6
50 Shorting Road
Scarborough, ON M1S 2S3
Skara Brae
410 Chemin Des Critiques
Montebello, QC
Centre Island
Lake of the Woods
DAWSON PACKAGING
Dorval, QC
1850 Trans Canadienne
Dorval, QC
VALTECK PACKAGING
Dorval, QC
1470 Hymus Blvd.
Dorval, QC
ADELCO SUPPLY COMPANY INC.
Scarborough, ON
2321 McNicoll Avenue
Scarborough, ON
UNISOURCE EAST-SUPPLY SYSTEMS DIVISION
St. Johns, NFLD
44 Clyde Avenue
St. John's, NFLD A1B 4S1
<PAGE>
-3-
Moneton, NB
675 St. George Blvd.
Moneton, NB
St. Laurent, PQ
555 Montee de Liesses
St. Laurent, QC H4T 1P5
Toronto, ON
1475 Courtneypark Drive East
Mississauga, ON L5T 2R1
Thunder Bay, ON
100 Main Street
Thunder Bay, ON P7C 4X7
UNISOURCE WEST-SUPPLY SYSTEMS DIVISION
Vancouver, BC
1425 Derwent Way
New Westminster, BC V3L 5A9
Victoria, BC
2205 Keating Cross Road
Saanichton, BC V0S 1M0
Prince George, BC
1021 Eastern Street
Prince George, BC V2N 2X5
Edmonton, AB
16408-121 A Avenue
Edmonton, AB T5V 1J9
Winnipeg, MB
160 Omands Creek Blvd.
Winnipeg, MB R2R 1V7
UNISOURCE WEST-PRINTING DIVISION
Edmonton, AB
16310 121st A Avenue
Edmonton, AB T5V 1J9
<PAGE>
-4-
Winnipeg, MB (ICP)
1725 Inkster Blvd.
Winnipeg, MB
UNISOURCE WEST - DUAL DIVISION
Saskatoon, SK (Dual)
858 - 57 Street East
Saskatoon, SK
Calgary, AB (Dual)
2340-22nd Street N.E.
Calgary, AB T2M 4M8
Regina, SK (Dual)
420 Hoffer Drive
Regina, SK S4N 7A1
PAPER SHOPPES
The Paper Shoppe - AL#1
735-10 Ave. S.W.
Calgary, AB T2R 0B3
SUBLEASED/VACANT LOCATIONS
London, ON
1669 Oxford St. East
London, Ontario N5V 2Z5
Burnaby, BC
7260 Winston Street
Burnaby, BC V5A 4N2
<PAGE>
AGREEMENT AS TO LOANS AND ADVANCES
AND SECURITY FOR SUCH LOANS AND ADVANCES
1. In this agreement, "I", "my" and "mine" and "we", "our", "ours" and "us"
mean the undersigned.
"You", "your" and "yours" mean [Canadian Lender ____]. All capitalized
terms not defined herein shall have the meaning given to them in the Credit
Agreement (as defined in Section 2 below).
2. In consideration of the Loans being made and/or to be made in the future by
you to me in your capacity as a Canadian Lender pursuant to The Amended and
Restated Credit Agreement made as of September 25, 1998 between the
undersigned, Unisource Worldwide, Inc. and Unisource Capital Corporation,
as borrowers, the lenders party thereto from time to time, The Chase
Manhattan Bank, as Administrative Agent and U.S. Collateral Agent and The
Toronto-Dominion Bank, as Canadian Agent and as Canadian Collateral Agent,
as amended, supplemented, modified or restated from time to time (the
"Credit Agreement"), I/we agree with you as follows.
3. All security now or at any time in the future held by you for the payment
of any of my/our debt or liability whether present or future, direct or
indirect, absolute or contingent, matured or not, under the Credit
Agreement, any Loan Document or any Hedging Agreement entered into with you
as counterparty from time to time while a Lender (collectively, the
"Obligations") including security by way of warehouse receipt or bill of
lading or under Section 427 of the Bank Act (such security being called the
"security"), together with all property covered by or comprised in the
security (such property being called the "property"), and all proceeds of
the security and of the property, constitute a continuing collateral
security for the payment of such debt or liability and also for the payment
of:
(a) interest on such Obligations which is calculated in accordance with
the Credit Agreement, and
(b) all costs, charges and expenses reasonably incurred by you or the
Receiver appointed by you under section 8 of this agreement, whether
directly or for services rendered (including reasonable solicitors and
auditors costs and other legal expenses and Receiver remuneration), in
preparing or enforcing this agreement, taking and maintaining custody
or, preserving, repairing, processing, preparing for disposition and
disposing of the property and in enforcing the security.
4. If you surrender to me/us the security or the property or any part of
either of them, I/we will receive the same in trust (in Quebec, as
mandatary) for you, and will deal with such security or property or any
part of either of them as you may direct. At your request, I/we will give
you security on the property so surrendered, or covered by the security so
surrendered, to your satisfaction.
5. I/We assign to you and agree to pay to you or transfer to you forthwith the
proceeds of all sales by me/us of the property or any part of such
property, including cash, debts arising from such sales or otherwise,
evidences of title, instruments, documents and securities, which I/we may
receive or be entitled to receive in respect thereof, until so paid or
transferred, such proceeds will be held by me/us in trust (in Quebec, as
mandatary) for you.
Execution by me/us and acceptance by you of an assignment of (in Quebec, of
a hypothec on) book debts or any additional assignment (in Quebec,
hypothec) of any of such proceeds is deemed to be
<PAGE>
-2-
in addition to this agreement and will not constitute your acknowledgement
of any right or title on my/our part to such book debts or proceeds.
6. I/We will pay and discharge all claims whatsoever in any way secured by or
constituting a charge upon any part of the property (subject to Permitted
Encumbrances) and particularly, but without limiting the generality of the
foregoing, all wages, salaries and other remuneration of all employees
employed by me/us in connection with my/our business operation in respect
of which any property covered by the security is held or acquired by me/us.
At your request, I/we agree to exhibit to you evidence of such payment and
discharge and obtain and deliver to you such waivers or releases as you may
deem necessary to secure the priority of your rights in the property.
7. Upon the occurrence and during the continuance of an Event of Default under
the Credit Agreement, and subject to the terms thereof, you are authorized:
(a) to sell at public or private sale or otherwise realize upon the
security or any part of such security and all or any of the property
whenever and wherever and for such price in money or other
consideration and in such manner and upon such terms and conditions as
you deem best, the whole without advertisement or notice to me/us or
others; and
(b) to deal with the proceeds as provided in this agreement or as
otherwise agreed,
without prejudice to your claims for any deficiency and free from any right
of redemption I/we may have, which right is waived and released. I/we
expressly waive all formalities prescribed by custom or by law in relation
to any such sale or other realization.
8. Upon the occurrence and during the continuance of an Event of Default under
the Credit Agreement, and subject to the terms thereof, you may:
(a) enter upon or into and occupy and use, enjoy and exercise free of
charge and to the exclusion of all others, including me/us, any and
all premises and property (real and personal, immoveable and moveable)
and rights, powers, and privileges used, enjoyed or exercised by me/us
in connection with the property or any part of such property or in or
upon which the same may be (not being the premises of a warehouseman
or carrier) until the property will be fully realized upon; and
(b) appoint or reappoint by instrument in writing, any person or persons,
whether an officer or an employee or employees of yours or not, to be
a receiver or receivers (the "Receiver", which term when used includes
a receiver and manager) of the property (including any interest,
income and profits from such property). You may remove such Receiver
so appointed and appoint another. I/We have no power to revoke the
appointment of the Receiver.
The Receiver will, so far as the responsibility of the Receiver for his/her
acts is concerned, be deemed to be my/our agent and not your agent. You
will not be in any way responsible for any misconduct, negligence or
nonfeasance on the part of the Receiver, or the Receiver's servants, agents
<PAGE>
-3-
or employees. Subject to the provisions of the instrument appointing the
Receiver, the Receiver will have all the powers, rights and discretion
granted to you by this agreement including the power to take possession of
the property, to preserve the property or its value, to carry on or concur
in carrying on all or any part of my/our business and to sell, lease or
otherwise dispose or concur in selling, leasing or otherwise disposing of
the property.
9. Any promissory note or bill of exchange received by you together with any
securities or documents attached to or received with such promissory note
or bill of exchange will be subject to the terms of this agreement. You and
holders of any such bill or note may at any time before or after its
maturity and whether or not it has been dishonoured, accept payment and
deliver the securities or documents or accept partial payment and release
part of the securities or of the property covered by the documents or any
of them.
10. You may apply
(a) all payments which you receive,
(b) the proceeds of sales by me/us of the property or any part of such
property, and
(c) the proceeds of realization of any of the security or of the property
which are applicable generally to my/our Obligations to you,
against or, as you deem best, hold the same with all the powers, rights and
discretion conferred on you by this agreement or otherwise, as continuing
collateral security for the fulfilment of any or all Obligations of me/us
to you and whether I/we be bound alone or with another or others and
whether as principal or surety, and any such application by you may, in
whole or in part, be changed by you as you deem best.
The proceeds of realization of any part of the security or of the property
which are applicable only to part of my/our debts and liabilities to you
will be applied to such part of the debts and liabilities as required under
the Credit Agreement and the Loan Documents.
11. You may grant extensions of time and other indulgences, take and give up
security, accept compositions, compound, compromise, settle, grant releases
and discharges and otherwise deal with me/us, my/our creditors, sureties
and others and with the property and other security as you may see fit
without prejudice to my/our liability or your right to hold and realize the
security.
12. I/We agree to execute, draw, endorse and deliver all such instruments and
documents and do all such acts and things as you may deem necessary or
desirable for the purpose of perfecting your title to the security or the
property or the proceeds of either of them or of carrying into effect any
or all of the provisions of this agreement or of securing the fulfilment of
all my/our obligations to you.
I/We appoint you and your officers, and persons acting as managers of your
branches or units where I/we keep an account and any person or persons
named by you for these purposes, and any one of them acting alone, my/our
attorney(s) with full power of substitution to do anything the said
attorney(s) may deem expedient for the purpose of carrying into effect any
or all of the provisions of this agreement. This appointment is made in
consideration of a loan or loans, advance or
<PAGE>
-4-
advances, by you to me/us and is irrevocable and of full force and effect
whenever and so often as any loan or advance by you to me/us is unpaid or
any obligation to you is unfulfilled and notwithstanding any occurrence or
event which would otherwise terminate such agency.
Every power, right and discretion vested by law in you or conferred upon
you by this agreement may be exercised on your behalf by the said officers
of yours or any person or persons named by you for such purpose, and any
one of them acting alone.
13. No delay or omission in exercising any of your rights or remedy under this
agreement or with respect to any of my/our debt will operate as a waiver of
such right or remedy, and no single or partial exercise of any right or
remedy will preclude the exercise of any other right or remedy.
You may remedy any default by me/us in any reasonable manner without
waiving the default remedied and without waiving any other prior or
subsequent default by me/us.
All rights granted or recognized in your favour are cumulative and may be
exercised at any time, independently or in combination.
14. When required by this agreement, a notice or demand addressed to me/us will
be given in writing and will be sufficiently given if delivered in
accordance with the Credit Agreement.
15. I/We waive the benefit of all rules of law or equity and compliance with
any statutory provisions now or hereafter in force inconsistent with any of
the provisions of this agreement.
16. The provisions of this agreement are in addition to all other remedies
existing in law and to all rights under existing agreements. No sale or
delivery by me/us of any part of the property prejudices or affects your
rights however arising in or with respect to property so sold or delivered.
This is a continuing agreement and all its provisions extend to all my/our
Obligations to you at any time outstanding and to the security and the
property as they may exist and all proceeds thereof.
17. Nothing contained in this agreement obligates you to grant, continue,
renew, extend time for payment of or accept anything which constitutes or
would constitute a debt or liability of mine/ours.
18. This agreement is binding upon and enures to my/our and your benefit, and
my/our and your respective heirs, executors, liquidators of successions,
administrators, successors or assigns, as the case may be.
19. In the event that any provisions of this agreement, as amended from time to
time, are deemed to be invalid or void, in whole or in part, by any Court
of competent jurisdiction, the remaining terms and provisions of this
agreement remain in full force and effect.
20. To the extent of any inconsistency or conflict between the provisions of
this agreement and the provisions of the Credit Agreement or the Security
Agreement (as defined in the Credit Agreement), the relevant provisions of
the Credit Agreement or Security Agreement, as applicable, shall prevail
and be paramount. The exercise of your rights and recourses under this
agreement and the realization of the security created under this agreement
are subject to the terms of the Credit
<PAGE>
-5-
Agreement including, without restricting the generality of the foregoing,
Section 10.14 of the Credit Agreement.
21. The parties have expressly requested that this document be drawn up in the
English language. Les parties ont expressement demande que ce document soit
redige en langue anglaise.(Quebec only)
DATED this 25th day of September, 1998.
UNISOURCE CANADA, INC.
By:________________________________
Name:
Title:
<PAGE>
TERMINATION AGREEMENT
between
UNISOURCE WORLDWIDE, INC.
and
INTERNATIONAL BUSINESS MACHINES CORPORATION
Dated July 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE 1 GENERAL PROVISIONS, TERMINATION AND RELATED ISSUES... 1
1.01 General Provisions................................... 1
1.02 Survival of ITS Agreement............................ 2
1.03 Termination of ITS Agreement......................... 2
ARTICLE 2 PAYMENTS............................................. 2
ARTICLE 3 RELEASES AND RELATED ISSUES.......................... 3
3.01 Release of Claims by Unisource....................... 3
3.02 Release of Claims by IBM............................. 3
ARTICLE 4 CONFIDENTIALITY...................................... 3
ARTICLE 5 REPRESENTATIONS AND WARRANTIES....................... 4
5.01 By Unisource......................................... 4
5.02 By IBM............................................... 4
ARTICLE 6 MISCELLANEOUS........................................ 4
6.01 Assignment, Successor and Assigns.................... 4
6.02 Notices.............................................. 4
6.03 Counterparts......................................... 5
6.04 Copies............................................... 5
6.05 Relationship......................................... 5
6.06 Consents, Approvals and Requests..................... 5
6.07 Severability......................................... 5
6.08 Waivers.............................................. 5
6.09 Destruction of Promotional Materials................. 6
6.10 Entire Agreement..................................... 6
6.11 Amendments........................................... 6
6.12 Governing Law; Venue................................. 6
6.13 Covenant of Further Assurances....................... 6
6.14 Negotiated Terms..................................... 6
6.15 Use of Space......................................... 7
</TABLE>
<PAGE>
This TERMINATION AGREEMENT (this "Agreement") dated as of July 1, 1998
---------
(the "Effective Date") is between UNISOURCE WORLDWIDE, INC. ("Unisource") and
-------------- ---------
INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM") through its IBM Global
---
Services division (Unisource and IBM, collectively, the "Parties"; each,
-------
individually, a "Party").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Unisource and IBM, as successor by merger to Integrated
Systems Solutions Corporation, doing business as ISSC, Inc., entered into an
Information Technology Services Agreement dated December 22, 1993 (together with
the Exhibits thereto and as amended, modified and otherwise supplemented prior
to the Effective Date, the "ITS Agreement");
-------------
WHEREAS, pursuant to the ITS Agreement, Unisource transferred certain
assets and employees and made payments to IBM and IBM performed certain services
described in the ITS Agreement; and
WHEREAS, for good and valuable consideration, Unisource and IBM wish
to enter into this Agreement in order to terminate the ITS Agreement and to
settle and release each other from certain agreed upon claims and causes of
action.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, covenants and undertakings hereinafter set forth, the Parties agree as
follows:
ARTICLE 1 GENERAL PROVISIONS, TERMINATION AND RELATED ISSUES.
- --------- --------------------------------------------------
1.01 General Provisions.
------------------
(1) Defined Terms. Capitalized terms used but not defined in this Agreement
-------------
shall have the meanings ascribed to them in the ITS Agreement.
(2) References. Unless otherwise indicated, references to Articles and
----------
Sections are to the Articles and Sections of this Agreement. In this
Agreement:
(a) references to any law, legislative act, rule or regulation shall mean
references to such law, legislative act, rule or regulation in changed
or supplemented form or to a newly adopted law, legislative act, rule
or regulation replacing a previous law, legislative act, rule or
regulation; and
(b) references to and mentions of the word "including" or the phrase
"e.g." shall mean "including, without limitation."
(3) Headings. The Article and Section headings and Table of Contents are for
--------
reference and convenience only and shall not be considered in the
interpretation of this Agreement.
1
<PAGE>
(4) Interpretation of Documents. In the event of a direct conflict between
---------------------------
this Agreement and the ITS Agreement, this Agreement shall prevail.
