BELL & HOWELL OPERATING CO, S-4/A, 1997-10-09

BELL & HOWELL OPERATING CO
S-4/A, 1997-10-09
OFFICE MACHINES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997

REGISTRATION NO. 333-36401

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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BELL & HOWELL OPERATING COMPANY

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7375 36-3580106
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

5215 OLD ORCHARD ROAD, SKOKIE, ILLINOIS 60077-1076
(847) 470-7100

(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

JAMES P. ROEMER
BELL & HOWELL OPERATING COMPANY
5215 OLD ORCHARD ROAD, SKOKIE, ILLINOIS 60077-1076
(847) 470-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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COPIES TO:

WILLIAM J. MCGRATH
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
(312) 372-2000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement
and after the approval
by the stockholders of Bell & Howell Company of the transactions contemplated
hereby.

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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.

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[LOGO]

BELL & HOWELL COMPANY
5215 OLD ORCHARD ROAD
SKOKIE, ILLINOIS 60077-1076

October 10, 1997

Dear Stockholder:

The Board of Directors of Bell & Howell Company, a Delaware corporation (the
"Holding Company"), is soliciting written consents of the Holding Company
stockholders to approve a plan (the "Plan") to simplify the corporate structure
of the Holding Company and its subsidiaries (collectively, the "Company").
Although this Plan will include a liquidation and dissolution of the Holding
Company, the Plan will not affect the business operations of the Company or the
relative interests of the Holding Company stockholders.

Today, essentially all of the Company's assets and operations are owned by
and carried on through Bell & Howell Operating Company ("BHOC"), which is a
wholly-owned subsidiary of the Holding Company. Upon completion of the Plan,
each stockholder of the Holding Company will receive newly-issued shares of BHOC
Common Stock on a share-for-share basis (and the Holding Company Common Stock
will be cancelled), the BHOC Common Stock will replace Holding Company Common
Stock on the New York Stock Exchange, all current officers and directors of the
Holding Company will be elected to identical positions of BHOC and the name of
BHOC will be changed to "Bell & Howell Company." You should not notice any
changes in the stock exchange listing or the management or operations of the
Company as a result of the elimination of the Holding Company.

As described later in the attached materials, the Plan will have no adverse
tax consequences to the Company or to any of our stockholders.

The Board of Directors has unanimously approved the Plan. In approving the
Plan, the Board of Directors considered that the Holding Company has no
meaningful business or assets other than its equity interest in BHOC, that the
Plan will preserve intact the present interest of all stockholders of the
Holding Company, and that the elimination of the Holding Company will reduce the
Company's administrative expenses by eliminating the duplicative costs in
maintaining both the Holding Company and BHOC. We urge you to support the
proposed Plan.

Please consider the attached materials carefully. We urge you to complete
and return your consent card as soon as possible. Your consent to the Plan is
important.

Cordially,
William J. White
CHAIRMAN OF THE BOARD
<PAGE>
BELL & HOWELL COMPANY
5215 OLD ORCHARD ROAD
SKOKIE, ILLINOIS 60077-1076
------------------------

NOTICE OF CONSENT SOLICITATION IN LIEU OF SPECIAL
MEETING OF STOCKHOLDERS

------------------

Bell & Howell Company, a Delaware corporation (the "Holding Company"),
hereby solicits consents of stockholders in lieu of a special meeting to approve
a proposed Plan of Liquidation and Dissolution of the Holding Company as
contemplated in the proposed Plan attached hereto as Exhibit A and incorporated
herein by this reference, subject to such changes as are hereafter approved by
the Board of Directors (the "Plan"). The Plan authorizes the directors of the
Holding Company (a) to transfer all of its assets to Bell & Howell Operating
Company ("BHOC"), which is the wholly-owned subsidiary of the Holding Company,
in exchange for newly-issued shares of Common Stock of BHOC ("BHOC Common
Stock"), and (b) to cause the Holding Company to distribute to the stockholders
all of the assets and discharge or make provision for all of the liabilities of
the Holding Company, and thereupon to wind up its operations and liquidate. Upon
completion of the Plan, each stockholder of the Holding Company will receive
newly-issued shares of BHOC Common Stock in respect of his shares of Holding
Company Common Stock on a share-for-share basis in cancellation of the Holding
Company Common Stock. In connection with the implementation of the Plan, the
name of BHOC will be changed to "Bell & Howell Company," BHOC Common Stock will
replace the Holding Company Common Stock on the New York Stock Exchange, and all
current officers and directors of the Holding Company will be elected to
identical positions of BHOC.

This Consent Statement/Prospectus is furnished in connection with the
solicitation of consents by the Board of Directors of the Holding Company for
stockholder approval of the Plan.

Information concerning these matters is set forth in the attached Consent
Statement. The Board of Directors of the Holding Company has fixed the close of
business on October 8, 1997 as the record date (the "Record Date") for the
determination of stockholders entitled to notice of the consent solicitation.
Only stockholders of record of Holding Company Common Stock at the close of
business on October 8, 1997 are entitled to consent to the Plan. A list of such
stockholders will be available for inspection at the offices of Bell & Howell
Operating Company located at 5215 Old Orchard Road, Skokie, Illinois, until
October 30, 1997.

You can ensure that your shares are voted on the Plan by promptly
completing, signing, dating and returning the enclosed consent card in the
envelope provided. A return envelope is enclosed for your convenience and
requires no postage for mailing in the United States. A stockholder who gives a
consent may revoke it at any time before the time that the executed consents
become effective, by submitting another consent card bearing a later date. The
executed consents will become effective when holders of a majority of the
outstanding Holding Company Common Stock have delivered consents to the proposed
action to the Holding Company.

By Order of the Board of Directors

Gary S. Salit
CORPORATE COUNSEL AND SECRETARY

Skokie, Illinois
October 10, 1997

<PAGE>

CONSENT STATEMENT/PROSPECTUS SUBJECT TO COMPLETION DATED OCTOBER 10, 1997

CONSENT STATEMENT OF BELL & HOWELL COMPANY
5215 OLD ORCHARD ROAD
SKOKIE, ILLINOIS 60077-1076

------------------------

PROSPECTUS OF BELL & HOWELL OPERATING COMPANY

This Consent Statement/Prospectus is being furnished in connection with the
solicitation of written consents by the Board of Directors of Bell & Howell
Company (the "Holding Company"), a Delaware corporation, to take action without
a stockholders meeting. This Consent Statement/Prospectus and accompanying form
of consent are being mailed to stockholders on or about October 10, 1997. Unless
the context otherwise indicates, all references in this Consent
Statement/Prospectus to "Bell & Howell" or the "Company" are to Bell & Howell
Company, Bell & Howell Operating Company ("BHOC") and their direct and indirect
wholly-owned subsidiaries.

The stockholders of the Holding Company are being asked to consider and vote
upon a proposed Plan of Liquidation and Dissolution of the Holding Company as
contemplated in the proposed Plan attached hereto as Exhibit A and incorporated
herein by this reference, subject to such changes as are hereafter approved by
the Board of Directors (the "Plan"). The Plan authorizes the directors of the
Holding Company (a) to transfer all of its assets to BHOC, which is the
wholly-owned subsidiary of the Holding Company, in exchange for newly-issued
shares of Common Stock of BHOC ("BHOC Common Stock"), and (b) to cause the
Holding Company to distribute to the stockholders all of the assets and
discharge or make provision for all of the liabilities of the Holding Company,
and thereupon to wind up its operations and liquidate. Upon completion of the
Plan, each stockholder of the Holding Company will receive newly-issued shares
of BHOC Common Stock on a share-for-share basis in cancellation of the Holding
Company Common Stock.

Upon completion of the Plan, the name of BHOC will be changed to "Bell &
Howell Company," BHOC Common Stock will replace Holding Company Common Stock on
the New York Stock Exchange, and all current officers and directors of the
Holding Company will be elected to identical positions of BHOC. In addition,
approval and adoption of the Plan will constitute approval of the assumption by
BHOC of all of the rights and obligations of the Holding Company under the
Holding Company's stock, option or other benefit plans.

This Consent Statement/Prospectus also constitutes a Prospectus of BHOC
relating to approximately 23,408,388 shares of BHOC Common Stock to be
distributed to the stockholders of the Holding Company upon the implementation
of the Plan and upon the transfer to and assumption by BHOC of all of the rights
and obligations of the Holding Company with respect to stock or option plans of
the Holding Company.

The Holding Company Common Stock is reported on The New York Stock Exchange
("NYSE") under the symbol "BHW." The last reported sale price of the Holding
Company Common Stock on NYSE on October 7, 1997 was $31 1/2 per share.

------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

------------------------

PLEASE MARK, SIGN AND DATE THE ENCLOSED CONSENT CARD AND MAIL IT AS SOON AS
POSSIBLE

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Consent Statement.......................................................................................... 3

The Plan................................................................................................... 4

Cautionary Statement....................................................................................... 8

Capitalization............................................................................................. 9

Selected Consolidated Financial Information and Operating Data............................................. 10

Market for Holding Company Common Stock.................................................................... 12

Dividend Policy............................................................................................ 12

Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13

Business................................................................................................... 21

Management................................................................................................. 33

Certain Transactions....................................................................................... 41

Security Ownership of Certain Beneficial Owners and Management............................................. 42

Description of Capital Stock............................................................................... 43

Interest of Certain Persons in Matters to be Acted Upon.................................................... 44

Available Information...................................................................................... 44

Legal Matters.............................................................................................. 45

Experts.................................................................................................... 45

Stockholder Proposals...................................................................................... 45

Form 10-K.................................................................................................. 46

Consolidated Financial Information......................................................................... F-1
</TABLE>

2
<PAGE>

CONSENT STATEMENT

INTRODUCTION

Upon completion of the Plan, each stockholder of the Holding Company will
receive newly-issued shares of BHOC Common Stock on a share-for-share basis in
cancellation of the Holding Company Common Stock. In addition, the name of Bell
& Howell Operating Company will be changed to "Bell & Howell Company," the BHOC
Common Stock will replace the Holding Company Common Stock on the New York Stock
Exchange, and all current officers and directors of the Holding Company will be
elected to identical positions of BHOC.

REVOCABILITY OF CONSENTS

Any stockholder consenting to the Plan has the power to revoke such consent
any time before holders of a majority of the outstanding Holding Company Common
Stock have consented to the proposed Plan and have delivered consents to the
Plan to the Holding Company. Consents may be revoked by filing with the
Secretary of the Holding Company written notice of revocation bearing a later
date than the consent card or by duly executing a subsequently dated consent
card relating to the same shares of Holding Company Common Stock and delivering
it to the Secretary of the Holding Company at 5215 Old Orchard Road, Skokie,
Illinois 60077-1076.

SHARES OUTSTANDING AND VOTING RIGHTS

Only stockholders of record at the close of business on October 8, 1997 (the
"Record Date") are entitled to vote on the Plan. On that date, the Holding
Company had outstanding 23,408,388 shares of common stock, par value $0.001 per
share (the "Holding Company Common Stock"), each of which entitles the holder
thereof to one vote. The Holding Company has no other class of voting securities
outstanding.

The matters to be voted upon pursuant to this consent solicitation are
referred to in the preceding notice and are more fully discussed below. All
shares represented by consents which are properly signed, received by the
Secretary of the Holding Company on or prior to October 30, 1997 and not revoked
will be voted as specified on the consent card. If a stockholder returns his
consent card unmarked but signed, the shares represented by the consent card
will be voted for the Plan. If stockholders do not want to vote for the Plan,
they do not have to return the consent card or they can vote against the Plan or
abstain on the consent card.

The Holding Company is required to obtain the consent of the Holding
Company's stockholders to the Plan pursuant to the Delaware General Corporation
Law (the "DGCL"). No statutory appraisal or similar dissenter's rights are
available to stockholders of the Holding Company under applicable law with
respect to the implementation of the Plan.

SOLICITATION

The Board of Directors has authorized the solicitation of consents. The
Holding Company will bear the entire cost of the solicitation, including
preparation, assembly, and mailing of this Consent Statement/ Prospectus, the
consent, and any additional material furnished to stockholders. Consents may be
solicited by directors, officers and a small number of regular employees of the
Holding Company personally or by mail, telephone or telegraph, but such persons
will not be specially compensated for such service. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries, and custodians
holding in their names shares of Holding Company Common Stock beneficially owned
by others to forward to such

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beneficial owners. The Holding Company may reimburse persons representing
beneficial owners of shares for their costs of forwarding the solicitation
material to such beneficial owners.

CONSENT PROCEDURE

The Board is soliciting consents from stockholders of the Holding Company
pursuant to Section 228(a) of the DGCL. Section 228(a) provides that any action
which may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. The record date for
the determination of stockholders entitled to vote on the matters with respect
to which consents are solicited is October 8, 1997.

Approval of the Plan will require the consent of holders of a majority of
the outstanding shares of Holding Company Common Stock. A vote against or an
abstention will have the effect of a vote against the Plan. Failure to return a
consent card will have the effect of a vote against the Plan.

If, as is expected, the Plan is approved by holders of a majority of the
shares of Holding Company Common Stock, prompt notice thereof will be given to
stockholders of the Holding Company as of the record date who did not consent
thereto.

The action of approving the Plan as described herein is deemed to become
effective at the time written, unrevoked consents, are signed by the holders of
record on October 8, 1997 of a majority of the outstanding shares of Holding
Company Common Stock and such consents are delivered to the Holding Company.

THE PLAN

BACKGROUND

FORMATION OF HOLDING COMPANY

Bell & Howell Company was formed in 1993 to serve primarily as a holding
company, the primary assets of which are the beneficial interest in all of the
issued and outstanding shares of Common Stock and Intercompany Preferred Stock
of BHOC described below. The Holding Company conducts its business through BHOC
and has no material operations of its own. The Holding Company is dependent on
the cash flow of BHOC in order to meet its debt service obligations. Currently,
financial information with respect to the Holding Company is reported on a
consolidated basis with BHOC and its subsidiaries.

At the time of its formation, the Holding Company sold $353.5 million
aggregate principal amount of 11 1/2% Senior Discount Debentures due 2005 (the
"11 1/2% Senior Discount Debentures"). Since such date, $245.2 million aggregate
principal amount of the 11 1/2% Senior Discount Debentures has been acquired by
the Holding Company. The aggregate principal amount of the 11 1/2% Senior
Discount Debentures outstanding after the completion of the Recent Transactions
described below is $108.3 million. The 11 1/2% Senior Discount Debentures
accrete in value such that the accreted value of these debentures at October 8,
1997 was $82.9 million. Subsequent to March 1, 2000, the 11 1/2% Senior Discount
Debentures will pay cash interest at the rate of 11 1/2% per annum. The 11 1/2%
Senior Discount Debentures mature on March 1, 2005.

In connection with the issuance of the 11 1/2% Senior Discount Debentures by
the Holding Company, BHOC issued to the Holding Company Intercompany Preferred
Stock ("Intercompany Preferred Stock"), the current value of which approximates
the Accreted Value of the 11 1/2% Senior Discount Debentures. The dividends from
the Intercompany Preferred Stock are intended to provide a source of funds to
the Holding Company to enable it to pay interest on the Holding Company's
obligations with respect to the

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11 1/2% Senior Discount Debentures. In connection with stockholder approval of
the Plan, BHOC will redeem all of the outstanding Intercompany Preferred Stock.

RECENT TRANSACTIONS

The Company has recently completed a series of transactions during the
second half of 1997 which increased the number of outstanding shares of Holding
Company Common Stock, reduced the Company's outstanding indebtedness, and
decreased the Company's interest expense. The transactions included the
following (collectively, the "Recent Transactions"): (i) a public offering of
5,025,500 shares of Holding Company Common Stock at a price to the public of
$28.625 per share on September 22, 1997 (the "Equity Offering"), (ii) a new $600
million Revolving Credit Agreement (the "New Revolving Credit Agreement") and
repayment of all amounts due under BHOC's former credit agreement (the "Former
Credit Agreement") on September 22, 1997, (iii) a purchase of $108.2 million
aggregate principal amount of the 11 1/2% Senior Discount Debentures pursuant to
a tender offer (the "11 1/2% Tender Offer") on September 22, 1997, (iv) a
redemption of all outstanding 10 3/4% Senior Subordinated Notes due 2002 of BHOC
on October 1, 1997 (the "10 3/4% Redemption"), (v) a redemption of $63.0 million
aggregate principal amount of the 11 1/2% Senior Discount Debentures on October
7, 1997 (the "11 1/2% Equity Proceeds Redemption"), and (vi) a redemption of all
outstanding 9 1/4% Senior Notes due July 15, 2000 of BHOC on October 7, 1997
(the "9 1/4% Redemption").

REDEMPTION OF REMAINING 11 1/2% SENIOR DISCOUNT DEBENTURES IN CONNECTION WITH
THE PLAN

After taking into account all prior purchases and redemptions of the 11 1/2%
Senior Discount Debentures, approximately $108.3 million aggregate principal
amount of the 11 1/2% Senior Discount Debentures remain outstanding. The Holding
Company intends to redeem the remaining 11 1/2% Senior Discount Debentures
immediately following stockholder approval of the Plan (the "Final 11 1/2%
Redemption") but before implementation of the Plan. Under the Indenture relating
to the 11 1/2% Senior Discount Debentures (the "11 1/2% Indenture"), the Holding
Company has the right to redeem all outstanding 11 1/2% Senior Discount
Debentures for a price of 110% of Accreted Value (as defined therein) upon a
Change of Control, as defined in the 11 1/2% Indenture. The 11 1/2% Indenture
defines a Change of Control to include the approval by the stockholders of the
Holding Company of a plan of liquidation or dissolution. Consequently, if the
Plan is not approved by the stockholders of the Holding Company, then the
remaining 11 1/2% Senior Discount Debentures will not be presently redeemed
pursuant to the Change of Control provisions contained in the 11 1/2% Indenture.
The Holding Company shall receive the funds necessary to redeem the 11 1/2%
Senior Discount Debentures as a result of BHOC's redemption of the Intercompany
Preferred Stock which will be funded by borrowings under the New Revolving
Credit Agreement.

REASONS FOR APPROVING THE PLAN

The Board of Directors of the Holding Company ( the "Board") considers it to
be in the best interest of the Company to approve the Plan and thereby liquidate
and dissolve the Holding Company. The Holding Company has no meaningful business
or assets other than its equity interest in BHOC. Prior to implementation of the
Plan, the Holding Company's assets will consist solely of BHOC Common Stock. The
function of the Holding Company has been to raise capital for the operations of
the Company. The Board believes that the two-tiered holding company structure
will no longer be required for this purpose in the future. The elimination of
the Holding Company will reduce administrative expenses of the Company by
eliminating the duplicative costs in maintaining both the Holding Company and
BHOC. Moreover, the Plan will not affect the relative interests of the
stockholders of Holding Company Common Stock. Upon the liquidation and
dissolution of the Holding Company, the newly-issued shares of BHOC Common Stock
will be distributed to each stockholder of the Holding Company on a
share-for-share basis in cancellation of the Holding Company Common Stock. The
terms of the BHOC Common Stock shall be identical in all material respects to
the terms of the Holding Company Common Stock.