1.02 Survival of ITS Agreement. The terms of the ITS Agreement shall
-------------------------
survive the termination of the ITS Agreement to the extent set forth in Section
-------
31.12 of the ITS Agreement. In addition, Section 12.07, Section 12.08 and
- ----- ------------- -------------
Section 12.09 of the ITS Agreement shall survive the termination of the ITS
- -------------
Agreement. Notwithstanding anything to the contrary contained in this Agreement
or the ITS Agreement, Section 16.03, Section 24.02(7), Section 24.02(8), Section
------------- ---------------- --------------- -------
24.02(9), Section 24.02(11), Section 26.07, Section 26.08 and Article 28 of the
- -------- ----------------- ------------- ------------- ----------
ITS Agreement shall not survive the termination of the ITS Agreement.
1.03 Termination of ITS Agreement. Effective as of the Effective
----------------------------
Date, the ITS Agreement shall terminate.
ARTICLE 2 PAYMENTS.
- --------- --------
(1) IBM has delivered all invoices for all Annual Service Charges due under the
ITS Agreement through April 30, 1998 and IBM agrees and acknowledges that
Unisource has made full and complete payment of all such amounts and that
no further amounts are due or will become due under the ITS Agreement in
respect of the Services covered by the Annual Service Charges through April
30, 1998; provided, however, that certain retroactive billings adjustments
may be necessary as a result of certain services rendered or travel (in
each case incurred by IBM (through its employees) after January 31, 1998)
not yet having been internally processed by IBM. IBM has delivered all
supplemental invoices for all amounts, other than Annual Service Charges,
due under the ITS Agreement through April 30, 1998 and IBM agrees and
acknowledges that Unisource has made full and complete payment of all such
amounts, other than in respect of legacy manning and ADM consulting
services, and that no other amounts are due or will become due under the
ITS Agreement in respect of the Services not covered by the Annual Service
Charges under the ITS Agreement through April 30, 1998.
(2) As of the Effective Date, Unisource hereby (a) waives any remaining rights
to current residual AD/M credits that were established under the provisions
of the Full and Final Release Agreement between IBM and Unisource dated
November 4, 1996 and (b) agrees that it has received the benefit of all
prior residual AD/M credits.
(3) As of the Effective Date, IBM hereby waives any remaining rights to any
performance or other financial credits granted or to be granted to IBM
under the ITS Agreement.
(4) The Parties agree that this Agreement shall not constitute a Termination
for Convenience under Section 27.01 of the ITS Agreement and IBM waives all
-------------
rights to all Termination Fees, provided that IBM and Unisource have
entered into a Customer Agreement dated as of July 1, 1998 (the "New
---
Agreement").
---------
2
<PAGE>
ARTICLE 3 RELEASES AND RELATED ISSUES.
- --------- ---------------------------
3.01 Release of Claims by Unisource. As of the Effective Date,
------------------------------
Unisource on behalf of itself and its officers (in their capacity as such),
directors (in their capacity as such), predecessors, successors, transferees,
assignees and affiliates (the "Unisource Releasors") hereby releases IBM and its
-------------------
affiliates, subsidiaries and its present and former directors, officers,
trustees, employees, shareholders and permitted assignees and transferees (the
"IBM Releasees")from any and all claims, causes of action, suits, damages,
-------------
losses, liabilities, demands, judgments, orders, responsibilities, obligations,
debts of any kind whatsoever, accrued or unaccrued, known or unknown, asserted
or unasserted, in law or in equity, absolute or contingent, matured or
unmatured, whether sounding in contract, tort, statute, regulation or otherwise
("Claims"), which Unisource or anyone claiming under it, by it or through it has
------
had, has or could have arising out of or relating to the ITS Agreement. The
release set forth in this Section shall not apply to Claims that may arise (1)
as a result of IBM's or IBM Agents' failure to comply with the terms of this
Agreement or (2) in connection with obligations of IBM or IBM Agents that
pursuant to the ITS Agreement or this Agreement survive the termination thereof.
Unisource agrees that it will never institute a claim of any kind against the
IBM Releasees regarding the specific subject matter of this release. If
Unisource violates this provision, Unisource agrees to pay all of the IBM
Releasees' costs in defending against such actions, including reasonable
attorney fees.
3.02 Release of Claims by IBM. As of the Effective Date, IBM on
------------------------
behalf of itself and its officers (in their capacity as such), directors (in
their capacity as such), predecessors, successors, transferees, assignees and
affiliates (the "IBM Releasors") hereby releases Unisource, its affiliates and
-------------
subsidiaries, and its present and former directors, officers, trustees,
employees, shareholders and permitted assignees and transferees (the "Unisource
---------
Releasees") from any and all Claims, which IBM or anyone claiming under it, by
- ---------
it or through it has had, has or could have arising out of or relating to the
ITS Agreement. The release set forth in this Section shall not apply to Claims
that may arise (1) as a result of Unisource's or Unisource agents' failure to
comply with the terms of this Agreement or (2) in connection with obligations of
Unisource or Unisource agents that pursuant to the ITS Agreement or this
Agreement survive the termination thereof. IBM agrees that it will never
institute a claim of any kind against the Unisource Releasees regarding the
specific subject matter of this release. If IBM violates this provision, IBM
agrees to pay all of the Unisource Releasees' costs in defending against such
actions, including reasonable attorney fees.
ARTICLE 4 CONFIDENTIALITY.
- --------- ---------------
In addition to each Party's confidentiality obligations under Article
-------
23 of the ITS Agreement, the terms of this Agreement shall be deemed, and
- --
treated as, Confidential Information under the ITS Agreement.
3
<PAGE>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.
- --------- ------------------------------
5.01 By Unisource. Unisource represents and warrants that (1) it has
------------
all the requisite power and authority to execute, deliver and perform its
obligations under this Agreement, (2) the execution, delivery and performance of
this Agreement have been duly authorized by Unisource, (3) it is not a party to
any agreements that would prevent Unisource from performing its obligations
under this Agreement and (4) it has not sold, assigned or transferred to any
person, firm or corporation or other entity any claim, demand, debt, duty, suit
or cause of action related to the specific subject matter of this Agreement.
5.02 By IBM. IBM represents and warrants that (1) it has all the
------
requisite power and authority to execute, deliver and perform its obligations
under this Agreement, (2) the execution, delivery and performance of this
Agreement have been duly authorized by IBM, (3) it is not a party to any
agreements that would prevent IBM from performing its obligations under this
Agreement and (4) it has not sold, assigned or transferred to any person, firm
or corporation or other entity any claim, demand, debt, duty, suit or cause of
action related to the specific subject matter of this Agreement.
ARTICLE 6 MISCELLANEOUS.
- --------- -------------
6.01 Assignment, Successor and Assigns. Neither Party may assign this
---------------------------------
Agreement without the consent of the other Party and any assignment of this
Agreement shall be void; provided, however, that either Party may assign this
Agreement to one of its affiliates. This Agreement shall be binding upon, and
shall inure to the benefit of, the successors and permitted assigns of each of
the Parties.
6.02 Notices. All notices, requests, consents, approvals, agreements,
-------
authorizations, acknowledgements, waivers and other communications required or
permitted under this Agreement shall be in writing and shall be deemed given
when sent by telecopy to the telecopy number specified below or delivered by
hand to the address specified below. A copy of any such notice shall also be
sent by next-day courier service (by a nationally recognized courier) on the
date such notice is transmitted by telecopy to the address specified below:
In the case of Unisource:
1100 Cassatt Road
Berwyn, PA 19312
Tel: (610) 722-3588
Fax: (610) 722-3400
Attn: Richard Bogan
4
<PAGE>
In the case of IBM:
IBM Global Services
North Point Office Bldg.
One East Uwchlan Ave.
Exton, PA 19341
Tel: (610) 280-5758
Fax: (610) 280-5406
Attn: Charles P. Carpenter
Either Party may change its address or telecopy number for notification purposes
by giving the other Party notice of the date the new address or telecopy number
will become effective.
6.03 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one single agreement
between the Parties.
6.04 Copies. In the event that a Party is required to deliver
------
documents or copies of documents to the other Party under this Agreement, such
Party shall deliver to the other Party the originals of such documents or true
and complete copies of the originals of such documents, as applicable.
6.05 Relationship. Nothing contained in this Agreement shall create
------------
or imply an agency relationship between Unisource and IBM, nor shall this
Agreement be deemed to constitute a joint venture or partnership between the
Parties. Each Party intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any person other than Unisource or
IBM and their respective affiliates and subsidiaries.
6.06 Consents, Approvals and Requests. Except as specifically set
--------------------------------
forth in this Agreement, (1) all consents and approvals to be given by either
Party under this Agreement shall be in writing and shall not be unreasonably
withheld or delayed and (2) each Party shall make only reasonable requests under
this Agreement.
6.07 Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be contrary to law, then the remaining
provisions of this Agreement or the application of such provisions to persons or
circumstances other than those to which it is invalid or unenforceable shall not
be affected thereby, and each such provision of this Agreement shall be valid
and enforceable to the extent granted by law.
6.08 Waivers. No delay or omission by either Party to exercise any
-------
right or power it has under this Agreement shall impair or be construed as a
waiver of such right or power. A waiver by any Party of any breach or covenant
shall not be construed to be a waiver of
5
<PAGE>
any succeeding breach or any other covenant. All waivers must be in writing and
signed by the Party waiving its rights.
6.09 Destruction of Promotional Materials. Within 60 days after the
------------------------------------
Effective Date, each Party shall cease to use in any manner all advertising,
written sales promotion, press releases and other publicity matters that relate
to the ITS Agreement.
6.10 Entire Agreement. This Agreement and the ITS Agreement, which is
----------------
hereby incorporated by reference into this Agreement, are the entire agreement
between the Parties with respect to their subject matter, and there are no other
representations, understandings or agreements between the Parties relative to
such subject matter.
6.11 Amendments. No amendment or adjustment to, or change, waiver or
----------
discharge of, any provision of this Agreement shall be valid unless in writing
and signed by the Parties.
6.12 Governing Law; Venue.
--------------------
(1) This Agreement and the rights and obligations of the Parties under this
Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the principles thereof
relating to the conflicts of laws.
(2) Each Party irrevocably agrees that any legal action, suit or proceeding
brought by it in any way arising out of this Agreement must be brought
solely and exclusively in the United States District Court for the Southern
District of New York or in the state courts of the State of New York and
irrevocably accepts and submits to the sole and exclusive jurisdiction of
each of the aforesaid courts in person and, generally and unconditionally
with respect to any action, suit or proceeding brought by it or against it
by the other Party; provided, however, that this Section 6.12(2) shall not
---------------
prevent a Party against whom any legal action, suit or proceeding is
brought by the other Party in the state courts of the State of New York
from seeking to remove such legal action, suit or proceeding, pursuant to
applicable Federal law, to the district court of the United States for the
district and division embracing the place where the action is pending in
the state courts of the State of New York, and in the event an action is so
removed each Party irrevocably accepts and submits to the jurisdiction of
the aforesaid district court.
6.13 Covenant of Further Assurances. Unisource and IBM covenant and
------------------------------
agree that, subsequent to the execution and delivery of this Agreement and
without any additional consideration, each of Unisource and IBM shall execute
and deliver any reasonable further legal instruments which are or may become
necessary to effectuate the purposes of this Agreement.
6.14 Negotiated Terms. The Parties agree that the terms and
----------------
conditions of this Agreement are the result of negotiations between the Parties
and that this Agreement shall not be construed in favor of or against any Party
by reason of the extent to which any Party or its professional advisors
participated in the preparation of this Agreement.
6
<PAGE>
6.15 Use of Space. Subject to any rights that Unisource may grant to
------------
IBM under the New Agreement, within 60 days after the Effective Date IBM shall
vacate, and have no further rights in, the space in any Unisource facilities.
* * * *
7
<PAGE>
IN WITNESS THEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives.
UNISOURCE WORLDWIDE, INC.
By:
_______________________________
Name:
Title:
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
_______________________________
Name:
Title:
8
<PAGE>
Unisource 1998 Annual Report
Leaner.
Smarter.
Stronger.
[LOGO OF UNISOURCE APPEARS HERE]
<PAGE>
Contents
Contents
1 To Our Shareholders
9 Financials
36 Directors and Officers
37 Shareholder Information
Underlying Performance*
(in thousands, except per share data) 1998 1997 % Change
- --------------------------------------------------------------------------------
Revenues $7,417,276 $7,108,355 4.3%
Operating Income 112,049 144,695 (22.6%)
Net Income 37,733 58,686 (35.7%)
Basic Earnings Per Share 0.55 0.88 (37.5%)
Diluted Earnings Per Share 0.55 0.87 (36.8%)
- --------------------------------------------------------------------------------
* Underlying performance, which excludes special charges, is supplemental
financial data provided for the purpose of comparability with historical
information and should be read in conjunction with the audited financial
information.
Our Business
Unisource is one of the leading distributors of printing & imaging products,
packaging systems and maintenance supplies in North America.
Our Mission
Unisource will be the distributor of choice for customers and suppliers in the
industries we serve. We will deliver targeted, innovative, cost-effective
solutions for our customers, dependability and growth for our suppliers,
opportunity for our employees and value for our shareholders.
<PAGE>
To Our Shareholders
During 1998, Unisource initiated an extensive restructuring plan that will
result in improved service for customers, greater opportunity for employees and
increased value for shareholders.
For Unisource, fiscal 1998 was a year of reassessment and decisive action.
By the end of the first quarter, it was evident that we were unlikely to
meet our operating goals not just for the quarter, but for the year as well.
Revenues were increasing - primarily due to acquisitions. Operating income was
declining, however, due to margin erosion and unacceptably high costs. It became
apparent that we would be unable to achieve desired levels of profitability with
our existing structure and operating culture.
Bold action was required and bold action was taken.
We halted development of our costly SAP-based information technology
system. We suspended our acquisitions program. And we initiated an intensive
evaluation of every aspect of our business.
The result was an extensive restructuring plan that focuses on our
strengths, leverages our size and national scope, and enables us to drive
common, customer-focused strategies throughout the company - something we were
not able to do effectively under our old structure.
The restructuring focuses primarily on our U.S. business. In Canada, where
facility consolidations have largely been completed, we will concentrate on
implementing common practices and maximizing operating efficiencies.
The dynamic organization we are creating will be leaner, smarter and
stronger...with improved service for customers, growth for suppliers, greater
opportunity for employees and increased value for shareholders.
-----------
1
<PAGE>
An efficient hub-and-spoke warehouse network allows us to more effectively
manage our inventory investment.
[GRAPHIC APPEARS HERE]
- ----------
Hub warehouses stock a full range of products (Star, Square, Triangle, Circle);
spoke warehouses stock frequently ordered items and customer-specific products.
Leaner Structure Increases Focus, Decreases Costs
We replaced our decentralized regional structure with a centrally managed
functional organization designed to emphasize and support our core strengths in
sales and distribution. We moved from five U.S. regions and 150 divisions to 14
market areas that report directly to corporate headquarters. And we made the
decision to divest our operations in Mexico and reinvest the proceeds to grow
our U.S. and Canadian businesses and to reduce debt.
We reconfigured our distribution operations into an efficient hub-and-spoke
warehouse network, which will reduce our total number of U.S. locations by 40% -
from 424 to 253 - and facilities space by 20%. Hub warehouses will stock a full
range of products, while spoke warehouses will stock frequently ordered items
and customer-specific products.
This configuration will allow us to maintain a substantially reduced
inventory investment while still providing next-day delivery in all of our
markets.
As a result of the new organizational structure and hub-and-spoke
configuration, we are reducing our workforce by more than 1,500 employees, or
approximately 15% of our U.S. workforce.
Separate Functions, Shared Goals
Each of our new market areas is headed by two vice presidents - one responsible
for sales and customer service, the other for warehousing and distribution.
While they report to different organizations at cor-
- ----------
2
<PAGE>
Leaner.
We are reducing our total number of U.S. locations by 40% while still providing
next-day delivery in all of our markets.
porate headquarters, the market area vice presidents share common goals and
incentives based on their combined performance in serving customers.
Centralized Marketing and Purchasing Support Unified Sales Effort
A new corporate marketing organization will develop comprehensive marketing
programs for each product category and customer segment to drive focused
marketing initiatives throughout the organization. Marketing will also manage
brand strategy and provide cost-effective advertising and promotional support to
the sales efforts across Unisource.
Purchasing responsibilities are being centralized in a new corporate
procurement function that will assemble a portfolio of preferred suppliers to
partner with Unisource in meeting customer needs. Procurement will develop
agreements with those suppliers and work with them to identify new opportunities
to more efficiently and effectively take their products to market.
All of the acquired companies and specialty businesses within Unisource are
being integrated with our core businesses, with common goals, common
measurements and a common approach to the marketplace.
[MAP OF THE UNITED STATES APPEARS HERE]
. Hub Sales & Distribution Center
- -----------
. Local Sales & Distribution Center
- -------------
-----------
3
<PAGE>
Segmentation enables us to match the know-how of our specialized competitors
while adding value as a single-source supplier.
[GRAPHIC APPEARS HERE]
Each member of our sales force will focus on one of three product specialties.
The unified sales organization will focus on cross-selling opportunities to
increase account penetration and improve profitability.
Segmentation and Single Sourcing Add Value
Each member of our sales force will focus on one of three product specialties:
printing and imaging, packaging, or maintenance supplies. Sales management is
also segmented, providing for more focused training and direction. Segmentation
enables us to match the know-how of our specialized competitors while adding
value as a single-source supplier.
Customized Service Increases Profitability
Several years ago, we increased our focus on customer service through the
creation of consolidated Customer Service Centers strategically located
throughout the United States. We are now building on the success of those
centers to further enhance our overall customer service capabilities.
A new Ambassador Account program will provide a premier level of service to
our top customers. Ambassador customers will be serviced by dedicated teams of
our most experienced customer service professionals -- maximizing knowledge,
availability and response time to all customers served by the team.
A new minimum order program encourages smaller customers to increase
average order size and enjoy the benefits we provide our larger customers.
Common Business Practices Leverage Resources
Our functional organization and centralized controls will facilitate
implementation of consistent processes at every location and in every functional
area -- sales, distribution, marketing, procurement, human
- ----------
4
<PAGE>
Smarter.
Centralized procurement, a unified sales organization and common business
practices will allow us to buy smarter, sell smarter and work smarter.
resources, finance and administration. This not only results in consistent
service to customers, but also eliminates redundancy and assures more effective
implementation of programs and more efficient utilization of resources.
New Talent Strengthens Management Team
During fiscal 1998 we strengthened our corporate management team with the
infusion of new talent, much of it from outside the paper distribution industry.
George D. Timchal joined Unisource as senior vice president of procurement
to lead our centralized procurement and supply management function. George was
previously vice president of sourcing and procurement for Sunbeam Corporation.
Kenneth F. Vuylsteke, who joined us with the National Sanitary Supply
acquisition, was named senior vice president of sales. Ken's outstanding track
record of generating profitable sales will prove invaluable in driving a
strategic sales approach within Unisource.
Richard H. Bogan was named president and chief financial officer. Richard
joined Unisource in 1997 as CFO after a 20-year career with Philip Morris
Companies. Richard's promotion recognizes his key role in development and
execution of our restructuring program, as well as his accomplishments as a
leader of positive, fundamental change within our company.
These leaders join Thomas A. Decker, senior vice president, general counsel
and secretary, who came to Unisource from St. Gobain Corporation in 1997, and
Hugh G. Moulton, executive vice president and chief administrative officer,
whose 28 years of service with Unisource and Alco helps anchor our senior
management team.
-----------
5
<PAGE>
Managing for strong cash flow was a key focus in fiscal 1998.
[GRAPHIC APPEARS HERE]
- ----------
Cash generated in 1998 exceeded our goal for the year.
We will complete our team in fiscal 1999 with the addition of strong
leaders to head our corporate distribution and marketing functions.
Two new directors joined our board in fiscal 1998: James P. Kelly, chairman
and chief executive officer of United Parcel Service, and Gary L. Countryman,
chairman of the board of the Liberty Mutual Insurance Companies. We are pleased
to welcome these seasoned executives to our board.
Effective Asset Management Produces Strong Cash Flow
Managing for strong cash flow was a key focus in fiscal 1998. A highly
successful inventory reduction program generated more than $90 million, and
total operating cash flow exceeded $200 million - surpassing our goal for the
year. Net cash flow before dividends and debt payments reached $208 million,
enabling us to repay $147 million in debt after funding our 1998 dividend of $56
million.
Capital Structure Reinforced
In conjunction with the restructuring plan, we made significant changes that
strengthened our capital structure.
In July, our board of directors voted to decrease the quarterly dividend
rate from $.20 to $.05 per share, beginning with the December 1998 payment. This
action will reduce our cash outlay for dividends in fiscal 1999 by $42 million.
In September, we completed an amendment to our bank credit facility and
confirmed our intent to issue up to $300 million of 10-year notes to
institutional investors.
- ----------
6
<PAGE>
Stronger.
Changes to our management team and financial structure strengthen our company
and position us for profitable growth.
Unused borrowing capacity of more than $400 million and increased covenant
flexibility provide substantial capital resources for the future.
Fiscal 1998 Performance
In fiscal 1998, revenues increased 4% to $7.4 billion. Underlying operating
income (excluding special charges) decreased 23% to $112 million, due primarily
to margin compression in our Printing & Imaging business.
We recorded charges to earnings of $1.60 per share for the write-off of
capitalized costs associated with our discontinued information technology
system, $.08 per share for tax losses on the sale of our U.S. grocery supply
business, $1.22 per share associated with restructuring our U.S. and Canadian
operations, and $1.01 to write-down our investment in Mexico. Including those
charges, we reported a loss for fiscal 1998 of $3.36 per share. Excluding those
charges, our earnings were $.55 per share.
Transitioning to Profitable Growth
We are confident that the actions we are taking to restructure our company will
position Unisource for profitable growth well into the future. There is,
however, significant short-term financial impact from our restructuring
initiatives.
Over the next two years we will incur $50 to $60 million in one-time
restructuring implementation costs, most of which will be incurred in fiscal
1999. Excluding those implementation costs, our goal is to achieve an 80%
expense-to-gross-profit ratio in fiscal 2000, down from 91% in 1998.
-----------
7
<PAGE>
The actions we are taking will enhance our industry leadership position and
restore the equity value of our company.
Our restructuring initiatives will also enhance cash flow through improved
working capital management and increased earnings. When our plan is fully
implemented in fiscal 2001, we expect annual operating income improvement of
$150 to $170 million - more than double 1998 operating income.
Outlook
As we move into our new fiscal year, I have no doubt that we are a
far stronger company than we were twelve months ago. We are eliminating
distractions and installing the common practices and national standards that
will leverage our company's size and scale.
We have an unwavering commitment to execute our restructuring plan, to
measure and reward progress, and to implement timely sanctions for failure.
We still have much work to do. We're fortunate to have a strong management
team, a committed board of directors, and dedicated, energized employees. I am
confident that, together, we will enhance our industry leadership position and
restore the equity value of our company.
[PHOTO OF RAY B. MUNDT APPEARS HERE]
/s/ Ray B. Mundt
Ray B. Mundt
Chairman and Chief Executive Officer
November 23, 1998
- ----------
8
<PAGE>
Financials
Contents
10 Management's Responsibility for Financial Reporting
10 Report of Ernst & Young LLP, Independent Auditors
11 Consolidated Financial Statements
26 Management's Discussion and Analysis
32 Corporate Financial Summary
34 Quarterly Financial Summary
35 Factors That May Affect Future Results
----------
9
<PAGE>
Management's Responsibility for Financial Reporting
The management of Unisource Worldwide, Inc. is responsible for the preparation
and presentation of the financial statements and related financial information
included in this annual report. The financial statements include amounts that
are based on management's best estimates and judgments. These statements have
been prepared in conformity with generally accepted accounting principles
consistently applied and have been audited by Ernst & Young LLP, independent
auditors.
Management is also responsible for maintaining systems of internal accounting
controls that are designed to provide reasonable assurance as to the integrity
of the financial records and the protection of corporate assets. Unisource
Worldwide, Inc. supports and manages a program of auditing to monitor the proper
functioning of its systems. The reports issued under this program, as well as
comment letters from Ernst & Young LLP, are reviewed regularly by the Audit
Committee of the Board of Directors, which is composed of three directors who
are not employees of the company. The Audit Committee meets periodically with
Ernst & Young LLP, internal audit and management to review audit scope, timing
and results.
/s/ Ray B. Mundt /s/ Richard H. Bogan
Ray B. Mundt Richard H. Bogan
Chairman and chief executive officer President and chief financial officer
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders
Unisource Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Unisource
Worldwide, Inc. as of September 30, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 28, 1998
- ----------
10
<PAGE>
Consolidated Statements Of Income
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Printing & Imaging $4,715,287 $4,590,944 $4,782,206
Supply Systems 2,701,989 2,517,411 2,240,602
- ------------------------------------------------------------------------------------------------------------------------
Total Revenues 7,417,276 7,108,355 7,022,808
Cost of Goods Sold:
Printing & Imaging 4,100,078 3,943,245 4,116,376
Supply Systems 2,049,208 1,968,468 1,779,875
Inventory write-down (see Note 15) 23,000 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Cost of Goods Sold 6,172,286 5,911,713 5,896,251
- ------------------------------------------------------------------------------------------------------------------------
Gross Profit 1,244,990 1,196,642 1,126,557
Expenses:
Selling and administrative 1,155,941 1,051,947 942,088
Special charges (see Note 15):
Information technology write-off 168,000 -- --
Restructuring and implementation costs 108,515 -- 50,000
Mexico valuation charge 70,000 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total Expenses 1,502,456 1,051,947 992,088
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Operations (257,466) 144,695 134,469
Interest Expense 45,534 41,637 31,466
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (303,000) 103,058 103,003
Income Tax Expense (Benefit) (71,200) 44,372 43,005
- ------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (231,800) $ 58,686 $ 59,998
========================================================================================================================
Basic Earnings (Loss) Per Share $ (3.36) $ .88
==================================================================================================
Diluted Earnings (Loss) Per Share $ (3.36) $ .87
==================================================================================================
Pro Forma Earnings Per Share (Unaudited) -
Basic and Diluted (see Note 3) $ .81
========================================================================================================================
Weighted Average Shares Outstanding - Basic 68,908 67,004 66,902
========================================================================================================================
Weighted Average Shares Outstanding - Diluted 68,908 67,648 67,576
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
----------
11
<PAGE>
Consolidated Balance Sheets
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
September 30 (dollars in thousands, except par value per share) 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 49,960 $ 45,384
Accounts receivable, less allowances for doubtful accounts:
1998 - $22,713; 1997 - $24,583 640,443 882,360
Inventories 353,270 495,330
Prepaid expenses and deferred taxes 87,746 49,875
- -----------------------------------------------------------------------------------------------------------------
Total current assets 1,131,419 1,472,949
- -----------------------------------------------------------------------------------------------------------------
Long-Term Receivables 5,723 7,790
Property and Equipment, at cost 428,884 434,762
Less accumulated depreciation 201,599 188,336
- -----------------------------------------------------------------------------------------------------------------
Property and equipment, net 227,285 246,426
- -----------------------------------------------------------------------------------------------------------------
Goodwill 580,932 668,575
Deferred Costs and Other Assets 21,292 163,092
- -----------------------------------------------------------------------------------------------------------------
Total Assets $1,966,651 2,558,832
=================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 1,155 $ 638
Notes payable 3,651 144,882
Trade accounts payable 451,123 498,503
Accrued salaries, wages and commissions 40,520 33,906
Restructuring costs 61,588 8,172
Other accrued expenses 107,356 119,431
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 665,393 805,532
- -----------------------------------------------------------------------------------------------------------------
Long-Term Debt 505,199 661,350
Deferred Taxes and Other Liabilities
Deferred taxes 11,770 61,082
Restructuring costs 30,414 8,383
Other long-term liabilities 55,517 38,100
- -----------------------------------------------------------------------------------------------------------------
Total deferred taxes and other liabilities 97,701 107,565
- -----------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, 9/30/98 and 9/30/97 - par value $.001, authorized -
10,000,000 shares, no shares issued and
outstanding -- --
Common stock, par value $.001, authorized - 250,000,000
shares; issued 9/30/98 - 70,245,536
and 9/30/97 - 68,824,869 shares 70 69
Additional paid-in capital 832,268 820,213
Unearned compensation (2,727) (5,845)
Retained earnings (deficit) (87,533) 199,828
Foreign currency translation adjustments (43,711) (29,320)
Cost of common shares in treasury 9/30/98 - 1,205
shares and 9/30/97 - 32,027 shares (9) (560)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 698,358 984,385
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,966,651 $2,558,832
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
- ----------
12
<PAGE>
Consolidated Statements Of Changes In Stockholders' Equity
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
Foreign Cost of
Additional Retained Currency Common
(dollars in thousands, Preferred Common Paid-in Unearned Earnings Translation Shares in
except per share data) Stock Stock Capital Compensation (Deficit) Adjustments Treasury Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1995 $ 122,884 $ 1 $ 184,394 $ -- $ 127,892 $ (19,284) $ -- $ 415,887
Equity of company pooled
by IKON 8,314 8,314
Net income 59,998 59,998
Translation adjustments (5,118) (5,118)
Preferred stock dividend
to IKON 14,746 (14,746) --
Contribution of preferred
stock to capital (122,884) 122,884 --
Contribution of IKON
intercompany notes and
advances to capital 456,420 456,420
- --------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 -- 1 778,444 -- 181,458 (24,402) -- 935,501
Net income 58,686 58,686
Translation adjustments (4,918) (4,918)
Cancellation of common stock
in connection with Spin-off
(100,000 shares) (1) (1)
Issuance of common stock in
connection with Spin-off
(66,895,190 shares) 67 (67) --
Common stock issued in
connection with an
acquisition
(1,442,929 shares) 2 26,478 26,480
Restricted stock issued, net
(300,500 shares) 5,845 (5,845) --
Stock option exercises, net
(186,250 shares) 1,435 1,435
Treasury stock purchases,
net (32,027 shares) (560) (560)
Tax benefit relating to stock
options 556 556
Dividend payments ($.60 per share) (40,316) (40,316)
Contribution from IKON, net 7,522 7,522
- --------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1997 -- 69 820,213 (5,845) 199,828 (29,320) (560) 984,385
Net loss (231,800) (231,800)
Translation adjustments:
Canada (19,123) (19,123)
Mexico valuation 4,732 4,732
Stock option exercises
(139,575 shares) 1,017 1,017
Restricted stock issued, net
(111,681 shares, net) (3,118) 3,118 --
Treasury stock issuances, net
(30,822 shares) 82 551 633
Issuance of stock, net
(1,169,411 shares) 1 13,405 13,406
Tax benefits relating to stock options 669 669
Dividend payments ($.80 per share) (55,561) (55,561)
- --------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1998 $ -- $ 70 $ 832,268 $(2,727) $ (87,533) $ (43,711) $ (9) $ 698,358
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
----------
13
<PAGE>
Consolidated Statements Of Cash Flows
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $(231,800) $ 58,686 $ 59,998
Additions (deductions) to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 35,784 29,828 27,248
Amortization 22,374 17,013 12,771
Provision for losses on accounts receivable 12,686 15,232 17,204
Special charges 369,515 -- 50,000
Provision (benefit) for deferred income taxes (92,501) 25,735 32,314
Payments for special charges (30,932) (12,344) (35,297)
Changes in operating assets and liabilities, net
of effects from acquisitions and divestitures:
Sale of accounts receivable 150,000 -- --
Other changes in accounts receivable 61,862 (54,890) 46,492
Decrease in inventories 91,116 15,390 71,347
(Increase) decrease in prepaid expenses (4,147) 12,152 (877)
(Decrease) increase in accounts payable
and accrued expenses (37,181) 43,431 (70,949)
Miscellaneous 4,562 10,868 (4,337)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 351,338 161,101 205,914
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from the sale of property and equipment 24,547 11,204 9,327
Proceeds from divestitures 57,929 -- --
Cost of companies acquired, net of cash acquired (45,496) (223,236) (191,196)
Expenditures for property and equipment (29,724) (25,271) (35,758)
Collection of notes receivable 1,564 21,443 59,500
Deferred cost expenditures (14,810) (58,707) (52,290)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,990) (274,567) (210,417)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Debt repayments (156,479) (37,216) (57,928)
Proceeds from (repayments of) borrowings under
credit facilities, net (140,995) 625,857 --
Proceeds from other borrowings -- 146,963 --
(Repayment to) proceeds from IKON -- (553,700) 53,370
Payment of dividends (55,561) (40,316) --
Issuance of stock, net 15,725 1,431 --
Other (3,462) 1,235 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (340,772) 144,254 (4,558)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 4,576 30,788 (9,061)
Cash and cash equivalents at beginning of year 45,384 14,596 23,657
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 49,960 $ 45,384 $ 14,596
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
- ----------------
14
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
Unisource Worldwide, Inc. sells and distributes quality Printing & Imaging
papers and Supply Systems - disposable paper and plastic products, packaging
equipment and supplies and maintenance supplies and equipment.
1 Distribution and Basis of Presentation
Prior to January 1, 1997, Unisource was a wholly owned subsidiary of Alco
Standard Corporation ("Alco"). Effective December 31, 1996, Unisource was spun
off from Alco and became a separate public company. One share of Unisource
common stock was distributed to holders of Alco common stock for every two
shares of Alco stock owned at the record date (the "Spin-off" or
"Distribution"). Shortly thereafter, Alco changed its name to IKON Office
Solutions (IKON).
Prior to fiscal 1997, the consolidated financial statements include the assets,
liabilities, revenues and expenses of IKON's wholly owned subsidiary, Unisource,
and the assets, liabilities, revenues and expenses of certain operations that
were contributed to Unisource by IKON on October 1, 1995. All transactions
between entities included in the consolidated financial statements have been
eliminated. The consolidated financial statements for periods prior to fiscal
1997 have been prepared on the historical cost basis, and present the company's
financial position, results of operations and cash flows as derived from IKON'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 IKON's interest expense on consolidated borrowings to Unisource based
on the relationship of Unisource's net assets to consolidated IKON net assets
(see Note 18).