5
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PRINCIPAL PROVISIONS OF THE PLAN OF LIQUIDATION AND DISSOLUTION

The Board has approved the Plan and, as required by Delaware law, is
submitting the Plan to its stockholders for their approval. The Plan will be
adopted if approved by stockholders who hold at least a majority of the
outstanding Holding Company Common Stock. Assuming that the Holding Company
stockholders approve the Plan, the Holding Company and BHOC intend to carry out
the following actions at or prior to year end:

(1) The Holding Company, as sole stockholder of BHOC, will approve an
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws of BHOC which are identical in all material respects to the current
Amended and Restated Certificate of Incorporation and Bylaws of the Holding
Company.

(2) The Holding Company will transfer all of its assets to BHOC in exchange
for newly-issued shares of BHOC Common Stock.

(3) The existing officers and directors of the Holding Company shall be
elected to serve as officers and directors of BHOC in the same positions that
such officers and directors hold with the Holding Company.

(4) BHOC will register the BHOC Common Stock under the Securities Exchange
Act of 1934 with the Securities and Exchange Commission.

(5) The officers of the Holding Company shall file the Certificate of
Liquidation and Dissolution of the Holding Company with the Secretary of State
of the State of Delaware. Upon the effectiveness of the Certificate of
Liquidation and Dissolution, the name of BHOC shall be changed to "Bell & Howell
Company."

(6) As soon as practicable after the effectiveness of the Certificate of
Liquidation and Dissolution with the Secretary of State of the State of
Delaware, the stockholders of the Holding Company will receive newly-issued BHOC
Common Stock on a share-for-share basis in cancellation of Holding Company
Common Stock. At the time of distribution, the BHOC Common Stock will be the
only asset of the Holding Company because the Intercompany Preferred Stock will
have been redeemed by BHOC after stockholder approval of the Plan but prior to
the liquidation and dissolution of the Holding Company.

(7) Simultaneously with the effectiveness of the liquidation and dissolution
of the Holding Company, the Holding Company Common Stock will be delisted with
the NYSE and the BHOC Common Stock will be listed with the NYSE under the
current symbol "BHW."

(8) Simultaneously with the effectiveness of the liquidation and dissolution
of the Holding Company, BHOC will assume all of the obligations of the Holding
Company with respect to all of the Holding Company's stock, option or other
benefit plans, including any outstanding options of Holding Company Common Stock
granted by the Holding Company.

Upon the liquidation and dissolution of the Holding Company, the holders of
Holding Company Common Stock will not be obligated to surrender their
certificates representing Holding Company Common Stock. On the distribution
date, the Holding Company's transfer records will close and all of the Holding
Company Common Stock then outstanding will be cancelled and no longer
transferable. Each certificate representing shares of Holding Company Common
Stock will, upon such cancellation, represent an equal number of shares of BHOC
Common Stock. Book-entry interests in Holding Company Common Stock will be
marked cancelled and, in exchange, book-entry interests in BHOC Common Stock
will be made to all book-entry holders of Holding Company Common Stock.

CONDITIONS TO IMPLEMENTING THE PLAN

The Board reserves the right, at any time prior to the liquidation and
dissolution of the Holding Company and notwithstanding stockholder approval, to
abandon the Plan without further stockholder action in the event that the Board
determines that the consummation of the Plan is no longer in the best interest
of the Holding Company and its stockholders.

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FEDERAL INCOME TAX CONSEQUENCES

For federal income tax purposes, the Plan will be treated as a
reorganization within the meaning of Section 368(a)(1)(D) of the Internal
Revenue Code and, accordingly, (i) no gain or loss will be recognized by the
Holding Company or BHOC as a result of the Plan, (ii) no gain or loss will be
recognized by stockholders of the Holding Company upon receipt of BHOC Common
Stock in exchange for Holding Company Common Stock in connection with the Plan,
and (iii) the tax basis of BHOC Common Stock to be received by the Holding
Company's stockholders in connection with the Plan will be the same as the tax
basis in the Holding Company Common Stock surrendered in exchange therefor.

COMMON STOCK

The BHOC Common Stock, which will be distributed to the stockholders of the
Holding Company on a share-for-share basis in exchange for Holding Company
Common Stock, will have the same attributes as Holding Company Common Stock in
all material respects. Immediately prior to the liquidation and dissolution of
the Holding Company, BHOC shall adopt an Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws that are the same in all material
respects as the existing Certificate of Incorporation and Bylaws of the Holding
Company. Consequently, the terms of BHOC Common Stock to be distributed to the
stockholders of the Holding Company shall be the same in all material respects
as the terms of the BHOC Common Stock.

The authorized capital stock of the Holding Company consists of 50,000,000
shares of Common Stock, $.001 par value, of which 23,408,388 shares are
outstanding as of October 8, 1997. In addition, options to acquire 1,679,650
shares are outstanding and 2,143,000 shares are reserved for issuance under the
Holding Company's 1995 Stock Option Plan (the "Option Plan"). All of the issued
and outstanding shares of Holding Company Common Stock are fully paid and
non-assessable. Holders of Holding Company Common Stock are entitled to one vote
for each share on all matters voted upon by stockholders of the Holding Company
and have no preemptive or other rights to subscribe for additional shares of the
Holding Company. Holders of Holding Company Common Stock do not have the right
to cumulatively vote their shares in the election of directors. Each share of
Holding Company Common Stock has an equal and ratable right to receive dividends
when, as and if declared by the Board out of assets legally available therefor.
In the event of a liquidation, dissolution or winding up of the Holding Company,
the holders of Holding Company Common Stock are entitled to share equally and
ratably in the distribution of all of the Holding Company's assets remaining
available for distribution after satisfaction of all of its liabilities and the
payment of the liquidation preference of any outstanding preferred stock. See
"Description of Capital Stock."

BHOC INTERCOMPANY PREFERRED STOCK

The Holding Company owns all of the outstanding shares of Intercompany
Preferred Stock. As owner of all of the BHOC Intercompany Preferred Stock, the
Holding Company is entitled to receive, when, as and if declared by the Board of
Directors of BHOC, out of funds legally available therefor, dividends in an
annual amount equal to (i) $121.33 per share prior to March 1, 2000, and (ii)
$115.00 per share from and after March 1, 2000. Dividends, whether or not
declared, cumulate until declared and paid. Prior to March 1, 2000, BHOC may at
its option, pay semi-annual dividends by using additional shares of Intercompany
Preferred Stock. On and after March 1, 2000, semi-annual dividends that are not
paid or declared and set apart for payment will cumulate and, for purposes of
calculating future dividends, be deemed to have been paid in additional shares
of Intercompany Preferred Stock. The dividends from the Intercompany Preferred
Stock are intended to provide a source of funds to the Holding Company to enable
it to pay interest on the Holding Company's debt. In connection with the Holding
Company's redemption of the remaining 11 1/2% Senior Discount Debentures, the
remaining Intercompany Preferred Stock will be redeemed by BHOC after
stockholder approval of the Plan but prior to the liquidation and dissolution of
the Holding Company.

7
<PAGE>
ACCOUNTING TREATMENT

The implementation of the Plan will not have any impact on the Consolidated
Financial Statements of Bell & Howell Company.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS BELIEVES THAT THE PLAN IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
CONSENT TO THE PLAN.

The Holding Company's and BHOC's principal place of business is located at
5215 Old Orchard Road, Skokie, Illinois 60077-1076; the Holding Company's
telephone number is (847) 470-7660 and BHOC's telephone number is (847)
470-7100; the Company's e-mail address is [email protected].

CAUTIONARY STATEMENT

Certain statements contained in this Consent Statement/Prospectus, including
without limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both domestic and foreign;
periodic fluctuations in the Company's operating results; industry capacity;
existing governmental regulations and proposals; liability and other claims
asserted against the Company; competition; changes in operating strategy or
development plans; the significant indebtedness of the Company after the
refinancing; the availability and terms of capital to fund the expansion of the
Company's business; and other factors referenced in this Consent
Statement/Prospectus. Certain of these factors are discussed in more detail
elsewhere in this Consent Statement/Prospectus, including, without limitation,
under the captions "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Given these uncertainties,
stockholders are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.

8
<PAGE>
CAPITALIZATION

The following table sets forth at June 28, 1997 (i) the actual current debt
and consolidated capitalization of the Holding Company and (ii) such current
debt and consolidated capitalization, as adjusted to reflect the Recent
Transactions, the implementation of the Plan and the Final 11 1/2% Redemption as
a result of stockholder approval of the Plan. This table should be read in
conjunction with the Consolidated Financial Statements, the "Selected
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Consent Statement/Prospectus.

<TABLE>
<CAPTION>
AT JUNE 28, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Notes payable......................................................................... $ 5,821 $ 5,821
Current maturities of long-term debt.................................................. 1,089 1,089
----------- -----------
Total current debt.................................................................. $ 6,910 $ 6,910
----------- -----------
----------- -----------
Long-term debt:
Existing Credit Agreement............................................................. $ 259,000 $ --
New Revolving Credit Agreement........................................................ -- 495,438
9 1/4% Senior Notes due 2000.......................................................... 80,000 --
10 3/4% Senior Subordinated Notes due 2002............................................ 54,980 --
Other long-term debt.................................................................. 3,694 3,694
11 1/2% Senior Discount Debentures due 2005........................................... 207,511 --
----------- -----------
Total long-term debt................................................................ 605,185 499,132

Shareholders' equity:
Common Stock, par value $.001 per share, 50,000,000 shares authorized, 18,385,909
shares issued and 18,346,616 shares outstanding and 23,372,116 shares outstanding,
as adjusted......................................................................... 18 23
Capital surplus....................................................................... 1,713 138,230
Retained earnings (deficit)........................................................... (160,163) (183,903)
Other................................................................................. (3,953) (3,953)
----------- -----------
Total shareholders' equity (deficit)................................................ (162,385) (49,603)
----------- -----------
Total capitalization.............................................................. $ 442,800 $ 449,529
----------- -----------
----------- -----------
</TABLE>

9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA

The following historical selected consolidated financial and operating data
for fiscal 1992, fiscal 1993, fiscal 1994, fiscal 1995 and fiscal 1996, first
half 1996 and first half 1997 have been derived from the Consolidated Financial
Statements of the Holding Company. The unaudited consolidated pro forma
financial data set forth below illustrate the estimated effects of the Recent
Transactions, the implementation the Plan and the completion of the Final
11 1/2% Redemption upon stockholder approval of the Plan as if they had occurred
(i) at the beginning of each of the respective fiscal periods for purposes of
presenting the pro forma results of operations data and (ii) at June 28, 1997,
for purposes of presenting the pro forma balance sheet data. The unaudited
consolidated pro forma financial data do not necessarily reflect the results of
operations or the financial position of the Company that actually would have
occurred had the Recent Transactions, the Plan and the 11 1/2% Redemption been
consummated as of the date or for the periods indicated. The following financial
data should be read in conjunction with the Consolidated Financial Statements of
the Holding Company included elsewhere in this Consent Statement/Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
FISCAL FIRST HALF
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS DATA(1):
Net sales....................................... $ 670,039 $ 675,553 $ 720,340 $ 819,889 $ 902,797 $ 415,065 $ 418,168
Operating costs and expenses:
Cost of sales................................. 434,135 431,420 455,424 511,399 576,417 269,412 264,720
Research and development...................... 18,632 18,600 21,556 30,202 38,101 16,454 19,822
Selling and administrative.................... 166,644 168,529 173,019 194,839 198,898 97,529 98,509
Restructuring................................. -- -- 32,893 -- -- -- --
Goodwill write-off............................ -- 174,277 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses.......... 619,411 792,826 682,892 736,440 813,416 383,395 383,051
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)......................... 50,628 (117,273) 37,448 83,449 89,381 31,670 35,117
Net interest expense............................ 37,266 49,579 48,954 50,800 45,326 22,742 23,732
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes, cumulative
effect of accounting change and extraordinary
items.......................................... 13,362 (166,852) (11,506) 32,649 44,055 8,928 11,385
Income tax expense (benefit).................... 8,299 3,991 (2,490) 13,439 18,400 3,731 4,725
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of
accounting change and extraordinary items...... 5,063 (170,843) (9,016) 19,210 25,655 5,197 6,660
Cumulative effect of accounting change(2)....... -- (4,759) -- -- -- -- --
Extraordinary losses(3)......................... (5,004) (6,625) (978) (3,219) (2,585) (2,585) (972)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)............................. 59 (182,227) (9,994) 15,991 23,070 2,612 5,688
Dividends on preferred stock.................... 22,394 5,820 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) applicable to common
stock.......................................... $ (22,335) $(188,047) $ (9,994) $ 15,991 $ 23,070 $ 2,612 $ 5,688
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share(4):
Earnings (loss) before cumulative effect of
accounting change and extraordinary items... $ (1.37) $ (13.89) $ (0.68) $ 1.15 $ 1.38 $ 0.28 $ 0.36
Cumulative effect of accounting change........ -- (0.37) -- -- -- -- --
Extraordinary losses.......................... (0.39) (0.52) (0.07) (0.19) (0.14) (0.14) (0.05)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share........ $ (1.76) $ (14.78) $ (0.75) $ 0.96 $ 1.24 $ 0.14 $ 0.31
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA DATA (UNAUDITED)(5):
Net interest expense............................ $ 22,858 $ 11,761 $ 13,399
Earnings before extraordinary items............. 39,136 11,786 12,860
Extraordinary losses............................ (25,048) (25,048) (24,423)
Net earnings (loss)............................. 14,088 (13,262) (11,563)
Net earnings (loss) per common share(4):
Earnings before extraordinary items........... $ 1.66 $ 0.50 $ 0.55
Extraordinary losses.......................... (1.06) (1.06) (1.04)
--------- --------- ---------
Net earnings (loss) per common share.......... $ 0.60 $ (0.56) $ (0.49)
--------- --------- ---------
--------- --------- ---------
OTHER DATA:
EBITDA(6)....................................... $ 85,504 $ 93,493 $ 103,206 $ 120,788 $ 133,596 $ 53,312 $ 62,635
EBITDA as a percent of net sales................ 12.8% 13.8% 14.3% 14.7% 14.8% 12.8% 15.0%
Gross profit as a percent of net sales(7)....... 35.2% 36.1% 36.8% 37.6% 36.2% 35.1% 36.7%
Depreciation and amortization(8)................ $ 34,876 $ 36,489 $ 32,865 $ 37,339 $ 44,215 $ 21,642 $ 27,518
Capital expenditures............................ 30,950 33,191 38,345 44,047 42,744 20,384 17,184
</TABLE>

<TABLE>
<CAPTION>
AT THE END OF
FIRST HALF 1997
AT THE END OF FISCAL ----------------------
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(9)
--------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ (34,417) $ (40,081) $ (62,398) $ (53,502) $ (329) $ 69,935 $ 69,935
Total assets...................................... 756,855 625,481 603,745 682,141 796,786 782,120 775,496
Long-term debt.................................... 368,991 549,464 518,687 465,230 548,281 605,185 449,132
Preferred Stock(10)............................... 148,750 -- -- -- -- -- --
Total shareholders' equity (deficit).............. 68,000 (270,553) (278,728) (189,472) (166,892) (162,385) (49,603)
</TABLE>

FOOTNOTES ON FOLLOWING PAGE.

10
<PAGE>
FOOTNOTES TO THE SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA:

(1) In February 1993, the Company was formed as a holding company, the primary
assets of which are all of the issued and outstanding shares of capital
stock of BHOC. See Note 1 of the Consolidated Financial Statements included
elsewhere in this Consent Statement/Prospectus. Data for fiscal 1992 is for
BHOC.

(2) Cumulative effect of accounting change represents the effect of adoption of
Statement of Financial Accounting Standards No. 106 "Employers' Accounting
For Postretirement Benefits Other Than Pensions" ("SFAS No. 106") as of the
beginning of fiscal 1993.

(3) Extraordinary losses represent the write-off of unamortized debt issuance
costs and applicable call/debt repurchase premiums related to debt
refinancings. See Note 6 of the Consolidated Financial Statements and Note
3 of the Consolidated Interim Financial Statements, both included elsewhere
in this Consent Statement/Prospectus.

(4) Net earnings (loss) per common share reflects both primary and fully
diluted earnings per common share.

(5) The pro forma results of operations data give effect to the Recent
Transactions, the implementation of the Plan and the Final 11 1/2%
Redemption as if they occurred at the beginning of the respective fiscal
periods including the issuance of 5,025,500 shares of Holding Company
Common Stock at an offering price of $28.625 per share, the net proceeds of
which together with borrowings under the New Revolving Credit Agreement (at
assumed interest rates of 6.5% in 1996 and 7.2% in 1997 which represent
LIBOR plus 0.75% plus hedging costs) which were used to fund the 11 1/2%
Tender Offer, the 11 1/2% Equity Proceeds Redemption, the Final 11 1/2%
Redemption, the 10 3/4% Redemption, the 9 1/4% Redemption, and the
repayment of the Former Credit Agreement.

The debt redemption cost included in the pro forma results of operations data
for the 11 1/2% Equity Proceeds Redemption, the Final 11 1/2% Redemption, the
10 3/4% Redemption and the 9 1/4% Redemption represents the applicable call
premium. The redemption cost for the 11 1/2% Tender Offer represents the
tender price plus applicable fees and expenses. The pro forma results of
operations data do not purport to represent what the Company's results of
operations would have been if the Recent Transactions, the implementation of
the Plan and the Final 11 1/2% Redemption had occurred for the periods
indicated, or to project the Company's results of operations for any future
period. The pro forma adjustments are as follows:

(a) The decrease in net interest expense reflects the use of the net
proceeds from the Equity Offering and borrowings under the New Revolving
Credit Agreement to retire all of the outstanding 11 1/2% Senior Discount
Debentures, the 10 3/4% Senior Subordinated Notes, the 9 1/4% Senior
Notes, and repay the balance outstanding under the Former Credit
Agreement.

(b) Earnings before extraordinary items reflects the decreased interest
expense described in (a) above, net of income tax benefit.

(c) The extraordinary losses reflect the debt repurchase premiums and
write-off of unamortized debt issuance costs related to the retirement of
the 11 1/4% Senior Discount Debentures, redemption of the 10 3/4% Senior
Subordinated Notes, redemption of the 9 1/4% Senior Notes and the
repayment of indebtedness under the Former Credit Agreement described in
(a) above, net of income tax benefit.

(d) The pro forma weighted average number of shares outstanding of
23,585,825 for fiscal 1996, 23,626,519 for first half 1996 and 23,455,024
for first half 1997 consists of the total number of shares of Holding
Company Common Stock outstanding, plus 5,025,500 shares issued by the
Company in the Equity Offering.

(6) EBITDA is defined as operating income before restructuring expense and
goodwill write-off plus depreciation and amortization, and is generally
accepted as providing useful information regarding a company's financial
performance. Certain covenants in the New Revolving Credit Agreement are
based on EBITDA. EBITDA should not be considered an alternative to net
income or an alternative to the Company's cash flow from operating
activities as a measure of liquidity.

(7) Gross profit is defined as net sales less cost of sales.