2 Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements reflect the consolidated accounts of Unisource and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
The company's revenues are recorded at the time the products are shipped.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and notes.
Actual results could differ from those estimates and assumptions.
Foreign Currency Translation
Assets and liabilities of the company's foreign subsidiaries that operate in
economies that are not highly inflationary are translated into U.S. dollars at
fiscal year-end exchange rates. The resulting translation adjustments are
recorded as a component of equity. Income and expense items are translated at
average exchange rates prevailing during the fiscal year. Beginning January 1,
1997, assets and liabilities of the company's subsidiaries operating in Mexico,
a highly inflationary economy, are remeasured into U.S. dollars with resulting
gains and losses reflected in net income. The impact of this remeasurement was
not material in 1998 or 1997.
Inventories
Inventories are stated at the lower of cost or market. Unisource uses the
last-in, first-out ("LIFO") method of determining cost for approximately 75% 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
will be reduced by the estimated shortfall of discounted cash flows.
Interest Rate Swap Agreements
Unisource uses interest rate swap agreements for purposes other than trading and
they are treated as off-balance sheet items. Interest rate swap agreements are
used by the company to modify variable-rate debt to fixed-rate debt, thereby
reducing the exposure to market rate fluctuations. An interest rate swap
agreement is designated as a hedge, and effectiveness is determined by matching
the notional amount and terms with specific debt obligations. Such an agreement
involves the exchange of amounts based on fixed interest rates for amounts based
on variable interest rates over the life of the agreement without an exchange of
-----------
15
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
2. Summary of Significant Accounting Policies (continued)
the notional amount upon which payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest expense related to the debt. The related amount payable to or
receivable from counterparties is included as an adjustment to accrued interest
in other accrued liabilities. Gains and losses on terminations of interest rate
swap agreements would be deferred as an adjustment to the carrying amount of the
outstanding debt and amortized as an adjustment to interest expense related to
the debt over the remaining term of the original contract life of the terminated
swap agreement. In the event of the early extinguishment of a designated debt
obligation, any realized or unrealized gain or loss from the swap would be
recognized in net income coincident with the extinguishment.
Stock-based Compensation
The company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
employee stock-based compensation (see Note 13).
Cash Equivalents
Cash equivalents represent highly liquid investments with original maturities
not exceeding three months.
Reclassifications
Certain prior-year amounts have been reclassified to conform to current-year
presentation.
Accounting Changes
In February 1997, the FASB issued Statement No. 128, "Earnings per Share," which
the company adopted on October 1, 1997. All annual and interim periods prior to
that date and included in this report have been restated to follow the new rule.
The effect of adopting the above statement was not material to the company's
consolidated financial statements.
Pending Accounting Changes
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information." The company will adopt these statements in fiscal 1999.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The company will adopt this
statement in fiscal 1999.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The company will adopt this statement in
fiscal 2000.
The adoption of the above statements in fiscal 1999 and 2000 is not expected to
have a material effect on operating results in either year.
3 Earnings Per Share
Basic loss per share for the fiscal year ended September 30, 1998 was calculated
based upon the weighted average number of common shares outstanding for the
period, exclusive of non-vested restricted stock. Basic earnings per share for
the fiscal year ended September 30, 1997 was calculated based upon the weighted
average number of common shares issued and outstanding for the period December
31, 1996 (the date on which Unisource became a separate publicly owned company)
through September 30, 1997, exclusive of non-vested restricted stock.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Fiscal Year Ended September 30
(in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------
Net income (loss) $(231,800) $ 58,686
- -------------------------------------------------------------------------------
Denominator for basic
earnings (loss) per share 68,908 67,004
Effect of dilutive securities:
Stock options -- (a) 644
- -------------------------------------------------------------------------------
Denominator for diluted
earnings (loss) per share 68,908(a) 67,648
===============================================================================
Basic earnings (loss) per share $ (3.36) $ .88
===============================================================================
Diluted earnings (loss) per share $ (3.36)(a) $ .87
===============================================================================
(a) No incremental shares related to options are included due to the
antidilutive effect on the loss per share.
Pro Forma Earnings Per Share for Fiscal 1996 (Unaudited)
Historical earnings per share has been omitted for fiscal year 1996 because
Unisource was a wholly owned subsidiary of IKON during this period and was
recapitalized as part of the Spin-off. Pro forma earnings per share was
calculated as if the Spin-off had occurred on October 1, 1995 and assumes
Unisource borrowed to repay the $553,700,000 intercompany notes payable (see
Note 18) and $7,300,000 of other notes payable. Net income used in determining
the pro forma amount was 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 $561,000,000 at an assumed
weighted average interest rate of 7%, less corporate interest previously
allocated by IKON. The assumed number of weighted average shares was based upon
the number of common shares issued and outstanding as of December 31, 1996, plus
the dilutive effect of stock options issued to replace IKON stock options held
by Unisource employees. Excluding the $50 million restructuring charge in 1996,
pro forma basic and diluted earnings per share would have been $1.30 and $1.29,
respectively.
- ------------
16
<PAGE>
4 Acquisitions and Divestitures
In fiscal 1998, the company made six acquisitions for an aggregate purchase
price of $13,086,000 in cash. Total assets related to these acquisitions were
$14,564,000, including goodwill of $11,153,000. An additional $32,410,000
relating to prior years' acquisitions was paid in fiscal 1998.
In fiscal 1997, the company made 14 acquisitions for an aggregate purchase price
of $240,021,000 in cash, notes payable and Unisource common stock. Total assets
related to these acquisitions were $309,441,000, including goodwill of
$165,555,000. An additional $15,811,000 relating to prior years' acquisitions
was paid in fiscal 1997.
In fiscal 1996, the company made 40 acquisitions for an aggregate purchase price
of $305,615,000 in cash, notes payable and IKON common stock. Total assets
related to these acquisitions were $359,717,000, including goodwill of
$241,272,000. IKON also issued 651,175 shares of its common stock 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 1996
fiscal year. An additional $10,315,000 relating to prior years' acquisitions was
paid in fiscal 1996.
All purchase acquisitions are included in results of operations from their dates
of acquisition.
Effective October 20, 1997, the company sold a significant portion of its United
States-based Grocery Supply Systems business for approximately $48 million in
cash. The pre-tax effect of the sale was not material; however, the company
recorded a tax charge of $5.7 million ($0.08 per share) in the first quarter of
fiscal 1998. The tax charge relates mainly to non-deductible intangible assets
of the business sold.
In addition, in fiscal 1998 the company sold two divisions as part of the
restructuring plan for proceeds of approximately $10 million. An $11.5 million
loss on the sale of one of these divisions was included as part of the third
quarter restructuring charge. The effect of the sale of the other division was
not material (see Note 15).
Adjusted for the effects of the divestitures, had the purchase acquisitions been
made at the beginning of fiscal 1996, unaudited pro forma results of operations
would have been:
Fiscal Year Ended September 30
(in millions, except per share data)
1998 1997 1996
- -------------------------------------------------------------------------------
Revenues $ 7,390 $ 7,335 $ 7,696
Net income (loss) (231) 64 66*
Pro forma earnings (loss)
per share (see Note 3):
Basic $ (3.36) $ .96 $ .99
Diluted $ (3.36) $ .95 $ .98
- -------------------------------------------------------------------------------
* Reduced by pro forma interest expense adjustment of $6 million, net of taxes.
5 Sale of Accounts Receivable
Effective October 1, 1997, the company entered into a three-year agreement to
sell up to $150,000,000 of certain qualifying accounts receivable. The agreement
provides limited recourse to the company in the event that previously sold
receivables become uncollectible. As collections reduce previously sold
interests, new receivables may be sold up to $150,000,000. The proceeds from the
sale were utilized primarily to repay certain notes payable. The amount of
outstanding receivables sold under the agreement was $150,000,000 at September
30, 1998.
The company has a similar agreement to sell, with limited recourse, up to
CN$95,000,000 of certain eligible Canadian accounts receivable through June 15,
1999. The amount of outstanding receivables sold under the agreement amounted to
CN$95,000,000 (US$62,064,000) and CN$90,000,000 (US$65,142,000) at September 30,
1998 and 1997, respectively.
The total expense associated with these agreements was $12,509,000, $2,303,000
and $3,615,000 for the fiscal years ended September 30, 1998, 1997 and 1996,
respectively. Such costs are classified within "selling and administrative"
expense in the Consolidated Statements of Income.
6 Inventories
If the FIFO method of accounting had been used exclusively, inventories would
have been $47,907,000 and $49,068,000 higher at September 30, 1998 and 1997,
respectively. Inventories consist principally of finished goods.
7 Property and Equipment
Property and equipment, at cost, consisted of:
September 30 (in thousands) 1998 1997
- -------------------------------------------------------------------------------
Land $ 28,302 $ 26,638
Buildings and improvements 174,604 182,737
Machinery and equipment 225,978 225,387
- -------------------------------------------------------------------------------
428,884 434,762
Less: accumulated depreciation 201,599 188,336
- -------------------------------------------------------------------------------
$227,285 $246,426
===============================================================================
----------
17
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
8 Notes Payable
Notes payable as of September 30, 1998 and 1997 amounted to $3,651,000 and
$144,882,000, respectively. At September 30, 1998, the notes payable balance
relates primarily to debt in Mexico with an average interest rate of 31.8%. The
average interest rate on notes payable as of September 30, 1997 was 7.0%.
Interest paid on notes payable amounted to $1,658,000, $2,274,000 and $2,295,000
in 1998, 1997 and 1996, respectively.
9 Long-Term Debt and Credit Facility
Long-term debt and credit facility borrowings consisted of:
September 30 (in thousands) 1998 1997
- -------------------------------------------------------------------------------
Credit facility at average interest
rate: 1998 - 6.6%; 1997 - 6.2%
(including the effect of interest
rate swaps) $484,000 $625,857
Other 22,354 36,131
- -------------------------------------------------------------------------------
506,354 661,988
Less current maturities 1,155 638
- -------------------------------------------------------------------------------
$505,199 $661,350
===============================================================================
On September 25, 1998, the company entered into an amended and restated
$900,000,000 credit agreement (the "credit facility") which will mature on
November 22, 2001. The credit facility is secured by accounts receivable and
inventories. At September 30, 1998, the amount available under the credit
facility, net of letters of credit totaling $11,753,000, was $404,247,000.
Borrowings under the credit facility bear interest at either the Alternate Base
Rate (as defined) or LIBOR plus a spread ranging from 27.5 to 125 basis points,
depending on certain financial ratios and credit ratings. The credit facility
provides for a facility fee ranging from 10 to 50 basis points per annum on the
full amount of the credit facility, determined in a manner consistent with the
LIBOR spread described above. The credit facility includes financial covenants
requiring a ratio of funded debt to capitalization of less than 65% decreasing
5% annually to 55%, and a minimum net worth of $575,000,000 plus 50% of
consolidated net income (without deduction for net losses) after September 30,
1998, and an initial minimum consolidated EBITDA excluding special charges to
consolidated interest expense coverage of 2.25 times, which increases in .25
increments periodically to 3.5 times as of June 30, 2001.
On July 29, 1998, the company announced its intent to issue up to $300 million
of 10-year notes to be sold to institutional investors. Consistent with the
terms of the credit facility, the company will use its best efforts to complete
the offering prior to March 31, 1999. The proceeds from the issuance of the
notes will be used to repay debt under the amended and restated credit facility
and reduce the commitment by a like amount.
Interest paid on long-term debt, excluding amounts charged by IKON, totaled
$42,689,000, $28,553,000 and $3,213,000 in 1998, 1997 and 1996, respectively.
Long-term debt matures in fiscal years as follows: 1999 - $1,155,000; 2000 -
$1,107,000; 2001 - $1,052,000; 2002 - $488,561,000; 2003 - $936,000; 2004-2012 -
$13,543,000.
- -----------
18
<PAGE>
10 Taxes on Income
For the three-month period ended December 31, 1996, and for fiscal year 1996,
the company was included in the consolidated federal income tax return of IKON.
The following provision (benefit) for income taxes for all periods was
determined as if the company were a separate taxpayer.
Fiscal Year Ended September 30 (in thousands)
1998 1997 1996
- -------------------------------------------------------------------------------
Current provision:
Federal $ 17,434 $ 15,585 $ 6,093
Foreign 2,103 742 2,728
State and local 1,764 2,310 1,870
- -------------------------------------------------------------------------------
21,301 18,637 10,691
- -------------------------------------------------------------------------------
Deferred provision (benefit):
Federal (84,898) 12,557 26,265
Foreign 308 12,898 3,801
State and local (7,911) 280 2,248
- -------------------------------------------------------------------------------
(92,501) 25,735 32,314
- -------------------------------------------------------------------------------
$(71,200) $ 44,372 $ 43,005
===============================================================================
The components of deferred income tax assets and liabilities were as follows:
September 30 (in thousands) 1998 1997
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization $ 46,247 $ 43,420
Long-term contract -- 48,715
Other -- 2,988
- -------------------------------------------------------------------------------
Total deferred tax liabilities 46,247 95,123
- -------------------------------------------------------------------------------
Deferred tax assets:
Nondeductible accruals
and reserves 98,293 38,574
Net operating loss carryforwards 33,147 27,165
Other 3,640 --
- -------------------------------------------------------------------------------
Total deferred tax assets 135,080 65,739
Valuation allowance (46,492) (14,175)
- -------------------------------------------------------------------------------
Deferred tax assets, net of
valuation allowance 88,588 51,564
- -------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ (42,341) $ 43,559
==============================================================================-
Net operating losses consist of $34,000,000 from foreign operations expiring in
years 2001 through 2008 and domestic state carryforwards expiring in years 1999
through 2013.
The increase in the valuation allowance relates primarily to the Mexico
valuation charge that likely will result in a capital loss carryforward for five
years when deducted.
Components of the effective income tax rate:
Fiscal Year Ended September 30
1998 1997 1996
- -------------------------------------------------------------------------------
Federal (35.0)% 35.0% 35.0%
State (1.3) 2.2 2.5
Goodwill 2.6 2.7 1.4
Foreign, including credits .8 1.7 4.2
Mexico valuation charge 8.1 -- --
Other 1.3 1.5 (1.3)
- -------------------------------------------------------------------------------
(23.5)% 43.1% 41.8%
===============================================================================
Prior to January 1, 1997, tax provisions were settled through the intercompany
account and IKON received refunds on behalf of the company, which approximated
$14,070,000 in 1996. In fiscal 1997, the company made tax payments totaling
$11,036,000, which is net of a refund received from IKON of $8,500,000. In
fiscal 1998, the company received net refunds totaling $818,000.
11 Pension and Stock Purchase Plans
Unisource sponsors defined benefit pension plans for the majority of its
employees. The benefits generally are based on years of service and average
compensation. Unisource funds at least the minimum amount required by government
regulations.
The components of net periodic pension cost for company-sponsored defined
benefit pension plans are:
Fiscal Year Ended September 30 (in thousands)
1998 1997 1996
- -------------------------------------------------------------------------------
Service cost $ 15,621 $ 14,270 $ 12,850
Interest cost on
projected benefit
obligation 11,334 9,172 17,611
Actual return on
plan assets (22,441) (18,989) (42,193)
Net amortization and
deferral 7,385 7,397 22,536
- -------------------------------------------------------------------------------
$ 11,899 $ 11,850 $ 10,804
===============================================================================
---------
19
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
11. Pension and Stock Purchase Plans (continued)
Assumptions used in accounting for the company-sponsored defined benefit pension
plans were:
Fiscal Year Ended September 30 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average
discount rates 7.00% 7.75% 7.75%
Rates of increase in
compensation levels 5.50% 6.25% 6.25%
Expected long-term
rate of return on assets 10.00% 10.00% 10.00%
The funded status and amounts recognized in the consolidated balance sheets for
the company-sponsored defined benefit pension plans are:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested $ 135,853 $ 98,082
- -------------------------------------------------------------------------------
Accumulated $ 141,236 $ 102,081
- -------------------------------------------------------------------------------
Projected $ 179,796 $ 137,612
Plan assets at fair value 177,197 155,103
- -------------------------------------------------------------------------------
Plan assets greater (less) than
projected benefits (2,599) 17,491
Items not yet recognized:
Net gain (22,003) (30,101)
Prior service cost 6,565 4,476
Transition asset, net of
amortization (2,737) (3,289)
Adjustment required to recognize
minimum liability (2,603) (1,822)
- -------------------------------------------------------------------------------
Net pension liability $ (23,377) $ (13,245)
===============================================================================
Under the Benefits Agreement (see Note 18), IKON assumed certain benefit
obligations and related assets for retirees and terminated vested employees of
the company, which were estimated to be $101 million and have been excluded from
the balances reflected in the table above. Such estimates were refined during
fiscal 1997 and benefit obligations and related assets were reduced by $7
million.
Substantially all of the Unisource plan assets, totaling $177,197,000 at
September 30, 1998, are invested in listed stocks, bonds and government
securities, including common stock of Unisource having a fair value of
$3,975,000.
The company's Retirement Savings Plan ("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 were invested in IKON common stock.
Following the Spin-off, company contributions are 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 ("PSPP") for eligible management employees,
contributions to which were discontinued effective August 31, 1998. The PSPP
will terminate on January 4, 1999. The cost of the RSP and PSPP plans, together
with contributions to multi-employer and other defined contributions pension
plans, amounted to $18,282,000, $16,573,000 and $17,055,000 in 1998, 1997 and
1996, respectively.
12 Leases
Capital lease assets are included in property and equipment in the amount of
$17,627,000 and $15,623,000 at September 30, 1998 and 1997, respectively.
Accumulated amortization of $9,871,000 and $9,140,000 is included in accumulated
depreciation at September 30, 1998 and 1997, respectively. Related obligations
are in long-term debt.
Future minimum lease payments under noncancelable leases with remaining terms of
more than one year are due as follows:
Fiscal Year Ended September 30
(in thousands) Capital Operating
Leases Leases
- ----------------------------------------------------------------------------
1999 $ 2,286 $ 52,849
2000 2,255 44,605
2001 2,085 34,956
2002 1,956 29,795
2003 1,836 23,542
2004 and thereafter 10,984 62,080
- ----------------------------------------------------------------------------
Total minimum lease payments 21,402 $247,827
========
Amount representing interest
and executory costs 8,378
- -----------------------------------------------------------
Present value of net minimum
lease payments $ 13,024
===========================================================
Rental expense under operating leases for the years ended September 30, 1998,
1997 and 1996 totaled $77,119,000, $69,164,000 and $61,907,000, respectively.
- -----------
20
<PAGE>
13 Stock-Related Plans
Stock Options
Effective December 1996, the company adopted a "Stock Option Plan" whereby key
employees and eligible consultants may be issued options to purchase up to an
aggregate of ten million shares of the company's common stock.
The exercise price of options issued under the above plan is the market price on
the date of grant. Options generally expire in ten years and vest over a
five-year period.
In fiscal 1998, the company issued options for the purchase of 350,000 shares of
its common stock at the market price on the date of grant, which become
exercisable only when the market price of the common stock reaches $20 per share
(averaged over 20 consecutive trading days) within five years from the date of
the grant.
Also effective December 1996, the company adopted a Directors' Stock Option Plan
("Directors' Plan") under which options to purchase up to a total of 500,000
shares may be granted to outside directors. The Directors' Plan also enables
participants to receive their annual cash retainer in the form of options to
purchase shares of common stock at a discount. The discount is equivalent to the
annual directors' fees and is charged to expense.
Prior to the Spin-off, IKON had certain Stock Option Plans (the "Plans") under
which incentive stock options and nonqualified stock options could be granted to
officers, key employees and directors of Unisource. In connection with the
separation of Unisource from IKON, optionholders who became employees or
directors of Unisource after the Distribution were given the opportunity to
receive options to purchase shares of Unisource common stock in lieu of their
IKON options. The number of shares subject to, and the exercise price of, each
IKON option that was converted to a Unisource option was determined based upon a
formula that preserved the inherent economic value and vesting and term
provisions of such IKON options. The number of IKON stock options converted to
Unisource stock options as of the Spin-off date was approximately 955,000 with
option prices ranging from $9.77 to $47.88. These options were converted into
approximately 2,632,000 Unisource stock options with option prices ranging from
$3.66 to $18.09.
The following is a summary of IKON options held by Unisource employees and
outside directors, and the related transactions for the year ended September 30,
1996 and for the three months ended December 31, 1996. Also shown are the
Unisource stock options that were substituted for the IKON options on December
31, 1996 and the other Unisource option transactions for the nine months ended
September 30, 1997 and the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Unisource Options IKON Options
--------------------------------------------- --------------------------------------------
12 months Weighted 9 months Weighted 3 months Weighted 12 months Weighted
ended Average ended Average ended Average ended Average
(shares in thousands) 9/30/98 Price 9/30/97 Price 12/31/96 Price 9/30/96 Price
- -------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period 3,056 $14.16 955 $ 31.41 1,276 $26.35 1,151 $18.28
Effect for Spin-off
conversion -- -- 1,677 -- -- -- -- --
Granted 1,545 10.75 659 21.33 80 46.13 419 42.04
Exercised (140) 7.28 (186) 7.71 (400) 18.17 (271) 15.69
Canceled (125) 16.73 (49) 13.86 (1) 43.58 (23) 31.98
- -------------------------------------------------------------------- --------------------------------------------
Options outstanding at
end of period 4,336 13.05 3,056 14.16 955 31.41 1,276 26.35
- -------------------------------------------------------------------- --------------------------------------------
Options exercisable at
end of period 1,403 $11.44 920 $ 8.82 367 $20.84 586 $16.68
- -------------------------------------------------------------------- --------------------------------------------
</TABLE>
The following table summarizes information related to Unisource stock options
outstanding as of September 30, 1998:
<TABLE>
<CAPTION>
(shares in thousands)Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
----------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.69 - $ 6.61 341 4.53 $ 5.53 341 $ 5.53
6.66 - 9.28 1,457 9.00 8.81 274 6.91
10.63 - 14.69 587 7.58 11.80 273 11.56
15.23 - 22.63 1,951 8.07 17.91 515 17.69
----------------------------------------------------- -------------------------------------
$ 3.69 - $22.63 4,336 8.04 $ 13.05 1,403 $ 11.44
----------------------------------------------------- -------------------------------------
</TABLE>
21
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
13. Stock-Related Plans (continued)
Long-Term Incentive Compensation Plan
In fiscal 1997, the company established a Long-Term Incentive Compensation Plan
(LTIP). The plan is intended to motivate, recognize and reward key management
employees for long-term performance. Under the plan, key management employees
are granted restricted stock awards that are earned upon achieving predetermined
performance objectives during the plan period. Unearned compensation is
recognized at the issuance date and adjusted thereafter until earned. The value
of these awards is charged to expense over the related performance and
subsequent vesting periods, upon the determination that it is probable the
awards will be earned. Awards earned vest over a three-year period after the end
of the performance period. In fiscal 1998 and 1997, the company granted 220,000
and 355,500 shares of restricted stock under the plan, respectively. At
September 30, 1998, 6,181 of these awards were earned and 163,319 stock awards
were forfeited or canceled.
Pro Forma Stock-based Compensation Expense
The following assumptions under the Black-Scholes method were applied in
determining the effect of FAS 123 for fiscal 1998 and 1997 respectively: (i)
expected dividend yields of 2.99% and 4.18%, (ii) expected volatility rates of
.406 and .24 and (iii) expected lives of 6 and 5.4 years. The risk-free interest
rate applied was 4.26% for fiscal 1998 and 5.9% for fiscal 1997. The use of
these assumptions results in an estimated weighted average fair value of $3.15
and $4.40 at grant date for stock options granted during fiscal 1998 and 1997,
respectively.
Had compensation expense for the company's stock option and LTIP plans been
determined by FAS 123, the company's pro forma net income (loss) and earnings
(loss) per share would have been as follows for the years ended September 30:
(in thousands, except per share data)
1998 1997 1996
- --------------------------------------------------------------------------------
Net income (loss)
as reported $(231,800) $58,686 $59,998
Impact of FAS 123,
net of tax (1,548) (1,199) (803)
Other pro forma
adjustments (see
Note 3) -- -- (5,549)
- --------------------------------------------------------------------------------
Pro forma net income
(loss) $(233,348) $57,487 $53,646
================================================================================
Pro forma earnings (loss)
per share:
Basic $ (3.39) $ 0.86 $ 0.80
Diluted $ (3.39)/(a)/ $ 0.85 $ 0.79
/(a)/ Diluted shares outstanding exclude the impact of stock options due to the
antidilutive effect on the loss per share.
The effects of applying FAS 123 in 1998 and 1997 for purposes of determining the
pro forma compensation expense disclosure may not be representative of the
effects on reported net income or earnings per share in future years.
Stockholder Rights Plan
During fiscal 1997, the company's Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan"). The Rights Plan established an exercise price
of $80.00 (subject to adjustment) per preferred stock purchase right
(individually, a "Right," and collectively the "Rights"). A Right entitles
holders thereof to buy 1/100th of a share of Preferred Stock of the company (the
"Preferred Shares"). The Rights expire at the close of business on November 8,
2006, unless sooner exercised or redeemed or unless certain transactions set
forth in the Rights Plan have occurred.
The Rights Plan provides that the Rights will be exercisable and will trade
separately from shares of the company's common stock upon the earlier of (i) ten
days following an announcement that a person or group, including affiliates and
associates (an "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of the
company's common stock (the "Stock Acquisition Date") or (ii) a date as
determined by the company's Board of Directors, which must be within ten days
following the commencement of a tender or exchange offer that would result in a
person or group beneficially owning 20% or more of the outstanding shares of the
company's common stock. Only when one or more of these events occur will
stockholders receive certificates for the Rights.
If (i) the company is the surviving corporation in a merger with an Acquiring
Person and company common stock remains outstanding, or (ii) any person acquires
beneficial ownership of 20% or more of the outstanding shares of common stock,
other than through certain tender or exchange offers for all shares of the
company's common stock that provide fair price and other terms for such shares,
or (iii) an Acquiring Person engages in certain "self-dealing" transactions or
(iv) an Acquiring Person's beneficial ownership of common stock increases by
more than 1%, then the stockholders (excluding the Acquiring Person) will be
able to exercise the Rights and receive shares of common stock of the company
having twice the value of the exercise price of the 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 certain Rights that
previously have been voided) shall thereafter
- ------------
22
<PAGE>
13. Stock-Related Plans (continued)
have the right to receive, upon exercise, common shares of the acquiring company
having a value equal to approximately two times the exercise prices of the
Rights.
The Rights Plan allows stockholders, upon action by a majority of the Continuing
Directors (as defined), to exercise their Rights for 50% of the shares of stock
otherwise purchasable upon surrender to the company of the Rights so exercised
and without other payment of the exercise price.
The Rights Plan has also established the price at which the Board of Directors
can redeem the Rights at $0.01 per Right. The Rights, in general, may be
redeemed at any time prior to the tenth day following the Stock Acquisition
Date.
14 Financial Instruments
Concentration of Credit Risk
The company is subject to credit risk through trade receivables. Credit risk
with respect to trade receivables is minimized because of a large customer base
and its geographic dispersion. The company is also subject to credit risk in the
event of nonperformance by the counterparties to the interest rate swap
agreements. However, the company does not anticipate nonperformance by the
counterparties.
The following methods and assumptions were used by the company in estimating
fair value disclosures for financial instruments:
Interest Rate Swap Agreements
The company has entered into nine interest rate swap agreements with terms
beginning September 11, 1996 and expiring through December 2, 2002. These
agreements have a total principal/notional amount of US$377.0 million and
CN$25.0 million and have fixed rates from 5.87% to 6.96%. The company is
required to make payments to the counterparties at the fixed rate stated in the
agreements, and in return the company receives payments at variable rates
(primarily LIBOR), effectively converting a portion of the expected borrowings
under the variable rate credit facility to fixed-rate borrowings. At September
30, 1998, the cost to terminate the contracts would have been $11.5 million.
Cash, Notes Payable and Long-Term Receivables
The carrying amounts reported in the balance sheet approximate fair value.
Long-Term Debt
The company's long-term debt (excluding capital leases) is primarily comprised
of the outstanding balance under a credit facility (see Note 9). The interest
rate for this facility is generally based on short-term (30-90 day) market
rates. The fair value approximates the carrying amount of long-term debt as of
September 30, 1998. The company also utilizes interest rate swap agreements
(discussed above) to reduce exposure to market rate fluctuations.
15 Special Charges
Information Technology Write-off
In January 1998, the company completed an in-depth study and evaluation of the
cost/benefit relationship of NADS, its North American Distribution System, under
development since 1994, and concluded that this information technology system
would not cost-effectively meet the company's future information technology
needs. In the first quarter of fiscal 1998, the company recorded a pre-tax
charge of $168.0 million, $109.2 million after-tax, ($1.60 loss per share) to
write-off capitalized development and related costs associated with NADS. The
charge, which is primarily non-cash, consisted of $155.0 million related to the
write-off of deferred costs and $13.0 million for terminating the existing
outsourcing contracts and other related costs substantially all of which was
expended in fiscal 1998.
Restructuring and Implementation Costs
On July 29, 1998, the Board of Directors approved details of an extensive
restructuring plan designed to improve service to customers, decrease costs,
increase financial flexibility and grow profitable market segments. The
restructuring plan includes a net reduction of more than 1,500 employees across
all business functions, or approximately 15% of the company's U.S. workforce,
and approximately 20% of its U.S. warehouse space. As a result of the
restructuring, the company recorded a total pre-tax charge of $131.5 million,
$84.6 million after-tax ($1.22 loss per share), in fiscal 1998. The total charge
reflects severance ($66.5 million), facility closures ($19.8 million), inventory
write-downs due to closure of facilities, discontinuation of certain product
lines and rationalization of vendors and SKUs ($23.0 million) and other costs
($22.2 million). Other costs include an $11.5 million loss on the sale of a
division as part of the restructuring plan, with the balance primarily comprised
of consulting and implementation costs incurred in 1998 related to the
restructuring plan. Future cash expenditures related to the charge will be
approximately $83.1 million, with the majority being expended in fiscal 1999.
The company expects to incur implementation costs over the next two years to
cover relocation, recruitment, training, duplicate manning during the
transition, and IT consolidation expenses related to the restructuring.
23
<PAGE>
Notes to Consolidated Financial Statements
Unisource Worldwide, Inc.
15. Special Charges (continued)
In June 1996, the company recorded a restructuring charge of $50 million
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 million
charge included facility closure costs of $33 million and severance costs of $17
million.
Total restructuring reserves consist of:
Fiscal 1998
Balance ---------------------- Balance
(in thousands) 9/30/97 Charges Activity 9/30/98
- --------------------------------------------------------------------------------
Facility
consolidations $ 12,137 $ 19,838 $ (8,503) $ 23,472
Severance 4,418 66,507 (4,814) 66,111
Other -- 22,170 (19,751) 2,419
- --------------------------------------------------------------------------------
Total $ 16,555 $108,515 $(33,068) $ 92,002
================================================================================
Mexico Valuation Charge
In September 1998, Unisource announced its intent to divest its business in
Mexico and focus on its U.S. and Canadian operations. The decision was based on
emerging market disruptions, the weakening peso and the concern that Mexico
would not meet the company's long-term return requirements. As a result, a
valuation charge of $70.0 million ($1.01 loss per share) was recorded in fiscal
1998 to reduce the Mexican assets to fair value based on estimated sale price
less cost to dispose. The valuation charge resulted in a write-down of goodwill
and other long-lived assets of $58.7 million and $6.6 million, respectively, and
an adjustment to equity relating to the recognition of the cumulative deferred
foreign currency translation adjustments from Mexico of $4.7 million.
The company is actively marketing this business and does not anticipate
regulatory or other obstacles to a sale.
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 Geographic Information
Revenues, income (loss) before taxes and identifiable assets by geographic area
for fiscal years ended September 30 are as follows:
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenues
Domestic $6,512.2 $6,205.8 $6,101.9
Canada 773.5 752.4 774.0
Mexico 124.6 118.0 73.2
Other foreign 7.0 32.2 73.7
- --------------------------------------------------------------------------------
Total $7,417.3 $7,108.4 $7,022.8
================================================================================
Income (loss) before income taxes
Domestic $ (239.9) $ 71.3 $ 81.9
Canada 9.6 25.1 13.2
Mexico (71.8) 7.3 4.8
Other foreign (0.9) (0.6) 3.1
- --------------------------------------------------------------------------------
Total $ (303.0) $ 103.1 $ 103.0
================================================================================
Assets
Domestic $1,657.5 $2,139.8 $1,804.0
Canada 256.7 299.4 280.6
Mexico 52.2 115.1 92.7
Other foreign 0.3 4.5 14.4
- --------------------------------------------------------------------------------
Total $1,966.7 $2,558.8 $2,191.7
================================================================================
Included in income before taxes for fiscal 1998 and 1996 are restructuring costs
of $121,409,000 and $38,000,000 for domestic operations and $6,806,000 and
$12,000,000 for Canadian operations, respectively. Also included in income
before taxes for fiscal 1998 are charges of $165,129,000 for domestic operations
and $2,871,000 for Canadian operations for the write-off of information
technology. Income before taxes for Mexican operations includes $73,300,000
relating to restructuring and valuation charges in 1998 (see Note 15).
24
<PAGE>
18 Transactions with IKON
In conjunction with the separation of their businesses, Unisource and IKON
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, a 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 distribution, the allocation between the
company and IKON of certain assets and liabilities and cooperation between the
two companies, and includes cross-indemnification provisions for damages that
may arise out of breach of obligations under the agreement.