(8) Excludes goodwill write-off in fiscal 1993 and amortization of deferred
financing costs which were as follows for the specified fiscal years and
interim periods: 1992--$3.6 million; 1993--$5.4 million; 1994--$3.8
million; 1995-- $4.0 million; 1996--$3.2 million; first half 1996--$2.1
million; and first half 1997--$1.4 million.

(9) The pro forma balance sheet data at the end of first half 1997 gives effect
to the Recent Transactions, the implementation of the Plan and the Final
11 1/2% Redemption as if they had occurred at June 28, 1997. See footnote 5
above.

(10) Reflects the accreted value of the BHOC $4.25 Cumulative Exchangeable
Preferred Stock, which was redeemed in March 1993 with the proceeds from
the issuance of the 11 1/2% Senior Discount Debentures.

11
<PAGE>
MARKET FOR HOLDING COMPANY COMMON STOCK

Since May 2, 1995, the Holding Company Common Stock has traded on the NYSE
under the trading symbol "BHW." Prior to May 2, 1995, the Holding Company Common
Stock was not listed on or traded in any organized market system. On October 7,
1997, the last reported sale price of the Holding Company Common Stock was
$31 1/2 per share. As of October 7, 1997, there were approximately 225 holders
of record of the outstanding shares of Holding Company Common Stock. The
following table sets forth for the periods indicated the high and low closing
sales price of the Holding Company Common Stock as reported on the New York
Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
Second Quarter (from May 2, 1995)......................................... $ 201/2 $ 151/2
Third Quarter............................................................. 223/4 195/8
Fourth Quarter............................................................ 291/4 247/8

1996
First Quarter............................................................. 323/4 271/8
Second Quarter............................................................ 351/4 301/4
Third Quarter............................................................. 323/4 267/8
Fourth Quarter............................................................ 313/4 223/4

1997
First Quarter............................................................. 243/8 197/8
Second Quarter............................................................ 293/8 193/8
Third Quarter............................................................. 323/4 267/8
Fourth Quarter (through October 7, 1997).................................. 32 /16 311/2
</TABLE>

DIVIDEND POLICY

The Holding Company has not declared or paid any cash dividends on the
Holding Company Common Stock. The Holding Company currently intends to retain
future earnings to fund the development and growth of its businesses and to
repay indebtedness, and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The Holding Company's principal source for
cash from which to make dividend payments will be dividends distributed by its
operating subsidiaries. The New Revolving Credit Agreement contains provisions
that limit the ability to pay dividends and make distributions to the Holding
Company and limit the ability of the Holding Company to pay cash dividends and
make other distributions to its stockholders. Any future determination to
declare and pay dividends will be made by the Board of Directors in light of the
Holding Company's earnings, financial position, capital requirements, credit
agreements and such other factors as the Board of Directors deems relevant.

12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with the "Selected Consolidated
Financial Information and Operating Data" and the Consolidated Financial
Statements and the Notes thereto set forth elsewhere in this Consent
Statement/Prospectus.

RESULTS OF OPERATIONS

FIRST HALF 1997 COMPARED TO FIRST HALF 1996

The Company's net sales increased $3.1 million, or 1%, to $418.2 million in
first half 1997. The increase resulted from continued strong sales growth within
Information Access (particularly for the transportation and vehicle and
education and library markets), as well as the commercial portion of Mail
Processing. This was partially offset by lower revenues in the postal
contracting portion of the Mail Processing business due to shipments of
significant one-time contracts to postal authorities in 1996.

Information Access net sales increased $8.3 million, or 4%, to $226.8
million in first half 1997. Within the Information Access businesses, the
Company provides access to information in select vertical markets including the
transportation and vehicle and education and library markets, and also provides
imaging solutions and components to financial institutions, governmental
agencies and other paper intensive industries. Net sales to the transportation
and vehicle market increased $5.7 million, or 12%, to $53.5 million due to
increased sales of electronic parts catalogs and ancillary products to
automotive dealerships, and continued strong sales of dealer management systems
and electronic parts catalogs to powersports dealerships. In addition to
increased new systems placements, the Company continued to experience strong
sales of additional product applications and high contract renewal rates related
to previously placed systems in automotive dealerships. Net sales to the
education and library market increased $8.6 million, or 11%, to $89.6 million
due to a growing electronic subscription base, which continued to reflect high
renewal rates on existing products, new product placements, and the acquisition
of DataTimes Corporation (in September 1996) which added complementary
information content, technology and distribution to the Company's electronic
product offerings. Sales of electronic content increased 36% over the prior year
as customers increasingly demand electronic information solutions and its newer
form of on-line delivery. Net sales of microfilm and paper products to the
education and library market declined slightly versus the prior year as
increased pricing was offset by lower unit volumes. Net sales in the Imaging
Solutions and Components business decreased $6.0 million, or 7%, to $83.7
million as increased sales of production scanners and imaging software systems
were more than offset by the impact of divesting certain low margin product
lines sold in Canada and France. Excluding the impact of the divested product
lines, Imaging Solutions and Components' net sales in first half 1997 would have
increased by 3% over the prior year.

Mail Processing net sales decreased $5.2 million, or 3%, to $191.4 million
in first half 1997. Although order intake for commercial mail processing systems
(which represents 94% of the sales in this segment) increased 18% in first half
1997 reflecting strong market demand, sales increased 8% over the prior year
resulting in a higher level of backlog. Sales of commercial sorting equipment
(which represents 15% of commercial equipment sales) increased $5.8 million, or
62%, to $15.1 million as the U.S. Postal Service guidelines governing the
operating requirements to qualify for certain financial incentives to properly
address, bar code and presort mail have created a more favorable environment for
customers to invest in advanced sorting technology. Service revenues (which are
primarily annuity based and represent 43% of commercial Mail Processing sales)
continue to increase, due to both an expanded customer base and increased
pricing. Sales of customized mail automation equipment and contractual
engineering services to governmental postal authorities decreased $19.0 million
to $12.2 million in first half 1997, primarily as a result of shipments of
significant one-time contracts to the U.S. Postal Service in first half 1996.

The Company's cost of sales decreased $4.7 million, or 2%, to $264.7 million
in first half 1997, with the gross profit (net sales less cost of sales)
percentage increasing by 1.6 percentage points to 36.7% in first

13
<PAGE>
half 1997 as compared to first half 1996. The higher gross profit percentage in
1997 resulted from a shift in sales mix (as the growth rate in higher gross
profit percentage Information Access revenues exceeded the growth rate in lower
gross profit percentage Mail Processing revenues), and additionally reflects
both improved manufacturing productivity and increased pricing.

Research and development expense increased $3.4 million, or 21%, to $19.8
million in first half 1997 as compared to first half 1996 as the Company
continued to increase its investment in new product offerings. Such increase
primarily related to increased development costs for DataTimes, to develop a new
technology platform for the powersports market and to develop enhanced versions
of production scanners. The Company has continually positioned itself to take
advantage of new product/technology opportunities (with an increased emphasis on
software solutions and electronic products) in each of its businesses.

Selling and administrative ("S&A") expense increased $1.0 million, or 1%, to
$98.5 million in first half 1997 reflecting the Company's increased investment
in sales and marketing resources as well as increased distribution costs
associated with the higher sales volumes. The ratio of selling and
administrative expense to net sales of 23.6% in first half 1997 increased by 0.1
percentage points versus the prior year as various expense leveraging
initiatives were offset by the result of the aforementioned shift in sales mix
(as the growth rate in higher S&A expense percentage Information Access revenues
exceeded the growth rate in lower S&A expense percentage Mail Processing
revenues).

EBITDA increased $9.3 million, or 18%, to $62.6 million in first half 1997
resulting from the slightly higher sales level and leveraged operating costs and
expenses. Operating income increased $3.4 million, or 11%, to $35.1 million in
first half 1997.

Information Access EBITDA increased $4.9 million, or 12%, to $47.5 million
in first half 1997. This increase resulted from the higher sales volumes, an
improved gross profit percentage reflecting a sales mix emphasizing the
Company's more profitable products (i.e., a greater proportion of revenues
related to software and publishing and a lower proportion of revenues related to
the sale of hardware) which more than offset the dilutive impact of the
acquisition of DataTimes, and increased research and development costs
associated with new product offerings. Information Access operating income
decreased $0.5 million, or 2%, to $24.6 million in first half 1997 as the EBITDA
increase was offset by both higher depreciation cost on the Company's product
capital investment and goodwill amortization related to the DataTimes
acquisition.

Mail Processing EBITDA increased $4.4 million, or 26%, to $21.6 million in
first half 1997 as a result of the higher sales of commercial mail processing
systems and leveraged operating costs and expenses. Mail Processing operating
income increased $3.9 million, or 29%, to $17.3 million in first half 1997.

Corporate expenses (excluding depreciation and amortization) were constant
at $6.5 million in first half 1997 as productivity improvements offset
inflationary cost increases.

Net interest expense increased $1.0 million, or 4%, to $23.7 million in
first half 1997, primarily reflecting the increased debt resulting from the
DataTimes acquisition, which was partially offset by the impact of the
repurchase in 1996 and 1997 of portions of the 11 1/2% Senior Discount
Debentures and the 10 3/4% Senior Subordinated Notes, which were redeemed with
proceeds from the Existing Credit Agreement. Net interest income of Bell &
Howell Financial Services Company ("BHFS"), the Company's financing subsidiary,
increased $0.5 million to $3.9 million in first half 1997, primarily due to
continued growth in the lease receivables portfolio.

Income tax expense increased in first half 1997 as a result of a higher
level of pretax profit in the current year.

The extraordinary losses of $1.0 million ($1.5 million pretax) in first half
1997 were comprised of the debt repurchase premium and write-off of unamortized
debt issuance costs associated with the repurchase of $15.6 million (accreted
value) of the 11 1/2% Senior Discount Debentures and $2.1 million of the 10 3/4%

14
<PAGE>

Senior Subordinated Notes with proceeds from the Former Credit Agreement. The
extraordinary losses of $2.6 million ($4.0 million pretax) in first half 1996
were comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $34.2 million (accreted value)
of the 11 1/2% Senior Discount Debentures and $17.9 million of the 10 3/4%
Senior Subordinated Notes with proceeds from the Former Credit Agreement.

FISCAL 1996 COMPARED TO FISCAL 1995

The Company's net sales increased $82.9 million, or 10%, to $902.8 million
in 1996.

Information Access net sales increased $20.6 million, or 5%, to $470.5
million in 1996. Net sales to the transportation and vehicle market increased
$10.2 million, or 10%, to $110.0 million due to increased sales of electronic
parts catalogs and ancillary products to automotive dealerships, and continued
strong sales of dealer management systems and electronic parts catalogs to
powersports dealerships. In addition to increased new systems placements, the
Company continued to experience strong sales of additional product applications
and high contract renewal rates related to previously placed systems in
automotive dealerships. Net sales to the education and library market increased
$8.4 million, or 5%, to $172.6 million due to a growing electronic subscription
base, which continued to reflect high renewal rates on existing products, new
product placements and the impact of the acquisition of DataTimes Corporation
(in September 1996) which added complementary information content, technology
and distribution to the Company's electronic product offerings. Sales of
electronic content increased 24% over the prior year as customers increasingly
demand electronic information solutions, while they are evaluating the rapid
changes in technology and the evolution of on-line delivery. Net sales of
microfilm and paper products in 1996 decreased slightly versus the prior year as
increased pricing was offset by lower unit volumes. Sales of low margin
electronic equipment continued to decline in 1996 (and represent only 3% of
sales in this market) as on-line delivery and the availability (from other
sources) of standardized computer hardware have allowed the Company to focus on
providing the more valuable information content. Imaging Solutions and
Components net sales increased $2.0 million, or 1%, to $187.9 million as
increased sales of production scanners worldwide and imaging software systems
were partially offset by lower microfilm product sales as a result of a sales
force reduction (reflecting a shift to directly serving only the financial
services market in the U.S.--which increased the profitability of this
business). The acquisition of Protocorp International (in March 1996) allows the
Company to now offer its financial services customers a full range of electronic
information storage and retrieval solutions.

Mail Processing net sales increased $62.3 million, or 17%, to $432.3 million
in 1996. Sales of commercial mail processing systems increased $34.1 million or
11% to $352.5 million reflecting strong market demand for inserting and sorting
systems both domestically and abroad, and increased service revenue (due to both
an expanding customer service base and improved pricing). Sales of commercial
sorting equipment (which represent 12% of commercial equipment sales) increased
$6.5 million, or 35%, to $25.1 million as the U.S. Postal Service guidelines
governing the operating requirements to qualify for incentives to bar code and
presort mail (which became effective July 1, 1996) have created a more favorable
environment for customers to invest in advanced sorting automation technology.
Sales of customized mail automation equipment and contractual engineering
services to governmental postal authorities increased $28.2 million, or 55%, to
$79.8 million, as a result of production contracts for both the German and U.S.
Postal Services.

The Company's cost of sales increased $65.0 million, or 13%, to $576.4
million in 1996, with the gross profit percentage decreasing by 1.4 percentage
points to 36.2% in the current year. The lower gross profit percentage in 1996
resulted from a shift in sales mix (as the growth rate in lower gross profit
percentage Mail Processing revenues exceeded the growth rate in higher gross
profit percentage Information Access revenues), which more than offsets the
impact of improved manufacturing productivity and increased pricing.

15
<PAGE>
Research and development expense increased $7.9 million, or 26%, to $38.1
million in 1996 as the Company continued to increase its investment in new
product offerings. Such increase primarily related to increased investment to
develop higher technology mail processing systems/software and to develop
enhanced versions of production scanners. The Company has continually positioned
itself to take advantage of new product/technology opportunities (with an
increased emphasis on software solutions and electronic products) in each of its
businesses.

Selling and administrative ("S&A") expense increased $4.1 million, or 2%, to
$198.9 million in 1996 reflecting the Company's increased investment in sales
and marketing resources as well as increased distribution costs associated with
the higher sales volumes. The ratio of S&A expense to net sales of 22.0% in 1996
improved by 1.8 percentage points versus the prior year as a result of various
expense leveraging initiatives and a favorable shift in sales mix (as the growth
rate in lower S&A expense percentage Mail Processing revenues exceeded the
growth rate in higher S&A expense percentage Information Access revenues).

EBITDA increased $12.8 million, or 11%, to $133.6 million in 1996 resulting
from the higher sales level and leveraged operating costs and expenses.
Operating income increased $5.9 million, or 7%, to $89.4 million in 1996.

Information Access EBITDA, increased $4.3 million, or 5%, to $98.4 million
in 1996. This increase resulted from the higher sales volumes, an improved gross
profit percentage reflecting a sales mix emphasizing the Company's more
profitable products (i.e., a greater proportion of revenues related to software
and publishing and a lower proportion of revenues related to the sale of
hardware), and the profitability improvement resulting from the domestic
refocusing of the Imaging Solutions and Components sales force on the financial
services market, which more than offset the dilutive impact in 1996 of the
acquisitions of DataTimes Corporation and Protocorp International and increased
research and development costs associated with new product offerings.
Information Access operating income of $62.9 million in 1996 increased slightly
over the prior year as the EBITDA increase was offset by both higher
depreciation cost on the Company's product capital investment and goodwill
amortization related to the aforementioned acquisitions in 1996.

Mail Processing EBITDA increased $9.1 million, or 23%, to $48.1 million in
1996. The increase resulted from the higher sales volumes and leveraged
operating costs and expenses, which included the increased investment in
research and development for higher technology mail processing systems/software.
Mail Processing operating income increased $6.5 million, or 19%, to $40.0
million in 1996.

Corporate expenses (excluding depreciation and amortization) increased $0.6
million, or 5%, to $12.9 million in 1996, reflecting inflationary cost increases
and costs associated with being a publicly traded company.

Net interest expense decreased $5.5 million, or 11%, to $45.3 million in
1996 primarily reflecting the reduction in interest expense resulting from the
initial public equity offering in May of 1995 (the net proceeds of which were
used to retire $50.0 million of the 10 3/4% Senior Subordinated Notes and to
prepay $17.6 million of term loans under the Former Credit Agreement). Net
interest expense was further reduced by the repurchase in 1996 of $17.9 million
of the 10 3/4% Senior Subordinated Notes and $34.2 million (accreted value) of
the 11 1/2% Senior Discount Debentures, which were redeemed with proceeds from
the Former Credit Agreement. Net interest income of Bell & Howell Financial
Services Company increased $1.7 million to $6.8 million in 1996 primarily due to
continued growth in the lease receivables portfolio.

Income tax expense increased in 1996 as a result of both a higher level of
pretax profit in the current year and a slightly higher income tax rate related
to the impact of a mix shift of taxable income to/within certain foreign
jurisdictions.

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The extraordinary losses of $2.6 million ($4.0 million pretax) in 1996 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the aforementioned repurchase of the 10 3/4%
Senior Subordinated Notes and the 11 1/2% Senior Discount Debentures. The
extraordinary losses of $3.2 million ($5.0 million pretax) in 1995 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the aforementioned repurchase of the 10 3/4%
Senior Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the aforementioned prepayment of term loans under the Former
Credit Agreement, both of which reflected the application of the net proceeds
from the initial public equity offering.

FISCAL 1995 COMPARED TO FISCAL 1994

The Company's net sales increased $99.6 million, or 14%, to $819.9 million
in 1995.

Information Access net sales increased $45.5 million, or 11%, to $449.9
million in 1995. Net sales to the transportation and vehicle market increased
$25.8 million, or 35%, to $99.8 million due to increased sales of electronic
parts catalogs and ancillary products to automotive dealerships, and increased
sales of dealer management systems and electronic parts catalogs to powersports
dealerships. In addition to new system placements, the Company also experienced
strong sales of additional product applications and high contract renewal rates
related to previously placed systems in automotive dealerships. Net sales to the
education and library market increased $12.0 million, or 8%, to $164.1 million
due to a growing electronic subscription base, which continued to reflect high
renewal rates on existing products and new product offerings. Sales of
electronic content increased 27% over the prior year as customers increasingly
demand electronic information solutions. Net sales of microfilm and paper
products in 1995 increased slightly over the prior year as increased pricing
more than offset lower unit volumes. Imaging Solutions and Components net sales
increased $7.7 million, or 4%, to $186.0 million as increased sales of
production scanners worldwide were partially offset by lower service revenue as
certain of the Company's products have become less service intensive.

Mail Processing net sales increased $54.1 million, or 17%, to $370.0 million
in 1995. The revenue growth reflected significantly increased revenues related
to customized equipment and contractual engineering services provided to the
U.S. Postal Service. Additionally contributing to the revenue growth was higher
sales of commercial inserting equipment and increased service revenue (due to
both an expanding customer base serviced and improved pricing). Sales of
commercial sorting equipment was approximately equal with the prior year which
reflected the uncertainty caused by the then existing U.S. Postal Service
proposal to alter the guidelines governing the operating requirements to qualify
for incentives to bar code and presort mail.

The Company's cost of sales increased $56.0 million, or 12%, to $511.4
million in 1995. The gross profit percentage of 37.6% in 1995 increased 0.8
percentage points over the prior year resulting from a sales mix emphasizing the
Company's more profitable products, improved manufacturing productivity and
increased pricing.