Under the Benefits Agreement, the wages, salaries and employee benefits of all
employees of Unisource are the responsibility of Unisource. Generally,
Unisource's obligation to provide benefits includes all obligations with respect
to company employees under pension plans, savings plans, multi-employer plans,
welfare plans (retiree medical plans), supplemental benefit plans, certain
deferred compensation plans, incentive plans, stock-based plans and other plans
covering Unisource employees, including liabilities that arose while the
individuals were employed by IKON. The Benefits Agreement requires IKON to
reimburse Unisource for a portion of any payments made by Unisource to former
Unisource employees under IKON's 1985, 1991 and 1994 deferred compensation
plans. Unisource assumed certain IKON pension plans covering Unisource
employees. Assets and liabilities attributable to Unisource employees under
IKON's participating companies pension plan and IKON's 401(k) plan were
transferred to new Unisource pension and 401(k) plans. IKON assumed certain
benefit obligations and related assets for retirees and terminated vested
employees of Unisource. Unisource employees and directors were given the
opportunity to convert IKON options into options to purchase Unisource common
stock.
Under the Tax Sharing Agreement, Unisource will bear its respective share of (i)
IKON's federal consolidated income tax liability (or benefit), (ii) any unitary
state income tax liability and (iii) IKON's consolidated personal property tax
liability for all tax periods that end before or that include the Spin-off date
of December 31, 1996. The agreement also provides that if, within two years
after the Spin-off, 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 distribution as a taxable
event.
The balance of the intercompany notes and advances in excess of $553,700,000 was
contributed to Unisource's common stockholders' equity as of September 30, 1996.
Effective September 30, 1996, the $553,700,000 plus any additional advances to
Unisource subsequent to September 30, 1996 incurred interest at 6.75% per annum.
Such interest expense incurred in fiscal 1997 totaled $7,203,000. In December
1996, Unisource borrowed under its credit facility (see Note 9) to repay the
outstanding intercompany notes, advances payable and accrued interest to IKON.
Unisource's preferred stock, all of which was owned by IKON, and the related
fiscal 1996 cumulative dividends were contributed to the company's common equity
by IKON on September 30, 1996.
Prior to the Spin-off, there were no material intercompany purchase or sale
transactions between IKON and Unisource. Under IKON's centralized cash
management system, short-term advances from IKON and excess cash sent to IKON
were reflected as intercompany advances. Notes payable to IKON reflect
borrowings by the company to finance acquisitions. Unisource was charged
corporate interest expense based on the relationship of its net assets to total
IKON net assets, excluding corporate debt, of $29,572,000 in 1996.
Included in the Consolidated Statements of Income is an allocation of general
corporate expenses related to services provided for Unisource by IKON in the
amounts of $2,308,000 in 1997 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.
-----------
25
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Unisource Worldwide, Inc.
Overview
Unisource is the leading distributor of Printing & Imaging papers and Supply
Systems in North America.
The company's Printing & Imaging business generated $4.7 billion in revenues in
fiscal 1998. The Printing & Imaging business involves the sales and distribution
of high-quality printing, writing and copying papers to printers, publishers,
corporate and retail copy centers, and other paper-intensive businesses.
Printing & Imaging suppliers consist of the major North American paper
producers, including Georgia Pacific, Weyerhauser and Consolidated Papers and
Unisource is one of the leading customers for each of its ten largest Printing &
Imaging suppliers.
The company's Supply Systems business generated $2.7 billion in revenues in
fiscal 1998. Supply Systems involves the sales and distribution of a broad range
of disposable paper and plastic products, maintenance supplies and packaging
equipment and supplies, principally to manufacturers, food processors, retail
and institutional customers. Unisource is also one of the leading customers for
the products it buys from most of its primary Supply Systems suppliers, which
include major paper, chemical and packaging equipment suppliers such as Fort
James, Sealed Air and Lantech.
Unisource believes its competitive strengths include a leading market share,
customer service excellence, a broad product offering, a diverse and stable
customer base and significant scale.
Restructuring and Business Improvement Actions
On July 29, 1998, Unisource announced an extensive restructuring program
designed to improve service to customers, decrease costs, increase financial
flexibility and grow profitable market segments.
The restructuring plan is comprised of six major initiatives:
. Moving from a highly decentralized regional structure to a centrally managed
functional organization
. Separating and functionally aligning the field sales and distribution
responsibilities within each market area
. Creating an efficient "hub-and-spoke" distribution network that reduces the
total number of U.S. locations by 40% and facilities space by 20%
. Expanding the company's successful Customer Service Center concept and
aligning customer service within the sales organization
. Establishing a new corporate marketing function to drive focused marketing
initiatives throughout the organization
. Creating a corporate procurement department to direct company-wide purchasing
and national contracts
In addition, the company plans to fully integrate previously acquired companies
into core operations and to restructure its Canadian business.
As a result of the restructuring plan, the company recorded a pre-tax charge of
$132 million in fiscal 1998 and expects to incur one-time implementation costs
of $50-60 million over the next two years. The cash portion of
restructuring-related costs is expected to be in the range of $133-$143 million
pretax, most of which will be expended in fiscal 1999. When fully implemented,
management believes the restructuring plan will result in an annual operating
income improvement of $150-170 million.
Forecasted Annual Operating Income Improvement (in millions)
- --------------------------------------------------------------------------------
Personnel reductions $ 80 to $ 85 1,500+ people
Facility closures/
consolidations 25 to 25 3 million square feet
Other expenses 30 to 40 Travel and entertainment,
supplies, freight, telephone
- --------------------------------------------------------------------------------
Total selling and
administrative 135 to 150
Strategic purchasing 30 to 40 1.5% savings on
U.S. warehouse purchasing
Business impact (15)to (20) Business disruption
- --------------------------------------------------------------------------------
Operating income
improvement $150 to $170
================================================================================
Unisource also announced plans to divest its Mexican business, which does not
fit the company's long-term strategy, and recorded an associated pre-tax charge
of $70 million in the fourth quarter of fiscal 1998.
Strategy
Unisource's long-term strategy includes a focus on its U.S. and Canadian
businesses, as well as a commitment to increase the contribution of its Supply
System business, provide a consistent range of products and services to
customers and leverage its distribution infrastructure to increase sales and
profitability.
Revenues (%) Gross Profit (%)
[LINE GRAPHS APPEARS HERE] [LINE GRAPHS APPEARS HERE]
In prior years, acquisitions played an important role in the Unisource growth
strategy. The company's traditional operating philosophy was to give new
business units significant autonomy. As a result, acquisitions were not
immediately integrated and many of the companies acquired over the past few
years remain very separate and distinct. The company's current focus is on the
integration of these previously acquired companies rather than on additional
acquisitions.
Information Technology
In the first quarter of fiscal 1998, Unisource recorded a charge of $168 million
($109 million after-tax) for the write-off of its proposed enterprise-wide
information technology system, NADS. The SAP-based system had been under
26
<PAGE>
development since 1994, but the company concluded that the system would not
cost-effectively meet its future information technology needs.
Unisource is now utilizing a number of existing information systems that it
believes are adequate for current needs. However, the company intends to
continue to significantly modify these systems in order to meet anticipated
future needs. Major steps under way to modify the systems include further
consolidating IT platforms, establishing a centralized data processing center
and upgrading or remediating current systems for Year 2000 compliance.
Unisource entered fiscal 1998 with 23 major systems and 27 smaller systems
resulting from acquisitions in recent years. The company plans to consolidate
these systems into fewer platforms, and ultimately to migrate to one,
company-wide system. Unisource anticipates that more than 20 of its
smaller-scale systems will be eliminated as a result of restructuring-related
facility closures and consolidations.
As the various IT platforms are consolidated, the operations will be migrated to
a newly established corporate data processing center. This strategy eliminates
redundant costs and facilitates standardization. Currently about 15% of the
operations are managed from the data center.
Year 2000 Compliance
Computer systems that use only the final two digits to represent years are
unable to distinguish between years beginning with 19 and those that begin with
20. If not corrected, many computer applications could fail or create erroneous
results when dealing with dates later than December 31, 1999. The Year 2000
problem is believed to affect virtually all companies and organizations.
With the exception of some packaging and maintenance-related machinery, products
sold by Unisource do not contain any date-sensitive hardware, software or
embedded computer technology. Unisource uses a variety of information technology
hardware and software for processing and shipping customer orders, procurement,
invoicing, financial reporting, human resources and logistics. In addition to
such IT systems, the company relies on other equipment and systems that contain
embedded computer technology, such as bar code, phone and voice-mail systems.
Any Year 2000 effect on the third parties with whom Unisource has commercial
relationships, including vendors, customers and others who provide services to
the company, could also affect Unisource.
Compliance Program. The company's Year 2000 initiative consists of four phases.
Phase I: Conduct a comprehensive inventory of all of the company's significant
IT and non-IT equipment and systems to determine which are Year 2000 compliant
and which need to be remediated or replaced.
Phase II: Remediate or replace all significant equipment and systems that are
not Year 2000 compliant.
Phase III: Test all equipment and systems believed to be Year 2000 compliant,
including those that were remediated or replaced during Phase II.
Phase IV: Implement the remediated or replaced systems into the company's
operations and continue to monitor and evaluate the compliance of such systems
with Year 2000 issues.
Phase I has been completed with regard to our significant systems, and Phase II
is well under way. As of September 30, 1998, approximately half of the company's
systems have been remediated, replaced or are already Year 2000 compliant.
Concurrent with the Phase II corrective measures, the company is conducting the
testing and implementation phases as appropriate. The company's goal is to
ensure that all of its significant IT and non-IT equipment and systems are Year
2000 compliant by June 30, 1999.
Unisource has contacted its technology and service providers as well as its key
customers and suppliers to determine the extent to which their systems are Year
2000 compliant and the extent to which Unisource could be affected if they are
not.
Risks Associated With Year 2000. The failure by Unisource or its suppliers,
customers and third parties with whom it has business dealings to correct on a
timely basis their material Year 2000 problems could result in an interruption
in, or failure of, the company's normal business activities, e.g., the ability
to purchase products and maintain adequate inventory levels, to service
customers or to invoice and collect payments from customers. Such failures could
materially and adversely affect the company's results of operations, liquidity
and financial condition. The inherent uncertainty in the issues associated with
the Year 2000 problem makes it difficult, if not impossible, to determine the
likelihood or the extent of the impact of such failure.
Contingency Plans. Although Unisource believes that its systems will be ready
for the Year 2000, the company may experience isolated incidences of
non-compliance and may be affected by the non-compliance of third parties. If
certain suppliers are unable to deliver products on a timely basis due to Year
2000 issues, Unisource anticipates that other suppliers will be able to meet the
company's requirements.
Unisource currently has plans in place to address power failures and other
computer outages, which include processing orders, invoices and collections
manually. The company is in the process of expanding those plans to address
additional issues that may result from Year 2000 non-compliance.
Costs. The steps that Unisource is taking to make its systems Year 2000
compliant will cost approximately $12 million. Of this amount, $5.9 million was
expended and charged to operations in fiscal 1998, and the remainder will be
spent in fiscal 1999. Unisource anticipates that all of these costs will be
funded through its operating cash flows.
The company is in the process of a major IT transformation and cannot adequately
distinguish between dedicated Year 2000 capital costs and those related to
business transformation that will also address Year 2000 compliance.
-----------
27
<PAGE>
Management's Discussion and Analysis
Unisource Worldwide, Inc.
Trends
Unisource has experienced fluctuations in revenues and net income from quarter
to quarter due to a combination of factors, including changes in pulp and paper
prices. These changes can significantly impact the company's Printing & Imaging
business, which accounted for 64% of revenues and 49% of gross profit in fiscal
1998.
Declining prices produce lower revenues and gross profits, providing less
coverage for fixed expenses. Price declines may also alter purchasing patterns
and cause customers to defer paper purchases and/or deplete inventory levels
until price stability occurs.
Recently, market conditions in Printing & Imaging papers have weakened,
resulting in lower paper prices. Causes cited include: weakness in the pulp
market; mills' relatively high uncoated and coated freesheet inventories; the
threat of imports resulting from weak Asian markets; and the strong U.S. dollar.
==============================
Results of Operations
Revenues and operating income for the fiscal years ended September 30, 1998
versus 1997 and September 30, 1997 versus 1996 were as follows:
<TABLE>
<CAPTION>
% %
Fiscal Year Ended September 30 (in millions) 1998 1997 Change 1997 1996 Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Printing & Imaging $ 4,715.3 $ 4,591.0 2.7% $ 4,591.0 $ 4,782.2 (4.0%)
Supply Systems 2,702.0 2,517.4 7.3% 2,517.4 2,240.6 12.4%
- --------------------------------------------------------------------------------------------------------------------
$ 7,417.3 $ 7,108.4 4.3% $ 7,108.4 $ 7,022.8 1.2%
====================================================================================================================
Cost of Goods Sold
Printing & Imaging $ 4,100.1 $ 3,943.3 4.0% $ 3,943.3 $ 4,116.3 (4.2%)
Supply Systems 2,049.2 1,968.5 4.1% 1,968.5 1,779.9 10.6%
Inventory write-down (see Note 15) 23.0 -- -- --
- --------------------------------------------------------------------------------------------------------------------
$ 6,172.3 $ 5,911.8 4.4% $ 5,911.8 $ 5,896.2 0.3%
====================================================================================================================
Gross profit $ 1,245.0 $ 1,196.6 4.0% $ 1,196.6 $ 1,126.6 6.2%
Selling and administrative expense 1,156.0 1,051.9 9.9% 1,051.9 942.1 11.7%
Special charges (see Note 15) 346.5 -- -- 50.0
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations $ (257.5) $ 144.7 NM $ 144.7 $ 134.5 7.6%
Interest expense 45.5 41.6 9.4% 41.6 31.5 32.3%
Income tax expense (benefit) (71.2) 44.4 NM 44.4 43.0 3.2%
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (231.8) $ 58.7 NM $ 58.7 $ 60.0 (2.2%)
====================================================================================================================
</TABLE>
NM = Not meaningful.
Fiscal 1998 Compared to Fiscal 1997
Revenues for fiscal 1998 increased $308.9 million, or 4.3%, to $7.4 billion.
Current and prior year acquisitions ($470.8 million) net of divestiture of a
significant portion of the United States-based Grocery Supply business ($346.9
million) contributed $123.9 million of the increase. Revenues from base
operations increased $185.0 million due to an estimated increase in volume of
4.6% ($115.5 million) in Supply Systems and 1.1% ($51.2 million) in Printing &
Imaging, combined with estimated average increases in pricing in Printing &
Imaging of 1.5% ($68.2 million) and Supply Systems of 0.3% ($7.8 million).
Offsetting these revenue gains was the negative impact of weakened foreign
currencies which reduced reported revenues by approximately $57.7 million.
Gross profit increased by $48.4 million, or 4.0%, in fiscal 1998. Excluding the
inventory write-down of $23 million the increase is attributable to current and
prior year acquisitions ($149.8 million), net of divestiture ($53.6 million),
further offset by a decline of $24.8 million in base operations. The decline in
base operations is due principally to a decrease in gross profit percentages in
Printing & Imaging from 14.1% to 13.0%. Total gross profit as a percentage of
revenues increased from 16.8% to 17.1%, with the decline in Printing & Imaging
being offset by higher gross profit percentages from acquired companies and the
Supply Systems base business.
Selling and administrative expense increased by $104.1 million, or 9.9% in
fiscal 1998. The increase is primarily attributable to costs associated with
current and prior year acquisitions, net of divestiture, along with expenses
that resulted from the sale of accounts receivable. Excluding these costs,
selling and administrative expense increased by approximately 1.1%.
- ----------
28
<PAGE>
Income from operations decreased $402.2 million for fiscal 1998 compared to
fiscal 1997. Underlying operating income of $112.0 million, excluding all
pre-tax special charges of $369.5 million, decreased $32.7 million or 22.6% from
the prior year. Current and prior year acquisitions ($15.2 million), net of
divestiture ($1.2 million), contributed an incremental $14.0 million in
operating income. Operating income from base operations declined $46.7 million
for fiscal 1998, primarily due to gross profit percentage declines in the
Printing & Imaging business and $10.0 million of incremental costs associated
with the sale of certain accounts receivable. The decline was partially offset
by pricing improvement and volume increases in Unisource's base operations.
Excluding special charges, operating margins were 1.5% compared to 2.0% for
fiscal 1997.
Interest expense increased by $3.9 million to $45.5 million in fiscal 1998. The
increase was attributable to higher average outstanding borrowings primarily due
to acquisitions.
Reasons for differences each year between the effective tax rate and the
statutory tax rate are disclosed in Note 10 to the consolidated financial
statements. The company's effective tax rate for fiscal 1998 was 23.5%,
reflecting a benefit less than would be realized at the statutory rate. The
primary reason for the lower benefit is that the company did not tax effect the
Mexico valuation charge, because it will result in a capital loss when realized
and there are no apparent capital gains available in the near term to use the
capital loss carryforward, which will expire five years after the loss is
realized.