Research and development expense increased $8.6 million, or 40%, to $30.2
million in 1995 as the Company continued to increase its investment in new
product offerings. Such increase primarily related to the Company's introduction
in the third quarter of 1995 of the first full format system (ProQuest Direct)
through which customers are able to gain direct on-line access to its extensive
collection of databases. Research and development expenses in 1995 also related
to increased investment to develop higher technology mail processing
systems/software and increased investment to develop enhanced features for
production scanners. The Company has continually positioned itself to take
advantage of new product/ technology opportunities (with an increased emphasis
on software solutions and electronic products) in each of its businesses.

Selling and administrative expense increased $21.8 million, or 13%, to
$194.8 million in 1995 reflecting the Company's increased investment in sales
and marketing resources, increased distribution

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costs associated with higher sales volumes, and $5.2 million for the
continuation of the relocation of Mail Processing Systems headquarters to a new
site in North Carolina.

The Company's restructuring expense of $32.9 million in 1994 resulted from
management's decision to relocate Mail Processing Systems headquarters'
operations and consolidate certain of its domestic Mail Processing Systems
facilities at a new site that will be the base for developing innovative
technology and products (both software and hardware), and to consolidate certain
North American Imaging Solutions and Components administrative and warehouse
facilities in order to more effectively serve its customer base with a reduced
operating expense infrastructure.

EBITDA increased $17.6 million, or 17%, to $120.8 million in 1995 resulting
from the higher sales level and leveraged operating costs and expenses, which
included the significantly increased investment in research and development to
fund new product offerings. Operating income (excluding the 1994 restructuring
expense) increased $13.1 million, or 19%, to $83.4 million in 1995.

Information Access EBITDA increased $16.0 million, or 21%, to $94.1 million
in 1995. This increase resulted from the higher sales volumes and an improved
gross profit percentage reflecting a sales mix emphasizing the Company's more
profitable products (i.e., a greater proportion of revenues related to software
and publishing and a lower proportion of revenues related to the sale of
hardware). Information Access operating income (excluding the 1994 restructuring
expense) increased $11.6 million, or 23%, to $62.8 million in 1995.

Mail Processing EBITDA increased $2.6 million, or 7%, to $39.0 million in
1995. The increase in 1995 resulted from the increased sales associated with the
customized equipment and contractual engineering services for the U.S. Postal
Service and the higher sales volumes of mail processing systems/service,
partially offset by the increased investment in research and development (for
higher technology mail processing systems/software). Mail Processing operating
income (excluding the 1994 restructuring expense) increased $2.5 million, or 8%,
to $33.5 million in 1995.

Corporate expenses (excluding depreciation and amortization) increased $1.0
million, or 9%, to $12.3 million in 1995, reflecting inflationary cost increases
and costs incurred related to the initial public equity offering.

Net interest expense increased $1.8 million, or 4%, to $50.8 million in 1995
reflecting a higher interest rate environment and increased interest accretion
on the 11 1/2% Senior Discount Debentures, which were partially offset by the
reduction in interest costs resulting from the initial public equity offering
(the net proceeds of which were used to repurchase $50.0 million of the 10 3/4%
Senior Subordinated Notes and to prepay $17.6 million of term loans under the
Former Credit Agreement). Net interest income of BHFS, the Company's financing
subsidiary, decreased $0.5 million to $5.1 million in 1995, as increased
interest income on lease receivables was more than offset by higher financing
costs, reflecting the higher interest rate environment.

Income tax expense increased in 1995 as a result of a higher level of pretax
profit in the current year, and additionally reflects the favorable impact of a
shift in mix of taxable income to certain foreign jurisdictions for which no tax
expense is recorded (as a result of prior foreign net operating losses being
incurred with no corresponding tax benefit previously recorded).

The extraordinary losses of $3.2 million ($5.0 million pretax) in 1995 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $50.0 million of the 10 3/4%
Senior Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the prepayment of $17.6 million of term loans under the Former
Credit Agreement, both of which reflect the application of the net proceeds from
the initial public equity offering. The extraordinary loss of $1.0 million ($1.5
million pretax) in 1994 represented the write-off of unamortized debt issuance
costs associated with the prepayment of a term loan included in the Former
Credit Agreement.

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INTERNATIONAL OPERATIONS

In fiscal 1994, 1995 and 1996, the Company had domestic net sales of $548.4
million, $625.2 million, and $706.0 million respectively, and domestic operating
income (excluding corporate expenses, and the 1994 restructuring expense) of
$71.9 million, $81.4 million, and $86.5 million, respectively. Foreign net sales
in fiscal 1994, 1995 and 1996 were $171.9 million, $194.7 million, and $196.8
million respectively, with foreign operating income (excluding corporate
expenses and the 1994 restructuring expense) of $10.3 million, $14.9 million,
and $16.4 million, respectively. The Company's foreign currency hedging
activities have not and are not anticipated to have a material impact on
operations, and the Company has no significant investments denominated in
foreign currencies.

LIQUIDITY AND CAPITAL RESOURCES

The completion of the Recent Transactions (based upon the assumptions set
forth in footnote 5 to "Selected Consolidated Financial Information and
Operating Data") resulted in a decrease of $22.5 million and $10.3 million in
pro forma interest expense for fiscal 1996 and first half 1997, respectively.
Following the completion of the Recent Transactions, the Company's principal
sources of liquidity will be from cash flow generated from operations and
borrowings under the New Revolving Credit Agreement. The New Revolving Credit
Agreement provides $600 million of revolving credit availability. Management
believes that, following the Recent Transactions, cash flow from operations
combined with cash available under the New Revolving Credit Agreement will be
sufficient to fund working capital, capital expenditures, acquisitions and cash
interest and principal requirements through fiscal 1998.

At the end of first half 1997, the Company had $91 million of available
credit under the Former Credit Agreement and $14.2 million of cash and cash
equivalents. The New Revolving Credit Agreement requires the maintenance of a
minimum fixed charge coverage ratio, a minimum net worth level, and a maximum
leverage ratio. The Company is currently, and expects to continue to be through
the term of the New Revolving Credit Agreement, in compliance with all such
covenants.

Cash used by operations was $21.5 million in first half 1997 versus cash
provided by operations of $0.6 million in first half 1996. Although EBITDA
increased by $9.3 million in first half 1997, the Company's working capital
investment increased in the current year related to higher inventory levels to
support sales growth and the timing of vendor disbursements. Debt (net of cash
and cash equivalents) increased by $55.1 million to $597.9 million in first half
1997, as a result of the cash used by operations (which reflects the seasonal
nature of the Company's cash collections and disbursements), capital
expenditures/acquisitions and continued interest accretion on the 11 1/2% Senior
Discount Debentures.

Cash provided by operations of $78.0 million in fiscal 1996 represented a
$34.0 million improvement over the prior year, resulting from the increase in
EBITDA and proceeds from the sale of Bell & Howell Financial Services Company
receivables, which were partially offset by the increased investment in
inventory in 1996 related to the European postal service contracts. Debt (net of
cash and cash equivalents) increased by $55.2 million to $542.8 million in 1996
as a result of acquisitions (primarily DataTimes Corporation and Protocorp
International), continued capital expenditures, the aforementioned inventory
investment, and continued interest accretion on the 11 1/2% Senior Discount
Debentures.

For the five years subsequent to fiscal 1996, annual maturities of long-term
debt are: 1997-- $1.7 million; 1998--$0.8 million; 1999--$0.4 million;
2000--$83.3 million; and 2001--$195.1 million. On a pro forma basis, assuming
the consummation of the Recent Transactions as of October 1, 1997, annual
maturities of long-term debt are: 1997--$1.7 million; 1998--$0.8 million;
1999--$0.4 million; 2000-- $83.3 million; and 2001 zero.

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CAPITAL EXPENDITURES

In fiscal 1994, 1995, 1996, first half 1996 and first half 1997, the Company
had capital expenditures of $38.3 million, $44.0 million, $42.7 million, $20.4
million and $17.2 million, respectively, a significant portion of which
consisted of expenditures for product masters and the creation of electronic
databases for the education and library market. The Company's capital
expenditures in fiscal 1997 are projected to approximate the prior fiscal year
level as the Company continues to invest in each of its businesses.

WORKING CAPITAL

The Company operates with a reduced net working capital level principally as
a result of substantial customer prepayments for annual service contracts in
each of its business segments and prepaid subscriptions in the Information
Access business segment. Further, the Company has extended its total quality
program and cycle time reduction efforts to the management of working capital.

PERIODIC FLUCTUATIONS; SEASONALITY

The Company's operating results may fluctuate from period to period and
within periods. These fluctuations could result from a number of factors,
including the timing of customers' capital expenditures, annual budgetary
considerations of customers, new product introductions and general economic
conditions. Such fluctuations are generally more pronounced in the Company's
businesses that sell equipment such as commercial mail processing and Imaging
Solutions and Components. The anticipated sales growth in the second half of
1997 is expected to be generated more by these businesses than in prior periods
which leads to less predictability in the Company's operating results for the
remainder of the year.

Although the Company in general is not affected by seasonal fluctuations,
the buying patterns and funding availability for certain Information Access and
Mail Processing customers typically cause sales, profitability and cash flow to
be higher in the fourth quarter of the year. Due to this seasonal factor, the
Company requires and expects to have a seasonal working capital credit line to
fund cash requirements primarily during the second and third quarters.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." The standard
establishes new methods for computing and presenting earnings per share ("EPS")
and replaces the presentation of primary and fully-diluted EPS with basic and
diluted EPS. The Company is required to adopt the new standard for periods
ending after December 15, 1997. The new methods under this standard do not have
a material impact on the Company's current earnings per share amounts.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Company is required to adopt the new standard for periods ending after fiscal
1997. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The standard requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. The standard is not expected to have a material
impact on the Company's current presentation of income.

In June 1997, the Financial Accounting Standards Board also issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company is required to adopt this new
standard for periods ending after fiscal 1997. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company is currently
evaluating the impact of this standard on its financial statements.

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BUSINESS

FORMATION OF HOLDING COMPANY

At the time of its formation, the Holding Company sold $353.5 million
aggregate principal amount of 11 1/2% Senior Discount Debentures. Since such
date, $245.2 million aggregate principal amount of the 11 1/2% Senior Discount
Debentures has been acquired by the Holding Company. The aggregate principal
amount of the 11 1/2% Senior Discount Debentures outstanding after the
completion of the Recent Transactions is $108.3 million on March 1, 2000. The
11 1/2% Senior Discount Debentures accrete in value such that the accreted value
of these debentures at October 8, 1997 was $82.9 million. Subsequent to March 1,
2000, the 11 1/2% Senior Discount Debentures will pay cash interest at the rate
of 11 1/2% per annum. The 11 1/2% Senior Discount Debentures mature on March 1,
2005.

In connection with the issuance of the 11 1/2% Senior Discount Debentures by
the Holding Company, BHOC issued to the Holding Company Intercompany Preferred
Stock, the current value of which approximates the Accreted Value of the 11 1/2%
Senior Discount Debentures. Dividends from the Intercompany Preferred Stock are
intended to provide a source of funds to the Holding Company to enable it to pay
interest on the Holding Company's obligations with respect to the 11 1/2% Senior
Discount Debentures. In connection with stockholder approval of the Plan, BHOC
will redeem all of the outstanding Intercompany Preferred Stock.

GENERAL

Bell & Howell is a global provider of systems and services for information
access and high volume mail processing. Within its two business segments,
Information Access and Mail Processing, the Company focuses on well-defined
vertical markets where it is or can become the market leader. Within its
Information Access segment, Bell & Howell develops and markets imaging and
information systems that are focused on the needs of its customers in select
vertical markets, which include transportation and vehicle dealers, libraries of
all kinds (including college and university, elementary and high school as well
as public and corporate), financial institutions, governmental agencies and
other paper intensive industries. Within its Mail Processing segment, the
Company develops and markets a complete range of high volume mail processing
systems, which increasingly utilize the Company's proprietary software to expand
the capabilities and improve the efficiency and effectiveness of customers'
mailing operations. The Company's net sales, EBITDA and earnings before
extraordinary items in 1996 were $902.8 million, $133.6 million and $25.7
million, respectively. The Company's net sales, EBITDA and earnings before
extraordinary items were $418.2 million, $62.6 million and $6.7 million in first
half 1997, respectively, compared to $415.1 million, $53.3 million and $5.2
million in first half 1996, respectively.

The Company's strategy is to attain leadership positions in well-defined,
defensible market niches within select industries or vertical markets where it
believes there are significant opportunities for growth. By focusing on specific
vertical markets, the Company gains an in-depth understanding of its customers
and their industries. The Company believes this additional focus and customer
intimacy gives the Company a competitive advantage in anticipating customer
needs and being first to market with products that will achieve or maintain
market leadership. The Company believes that its industry expertise will provide
for more defensible market positions and additional opportunities for growth.

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In 1996, the Information Access segment represented 52% of net sales and 67%
of EBITDA (excluding corporate expenses). The Mail Processing segment
represented 48% of net sales and 33% of EBITDA (excluding corporate expenses).
The Company has historically achieved higher margins in its Information Access
segment due to its significant operating leverage as well as its large base of
recurring revenue with high renewal rates. The Company's two business segments
share a number of important strategic similarities, including strong market
positions, a reputation for high quality products and service excellence, broad
recognition of the Bell & Howell brand name and a significant international
presence. In addition, the Company derives a substantial portion of its net
sales from prepaid subscriptions and service agreements that historically have
had renewal rates in excess of 90%. Bell & Howell markets its products worldwide
with approximately 30% of its net sales in fiscal 1996 to customers outside the
United States. Furthermore, Bell & Howell is able to leverage certain important
technologies and expertise across its businesses, such as imaging and software
technology, information indexing and organizing capabilities as well as
expertise in paper handling.

INFORMATION ACCESS SEGMENT

Information Access's unique databases, proprietary access tools, value-added
services and image capture/enhancement systems are designed to meet customers'
increasing information needs, which have evolved well beyond the mere
availability of information. Customers' demands for more efficient access to
relevant data for specific information requirements are being driven by their
needs to reduce search time and cost while performing more focused yet
comprehensive searches. Within its Information Access segment, the Company
provides quick and easy access to information in select vertical markets, such
as transportation and vehicle dealers, libraries of all kinds (including college
and university, elementary and high school as well as public and corporate),
financial institutions, governmental agencies and other paper intensive
industries.

TRANSPORTATION AND VEHICLE MARKET

BUSINESS OVERVIEW. The transportation and vehicle market is an excellent
example of the Company's strategy of market leadership in well-defined,
defensible market niches. The Company serves its customers in this market
through its subsidiary, Bell & Howell Publications Systems Company ("PSC"),
which is a leading provider of turnkey systems (including software, information
updates, service as well as hardware) used to manage the parts area of
automotive dealerships and to provide total information systems for powersports
(motorcycle and marine) dealerships.

The Company's automotive customer base consists principally of franchised
dealerships, including General Motors ("GM"), Chrysler, Mercedes Benz, Land
Rover, Porsche, Honda, Nissan, Volvo, Isuzu, Subaru, Hyundai, and most recently,
Ford and Toyota. For the Company's automotive customers, the Company creates and
markets turnkey systems consisting primarily of electronic parts catalogs which
allow automotive dealerships to electronically access manufacturers' proprietary
technical documentation (such as parts catalogs, parts and service bulletins and
other reference materials) and to interface with other important information
systems (such as inventory management and billing) within the dealership.

The Company's products provide significant benefits to dealerships' parts
and service departments (critical profit centers for dealerships), such as
increased automotive parts sales, higher inventory turnover as well as improved
labor productivity. The Company's electronic parts catalogs appeal to dealers
because they link text with graphics, illustrations and charts in one
easy-to-use system designed to locate the desired information. In addition, use
of the Company's systems has significantly reduced the training time needed for
its customers' parts department personnel.

A typical dealer installation consists of one or more workstations and
software to search and display information from the database. In addition to the
revenue from the sale of the workstation and software, the Company's systems
generate ongoing revenues over the term of the contract from publishing database

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updates as well as additional revenues from software maintenance and hardware
service contracts. The sale of these systems also generates significant interest
income because the majority of the systems in the United States are financed
through the Company's financing subsidiary Bell & Howell Financial Services
Company.

The Company's systems are marketed to automotive dealerships pursuant to
long-term contracts with monthly payments, generally for five year terms, and
are currently used by almost 9,000 of the approximately 22,000 automotive
dealerships in the U.S. Management believes its share of installed automotive
dealership customers is significantly larger than any of its competitors.
Outside the U.S., the Company is currently the sole provider of electronic parts
catalogs to over 10,000 GM, Mercedes Benz and Chrysler dealers and distributes
its parts catalogs primarily through exclusive OEM agreements with General
Motors Europe, Mercedes Benz and Chrysler.

In addition, the Company is the preeminent supplier of complete dealer
management systems and electronic parts catalogs to powersports dealerships.
Similar to its automotive strategy, the Company provides dealerships access to
proprietary technical documentation for most major motorcycle manufacturers,
including Harley Davidson, Honda, Suzuki, Yamaha, Kawasaki, Triumph, BMW and
Ducati as well as most major marine manufacturers, including Mercury, Outboard
Marine and Volvo-Penta. Management believes its installed customer base of over
1,500 powersports dealerships is significantly larger than any of its
competitors. In June 1997, the Company launched a new generation dealer
management system initially targeted to marine dealers.

The Company sells its automotive systems primarily through a direct sales
force in the U.S. and Canada. Approximately 10% of the Company's sales within
its transportation and vehicle market are pursuant to a long-term distribution
arrangement with the Reynolds & Reynolds Company, a leading supplier of computer
systems and forms to the automotive industry, to market the systems to United
States and Canadian auto dealers. In Europe, the Company distributes its
software and information directly to GM and Mercedes Benz, and in Japan the
Company markets through Yanase, the controlling importer in Japan for virtually
all the Mercedes Benz and GM/Opel dealerships. The manufacturers then distribute
the software and information to their dealers. In the powersports business,
systems are marketed to dealerships by a dedicated, direct sales force and
through telemarketing.

The Company historically has provided microfilm publication services for
technical reference materials to major manufacturing companies, including GM and
Chrysler. Although microfilm publishing accounted for only 10% of the Company's
net sales to the transportation and vehicle market in fiscal 1996, the Company
considers this segment of strategic importance because it provides an
opportunity for the Company to transition these customers to electronic systems
and requires a relatively small continuing investment.

GROWTH STRATEGIES. The Company intends to pursue growth opportunities in
its established automotive and powersports dealership markets as well as in new
markets through new product development and acquisitions. The Company intends to
pursue the following strategies:

INCREASE SALES TO EXISTING AUTOMOTIVE CUSTOMERS. The Company has enjoyed
strong sales of additional product applications and high contract renewal rates
and intends to continue to market upgrade and replacement hardware and software
products to its large installed base. In addition, the Company continues to add
new features and services such as a vehicle identification number application,
technical service bulletins, and labor time guides which enable it to enhance
its revenue stream from its existing customer base. The Company curently has 14
product applications available up from 4 in 1994, providing additional
opportunities to cross sell applications to its existing customer base.

ATTRACT NEW AUTOMOTIVE DEALERSHIPS. The Company's unique ability to offer
electronic parts catalogs of multiple manufacturers positions it to benefit from
the industry consolidation and the increase in the number of multi-franchise
dealerships. The Company has the rights to more manufacturers' parts

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databases than any of its competitors. The Company also intends to increase its
installed base by aggressively seeking database publishing rights from
additional automotive manufacturers. For example, recent agreements with Ford
and Toyota provide the Company with access to a large number of additional
dealerships. In addition, the Company intends to penetrate the approximately 25%
of the estimated 22,000 automotive dealerships in the U.S. which do not
currently use electronic parts catalogs.

INCREASE SALES IN POWERSPORTS AND OTHER MARKETS. The Company has addressed
the growing demand for its products in the powersports market by the June 1997
introduction of an enhanced dealer management software system initially designed
for the needs of the marine dealer. Other markets for the Company's image
intensive database access products include the heavy truck markets as well as
the recreational vehicle and general aviation markets.

COMPETITION. In the automotive market, the Company's principal competitors
are ADP, which sells and services a full range of dealership management systems
and currently publishes electronic parts catalogs for GM and Chrysler
dealerships (and also distributes the parts catalogs for BMW and Nissan), and
EDS, which publishes electronic parts catalogs for GM dealerships. In addition,
certain manufacturers such as Toyota, Honda and Nissan have developed their own
proprietary electronic parts catalogs. Although additional automotive
manufacturers could also elect to develop their own electronic parts catalogs,
the Company believes that it is uniquely positioned to compete with such
manufacturers because it will not be efficient for dealerships to have separate
proprietary systems for each of their automotive lines. Due to the Company's
large installed base, its strong long-term relationships with manufacturers and
the ability of its systems to handle multiple manufacturers' data, the Company
believes it is well positioned to compete with any of its competitors. Certain
of the Company's competitors have greater financial resources than the Company.

EDUCATION AND LIBRARY MARKET

BUSINESS OVERVIEW. In the education and library market, the Company
competes through its subsidiary, UMI Company ("UMI"), which the Company believes
is the world's leading aggregator and provider of access to articles and
information from periodicals and newspapers, dissertations, out-of-print books
and other scholarly collections. This information can be accessed via the
Internet, in other electronic media, such as CD-ROM, as well as on magnetic
tape, on microfilm or on paper. The Company aggregates the works of publishers
and authors, creates proprietary abstracts and indices, and customizes this
information in various formats for easy access by its customers. For example,
elementary and high school customers may want on-line information organized by
selected topics, whereas users of academic research libraries require extensive
databases in order to perform thorough research. Furthermore, libraries have
traditionally purchased information in the microfilm format for the breadth and
depth of the Company's database as well as for archival and preservation
purposes. Bell & Howell believes its leadership position within the education
and library market is attributable to the breadth and depth of its collection of
published materials, strong publisher and customer relations, high quality
abstracts and indices, superior technology and an effective sales and
distribution network.

The Company's comprehensive database consists of over 18,000 periodical
titles, 7,000 newspaper titles, as well as its unique content base including 1.5
million dissertations, 140,000 out-of-print books, 300 research collections,
over 14 million proprietary abstracts for on-line and CD-ROM retrieval. The
ability to provide its customers with the full image as originally published
distinguishes the Company from other information providers which typically store
and provide information in a text-only format, omitting essential charts,
graphs, pictures and other images. A significant amount of the Company's sales
to the education and library market comes from content under exclusive licenses,
making the Company the sole source of such information aside from the original
publisher. In many cases, the Company's database includes the entire publication
history of a periodical or newspaper. For example, the Company's database
includes every edition of The New York Times published since 1851. The Company
has developed strong

24
<PAGE>
long-term relationships with the publishers of such periodicals and newspapers
and with most major universities in North America.

The Company is continually offering new ways to enhance each customer's
ability to efficiently access the relevant information in the format or media of
its choice. The Company pioneered electronic access to the full image format of
periodicals and newspapers on CD-ROM in the late 1980s. In 1995, the Company
introduced ProQuest Direct, a proprietary access and delivery system offering
on-line delivery of articles in formats ranging from text only to the full image
as originally published. In 1996, ProQuest Direct became accessible on the
Internet via any Web browser.

In fiscal 1996, approximately 45% of the Company's net sales to the
education and library market were derived from information in electronic format,
which has grown at a compound annual rate of approximately 30% since 1994.
Initially this growth was fueled by CD-ROM subscriptions. Electronic growth is
currently being driven by a combination of on-line subscriptions, agreements
with information resellers such as Knight-Ridder and Dow Jones, as well as new
CD-ROM databases. Customers today are increasingly computer-oriented and demand
user-friendly access to information at the desktop. The Company has responded by
developing a full line of proprietary electronic products marketed under the
ProQuest brand name. These products include on-line via the Internet, CD-ROM,
magnetic tape and other digitally-based collections of abstracts and indices,
full text and full images, which generally focus on business, general interest,
science and the humanities.

Although overall sales growth has been driven by electronic content,
customers still demand information stored in the more traditional microfilm and
paper formats. In fiscal 1996, approximately 55% of the Company's net sales to
the educational and library market were derived from information republished in
microfilm and paper. Newspapers, magazines and journals are marketed as complete
microfilm sets of both current and back issues. The Company also compiles books,
magazines and journals into thematic microfilm collections. Management believes
that demand for microfilm products will continue despite the growing trend
towards electronic products, because microfilm products may be the only source
of certain out-of-print information, microfilm is a less expensive alternative
or backup source of content to electronic media and microfilm is considered to
be a more permanent medium than electronic media for archival and preservation
purposes. In addition, paper copy is provided either as the original medium or
by specific requests from customers. Management believes customers of these
traditional media formats are of strategic importance because they provide a
targeted market to which the Company can offer its electronic products and
because continued delivery of traditional services to such customers requires
only nominal continuing investment to maintain sales and cash flow.

The Company's customers include libraries and information centers in
elementary and high schools, colleges and universities, public, corporate and
government libraries as well as a number of well known information providers
that resell the Company' electronic content primarily within the corporate
desktop user market. In fiscal 1996, approximately 70% of the Company's net
sales to the education and library market were derived from prepaid annual
subscriptions with historical renewal rates in excess of 90%.

The Company has focused its direct sales and marketing efforts on academic
research libraries, large public libraries, elementary and high schools and
corporate libraries. In 1997, the Company curtailed its efforts to sell directly
to the corporate desktop user, opting instead to distribute its content to that
market through corporate resellers such as Knight-Ridder and Dow Jones. The
Company's products are sold outside North America through a network of
independent agents and distributors primarily working exclusively for the
Company.

Also, over the last several years, the Company has increased its development
expenditures and product capital investment to expand and enhance its product
offering of abstracts and indices, full images and full text, as well as to
invest in technology to expand user access. Development expenditures were $4.7
million, $7.8 million and $9.8 million in fiscal 1994, 1995 and 1996,
respectively. Investments in

25
<PAGE>
creation of databases were $18.8 million, $18.9 million and $19.4 million in
fiscal 1994, 1995 and 1996, respectively.

GROWTH STRATEGIES. The Company believes that the role of the information
aggregator is becoming more important to customers and more central to the
global dissemination of information, and that the Company is well positioned to
capitalize on the combination of its extensive information database and its
powerful data delivery tools to provide customers with accurate, comprehensive,
timely and cost effective information solutions. To capitalize on the existing
growth opportunities in the Information Access market, the Company intends to
address the following market needs:

DEMAND FOR RELEVANT AND COMPREHENSIVE ANSWERS. Over the last several years
the Company has focused significant resources towards creating comprehensive
abstracts and indices to be used as search tools by customers to more
efficiently access the full text image of the desired article. Further, the
Company has provided its information in thematic collections so that users may
search across a very broad, deep cross section of its database. This search
capability has been enhanced by the introduction of the Company's ProQuest
Direct on-line system in 1995 whereby users now have access via the Internet to
the Company's intelligent content base of information.

CUSTOMER REQUIREMENTS FOR EASIER ACCESS. The Company distributes
information in formats according to customers' requirements including on-line,
CD-ROM, magnetic tape, microfilm and paper. Each of these formats allows
customers to access the Company's comprehensive collection of business, general
interest, science and humanities articles and, in the case of on-line users,
utilize easily understood, menu-driven search instructions in a Windows-TM-
based environment.

GROWING DEMAND FOR ELECTRONIC CONTENT IN SCHOOLS & LIBRARIES. There are a
number of well publicized initiatives at both the state and federal levels to
connect schools and libraries to the Internet. In fact, over 80% of high schools
in the U.S. have access to the Internet today. The Company believes that those
initiatives will enhance its opportunity to serve these customers because of the
ease of use of the Company's search tools and its ability to provide its content
on a customized basis according to the individual requirements of each school or
district.

GLOBAL DEMAND FOR UNITED STATES CONTENT. The Company's products have gained
wide acceptance in Western Europe, Asia and Australia as the demand for
information generated in the United States has grown. In 1996, approximately
$33.1 million, or 19% of the Company's net sales to the education and library
market were to customers outside the United States. The Company believes that
significant international growth opportunities exist and continues to introduce
new products specifically designed for international customers to capitalize on
such opportunities. The Company has begun to market its ProQuest Direct-TM-
on-line content-base to customers located outside the U.S.

COMPETITION. In providing electronic publishing rights, the Company has
found that publishers prefer republishers/aggregators with whom they have a
long-standing relationship. Many of the Company's publisher relationships were
established over 25 years ago and therefore constitute a key competitive
advantage.

The Company's competition in the microfilm republishing sector comes from
organizations with less expansive publication lists. Microfilm publishers who
compete with the Company include Primary Source Media, NewsBank and Thomson. In
the electronic business, competitors include Dow Jones, EBSCO, Knight-Ridder,
Newsbank, On-Line Computer Library Consortium (OCLC), Reed/Elsevier, SIRS and
Thomson. In addition, original publishers, aggregators, technology companies and
universities are beginning to position themselves as providers of electronic
information directly to the desktop of the customer. All of these entities are
potential competitors of the Company. Several competitors and potential
competitors have greater financial resources than the Company.

26
<PAGE>
IMAGING SOLUTIONS AND COMPONENTS

BUSINESS OVERVIEW. Bell & Howell's Imaging Solutions and Components
business is a leading designer, integrator and distributor of non-paper based
systems and components that enable users to efficiently file and access their
documents and records. These systems and components are customized to the needs
of select vertical markets, such as financial institutions and governmental
agencies, in order to provide better customer service, enhance productivity,
minimize storage costs and ensure the security and integrity of their records.
These systems, which utilize both electronic and microfilm technology, consist
of the software and hardware, accessories, supplies and service required to
capture, enhance, duplicate, store, index and retrieve a customer's data and
documents.

Active business records and management reports are increasingly captured and
stored electronically on optical disks or other electronic media which offer
faster and easier access than microfilm. The Company's products include a line
of electronic storage and retrieval systems which utilize a personal computer in
conjunction with optical or magnetic disk, scanner, laser printer and
proprietary application specific software. The Company's software products are
customized to the needs of targeted vertical markets where Management believes
there is potential to achieve market leadership within that niche. For example,
the Company recently introduced a product targeted to financial institutions
which allows them to instantaneously access and view complete customer records
(including check copies, signature cards and bank statements) which reside on
different customer databases and which may utilize differing imaging software,
in order to provide more timely and efficient customer service and increase
productivity. These market niches include financial institutions with assets of
less than $10 billion, the Department of Defense and the trucking industry.
These systems range in price from $10,000 for a stand-alone system to over
$250,000 for a fully networked system.

The Company's imaging components include production scanners and software
that convert paper documents into electronic files. In 1996, approximately 25%
of net sales for this business were derived from scanner sales which have grown
at an annual rate of approximately 30% since 1994. The Company's document
scanners produce digital records from single- and dual-sided documents in a
single pass. The production scanner market (where customers use a dedicated
operator, in a production environment) ranges in speeds from 20 to 200 pages per
minute ("ppm"). The Company has traditionally competed primarily in the
mid-range (which today ranges from 50 to 100 ppm) of the production scanning
market. In second quarter 1997, the Company announced two new lines of scanners,
one aimed at the mid-range and up, while the other is aimed at the lower end of
the production scanning market. The Company believes its market position and
strong growth rate in its scanner business result from its reputation for
quality and reliability.

The Company's microfilm products include a full line of microfilm retrieval
systems, readers, reader/ printers and a family of automated cameras, as well as
other accessories and supplies. Bell & Howell systems are typically sold in the
mid- to low-end of the Imaging Solutions and Components market characterized by
PC-based and stand-alone systems rather than high-end integrated systems.
Microfilm products are used primarily for archival and exception processing
purposes, as well as for certain active business records, such as mortgage and
loan applications or those applications which deal primarily with client files.
Microfilm continues to be an ideal archival medium and provides numerous
advantages over other storage formats. For example, microfilm offers the
capability of storing a document for over 100 years. Microfilm equipment ranges
in price from approximately $100 for a basic reader to over $30,000 for a
sophisticated camera and in excess of $100,000 for a fully networked system.

The Company's Imaging Solutions and Component business benefits from a
substantial customer base, as well as a broad product line marketed and serviced
through its extensive sales and service organization. Customers for the
Company's products are primarily financial institutions (e.g. commercial banks,
credit unions and savings and loans institutions), but also governmental
agencies and trucking companies. Customers for the scanner products are
distributors and OEMs who in turn place the scanners

27
<PAGE>
within complete systems via value added resellers ("VARs") or directly to end
users for use with a variety of imaging solutions. In fiscal 1996, approximately
25% of net sales within the Imaging Solutions and Components business were
derived from servicing its installed customer base, generally pursuant to
prepaid annual contracts.

Customers are served through direct and indirect channels, on a worldwide
basis. In the United States, the direct sales force consists of more than 40
salespeople and agents who are supported by telemarketers. The scanner products
are sold to distributors or to OEMs such as IBM, Filenet and Unisys.

GROWTH STRATEGIES. Bell & Howell intends to pursue growth opportunities for
non-paper based solutions for documents and reports by offering an expanded line
of applications targeted at specific vertical markets including financial
institutions, the Department of Defense and the trucking industry.

The Company expects to leverage upon the strengths of its rapidly growing
scanner product offerings with a range of new and related products and services
including image capture software and enhanced features and functionality
targeted to the needs of customers in additional vertical markets.

While the microfilm market is mature, the Company believes there are
opportunities for continued cash flows derived from sales of products, service
and supplies to its significant customer base and to capitalize on opportunities
to grow market share. The Company will also seek to expand its service revenues
by targeting third party service contracts thereby leveraging its service
capabilities.

COMPETITION. In the traditional microfilm market, the Company primarily
competes with dealers or resellers of Canon, Minolta or Kodak equipment. In the
community banking, credit union and S&L market, the Company's offering of
electronic solutions primarily competes with MacroSoft and Hyland software, two
small privately owned companies, but also with several VARs or integrators
reselling software from, for example, Filenet or Optika. In the production
scanner market, the Company primarily competes with Fujitsu and Ricoh in the
lower end of the mid-range and with Kodak in the higher end of the mid-range.
Several of the Company's competitors have greater financial resources than the
Company.

Bell & Howell believes its Imaging Solution and Components business enjoys
several competitive advantages. It has an excellent reputation in the industry
as a leading provider of a broad line of high quality and reliable products. The
Company's large installed customer base provides an opportunity to sell
additional product applications, as well as new products, to existing customers
and provides a predictable revenue stream from maintenance, repair services and
supplies.

MAIL PROCESSING SEGMENT

BUSINESS OVERVIEW. Management believes that Bell & Howell is the leading
manufacturer and supplier of high volume mail processing systems to the
commercial market. The commercial market primarily consists of business to
consumer mailers and represented more than 90% of the Mail Processing segment's
sales during first half 1997. These systems, which increasingly utilize
proprietary software, automatically perform a broad range of mail processing
functions, from collating, cutting, bursting, folding and inserting documents
(at cycle speeds ranging up to 18,000 envelopes per hour) to optical scanning,
encoding and sorting of envelopes (at speeds up to 36,000 envelopes per hour).
These software-driven systems allow customers to more efficiently manage mail
room operations as well as convert routine mailings (such as invoices or
statements) into targeted communication and marketing programs by customizing
the invoice or statement and including promotional inserts based on a specific
customer profile. In addition to the commercial market, the remaining sales in
the Mail Processing segment stem from governmental contracts for automation
equipment and software for the U.S. Postal Service and foreign postal
authorities.

The Company's major product line, mail inserting systems, performs virtually
all mail inserting functions, including cutting and folding continuous
documents, collating and inserting materials into envelopes and postage metering
at speeds ranging up to 18,000 envelopes per hour. Inserting systems generally
range in price from approximately $25,000 to $400,000 (with more complex systems
selling for

28
<PAGE>
over $1 million). Customers include financial institutions, insurance companies,
utilities, service bureaus, credit card companies, direct mail marketers and
other companies which generate high volumes of mail.

The Company also designs and manufactures mail sorting equipment which
optically scans characters and prints bar coded zip codes on outgoing mail and
sorts the mail according to destination at speeds up to 36,000 envelopes per
hour. These sorters allow customers with varying volume needs to capitalize on
presorted and bar coded mail discounts which are offered by the U.S. Postal
Service and increasingly by postal services in other countries. Mail sorting
systems range in price from approximately $100,000 to $600,000. Customers
include users of high volume inserters and presort bureaus which aggregate mail
from smaller postal patrons seeking to take advantage of presorted mail
discounts.

Bell & Howell believes that its leadership position in the commercial mail
processing business is attributable to its substantial installed global customer
base and worldwide service organization of approximately 1,500 service engineers
and support personnel. In many locations, the service engineers provide services
seven days a week, 24 hours per day. The majority of commercial mail
processing's equipment is maintained and serviced by the Company pursuant to
annual prepaid service contracts. In fiscal 1996, approximately 40% of
commercial mail processing's net sales were derived from service.

In addition to its commercial inserting and sorting products, Bell & Howell
Postal Systems Company designs, develops and manufactures automation equipment
and software for use by national postal services worldwide including the U.S.
Postal Service. The Company has expertise in high speed feeding of oversized
envelopes, high speed labeling applications and imaging, as well as other
software based solutions. Bell & Howell Mailmobile Company distributes an
automated guided vehicle used to deliver mail within the office.

Bell & Howell's commercial mail processing systems are sold in the United
States through a direct sales force of approximately 70 salespeople. Outside the
United States, commercial mail processing systems are marketed directly through
wholly-owned subsidiaries located in Canada, France, Germany, the United
Kingdom, Japan, the Netherlands, Singapore, Switzerland and Austria as well as
through distributors in other geographic areas.

GROWTH STRATEGIES. The Company intends to expand its leadership position by
continuing to introduce new software and hardware solutions to existing and
prospective customers through new product development and acquisitions. In
addition, the Company intends to capitalize upon its customers' need to
personalize their communications and to develop targeted merchandising
initiatives by offering enhanced integrated software solutions.

The Company believes customers will continue to seek integrated systems
solutions that enhance flexibility in customer communications and connect mail
room and document printing operations, while reducing labor requirements and
improving total system accuracy. The Company has invested $9.4 million, $12.9
million and $17.6 million in new product development in fiscal 1994, 1995 and
1996, respectively, for new product lines, system software and systems for large
mail room operations.