The net deferred tax asset at September 30, 1998 consists primarily of the tax
effect of nondeductible restructuring and other reserves and is expected to be
realized as a result of future taxable income. Unisource anticipates that most
of the accrued costs and reserves will become deductible in 1999, when the
company could incur a taxable loss as a result of these deductions, costs to
implement the restructuring plan and the divestiture of Mexico. The pre-tax loss
in fiscal 1998 and the possible pre-tax loss in 1999 are the result of
significant nonrecurring costs and expenses. Excluding those items, management
believes that the likely levels of pre-tax earnings for financial reporting
purposes will be sufficient to generate future taxable income necessary to
realize the deferred tax asset.
Foreign Operations
Revenues from foreign operations increased $2.5 million to $905.1 million in
fiscal 1998. Revenues from Canadian operations increased $21.1 million to $773.5
million, and revenues from Mexican operations increased $6.6 million to $124.6
million. The increase in Canadian and Mexican revenues was primarily
attributable to the results of acquisitions and increased volume in the
company's base business. Weakened foreign currencies reduced reported revenues
for both Canada ($45 million) and Mexico ($13 million). Revenues from the
foreign sales offices decreased $25.2 million to $7.0 million for the year.
Operating income from foreign operations decreased by $93.7 million to a loss of
$61.8 million in fiscal 1998. Underlying operating income decreased $10.7
million to $21.2 million, excluding pre-tax special charges of $83.0 million.
Underlying operating income decreased by $5.5 million to $20.8 million in Canada
and by $5.0 million to $1.3 million in Mexico, primarily due to the decline in
gross profit percentages. Other foreign sales offices' operating loss increased
by $0.2 million for fiscal 1998. There is no allocation of general corporate
expenses to foreign operations.
Mexico is considered a hyper-inflationary economy for accounting purposes, and
the changes in exchange rates applied to the company's net monetary assets are
reflected in net income.
There was no material effect of foreign currency on the results of operations
during 1998.
Fiscal 1997 Compared to Fiscal 1996
Revenues increased $85.6 million to $7.1 billion in fiscal 1997. The increase
was primarily associated with 1997 and prior-year acquisition revenues of $365.3
million as well as an increase in volumes of 2.9% ($64.8 million) in Supply
Systems and 2.7% ($127.2 million) in Printing & Imaging. These gains were
substantially offset by the negative impact of pricing within the Printing &
Imaging business of 7.7% ($369.8 million) as well as a decrease in Supply
Systems pricing of 4.6% ($101.9 million).
Gross profit increased by $70.0 million, or 6.2%, in fiscal 1997. This change is
due to an increase of $97.4 million associated with 1997 and prior-year
acquisitions, offset by declines of $24.3 million in Printing & Imaging and $3.1
million in Supply Systems for fiscal 1997. Gross profit percentages rose to
16.8% from 16.0% due primarily to higher margin percentages generated by
acquired companies.
Selling and administrative expense increased by $109.8 million, or 11.7% in
fiscal 1997. The increase is primarily attributable to costs associated with
1997 and prior-year acquisitions along with expenditures associated with NADS.
In fiscal 1997, the company incurred approximately $21 million of incremental
expense associated with NADS.
Operating income for fiscal 1997 increased $10.2 million from fiscal 1996.
Excluding the $50 million restructuring charge recorded in the third quarter of
fiscal 1996, operating income decreased $39.8 million or 21.6%. This decrease in
operating income was due to a $53.2 million decrease in base operations, which
was offset by a $13.4 million increase in operating income as a result of 1997
and prior-year acquisitions. The decrease in base operations was primarily due
to decreased pricing combined with increased expenses related to the
implementation of NADS, which were partially offset by improvement in gross
profit percentages and volume increases. Operating margins were 2.0%, compared
to 2.6% for fiscal 1996 (excluding the restructuring charge).
-----------
29
<PAGE>
Management's Discussion and Analysis
Unisource Worldwide, Inc.
Interest expense increased by $10.2 million to $41.6 million in fiscal 1997. The
increase was attributable to higher average outstanding borrowings due to the
recapitalization of the company as of September 30, 1996 in anticipation of the
Spin-off. The $31.5 million of interest expense for fiscal 1996 represents an
allocation of IKON's outside interest expense based on the relationship of the
company's net assets to IKON's net assets, plus interest expense associated with
direct indebtedness of the company, which was not significant. Interest expense
on a pro forma basis for fiscal 1996 was $40.7 million, assuming that the
Spin-off occurred on October 1, 1995.
Foreign Operations
Revenues from foreign operations decreased $18 million to $903 million in fiscal
1997. Revenues from Canadian operations decreased $22 million to $752 million,
while revenues from Mexican operations increased $45 million to $118 million.
The decrease in Canadian revenues was attributable to declining paper prices,
while the increase in Mexico was the result of acquisitions, partially offset by
lower paper prices. Also, revenues from the foreign sales offices decreased $41
million to $32 million for the 12-month period. Fiscal 1996 foreign sales office
revenues benefited from sales generated from a supplier's excess inventory,
which did not recur in fiscal 1997.
Operating income from foreign operations decreased $1.7 million to $31.9 million
in fiscal 1997 as compared to fiscal 1996, excluding a 1996 restructuring charge
of $12 million relating to Canadian operations. Canadian operating income
decreased $1.1 million (excluding the 1996 restructuring charge) to $26.2
million, primarily due to lower paper prices. Mexican operating income increased
$1.4 million to $6.3 million due primarily to acquisitions. The foreign sales
offices' operating income decreased by $2.0 million for fiscal 1997, primarily
as a result of the decrease in sales volume.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations during fiscal 1997.
Financial Condition and Liquidity
In a distribution business such as Unisource, effective working capital
management is the key to successful cash flow and financial strength. The
following table illustrates the trend of the major components of working capital
from 1996 to 1998, calculated on a monthly average basis for each fiscal year.
1998 1997 1996
- --------------------------------------------------------------------------------
Days Sales Outstanding 41.7 41.9 41.6
- --------------------------------------------------------------------------------
Inventory Turns (FIFO) 6.9 6.4 5.5
- --------------------------------------------------------------------------------
Days Payables Outstanding 26.7 26.1 25.1
- --------------------------------------------------------------------------------
The improvement in inventory turns to 6.9 times for 1998 is the result of a
significant inventory reduction program initiated in the second quarter of the
fiscal year. Inventory levels were reduced from $531 million at December 31,
1997 to $353 million at September 30, 1998.
[BAR CHART APPEARS HERE]
Cash flow from operating activities totaled $351.3 million in 1998. The sale of
certain accounts receivable contributed $150 million. Improved inventory and
receivables management contributed an additional $153 million. Unisource used
$6.0 million in investing activities. Investing activities included proceeds of
$57.9 million from divestitures and expenditures of $45.5 million for
acquisitions; deferred cost expenditures of $14.8 million principally associated
with NADS; and capital expenditures of $29.7 million. Cash used in financing
activities of $340.8 million included net repayments of borrowings of $297.5
million and dividend payments of $55.6 million.
Cash generated before cost of acquired companies and financing activities,
excluding the proceeds of divestitures and proceeds from the sale of certain
accounts receivable in 1998, is shown below.
[BAR CHART APPEARS HERE]
- ----------
30
<PAGE>
Total debt outstanding on September 30, 1998 was $510.0 million. In September
1998, the company completed an amendment to its credit facility, which provides
greater financial flexibility. The facility provides for borrowings of up to
$900 million, of which $404 million was unused and available as of September
1998. The credit facility commitment extends to November 2001. Consistent with
the terms of the credit facility, Unisource will use its best efforts to issue
up to $300 million of long-term debt to institutional investors in fiscal 1999.
The proceeds of the debt issue will be used to retire debt outstanding and
reduce the commitment under the credit facility.
Effective October 1, 1997, Unisource began selling certain U.S. accounts
receivable pursuant to a $150 million asset securitization program. The proceeds
from the sale were primarily utilized to repay certain notes payable. The
company also periodically sells Canadian accounts receivable. These programs
provide a cost-effective source of liquidity (see Note 5).
Total cash expenditures in connection with the special charges amounted to $30.9
million in fiscal 1998. Remaining cash expenditures, including restructuring
implementation costs, are estimated at $133-$143 million, most of which will be
expended in fiscal 1999.
In conjunction with the implementation of the restructuring plan, Unisource
announced a quarterly dividend reduction to $0.05 per share or $0.20 per share
annually, beginning with the dividend payable in December 1998. This will reduce
cash outlays for dividends by $42 million annually.
Unisource believes that operating cash flow and the financial benefits to be
realized from the restructuring efforts, together with financing arrangements,
will be sufficient to finance current operating requirements, including capital
expenditures, acquisitions (if any), Year 2000 compliance costs, the
restructuring program and related implementation costs, other cash requirements
and future dividends.
Market Risk of Financial Instruments
The company's primary exposure to market risk consists of changes in interest
rates on borrowings. At September 30, 1998 the company's long-term debt was $506
million. Of this amount, $484 million is variable-rate debt under the company's
credit facility, which expires in November 2001. In addition, the company sells
$212 million of receivables under U.S. and Canadian securitization programs,
which base the sales price discount on underlying variable market rates of
commercial paper and bankers' acceptances. The company hedges part of the risk
of variable interest rates by using interest rate swaps. Under the various swap
agreements, the company receives variable interest rates (primarily 3-month
LIBOR) and pays fixed rates, varying from 5.87% to 6.96% and averaging 6.4% at
September 30, 1998. The effect of the interest rate swap agreements was to
increase interest expense by $2.6 million in 1998 and $2.7 million in 1997.
The notional amount of the swap contracts is $392 million at September 30, 1998
declining to $292 million in December 1998 and remaining at this level through
December 1999. The fair market value of the interest rate swaps was negative
$11.5 million as of September 30, 1998, which represents the amount the company
would pay to terminate the swap contracts at that date. The fair value of
borrowings under the revolving credit facility approximates the carrying value.
If market interest rates (including LIBOR, commercial paper and bankers'
acceptances rates) on short-term borrowings and sold receivables as of September
30, 1998 change by 100 basis points for fiscal 1999, the company's interest
expense and securitization costs would change by $4 million. Changes in interest
rates would also affect the fair value of interest rate swaps, which at a point
in time is based mainly on the contractual fixed/floating interest rate
differentials for the remaining life of the swaps. The company's interest rate
swaps have a weighted average maturity of 2.1 years at September 30, 1998. A 100
basis point change in interest rates at September 30, 1998 would change the fair
value of the interest rate swaps at that date by approximately $7.3 million.
Increases in interest rates could have other adverse effects on the company
(e.g., reduced customer purchases, inflationary cost increases, reduced customer
credit worthiness), which are not considered in these calculations. Also, as
noted elsewhere, the company plans to use its best efforts to issue up to $300
million of fixed-rate debt in fiscal 1999. That would reduce the impact of an
increase in short-term interest rates, but itself would increase interest cost,
even if short- and long-term rates do not increase, because long-term interest
rates presently exceed short-term rates.
The company does not use derivatives to hedge foreign currency risk at this
time. The company is not exposed to material market risk as a result of foreign
currency exposures. However, that risk is separate from the impact that
exchange-rate changes and other foreign-country economic factors could have on
local country performance; e.g., by reduced sales and increased local foreign
currency purchase costs.
-----------
31
<PAGE>
Corporate Financial Summary
Unisource Worldwide, Inc.
<TABLE>
<CAPTION>
(dollars in millions) 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations(a)
Revenues:
Printing & Imaging $ 4,715.3 $ 4,591.0 $ 4,782.2 $ 5,048.2
Supply Systems 2,702.0 2,517.4 2,240.6 1,939.1
- ------------------------------------------------------------------------------------------------------------------
Total Revenues 7,417.3 7,108.4 7,022.8 6,987.3
==================================================================================================================
Gross profit:
Printing & Imaging 603.2 647.7 665.9 684.0
% of revenues 12.8 14.1 13.9 13.5
Supply Systems 641.8 548.9 460.7 378.1
% of revenues 23.8 21.8 20.6 19.5
- ------------------------------------------------------------------------------------------------------------------
Total 1,245.0 1,196.6 1,126.6 1,062.1
% of revenues 16.8 16.8 16.0 15.2
Selling and administrative 1,156.0 1,051.9 942.1 855.8
% of gross profit 92.8 87.9 83.6 80.6
Special Charges 346.5 -- 50.0 --
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (257.5) 144.7 134.5 206.3
% of revenues (3.5) 2.0 1.9 3.0
Income (loss) before taxes (303.0) 103.1 103.0 172.7
% of revenues (4.1) 1.4 1.5 2.5
Effective income tax rate (%) (23.5) 43.1 41.8 39.1
Net income (loss) (231.8) 58.7 60.0 105.2
% of revenues (3.1) .8 .9 1.5
==================================================================================================================
Underlying Operations (excluding special charges)
Revenues $ 7,417.3 $ 7,108.4 $ 7,022.8 $ 6,987.3
Gross profit 1,268.0 1,196.6 1,126.6 1,062.1
% of revenues 17.1 16.8 16.0 15.2
Selling and administration 1,156.0 1,051.9 942.1 855.8
% of gross profit 91.2 87.9 83.6 80.6
Income from operations 112.0 144.7 184.5 206.3
% of revenues 1.5 2.0 2.6 3.0
==================================================================================================================
Supplementary Information
Capital expenditures 29.7 25.3 35.8 50.1
Depreciation and amortization 58.2 46.8 40.0 33.4
Current ratio 1.7 1.8 2.3 2.3
Days sales outstanding(b) 41.7 41.9 41.6 42.3
Inventory turns (FIFO basis)(b) 6.9 6.4 5.5 5.9
Working capital 466.0 667.4 750.8 815.1
Total assets 1,966.7 2,558.8 2,191.7 2,019.0
Total debt 510.0 806.9 60.3 71.0
Employees 13,400 14,200 11,800 11,800
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) "Operations" includes:
1998 - Special charges and inventory write-down totaling $369.5 million
pre-tax; $269.5 million after-tax (see Note 15)
1996 - Restructuring charge of $50 million pre-tax; $32.5 million after-tax
1994 - Positive cumulative effect of $14 million from change in method of
accounting for income taxes
1993 - Restructuring charge of $175 million pre-tax; $126.9 million after-
tax
(b) Days sales outstanding and inventory turns are calculated on a monthly
average basis for the fiscal year
- ----------
32
<PAGE>
<TABLE>
<CAPTION>
(dollars in millions) 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations(a)
Revenues:
Printing & Imaging $ 4,112.3 $ 3,421.0 $ 2,614.4 $ 2,575.2 $ 2,393.4 $ 2,129.3 $ 1,915.2
Supply Systems 1,644.2 1,443.1 1,053.5 901.6 945.1 918.0 840.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 5,756.5 4,864.1 3,667.9 3,476.8 3,338.5 3,047.3 2,755.5
==================================================================================================================================
Gross profit:
Printing & Imaging 600.6 497.0 373.5 351.7 336.7 286.7 255.8
% of revenues 14.6 14.5 14.3 13.7 14.1 13.5 13.4
Supply Systems 330.2 290.0 214.9 197.9 191.4 181.3 161.5
% of revenues 20.1 20.1 20.4 21.9 20.3 19.7 19.2
- ----------------------------------------------------------------------------------------------------------------------------------
Total 930.8 787.0 588.4 549.6 528.1 468.0 417.3
% of revenues 16.2 16.2 16.0 15.8 15.8 15.4 15.1
Selling and administrative 782.3 661.0 475.7 442.4 405.5 362.7 324.1
% of gross profit 84.0 84.0 80.8 80.5 76.8 77.5 77.7
Special Charges -- 175.0 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 148.5 (49.0) 112.7 107.2 122.6 105.3 93.2
% of revenues 2.6 (1.0) 3.1 3.1 3.7 3.5 3.4
Income (loss) before taxes 122.3 (72.8) 92.7 87.2 102.9 90.1 82.6
% of revenues 2.1 (1.5) 2.5 2.5 3.1 3.0 3.0
Effective income tax rate (%) 39.1 (10.5) 39.6 39.1 42.3 17.1 19.6
Net income (loss) 88.5 (65.1) 56.0 53.1 59.4 74.7 66.4
% of revenues 1.5 (1.3) 1.5 1.5 1.8 2.5 2.4
==================================================================================================================================
Underlying Operations (excluding special charges)
Revenues 5,756.5 4,864.1 3,667.9 3,476.8 3,338.5 3,047.3 2,755.5
Gross profit 930.8 787.0 588.4 549.6 528.1 468.0 417.3
% of revenues 16.2 16.2 16.0 15.8 15.8 15.4 15.1
Selling and administration 782.3 661.0 475.7 442.4 405.5 362.7 324.1
% of gross profit 84.0 84.0 80.8 80.5 76.8 77.5 77.7
Income from operations 148.5 126.0 112.7 107.2 122.6 105.3 93.2
% of revenues 2.6 2.6 3.1 3.1 3.7 3.5 3.4
==================================================================================================================================
Supplementary Information
Capital expenditures 33.9 21.7 20.2 16.3 24.7 27.5 15.9
Depreciation and amortization 32.5 28.7 20.6 18.8 15.1 14.5 13.9
Current ratio 1.9 2.0 1.6 2.0 1.7 1.8 1.7
Days sales outstanding(b) 43.3 42.8 39.5 40.3 39.0 38.3 37.8
Inventory turns (FIFO basis)(b) 6.1 6.4 6.6 5.3 6.7 6.6 6.9
Working capital 549.8 551.0 310.4 312.9 251.5 218.2 203.3
Total assets 1,720.0 1,633.9 1,284.4 905.2 852.4 692.7 670.8
Total debt 75.2 82.0 146.9 32.3 35.7 34.0 34.7
Employees 11,200 11,800 9,300 6,900 7,000 6,700 6,400
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------
33
<PAGE>
Quarterly Financial Summary (Unaudited)
Unisource Worldwide, Inc.