In 1996, the Company introduced the BH6000, an 18,000 envelope per hour
system targeted at simple high volume applications. The Company has also
recently introduced the BH4000, an enhanced version of its most popular mailing
system which will increase throughput by utilizing the software and certain
hardware modules used in its fastest system. New inserting product introductions
utilize flexible, modular system designs that are software driven and offer
common interfaces and comprehensive information links to customer operations.
Management believes the modular design will have a number of benefits including
a more cost effective upgrade path for its customers, and lower production
costs.

Mail Processing's inserting product line will be enhanced in the future
primarily through the addition of application software and new hardware that
will increase throughput and reduce operating labor requirements. The Company
believes these new systems will be responsive to the growing demand for
integrated mail processing systems and more effective customer communications.

29
<PAGE>
COMPETITION. Bell & Howell believes that its commercial mail processing
business enjoys several competitive advantages, including its ability to
customize products to meet customer needs and provide high quality maintenance
service. The Company's large installed base provides a significant opportunity
to increase net sales. A substantial portion of the Company's new mail
processing equipment sales are derived from sales of upgrades, add-ons or
replacements. The Company also believes that its extensive service organization
has led to close customer relationships which give the Company the ability to
anticipate customers' future needs. The Company's nearest competitor in the high
volume mail processing business in North America is Pitney Bowes. Outside of
North America, Bell & Howell also competes with Kern AG and Bowe Systec AG,
which are based in Switzerland and Germany, respectively. In the mail sorting
product line, the Company's primary competitors are Siemens, Postal Technologies
and Pitney Bowes. Of these competitors, Pitney Bowes and Siemens have greater
financial resources than the Company.

FINANCING SUBSIDIARY

Bell & Howell Financial Services Company, the Company's finance subsidiary,
assists the Company in marketing its products by providing lease financing for
the Company's customers, with both full payout and residual payment end-of-lease
options. Bell & Howell Financial Services Company finances its leases on a
stand-alone basis through separate financing arrangements. In fiscal 1996, net
interest income earned at Bell & Howell Financial Services Company was $6.8
million.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The Company purchases a significant amount of microfilm from two vendors for
its Information Access business. Other materials, including electronic
components, are purchased from a number of suppliers. Management believes that
alternate sources of supply are available for substantially all raw materials
and components. The Company believes that it currently has an adequate supply of
raw materials and component parts to meet its manufacturing requirements and
that the loss of any one of its suppliers would not have a long-term material
adverse effect on the Company.

BACKLOG

Except in its Mail Processing segment, which includes customized products
and assembly of complex systems, the Company fills substantially all customer
orders within 30 days. In the Mail Processing segment, backlog at the end of
first half 1997 totalled $107.5 million as compared to $129.0 million at the end
of first half 1996. Although the backlog in the commercial Mail Processing
business increased by $15.6 million in first half 1997 versus first half 1996,
the backlog relating to the sales to postal authorities decreased by $37.1
million in the same period.

MAJOR CUSTOMERS

The Company is not dependent upon any one customer or a few customers. The
loss of any one customer would not have a material adverse effect on the
Company's businesses. In fiscal 1996, no single customer accounted for 10% or
more of the consolidated net sales of the Company.

RESEARCH AND DEVELOPMENT EXPENSES

The amounts charged to the Company's earnings for research and development
expense in fiscal 1994, 1995, 1996, first half 1996 and first half 1997 were
$21.6 million, $30.2 million, $38.1 million, $16.5 million and $19.8 million,
respectively. New product offerings resulting from the Company's research and
development efforts served to offset declines in certain other product lines, as
the Company positioned itself to take advantage of new product/technology
opportunities (with an increased emphasis on software solutions and electronic
products) in each of its businesses. The Company's research and development

30
<PAGE>
expenditures include expenses primarily for database and software development,
information delivery systems, production scanners and other electronic devices
for the Information Access segment, as well as for increasingly software driven
mail processing systems.

EMPLOYEES

At the end of fiscal 1996, Bell & Howell had 6,110 employees. Approximately
239 employees located at the Company's Allentown, Pennsylvania facility are
represented by a labor union pursuant to an agreement effective January 1, 1997
between Bell & Howell Mail Processing Systems Company and IMMCO Employees
Association, which expires on May 31, 2001. Management believes that its
relations with its employees are good.

PROPERTIES

Bell & Howell's principal administrative office is located in Skokie,
Illinois. The office space has been leased through 2009. At the Company's
option, the lease may be renewed for an additional five-year period. The
following table provides certain summary information in square feet with respect
to certain facilities that the Company owns or leases in connection with its
businesses:

<TABLE>
<CAPTION>
SQUARE EXPIRATION
LOCATION SEGMENT TITLE FEET DATE
- ------------------------------ ------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Lincolnwood, Illinois Information Access/Mail Processing Owned 338,000 N/A

Allentown, Pennsylvania Mail Processing Owned 196,000 N/A

Ann Arbor, Michigan Information Access Owned 171,000 N/A

Friedberg, Germany Mail Processing Owned 130,000 N/A

Wooster, Ohio Information Access Owned 91,000 N/A

Durham, North Carolina Mail Processing Leased 80,000 5/05

Durham, North Carolina Mail Processing Leased 71,000 9/04

Tucson, Arizona Mail Processing Leased 65,000 5/02

Louisville, Kentucky Information Access Leased 45,000 6/01

Ann Arbor, Michigan Information Access Leased 42,000 3/98

Zion, Illinois Information Access Leased 36,000 6/99

Seven Hills, Ohio Information Access Leased 32,000 7/98

Oklahoma City, Oklahoma Information Access Leased 31,000 8/01

Ann Arbor, Michigan Information Access Leased 27,000 8/98

Salt Lake City, Utah Information Access Owned 22,000 N/A

Monroe, North Carolina Information Access Leased 15,000 9/01

Salt Lake City, Utah Information Access Leased 11,000 3/99
</TABLE>

Bell & Howell also owns or leases facilities in the United States, Canada,
France, United Kingdom, Germany, The Netherlands, Japan, Singapore, Switzerland
and Austria for sales, service and warehouse space. The termination of any one
of the leases, some of which are long-term, would not significantly affect the
results of the Company's operations.

The Company deems the buildings, machinery and equipment used in its
operations, whether owned or leased, generally to be in good condition and
adequate for the purposes for which they are used.

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<PAGE>
PATENTS AND LICENSES

The Company owns a substantial number of patents and patent rights, but it
does not consider any one patent or group of patents owned by it, or under which
it is licensed, to be material to any of the Company's lines of business.
Royalty income received from licenses is not material.

GOVERNMENT REGULATIONS

The Company is subject to various federal, state, local and foreign
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances. The Company's operations also are governed
by laws and regulations relating to workplace safety and worker health,
including the Occupational Safety and Health Act and regulations thereunder. The
Company believes that it has complied in all material respects with applicable
environmental and health and safety laws and regulations. The Company also does
not believe that future compliance with such laws or regulations will have a
material adverse effect on its results of operations or financial condition.

LEGAL PROCEEDINGS

The Company is involved in various legal proceedings incidental to its
business. Management believes that the outcome of such proceedings will not have
a material adverse effect upon the consolidated operations or financial
condition of the Company.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages and positions held by the
directors and executive officers of Holding Company which will be elected to
identical positions of BHOC in connection with the implementation of the Plan.

<TABLE>
<CAPTION>
NAME AGE POSITIONS AT THE COMPANY
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
William J. White.................... 59 Chairman of the Board of Directors of Holding Company and BHOC

James P. Roemer..................... 50 Director, President and Chief Executive Officer of Holding Company
and BHOC

Nils A. Johansson................... 49 Director, Executive Vice President and Chief Financial Officer of
Holding Company and BHOC

David Bonderman..................... 54 Director

David G. Brown...................... 40 Director

J. Taylor Crandall.................. 43 Director

Daniel L. Doctoroff................. 39 Director

William E. Oberndorf................ 44 Director

Gary L. Roubos...................... 60 Director

John H. Scully...................... 53 Director

Michael A. Dering................... 46 President and Chief Executive Officer of Bell & Howell Publication
Systems Company

Stuart T. Lieberman................. 45 Vice President, Controller and Chief Accounting Officer of Holding
Company and BHOC

Ben L. McSwiney..................... 47 President and Chief Executive Officer of Bell & Howell Mail
Processing Systems Company

Kevin B. O'Shea..................... 38 Vice President and Treasurer of Holding Company and BHOC

Maria T. Rubly...................... 42 Vice President of Holding Company and BHOC

Gary S. Salit....................... 53 Secretary and Corporate Counsel of Holding Company and BHOC
</TABLE>

The business experience and certain other information relating to each
director and executive officer of Holding Company is set forth below:

WILLIAM J. WHITE has served as Chairman of the Board and Director of Holding
Company since its organization in February 1993 and of BHOC since February 1990.
From February 1990 to February 1997, he served as Chief Executive Officer of
both companies. He was President of the Holding Company from February 1993 to
February 1995 and President of BHOC from February 1990 to February 1995. Prior
to joining Bell & Howell, Mr. White was President and Chief Executive Officer of
Whitestar Graphics, Inc. (a printing and graphics company) from January 1989
through January 1990, when it was acquired by the William Blair Leveraged
Capital Fund and Mr. White. Prior to that, he was Executive Vice President of
USG Corporation where he served as president of three different subsidiaries
during his tenure. He is also a Director of TJ International, Inc. and Readers
Digest Association, Inc.

JAMES P. ROEMER has served as Director and President of Holding Company and
BHOC since February 1995. In February 1997, he was elected Chief Executive
Officer of Holding Company and BHOC and from

33
<PAGE>
February 1995 to February 1997 served as Chief Operating Officer of both
companies. Prior to that, he served as President and Chief Executive Officer of
UMI Company from January 1994 to June 1995. Mr. Roemer joined Bell & Howell as
Vice President and PSC as President and Chief Operating Officer in October 1991,
and was promoted to President and Chief Executive Officer of PSC in September
1993. Prior to joining Bell & Howell, Mr. Roemer was President of the Michie
Group, Mead Data Central from December 1989 to October 1991. From January 1982
to December 1989 he was Vice President and General Manager of Lexis, an on-line
legal information service. From April 1981 to December 1982 he served as acting
president for Mead Data Central.

NILS A. JOHANSSON has been a Director of Holding Company since its
organization in February 1993 and of BHOC since April 1990. Since January 1994,
he has held the office of Executive Vice President and Chief Financial Officer
of Holding Company and BHOC. Mr. Johansson served as Senior Vice President,
Finance and Chief Financial Officer of Holding Company from February 1993 to
January 1994 and of BHOC from December 1991 to January 1994. From May 1989 to
December 1991, he was Vice President, Finance, Treasurer and Chief Financial
Officer of BHOC. From February 1981 to May 1989 he held various executive
positions with Bell & Howell, including corporate treasurer and positions in
group control, planning and business development.

DAVID BONDERMAN has been a Director of Holding Company since its
organization in February 1993 and served as a Director of BHOC from December
1987 until February 1993. He has been a Managing General Partner of Texas
Pacific Group (a private investment company) since December 1993. From August
1992 to December 1993, Mr. Bonderman was an investor with TPG Partners, L.P. (a
private investment company). From July 1983 through August 1992, he was Vice
President and Chief Operating Officer of Keystone, Inc. (a private investment
company). He is also a Director of Beringer Wine Estates, Inc., Continental
Airlines, Credicom Asia, Denbury Resources, Inc., Ducati Motor Holdings, S.P.A.,
Realty Information Group L.P., Ryanair, Ltd., Virgin Cinemas, Ltd., Urogenesys,
Inc. and Washington Mutual Inc.

DAVID G. BROWN has been a Director of Holding Company since April 1995 and
served as a Director of BHOC from January 1994 to April 1995. He has been a
Principal of Arbor Investors, LLC since September 1995 and a Vice President of
Keystone, Inc. since August of 1993. Prior to joining Arbor Investors, LLC, Mr.
Brown was a Vice President in the Corporate Finance Department of Salomon
Brothers Inc from August 1985 to July 1993. He is a Director of AER Energy
Resources, Inc.

J. TAYLOR CRANDALL has been a Director of Holding Company since its
organization in February 1993 and was a Director of BHOC from November 1990
until February 1993. He has been Vice President and Chief Financial Officer of
Keystone, Inc. (a private investment company) since October 1986. He also has
been President, Director and sole stockholder of Acadia MGP, Inc. (managing
general partner of Acadia Investment Partners, L.P., the sole general partner of
Acadia Partners, L.P. (an investment partnership)) since 1992. He is also a
Director of Washington Mutual Inc.

DANIEL L. DOCTOROFF has been a Director of Holding Company since its
organization in February 1993 and served as a Director of BHOC from June 1990
until February 1993. He has served as Managing Director of Oak Hill Partners,
Inc. (successor to Rosecliff, Inc., the management company for Acadia Partners,
L.P. (an investment partnership)) since March 1992. Since October 1992, he has
been a Vice President of Keystone, Inc. (a private investment company) and since
February 1994, he has been a Managing Partner of Insurance Partners Advisors
L.P. He was Director of Rosecliff, Inc. from August 1987 through March 1992. He
is also a Director of Kemper Corporation and Specialty Foods Corporation.

WILLIAM E. OBERNDORF has been a Director of Holding Company since its
organization in February 1993 and was a Director of BHOC from July 1988 through
February 1993. He has served as Managing Director of SPO Partners & Co. (a
private investment company) since March 1991. He is also a Director of Plum
Creek Timber Co., L.P.

34
<PAGE>
GARY L. ROUBOS has been a Director of Holding Company since February 1994.
He has been Chairman of the Board of Dover Corporation (a diversified equipment
manufacturer) since August 1989 and was President from May 1977 to May 1993. He
is also a Director of Dover Corporation and Omnicom Group, Inc.

JOHN H. SCULLY has been a Director of Holding Company since its organization
in February 1993 and was a Director of BHOC from July 1988 until February 1993.
He has served as Managing Director of SPO Partners & Co. (a private investment
company) since March 1991. He is also a Director of Plum Creek Timber Co., L.P.

MICHAEL A. DERING has served as President and Chief Executive Officer of PSC
since July 1996. Prior to joining PSC he was President of TAB Products Company
(an office filing systems company) from February 1991 to July 1996. From 1990 to
1991 he was Executive Vice President and Chief Operating Officer of TAB Products
and from 1975 to 1990 he held various offices and positions with TAB Products in
sales and marketing.

STUART T. LIEBERMAN has been Vice President, Controller and Chief Accounting
Officer of Holding Company since its organization in February 1993 and of BHOC
since January 1990.

BEN L. MCSWINEY has been President and Chief Executive Officer of Bell &
Howell Mail Processing Systems Company since July 1995. Prior to joining Bell &
Howell, he was President and Chief Executive Officer of Duplex Products, Inc. (a
forms manufacturing and distributing company) from September 1993 to June 1995
and President and Chief Executive Officer of Whitestar Graphics, Inc. from April
1991 to September 1993.

KEVIN B. O'SHEA has served as Vice President and Treasurer of Holding
Company and of BHOC since February 1996. Prior to joining Bell & Howell he
served as Vice President and Treasurer of Spencer Stuart & Associates (an
executive search and consulting firm) from July 1989 to February 1996.

MARIA T. RUBLY has been Vice President of Holding Company since 1994 and of
BHOC since April 1993. Prior to joining the Company, she spent 13 years with
Baxter, which included five years with American Hospital Supply Corporation
until its merger with Baxter. Her position from January 1991 to April 1993 was
Vice President of the Baxter Management Institute.

GARY S. SALIT is Secretary and Corporate Counsel of Holding Company, a
position he has held since its organization in February 1993. He has served as a
Secretary of BHOC since January 1993. He has also served as Corporate Counsel of
BHOC since 1985.

35
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------
AWARDS(1)
----------- PAYOUTS(2)
ANNUAL COMPENSATION SECURITIES ----------
FISCAL ---------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(3) OPTIONS(#) PAYOUTS COMPENSATION
- --------------------------------------- --------- ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. White ...................... 1996 $ 643,853 $ 294,241 -- -- $ 30,092(4)
Chairman of the Board 1995 614,427 307,501 460,000 -- 34,574(4)
1994 597,696 582,754 -- -- 36,711(4)

James P. Roemer ....................... 1996 510,572 233,331 -- $ 54,384 94,984(5)
President and Chief Executive Officer 1995 405,655 252,689 385,000 -- 21,992(5)
1994 206,000 132,679 -- 431,679 176,758(5)

Nils A. Johansson ..................... 1996 396,162 181,046 -- 79,380 27,069(6)
Executive Vice President and Chief 1995 363,827 216,063 270,000 -- 31,768(6)
Financial Officer 1994 264,092 184,865 -- 184,500 21,200(6)

Ben L. McSwiney ....................... 1996 254,539 107,413 12,000 -- 113,422(8)
President of MPS 1995(7) 140,219 9,363 10,500 -- 2,963(8)

Michael A. Dering ..................... 1996(9) 105,770 75,000 10,000 -- 87,728(10)
President of PSC
</TABLE>

- ------------------------

(1) Amounts reflected in this column are for grants of stock options under the
Option Plan.

(2) For fiscal 1994, consists of amounts earned under Bell & Howell Operating
Company's Long-Term Incentive Plan: 1991-1994 (the "1991-1994 LTIP"). The
1991-1994 LTIP provided long-term incentives to key management employees by
rewarding them for achieving financial targets for the period commencing
fiscal 1991 through fiscal 1994. Messrs. White, McSwiney and Dering did not
participate in the 1991-1994 LTIP. Mr. Roemer earned $287,674 under an
additional long-term incentive plan in 1994. Payments under the 1991-1994
LTIP were made in March 1995.

For fiscal 1996, consists of amounts earned under Bell & Howell Operating
Company's Long-Term Incentive Plan: 1993-1996 (the "1993-1996 LTIP"). The
1993-1996 LTIP initially provided long-term incentives to key management
employees by rewarding them for achieving financial targets for the period
commencing fiscal 1993 through fiscal 1996. The 1993-1996 LTIP was
terminated as of the end of fiscal 1994 and replaced with the 1995 Stock
Option Plan. Amounts earned under the 1993-1996 LTIP were determined based
on performance through the end of fiscal 1994, and prorated payments were
made in February 1997.

(3) Consists of amounts awarded under an employment agreement in respect of Mr.
White and under the Bell & Howell Operating Company's Management Incentive
Bonus Plan (the "MIB") in respect of Messrs. Roemer, Johansson, McSwiney and
Dering. The MIB provides a financial incentive for key management employees
to focus their efforts on, and achieve, annual financial targets. Payments
under the MIB for fiscal 1996 were made in February 1997.

(4) For fiscal 1996, 1995 and 1994, consists of $3,000 in contributions to the
Bell & Howell Profit Sharing Retirement Plan ("PSRP"); $16,027, $20,944 and
$19,953, respectively, in contributions to the Bell & Howell Replacement
Benefit Plan ("RBP") and $11,065, $10,630 and $13,758, respectively, in
imputed life insurance.

36
<PAGE>
(5) For fiscal 1996, 1995 and 1994 consists of $3,000 in contributions to the
PSRP; $3,384, $2,084, and $1,905, respectively, in imputed life insurance;
$12,381, $16,908 and $7,183, respectively, in contributions to the RBP; and
for fiscal 1996 and 1994 consists of $76,219 and $164,670, respectively, for
relocation and related expenses.

(6) For fiscal 1996, 1995 and 1994, consists of $6,000 in contributions to the
PSRP; $18,489, $23,328 and $13,172, respectively, in contributions to the
RBP; and $2,580, $2,440 and $2,028, respectively, in imputed life insurance.

(7) 1995 reflects compensation for the six month period from July 1995, when Mr.
McSwiney's employment by the Company began, through December 1995.

(8) For fiscal 1996 and 1995, consists of $3,000 and $2,308 respectively in
contributions to the PSRP; $3,011 and $655 respectively, in imputed life
insurance; and for fiscal 1996 includes $2,278 in contributions to the RBP;
$59,571 for relocation and related expenses; and $45,562 of income resulting
from the exercise of non-qualified stock options.

(9) Reflects compensation for the six month period from July 1996, when Mr.
Dering's employment by the Company began, through December 1996.

(10) For fiscal 1996, consists of $694 in imputed life insurance and $87,034 for
relocation and related expenses.

COMPENSATION OF DIRECTORS

All non-employee Directors are participants in the Bell & Howell
Non-Employee Directors' Stock Option Compensation Plan (the "Director Plan").
The Director Plan provides for annual stock option grants to each non-employee
director. Each annual grant (the value of which is equivalent to the level of
compensation determined by the Directors to be reasonable and appropriate)
permits each non-employee Director to purchase from the Holding Company Common
Stock, with the exercise price equal to the fair market value of such shares on
the date the option is granted. The stock options have a term of ten years and
are exercisable one year from the date of grant. In fiscal 1996, each
non-employee Director received the option to purchase 1,225 shares of Holding
Company Common Stock at the existing fair market value of $32.63 per share.
Management directors do not receive any additional compensation for serving as
Directors.

37
<PAGE>
OPTION PLAN

The following tables set forth the number of options to purchase Holding
Company Common Stock granted to each of the named executive officers during
fiscal 1995 and fiscal 1996 (pursuant to the Option Plan) and the potential
realizable values of such options, upon their latest possible expiration date,
at assumed annualized rates of stock price appreciation of 5%, 10% and 20% over
the term of the options. Because actual gains will depend upon, among other
things, the actual dates of exercise of the options and the future performance
of the Holding Company Common Stock in the market, the amounts reflected in
these tables may not reflect the ultimate values actually realized.

STOCK OPTION GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL LATEST PRICE APPRECIATION FOR OPTION
UNDERLYING ANNUAL EXERCISE OR POSSIBLE TERM
YEAR OF OPTIONS OPTIONS BASE PRICE EXPIRATION -------------------------------
NAME GRANT GRANTED(#) GRANTED ($/SH) DATE 5% 10% 20%
- -------------------------------- --------- ----------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

William J. White................ 1995 46,000 $ 15.50 May 2001 $ 242,488 $ 550,123 $1,416,007
1995 46,000 18.50 May 2001 104,488 412,123 1,278,007
1995 92,000 22.25 May 2001 -- 479,246 2,211,013
1995 92,000 26.75 May 2001 -- 65,246 1,797,013
1995 92,000 32.00 May 2001 -- -- 1,314,013
1995 92,000 38.50 May 2001 -- -- 716,013
-----------
460,000 35.4%

James P. Roemer................. 1995 38,500 $ 15.50 May 2001 $ 202,952 $ 460,429 $1,185,136
1995 38,500 18.50 May 2001 87,452 344,929 1,069,636
1995 77,000 22.25 May 2001 -- 401,108 1,850,522
1995 77,000 26.75 May 2001 -- 54,608 1,504,022
1995 77,000 32.00 May 2001 -- -- 1,099,772
1995 77,000 38.50 May 2001 -- -- 599,272
-----------
385,000 29.7%

Nils A. Johansson............... 1995 27,000 $ 15.50 May 2001 $ 142,330 $ 322,898 $ 831,134
1995 27,000 18.50 May 2001 61,330 241,898 750,134
1995 54,000 22.25 May 2001 -- 281,297 1,297,769
1995 54,000 26.75 May 2001 -- 38,297 1,054,769
1995 54,000 32.00 May 2001 -- -- 771,269
1995 54,000 38.50 May 2001 -- -- 420,269
-----------
270,000 20.8%

Ben L. McSwiney(1).............. 1996 12,000 5.3% $ 31.75 May 2006 $ 239,609 $ 607,216 $1,978,052
1995 10,500 0.8% 20.50 July 2005 135,370 343,053 1,117,521

Michael A. Dering(1)............ 1996 10,000 4.4% $ 29.38 July 2006 $ 184,238 $ 468,162 $1,525,073
</TABLE>

- ------------------------

(1) During first half 1997, Messrs. McSwiney and Dering were each granted 12,000
stock options at an exercise price of $21.125, the fair market value on the
date of the grant. The options expire in March 2007.

38
<PAGE>
STOCK OPTION EXERCISES IN 1996 AND
YEAR END STOCK OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
YEAR-END (#) AT YEAR-END ($)(1)
------------------ ----------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------- --------------- ------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
William J. White......................... None N/A None/460,000(2) None/$575,000(2)
James P. Roemer.......................... None N/A None/385,000(2) None/481,250(2)
Nils A. Johansson........................ None N/A None/270,000(2) None/337,500(2)
Ben L. McSwiney.......................... None N/A 2,100/8,400(3) $ 4,725/18,900(3)
None/12,000(4) None/None(4)
Michael A. Dering........................ None N/A None/10,000(5) None/None(4)
</TABLE>

- ------------------------

(1) These amounts have been determined by multiplying the aggregate number of
options by the difference between $22.75, the closing price of the Holding
Company Common Stock on the NYSE on December 27, 1996 (the last trading day
of fiscal 1996), and the exercise price of the options.

(2) These options are exercisable as follows: up to 25% after May 1998, up to
50% after May 1999 and up to 100% after May 2000.

(3) These options are exercisable in annual 20% increments commencing in July of
each year from July 1996 through July 2000.

(4) These options are exercisable in annual 20% increments commencing in May of
each year from May 1997 through May 2001.

(5) These options are exercisable in annual 20% increments commencing in July of
each year from July 1997 through July 2001.

The Option Plan replaced the 1993-1996 LTIP which covered officers and
certain employees, and was to provide payments based on the participants'
participation level (which was either 30% or 60% of the employees' base rate of
pay on January 1, 1993 or the date such participant was designated as eligible
for the 1993-1996 LTIP by the Board of Directors) and the achievement of
established financial targets. Amounts earned under the 1993-1996 LTIP were
determined based on performance through the end of fiscal 1994, and prorated
payments were made in February 1997.

SUPPLEMENTAL RETIREMENT PLAN

The Bell & Howell Supplemental Retirement Plan ("SRP") provides officers and
certain employees with additional pension benefits upon retirement, in order to
supplement social security and other benefits provided under the Bell & Howell
Profit Sharing Retirement Plan ("PSRP") and the Bell & Howell Replacement
Benefit Plan ("RBP"). Generally, the SRP provides for lifetime monthly pension
payments which equal the excess, if any, of (i) up to 50% (the actual percentage
being proportional to length of service) of the participant's average monthly
compensation (which is defined to include salary and annual bonuses up to 150%
of target) during the highest paid four years of the participant's last six
years of employment over (ii) the sum of the aggregate monthly amounts which are
payable under the PSRP, RBP (in each case exclusive of voluntary and mandatory
employee contributions and investment additions thereon) and primary social
security benefits. If a participant is involuntarily terminated for a reason
other than for cause and such terminated employee shall have been a plan
participant for at least five years, he shall be entitled to deferred SRP
payments calculated as if his termination date were his retirement date. If a
participant voluntarily terminates his employment and such terminated employee
shall have been an employee for at least ten years and a plan participant for at
least five years, he shall be entitled to deferred

39
<PAGE>
SRP payments calculated as if his termination date were his retirement date. The
credited years of service at the end of fiscal 1996 for each of the individuals
listed in the Summary Compensation Table are 6 years for Mr. White, 5 years for
Mr. Roemer, 15 years for Mr. Johansson and 1 year for Mr. McSwiney. The Holding
Company estimates that the annual benefits which have accrued through the end of
fiscal 1996 and would be payable upon retirement at age 60 pursuant to the SRP
would be $142,950 for Mr. White, $43,600 for Mr. Roemer and $152,475 for Mr.
Johansson. No SRP benefits have yet accrued at the end of fiscal 1996 for Mr.
McSwiney or Mr. Dering.

The following annual benefits would be payable upon retirement at or after
age 60 to persons in the following specified participation levels, compensation
and year-of-service classifications, less amounts received as social security
benefits and benefits under BHOC's other retirement plans:

SUPPLEMENTAL RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------
PARTICIPATION LEVEL I REMUNERATION 15 20 OR MORE
- ---------------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
$250,000...................................... $ 93,750 $ 125,000
425,000...................................... 159,375 212,500
600,000...................................... 225,000 300,000
775,000...................................... 290,625 387,500
950,000...................................... 356,250 475,000

YEARS OF SERVICE
---------------------------------------------
PARTICIPATION LEVEL II REMUNERATION 15 20 25 30 OR MORE
- ---------------------------------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
$125,000...................................... $ 34,375 $ 43,750 $ 53,125 $ 62,500
150,000...................................... 41,250 52,500 63,750 75,000
175,000...................................... 48,125 61,250 74,375 87,500
200,000...................................... 55,000 70,000 85,000 100,000
225,000...................................... 61,875 78,750 95,625 112,500
</TABLE>

Participants' may retire between ages 55 and 60 with reduced benefits.

EMPLOYMENT CONTRACTS

BHOC entered into an employment agreement with William J. White dated as of
March 23, 1990. Mr. White's salary and bonus are set by the Compensation
Committee of the Board of Directors. Pursuant to the terms of the employment
agreement, Mr. White is an employee at will. The agreement provides that Mr.
White shall be entitled to severance pay equal to one-half of his annual base
salary at the time of his termination and a prorated bonus if terminated without
cause or if Mr. White resigns for good reason. The agreement contains
noncompetition and confidentiality commitments.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of Holding Company's Board of Directors in fiscal
1996 consisted of Messrs. Oberndorf (Chairman), Bonderman, Crandall, Doctoroff
and Roubos. None of Messrs. Oberndorf, Bonderman, Crandall, Doctoroff and Roubos
were executive officers of Holding Company during 1996.

40
<PAGE>
CERTAIN TRANSACTIONS

The Company has made loans (the balance of which totaled $1,443,896 at the
end of fiscal 1996) to certain key executives in connection with their purchases
of Holding Company Common Stock. Pursuant to the terms of such loans, the shares
acquired are pledged as security. The following individuals have loans in excess
of $60,000 outstanding at the end of fiscal 1996: Nils A. Johansson ($236,128);
Stuart T. Lieberman ($90,818); Ben L. McSwiney ($356,977); and Maria T. Rubly
($359,987). Each loan is evidenced by an installment note that bears interest at
BHOC's marginal rate of borrowing (approximately 6% at this time), and are
primarily due on December 31, 1998. Interest and principal may be deferred until
that date.

41
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of August 30, 1997, with
respect to the beneficial ownership of Holding Company Common Stock held by
persons known to be the beneficial owners of 5% or more of any class of voting
securities of the Holding Company, by each director and certain executive
officers of the Holding Company, and by all directors and executive officers as
a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NUMBER OF
SHARES PERCENT
---------- -----------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS:
Keystone, Inc.(1)(2)........................................................................ 4,363,000 18.7%
Robert M. Bass(1)(2)........................................................................ 4,363,000 18.7%
David Bonderman(3)(4)....................................................................... 729,760 3.1%
William J. White(5)......................................................................... 549,540 2.4%
Nils A. Johansson........................................................................... 247,812 1.1%
James P. Roemer............................................................................. 171,555 *
John H. Scully(4)(6)........................................................................ 145,187 *
J. Taylor Crandall(4)....................................................................... 132,603 *
William E. Oberndorf(4)..................................................................... 56,565 *
Ben L. McSwiney(7).......................................................................... 20,100 *
Daniel L. Doctoroff(4)...................................................................... 13,133 *
Gary L. Roubos(4)........................................................................... 4,079 *
David G. Brown(4)........................................................................... 2,375 *
Michael A. Dering(8)........................................................................ 2,000 *
All directors and executive officers as a group (16 persons)(9)............................. 2,179,929 9.3%
</TABLE>

- ------------------------

* Less than one percent.

(1) Robert M. Bass holds all of the voting stock and serves as president and
sole director of Keystone. Accordingly, Mr. Bass may be deemed to
beneficially own the shares of Holding Company Common Stock held by
Keystone.

(2) The address for this stockholder is 201 Main Street, Suite 3100, Forth
Worth, Texas 76102.

(3) Includes 64,483 shares owned by Bonderman Family Limited Partnership and
72,488 shares owned by Group Management, Inc.

(4) Includes options to purchase 2,375 shares that are exercisable within 60
days of September 15, 1997.

(5) Includes 447,300 shares held in a trust of which Mr. White is neither
trustee nor beneficiary but for which he has the power to vote and dispose
of shares.

(6) Includes 417,812 shares owned by Cranberry Lake Partners Limited over which
Mr. Scully exercises investment discretion.

(7) Includes options to purchase 6,600 shares that are exercisable within 60
days of September 15, 1997.

(8) Includes options to purchase 2,000 shares that are exercisable within 60
days of September 15, 1997.

(9) Includes options to purchase 36,225 shares that are exercisable within 60
days of September 15, 1997.

42
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following statements are subject to the detailed provisions of the
Holding Company's Amended Certificate of Incorporation and Bylaws, do not
purport to be complete and are qualified in their entirety by reference thereto.
Upon the implementation of the Plan, the Holding Company, as sole stockholder of
BHOC, will approve an Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws of BHOC which are identical to the current Amended
and Restated Certificate of Incorporation and Bylaws of the Holding Company in
all material respects.

The authorized capital stock of the Holding Company consists of 50,000,000
shares of Common Stock, $.001 par value, of which 23,408,388 shares are
outstanding.

COMMON STOCK

All of the issued and outstanding shares of Holding Company Common Stock are
fully paid and non-assessable. Holders of Holding Company Common Stock are
entitled to one vote for each share on all matters voted upon by stockholders
and have no preemptive or other rights to subscribe for additional securities of
the Holding Company. Holders of Holding Company Common Stock do not have the
right to cumulatively vote their shares in the election of directors. Each share
of Holding Company Common Stock has an equal and ratable right to receive
dividends when, as and if declared by the Board of Directors out of assets
legally available therefore. In the event of a liquidation, dissolution or
winding up of the Holding Company, the holders of Holding Company Common Stock
will be entitled to share equally and ratably in the distribution of all of the
Holding Company's assets remaining available for distribution after satisfaction
of all its liabilities and the payment of the liquidation preference of any
outstanding preferred stock as described below.

CERTAIN CHARTER AND BYLAW PROVISIONS

In the event of any vacancy on the Board of Directors, the remaining
Directors may elect a successor to serve for the remainder of the unexpired
term. As permitted by the DGCL, the Directors are indemnified against certain
expenses and liabilities incurred in their capacities as Directors of the
Holding Company when acting in good faith and cannot be held personally liable
for certain breaches of their fiduciary duty of care, as described below.

PERSONAL LIABILITY OF DIRECTORS

The DGCL authorizes a Delaware corporation to eliminate or limit the
personal liability of a director to the corporation and its stockholders for
monetary damages for breach of certain fiduciary duties as a director. The
Holding Company believes that such a provision is beneficial in attracting and
retaining qualified directors, and accordingly, the Holding Company's Amended
Certificate of Incorporation includes a provision eliminating liability for
monetary damages for any breach of fiduciary duty as a director, except: (i) for
any breach of the duty of loyalty to the Holding Company or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for any transaction from which
the director derived an improper personal benefit; or (iv) for willful or
negligent payment of dividends, or approval of stock repurchases or redemptions
that are unlawful under Delaware law. Pursuant to the DGCL, directors of the
Holding Company are not insulated from liability for breach of their duty of
loyalty (requiring that, in making a business decision, directors act in good
faith and in the honest belief that the action taken was in the best interest of
the corporation), or for claims arising under the Federal securities laws. The
foregoing provision of the Amended Certificate of Incorporation may reduce the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though such an action, if successful,
might otherwise have benefitted the Holding Company and its stockholders.

43
<PAGE>
CERTAIN STATUTORY PROVISIONS

Section 203 of the DGCL contains certain provisions that may make more
difficult the acquisition of control of the Holding Company by means of a tender
offer, open market purchase, proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Holding Company
to negotiate with the Board of Directors. However, these provisions could have
the effect of discouraging a prospective acquirer from making a tender offer or
otherwise attempting to obtain control of the Holding Company. To the extent
that these provisions discourage takeover attempts, they could deprive
stockholders of opportunities to realize takeover premiums for their shares or
could depress the market price of the shares. Set forth below is a description
of the relevant provisions of Section 203 of the DGCL. The description is
intended as a summary only and is qualified in its entirety by reference to
Section 203 of the DGCL.

Section 203 of the DGCL prohibits certain "business combination"
transactions between a publicly held Delaware corporation, such as the Holding
Company, and any "interested stockholder" for a period of three years after the
date on which such stockholder became an interested stockholder, unless (i) the
Board of Directors approves, prior to such date, either the proposed business
combination or the proposed acquisition of stock that resulted in the
stockholder becoming an interested stockholder, (ii) upon consummation of the
transaction that results in the stockholder becoming an interested stockholder,
the interested stockholder acquires at least 85% of those shares of the voting
stock of the corporation which are not held by the directors, officers or
certain employee stock plans or (iii) on or subsequent to that date, the
business combination with the interested stockholder is approved by the Board of
Directors and also approved at a stockholders' meeting by the affirmative vote
of the holder of at least two-thirds of the outstanding shares of the
corporation's voting stock other than shares held by the interested stockholder.
The Holding Company has opted out of Section 203 of the DGCL pursuant to its
terms.

TRANSFER AGENT AND REGISTRAR

The transfer agent, dividend paying agent and registrar for the Holding
Company Common Stock is BankBoston N.A.

INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON

The Board of Directors of the Holding Company is not aware of any material
interest of any director or executive officer, or anyone who has held office as
such since the beginning of the last completed fiscal year of the Holding
Company, or of any associate or affiliate of any of the foregoing, in any matter
to be acted upon by the consent solicitation.

AVAILABLE INFORMATION

The Holding Company and BHOC are each subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Registration Statement and the exhibits
thereto as well as the periodic reports, proxy statements and other information
filed by the Holding Company and BHOC with the Securities and Exchange
Commission (the "Commission") may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, material
filed by the Holding Company can be inspected at the offices of the NYSE at 20
Broad Street, New York, New York 10005.