Following is a summary of the unaudited interim results of operations for each
quarter in the years ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
(in millions, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1998
Revenues $1,869 $1,868 $1,821 $1,859 $7,417
Gross profit 323 313 315 294/(c)/ 1,245/(c)/
Net income (loss) (101)/(a)/ 7 (10)/(b)/ (128)/(c,d)/ (232)/(a,b,c,d)/
Earnings (loss) per share/(e)/:
Basic (1.47)/(a)/ .10 (.15)/(b)/ (1.83)/(c,d)/ (3.36)/(a,b,c,d)/
Diluted (1.47)(a,g) .10 (.15)/(b,g)/ (1.83)/(c,d,g)/ (3.36)/(a,b,c,d,g)/
Dividends per share .20 .20 .20 .20 .80
Common stock price
High/Low 20 1/8 - 13 5/8 15 15/16 - 12 1/8 14 3/16 - 10 1/2 11 1/2 - 5 5/8 20 1/8 - 5 5/8
Year ended September 30, 1997
Revenues $1,729 $1,716 $1,764 $1,899 $7,108
Gross profit 300 292 294 311 1,197
Net income 20 10 13 16 59
Earnings per share/(e)/:
Basic .30 .16 .19 .23 .88
Diluted .30 .16 .19 .23 .87
Dividends per share -- .20 .20 .20 .60
Common stock price
High/Low/(f)/ 22 1/8 - 18 5/8 22 5/8 - 15 3/8 17 3/4 - 13 3/4 19 3/4 - 16 7/16 22 5/8 - 13 3/4
</TABLE>
/(a)/ Includes $168 million charge to write-off capitalized development and
related costs associated with NADS (see Note 15), $109.2 million net of
tax ($1.60 loss per share). Also, reflects a tax charge of $5.7 million
($.08 per share) associated with non-deductible intangible assets related
to the sale of a significant portion of the company's U.S.-based Grocery
Supply Systems business (see Note 4).
/(b)/ Includes $27.6 million restructuring charge; $17.9 million net of tax
($.26 loss per share).
/(c)/ Includes $23 million inventory write-down associated with restructuring.
/(d)/ Includes $173.9 million restructuring charge, inventory write-down and
valuation charge related to company's Mexican operations; $136.7 million
net of tax ($1.96 loss per share).
/(e)/ See Note 3 to the Consolidated Financial Statements for method of
calculating earnings per share.
/(f)/ On December 9, 1996, the company commenced "when-issued" trading that
continued through December 31, 1996 at which time the Spin-off from IKON
became effective and the stock began "regular way" trading.
/(g)/ Diluted shares outstanding exclude the impact of stock options due to the
antidilutive effect on the loss per share.
- ----------
34
<PAGE>
Factors That May Affect Future Results
This annual report contains "forward-looking" statements that rely on
assumptions and are subject to risks, uncertainties and other factors that could
cause the company's actual results or circumstances to differ materially. These
statements include but are not limited to:
. Statements relating to the implementation and timing of the company's
restructuring plan, including the planned reduction of U.S. employees, warehouse
space and inventory investment, and the anticipated restructuring of its
Canadian operations
. Projected costs and expenses associated with the restructuring plan and its
implementation, including the amount of cash to be used in connection therewith
. Financial results and benefits to be realized from the restructuring,
including improved customer service, projected increased operating income,
increased cash flow, improved financial performance and improved shareholder
value
. Statements relating to consolidation of the company's IT systems and
implementation of its Year 2000 initiative
. Statements relating to the sale of the company's Mexican operations
. Statements concerning the company's ability to finance current or future
operating requirements, acquisitions, Year 2000 costs, the restructuring
program, future dividends and other cash requirements
. Statements relating to the payment of future dividends not yet declared and
other proposed future actions such as the issuance of notes by March 31, 1999
The risks and uncertainties associated with the statements listed include but
are not limited to:
. Delays, difficulties or increased costs associated with the implementation of
the restructuring plan
. Delays, difficulties or increased costs associated with consolidation of the
company's information technology systems and the upgrading of those systems to
be Year 2000 compliant
. Delays, difficulties or inability to complete the sale of the company's
Mexican operations at a price and within a time frame and other conditions
acceptable to Unisource
. Leverage and debt service requirements, including sensitivity to interest rate
fluctuations
. The ability to attract and retain qualified personnel
. Changes or volatility in pulp and paper prices
. General economic and market conditions
For all of the above situations, as well as any references to other proposed
future actions, including statements qualified by the words "believes,"
"anticipates," "expects," "intends," "may," "estimates," "will" and other
similar words, Unisource claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
----------
35
<PAGE>
Board of Directors
Ray B. Mundt, age 70, is chairman and chief executive officer of Unisource
Worldwide, Inc. Mr. Mundt is a director of Liberty Mutual Insurance Company,
Liberty Mutual Fire Insurance Company and Liberty Financial Companies, Inc.
Former chairman of Alco Standard Corporation, he was an Alco director for 24
years.
Gary L. Countryman, age 59, is chairman of the board of Liberty Mutual Insurance
Company, Liberty Mutual Fire Insurance Company and Liberty Financial Companies,
Inc. He is a director of the Bank of Boston Corporation, Boston Edison Company
and Harcourt General, Inc., among others. Mr. Countryman is also chairman of the
board of trustees of the Dana-Farber Cancer Institute and chair of the Boston
Management Consortium.
Paul J. Darling, II, age 60, is chairman, president and chief executive officer
of Corey Steel Company. He is a director of Liberty Mutual Insurance Company,
Liberty Mutual Fire Insurance Company and Liberty Financial Companies, Inc.
Mr. Darling was a director of Alco Standard Corporation for 3 years.
James J. Forese, age 62, is president and chief executive officer of IKON Office
Solutions and former executive vice president and chief operating officer of
Alco Standard Corporation. He is a director of IKON Office Solutions, American
Management Systems Corporation and NUI Corporation. Mr. Forese was a director
of Alco Standard Corporation for 3 years.
James P. Kelly, age 55, is chairman and chief executive officer of United Parcel
Service. He serves on the board of councilors for the Carter Center and the
board of directors for the Welfare-to-Work Partnership. Mr. Kelly is a member of
the board of trustees for The Annie E. Casey Foundation and the Dean's Advisory
Committee of Emory Business School.
Dana G. Mead, age 62, is chairman and chief executive officer of Tenneco Inc. He
is a director of Textron Inc., the Zurich Insurance Group, Pfizer Inc. and
Newport News Shipbuilding, Inc. Mr. Mead is a member of the Massachusetts
Institute of Technology Corporation, chairman of the Business Roundtable and
past chairman of the National Association of Manufacturers. He was a director of
Alco Standard Corporation for 3 years.
Rogelio G. Sada, age 63, is former president and chief executive officer of
VITRO and former mayor of San Pedro, N.L., Mexico. He has served as a member of
the Mexican National Congress as Economics Policy Coordinator of the Partido
Accion Nacional since 1997. Mr. Sada was a director of Alco Standard Corporation
for 17 years.
James W. Stratton, age 61, is president of Stratton Management Company and
chairman of Stratton Monthly Dividend REIT Shares, Stratton Small Cap Yield Fund
and Stratton Growth Fund and Stratton Special Value Fund. His other
directorships include Teleflex, Amerigas Partners and UGI Corporation.
Mr. Stratton was a director of Alco Standard Corporation for 8 years.
Officers
Ray B. Mundt
Chairman and chief executive officer
Richard H. Bogan, age 47, is president and chief financial officer. He joined
Unisource in 1997 from Philip Morris companies, where he was senior vice
president - finance, strategy, and information systems for the Miller Brewing
division.
Hugh G. Moulton, age 65 is senior vice president and chief administrative
officer. He came to Unisource in 1996 with the spin-off, following 26 years with
Alco Standard Corporation.
Thomas A. Decker, age 52, is senior vice president, general counsel and
secretary. He joined Unisource in 1997 from St. Gobain Corporation, where he was
executive vice president, chief operating officer and general counsel.
George D. Timchal, age 46, is senior vice president, procurement. Formerly vice
president of procurement for Sunbeam Corporation, he joined Unisource in 1998.
Kenneth F. Vuylsteke, age 52, is senior vice president, sales. He joined
Unisource in 1997 with the National Sanitary Supply acquisition, where he was
executive vice president - western operations.
Kathleen M. Burns, age 46, is vice president and treasurer. She joined Unisource
in 1996 following 14 years with Alco.
Robert M. McLaughlin, age 41, is vice president finance. He joined Unisource in
1992 following 13 years with Ernst & Young.
- ----------
36
<PAGE>
Shareholder Information
Corporate Headquarters
Unisource Worldwide, Inc.
1100 Cassatt Road
P.O. Box 3000
Berwyn, PA 19312
610-296-4470
610-722-3400 (fax)
Stock Listing
Ticker Symbol "UWW"
New York Stock Exchange, Inc.
Midwest Stock Exchange, Inc.
Philadelphia Stock Exchange, Inc.
Independent Auditors
Ernst & Young LLP, Philadelphia, Pennsylvania
Transfer Agent
National City Bank
P.O. Box 92301-N
Cleveland, Ohio 44193-0900
Media and General Inquiries
Martha A. Buckley
Vice president
Corporate Communications
610-722-3511
[email protected]
Investor Inquiries
JoAnn P. Huston
Director
Investor Relations
610-722-3513
[email protected]
Shareholder Services
Shareholders may invest their dividends in additional shares of Unisource
Worldwide, Inc. common stock or have their dividends mailed directly for deposit
in the bank, money market fund or other institution of their choice, by writing
to:
Karen Pavlik
Administrator
Shareholder Services
610-722-3593
[email protected]
Shareholder Meeting
The next Shareholder Meeting will be at 10:00 am, Wednesday, January 27, 1999 at
Unisource Corporate Headquarters in Berwyn, Pennsylvania.
Internet Address
Major press releases and other information are available on Unisource's Internet
home page:
http://www.unisourcelink.com
The paper used for the cover of this annual report is Unisource Starbrite
Opaque, 80 lb. cover.
The paper used for the text pages is Unisource Starbrite Opaque, 70 lb. text.
Design:
The Creative Department, Inc.
Portrait Photography:
Ed Eckstein
(C) 1998
Unisource Worldwide, Inc.
Printed in U.S.A.
----------
37
<PAGE>
[LOGO OF UNISOURCE APPEARS HERE]
Unisource Worldwide, Inc.
1100 Cassatt Road
Berwyn, Pennsylvania 19312
<PAGE>
UNISOURCE WORLDWIDE, INC.
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
Paper Corporation of North America Delaware
Unisource Canada, Inc. Canada
Unisource Distribuidora, S.A. de C.V. Mexico
Unisource Capital Corporation Delaware
Portfolio Receivables, LLC Delaware
BRT, Inc. Delaware
</TABLE>
<PAGE>
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Unisource Worldwide, Inc. of our report dated October 28, 1998, included in
the 1998 Annual Report to the Shareholders of Unisource Worldwide, Inc.
Our audits also included the financial statement schedule of Unisource
Worldwide, Inc. listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statements referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the following registration
statements on Form S-4 and Form S-8 of Unisource Worldwide, Inc. and in the
related Prospectuses of our report dated October 28, 1998, with respect to the
consolidated financial statements of Unisource Worldwide, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the year ended September 30,
1998, filed with Securities and Exchange Commission.
<TABLE>
<CAPTION>
REGISTRATION
NUMBER FILING DATE DESCRIPTION
- -------------------------------------------------------------------------------
<S> <C> <C>
333-17141 December 2, 1996 Unisource Worldwide, Inc.
Stock Option Plan
333-17947 December 16, 1996 Unisource Worldwide, Inc.
Partners' Stock Purchase Plan
333-17953 December 16, 1996 Unisource Worldwide, Inc.
Stock Award Plan
333-25897 April 25, 1997 Unisource Worldwide, Inc.
5,000,000 Shares of Common Stock
333-61347 August 13, 1998 Unisource Worldwide, Inc.
Directors' Stock Option Plan
333-61349 August 13, 1998 Unisource Worldwide, Inc.
Incentive Compensation Plan
333-61359 August 13, 1998 Unisource Worldwide, Inc.
Restricted Stock Plan for Directors
333-61345 August 13, 1998 Unisource Worldwide, Inc.
Retirement Savings Plan
</TABLE>
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 15, 1998
<PAGE>
Exhibit 24.1
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, {Director} , a member of the
-----------
Board of Directors of Unisource Worldwide, Inc., a Delaware corporation (the
"Company"), with its executive office in Berwyn, Pennsylvania, do hereby
constitute, designate and appoint each of Hugh G. Moulton and Thomas A. Decker,
each of whom are executive officers of the Company, as my true and lawful
attorneys-in-fact, each with power of substitution, with full power to act
without the other and on behalf of and as attorney for me, for the purpose of
executing and filing with the Securities and Exchange Commission the foregoing
annual report on Form 10-K, and any and all amendments thereto, and to do all
such other acts and execute all such other instruments which said attorney may
deem necessary of desirablee in connection therewith.
I have executed this Limited Power of Attorney as of _____________.
_____________________
{Director}
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Unisource Worldwide, Inc. and subsidiaries
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 49,960,000
<SECURITIES> 0
<RECEIVABLES> 663,156,000
<ALLOWANCES> 22,713,000
<INVENTORY> 353,270,000
<CURRENT-ASSETS> 1,131,419,000
<PP&E> 428,884,000
<DEPRECIATION> 201,599,000
<TOTAL-ASSETS> 1,966,651,000
<CURRENT-LIABILITIES> 665,393,000
<BONDS> 505,199,000
0
0
<COMMON> 70,000
<OTHER-SE> 698,288,000
<TOTAL-LIABILITY-AND-EQUITY> 1,966,651,000
<SALES> 7,417,276,000
<TOTAL-REVENUES> 7,417,276,000
<CGS> 6,172,286,000
<TOTAL-COSTS> 6,172,286,000
<OTHER-EXPENSES> 1,489,770,000<F1>
<LOSS-PROVISION> 12,686,000
<INTEREST-EXPENSE> 45,534,000
<INCOME-PRETAX> (303,000,000)
<INCOME-TAX> (71,200,000)
<INCOME-CONTINUING> (231,800,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,800,000)
<EPS-PRIMARY> (3.36)
<EPS-DILUTED> (3.36)
<FN>
<F1>(1) Represents special charges and selling, general, and administrative
expenses, excluding provision for losses on accounts receivable.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Unisource Worldwide, Inc. and subsidiaries
and is qualified in its entirety by reference to such financial statements. Such
information has been revised in accordance with the provisions of Financial
Accounting Standard No. 128.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 45,384,000
<SECURITIES> 0
<RECEIVABLES> 906,943,000
<ALLOWANCES> 24,583,000
<INVENTORY> 495,330,000
<CURRENT-ASSETS> 1,472,949,000
<PP&E> 434,762,000
<DEPRECIATION> 188,336,000
<TOTAL-ASSETS> 2,558,832,000
<CURRENT-LIABILITIES> 805,532,000
<BONDS> 661,350,000
0
0
<COMMON> 69,000
<OTHER-SE> 984,316,000
<TOTAL-LIABILITY-AND-EQUITY> 2,558,832,000
<SALES> 7,108,355,000
<TOTAL-REVENUES> 7,108,355,000
<CGS> 5,911,713,000
<TOTAL-COSTS> 5,911,713,000
<OTHER-EXPENSES> 1,036,715,000<F1>
<LOSS-PROVISION> 15,232,000
<INTEREST-EXPENSE> 41,637,000
<INCOME-PRETAX> 103,058,000
<INCOME-TAX> 44,372,000
<INCOME-CONTINUING> 58,686,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,686,000
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.87
<FN>
<F1>(1) Represents selling, general, and administrative expenses, excluding
provision for losses on accounts receivable.
</FN>
</TABLE>