BHOC has filed with Commission a Registration Statement on Form S-4 under
the Securities Act, with respect to the shares of BHOC Common Stock to be issued
pursuant to the Plan. For purposes

44
<PAGE>

hereof, the term "Registration Statement" means the original Registration
Statement and any and all amendments thereto. This Consent Statement/Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in exhibits to the Registration Statement as permitted by the
rules and regulations of the Commission. Statements made in this Consent
Statement/Prospectus concerning the contents of any documents referred to herein
are not necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and other information filed by BHOC with the Commission
are also available at the web site maintained by the Commission on the World
Wide Web at http://www.sec.gov.

To the extent this Consent Statement/Prospectus incorporates documents by
reference which are not presented herein or delivered herewith, these documents
are available upon request from Mr. Gary Salit, Corporate Counsel and Secretary,
Bell & Howell Company, 5215 Old Orchard Road, Skokie, Illinois 60077-1076,
telephone (847) 470-7100. In order to ensure timely delivery of the documents,
any request should be made by October 18, 1997.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by McDermott, Will
& Emery, Chicago, Illinois.

EXPERTS

The audited Consolidated Financial Statements of the Company as of the end
of fiscal years 1995 and 1996 and for each of fiscal years 1994, 1995 and 1996
included herein have been so included in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

STOCKHOLDER PROPOSALS

Under the rules of the Securities and Exchange Commission, stockholder
proposals to be presented at the 1998 annual meeting of the Holding Company, or
BHOC if the proposed Plan is approved, must be received by the Holding Company
no later than the close of business on December 14, 1997, to be considered.
Proposals should be addressed to Gary S. Salit, Esq., Bell & Howell Company,
5215 Old Orchard Road, Skokie, IL 60077-1076.

45
<PAGE>
FORM 10-K

A copy of the Holding Company's Annual Report on Form 10-K, as filed with
the Securities and Exchange Commission, will be furnished without charge to any
stockholder upon written request to Mr. Gary Salit, Corporate Counsel and
Secretary, Bell & Howell Company, 5215 Old Orchard Road, Skokie, Illinois
60077-1076.

October 10, 1997

By Order of the Board of Directors

Gary S. Salit

CORPORATE COUNSEL AND SECRETARY

46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:

Independent Auditors' Report............................................................................... F-2

Consolidated Statements of Operations for the fiscal years 1994, 1995 and 1996............................. F-3

Consolidated Balance Sheets at the end of fiscal years 1995 and 1996....................................... F-4

Consolidated Statements of Cash Flows for the fiscal years 1994, 1995 and 1996............................. F-5

Consolidated Statements of Shareholders' Equity for the fiscal years 1994, 1995 and 1996................... F-6

Notes to the Consolidated Financial Statements............................................................. F-7

CONSOLIDATED INTERIM FINANCIAL STATEMENTS:

Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 29, 1996 and June
28, 1997................................................................................................. F-23

Consolidated Balance Sheets at December 28, 1996 and June 28, 1997......................................... F-24

Consolidated Statements of Cash Flows for the twenty-six weeks ended June 29, 1996 and June 28, 1997....... F-25

Notes to the Consolidated Interim Financial Statements..................................................... F-26
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Bell & Howell Company:

We have audited the accompanying consolidated balance sheets of Bell &
Howell Company and subsidiaries (the "Company") as of the end of fiscal years
1995 and 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the fiscal years 1994, 1995 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bell &
Howell Company and subsidiaries as of the end of fiscal years 1995 and 1996, and
the results of their operations and their cash flows for the fiscal years 1994,
1995 and 1996 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 19, 1997

F-2
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Product.................................................................... $ 542,546 $ 630,454 $ 703,833
Service.................................................................... 177,794 189,435 198,964
---------- ---------- ----------
Total net sales........................................................ 720,340 819,889 902,797
Operating costs and expenses:
Cost of product............................................................ 336,775 385,562 443,014
Cost of service............................................................ 118,649 125,837 133,403
Research and development................................................... 21,556 30,202 38,101
Selling and administrative................................................. 173,019 194,839 198,898
Restructuring.............................................................. 32,893 -- --
---------- ---------- ----------
Total operating costs and expenses..................................... 682,892 736,440 813,416
Operating income............................................................. 37,448 83,449 89,381
Net interest expense:
Interest (income).......................................................... (13,703) (14,391) (18,759)
Interest expense........................................................... 62,657 65,191 64,085
---------- ---------- ----------
Net interest expense................................................... 48,954 50,800 45,326
Earnings (loss) before income taxes and extraordinary items.................. (11,506) 32,649 44,055
Income tax expense (benefit)................................................. (2,490) 13,439 18,400
---------- ---------- ----------
Earnings (loss) before extraordinary items................................... (9,016) 19,210 25,655
Extraordinary losses......................................................... (978) (3,219) (2,585)
---------- ---------- ----------
Net earnings (loss).......................................................... $ (9,994) $ 15,991 $ 23,070
---------- ---------- ----------
---------- ---------- ----------

Net earnings (loss) per common share:
Primary:
Earnings (loss) before extraordinary items............................... $ (.68) $ 1.15 $ 1.38
Extraordinary losses..................................................... (.07) (.19) (.14)
---------- ---------- ----------
Net earnings (loss) per common share......................................... $ (.75) $ .96 $ 1.24
---------- ---------- ----------
---------- ---------- ----------
Fully diluted:
Earnings (loss) before extraordinary items............................... $ (.68) $ 1.15 $ 1.38
Extraordinary losses..................................................... (.07) (.19) (.14)
---------- ---------- ----------
Net earnings (loss) per common share......................................... $ (.75) $ .96 $ 1.24
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares and equivalents outstanding:
Primary.................................................................... 13,267 16,585 18,560
Fully diluted.............................................................. 13,267 16,585 18,560
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-3
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AT THE END OF FISCAL YEARS 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 7,262 $ 15,500
Accounts receivable, less allowance for doubtful accounts of $4,406 and $5,294,
respectively......................................................................... 181,247 186,862
Inventory:
Finished products.................................................................... 52,760 61,393
Products in process and materials.................................................... 53,158 78,438
---------- ----------
Total inventory.................................................................... 105,918 139,831
Other current assets................................................................... 11,768 11,826
---------- ----------
Total current assets............................................................... 306,195 354,019
Property, plant and equipment:
Land................................................................................... 4,245 4,302
Buildings.............................................................................. 42,840 47,833
Machinery and equipment................................................................ 115,023 137,586
Product masters........................................................................ 153,928 173,294
---------- ----------
Total property, plant and equipment, at cost....................................... 316,036 363,015
Accumulated depreciation................................................................. (171,057) (207,287)
---------- ----------
Net property, plant and equipment.................................................. 144,979 155,728
Long-term receivables.................................................................... 57,062 54,707
Goodwill, net of accumulated amortization................................................ 133,422 189,868
Other assets............................................................................. 40,483 42,464
---------- ----------
Total assets....................................................................... $ 682,141 $ 796,786
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.......................................................................... $ 14,939 $ 8,397
Current maturities of long-term debt................................................... 14,707 1,667
Accounts payable....................................................................... 65,444 93,135
Accrued expenses....................................................................... 81,717 78,308
Deferred income........................................................................ 176,351 171,698
Accrued income taxes................................................................... 6,539 1,143
---------- ----------
Total current liabilities.......................................................... 359,697 354,348
Long-term liabilities:
Long-term debt......................................................................... 465,230 548,281
Other liabilities...................................................................... 46,686 61,049
---------- ----------
Total long-term liabilities........................................................ 511,916 609,330
Shareholders' equity:
Common Stock, $0.001 par value, 18,336 shares issued and 18,329 shares outstanding at
the end of fiscal 1995, and 18,359 shares issued and 18,309 shares outstanding at the
end of fiscal 1996................................................................... 18 18
Capital surplus........................................................................ 328 1,402
Notes receivable from executives....................................................... (2,054) (1,444)
Retained earnings (deficit)............................................................ (188,921) (165,851)
Cumulative foreign exchange translation adjustments.................................... 1,187 616
Treasury stock......................................................................... (30) (1,633)
---------- ----------
Total shareholders' equity (deficit)............................................... (189,472) (166,892)
Commitments and contingencies............................................................ -- --
---------- ----------
Total liabilities and shareholders' equity......................................... $ 682,141 $ 796,786
---------- ----------
---------- ----------
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-4
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net earnings (loss)...................................................... $ (9,994) $ 15,991 $ 23,070
Depreciation and amortization............................................ 36,689 41,386 47,389
Debt accretion........................................................... 20,993 23,476 23,903
Changes in operating assets and liabilities:
Accounts receivable.................................................... 741 (28,891) (5,537)
Inventory.............................................................. 17,301 (27,235) (37,137)
Other current assets................................................... (1,130) (1,220) 436
Long-term receivables.................................................. 30,552 (14,804) 2,355
Income taxes........................................................... (3,340) 10,041 6,003
Accounts payable....................................................... 9,935 9,467 26,166
Accrued expenses....................................................... 7,483 (2,361) (6,302)
Deferred income and other long-term liabilities........................ 11,478 22,568 (1,137)
Other, net............................................................. 11,300 (4,468) (1,258)
----------- ----------- -----------
Net cash provided by operating activities............................ 132,008 43,950 77,951

Investing activities:
Expenditures for property, plant and equipment........................... (38,345) (44,047) (42,744)
Acquisitions............................................................. (18,747) (2,849) (65,314)
----------- ----------- -----------
Net cash used by investing activities................................ (57,092) (46,896) (108,058)

Financing activities:
Proceeds from short-term debt............................................ 20,275 17,786 15,588
Repayment of short-term debt............................................. (24,542) (15,329) (21,650)
Proceeds from long-term debt............................................. 79,985 55,887 237,432
Repayment of long-term debt.............................................. (142,171) (135,200) (192,703)
Proceeds from Common Stock, net.......................................... 519 71,255 71
----------- ----------- -----------
Net cash provided (used) by financing activities..................... (65,934) (5,601) 38,738

Effect of exchange rate changes on cash.................................... 9 (365) (393)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........................... 8,991 (8,912) 8,238

Cash and cash equivalents, beginning of period............................. 7,183 16,174 7,262
----------- ----------- -----------
Cash and cash equivalents, end of period................................... $ 16,174 $ 7,262 $ 15,500
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-5
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE
NOTES FOREIGN UNREALIZED
COMMON STOCK RECEIVABLE RETAINED EXCHANGE LOSS ON
---------------------- CAPITAL FROM EARNINGS TRANSLATION MARKETABLE
ISSUED TREASURY SURPLUS EXECUTIVES (DEFICIT) ADJUSTMENTS SECURITIES
----------- --------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at the end of fiscal 1993
(Common Stock, 13,290 shares;
treasury stock, 112 shares)..... $ 13 $ (194) $ (70,984) $ (2,328) $ (194,918) $ (1,897) $ (245)
Net loss.......................... (9,994)
Common Stock, 47 shares........... 764
Notes receivable from
executives...................... (624)
Treasury stock, net 109
shares.......................... 189
Unrealized loss on marketable
securities...................... (768)
Translation adjustments........... 2,258
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1994
(Common Stock, 13,336 shares;
treasury stock, 3 shares)....... 13 (5) (70,220) (2,952) (204,912) 361 (1,013)
Net earnings...................... 15,991
Common Stock, 5,000 shares........ 5 70,548
Notes receivable from
executives...................... 898
Treasury stock, net 4 shares...... (25)
Unrealized loss on marketable
securities...................... 1,013
Translation adjustments........... 826
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1995
(Common Stock, 18,336 shares;
treasury stock, 7 shares)....... 18 (30) 328 (2,054) (188,921) 1,187 --
Net earnings...................... 23,070
Common Stock, 23 shares........... 1,074
Notes receivable from
executives...................... 610
Treasury stock, net 43 shares..... (1,603)
Translation adjustments........... (571)
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1996
(Common Stock, 18,359 shares;
treasury stock, 50 shares)...... $ 18 $ (1,633) $ 1,402 $ (1,444) $ (165,851) $ 616 $ --
--- --------- ---------- ----------- ----------- ----------- -----------
--- --------- ---------- ----------- ----------- ----------- -----------
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-6
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1--BASIS OF PRESENTATION

Bell & Howell Company (the "Company") is a holding company, the primary
assets of which are all of the issued and outstanding shares of capital stock of
Bell & Howell Operating Company ("BHOC"). The Company conducts business through
Bell & Howell Operating Company and has no operations of its own.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS. Bell & Howell Company and its Subsidiaries is a
leading provider of systems and services for information access and
dissemination. The Company consists of two business segments, Information Access
and Mail Processing. Information Access develops and markets imaging and
information services and systems that provide its customers with access
solutions to targeted segments of complex public and private information
databases. Mail Processing develops and markets a complete range of high volume
mail processing systems, which increasingly utilize software to expand the
capabilities and improve the efficiencies and effectiveness of customers'
mailing operations.

USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Subsequent actual results may differ from those
estimates.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries (collectively, the "Company").
Certain prior year amounts have been reclassified to conform with the 1996
presentation.

FISCAL YEAR. The Company's fiscal year ends on the Saturday nearest to
December 31. References to fiscal 1996 are for the 52 weeks ended December 28,
1996, references to fiscal 1995 are for the 52 weeks ended December 30, 1995,
and references to fiscal 1994 are for the 52 weeks ended December 31, 1994.

REVENUE RECOGNITION. Product sales include sales of equipment, software and
subscriptions. Equipment and software license sales are recorded at the time of
shipment, provided no significant vendor and postcontract customer support
obligations remain outstanding and collection of the resulting receivable is
deemed probable. Sales of customized mail automation equipment under long-term
contracts are recognized at the time of shipment. Revenues from subscriptions
are deferred and recognized in the periods the subscriptions are fulfilled.
Service sales represent amounts earned by providing equipment maintenance
services to customers of the Mail Processing and Information Management
businesses. Where such services are provided under annual agreements, revenues
are recognized on a pro rata basis over the periods of the agreements. Other
service revenues are recognized when the services are performed.

FOREIGN CURRENCY TRANSLATION. The financial position and results of
operations of each of the Company's foreign subsidiaries are measured using the
local currency as the functional currency. Assets and liabilities are translated
into U.S. dollars using the exchange rates at the end of the respective fiscal
periods. Revenues and expenses are translated at average exchange rates
prevailing during the respective fiscal periods. Balance sheet translation
adjustments arising from differences in exchange rates from period to period are
included as a separate component of shareholders' equity.

F-7
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS (LOSS) PER COMMON SHARE. Net earnings (loss) per common share
are determined by dividing net earnings by the weighted average number of common
shares outstanding during the period. If dilutive, stock options are included as
common stock equivalents.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with maturities of three months or less (when purchased) to be cash
equivalents. The carrying amount reported in the consolidated balance sheets
approximates fair value.

INVENTORY. Inventory is valued at cost determined by the last-in, first-out
("LIFO") and the first-in, first-out ("FIFO") methods, with the following
balances at the end of fiscal 1995 and 1996:

<TABLE>
<CAPTION>
YEAR END LIFO FIFO TOTAL
- ------------------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C>
1995........................................................ $ 53,601 $ 52,317 $ 105,918
1996........................................................ 67,051 72,780 139,831
</TABLE>

The Company uses the LIFO method of valuing the majority of domestic
inventories. The excess of replacement cost over the LIFO values of inventory
was approximately $4,413 and $4,489 at the end of fiscal 1995 and 1996,
respectively. Inventory cost includes material, labor and overhead and is valued
at the lower of cost or net realizable value.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is recorded at
cost. The straight-line method of depreciation is primarily used, except for
Information Access product masters (which represent the cost to create
electronic and microform master document copies which are subsequently used in
the production process to fulfill customers' information requirements), which
are depreciated on the double declining balance method. Estimated lives range
from 10 to 40 years for buildings and building improvements, 3 to 15 years for
machinery and equipment and 10 years for product masters.

GOODWILL. Goodwill, which represents the excess of purchase price over the
fair value of net assets of acquired businesses, is amortized on a straight-line
basis over the expected future periods to be benefitted. The Company
periodically assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance (for each business) over its
remaining life can be recovered through forecasted future operations.

In fiscal 1996, acquisitions (primarily DataTimes Corporation and Protocorp
International) served to initially increase goodwill by $61,511. Accumulated
amortization at the end of fiscal 1995 and 1996 was $28,489 and $33,632,
respectively.

STOCK OPTION PLAN. Prior to fiscal 1996, the Company accounted for its
stock option plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. In fiscal 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25, and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and

F-8
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future years as if the fair-value-based method (defined in SFAS No. 123) had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123
(see Note 12 of the Consolidated Financial Statements).

NOTE 3--BUSINESS SEGMENTS

The Company consists of two business segments, Information Access and Mail
Processing. Information Access develops and markets imaging and information
services and systems that provide its customers with access solutions to
targeted segments of complex public and private information databases. Mail
Processing develops and markets a complete range of high volume mail processing
systems, which increasingly utilize software to expand the capabilities and
improve the efficiencies and effectiveness of customers' mailing operations.

Information concerning the Company's business segments and operations by
geographic area for fiscal 1994, 1995 and 1996 was as follows (dollars in
millions):
<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE INCOME
TAXES
SALES AND EXTRAORDINARY ITEMS
------------------------------- -------------------------------
BUSINESS SEGMENTS 1994 1995 1996 1994(1) 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 404.4 $ 449.9 $ 470.5 $ 46.5 $ 62.8 $ 62.9
Mail Processing........................................ 315.9 370.0 432.3 2.8 33.5 40.0
--------- --------- --------- --------- --------- ---------
Total................................................ 720.3 819.9 902.8 49.3 96.3 102.9
Interest expense, net.................................. (49.0) (50.8) (45.3)
Corporate and other income and expenses................ (11.8) (12.9) (13.5)
--------- --------- --------- --------- --------- ---------
Consolidated........................................... $ 720.3 $ 819.9 $ 902.8 $ (11.5) $ 32.6 $ 44.1
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------

IDENTIFIABLE ASSETS CAPITAL EXPENDITURES
------------------------------- -------------------------------
1994 1995 1996 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 371.3 $ 393.9 $ 451.9 $ 30.5 $ 34.2 $ 31.0
Mail Processing........................................ 159.1 206.4 259.4 6.5 9.6 11.4
--------- --------- --------- --------- --------- ---------
Total................................................ 530.4 600.3 711.3 37.0 43.8 42.4
Corporate.............................................. 73.3 81.8 85.5 1.3 0.2 0.3
--------- --------- --------- --------- --------- ---------
Consolidated........................................... $ 603.7 $ 682.1 $ 796.8 $ 38.3 $ 44.0 $ 42.7
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

F-9
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 3--BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION AND
AMORTIZATION(2)
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 26.9 $ 31.3 $ 35.5
Mail Processing........................................ 5.4 5.5 8.1
--------- --------- ---------
Total................................................ 32.3 36.8 43.6
Corporate.............................................. 0.5 0.6 0.6
--------- --------- ---------
Consolidated........................................... $ 32.8 $ 37.4 44.2
--------- --------- ---------
--------- --------- ---------
</TABLE>

- ------------------------

(1) Includes restructuring expense of $32.9 million ($28.2 million for Mail
Processing and $4.7 million for Information Access).

(2) Excludes amortization of deferred financing costs.

<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE INCOME
SALES TAXES AND EXTRAORDINARY ITEMS(1) IDENTIFIABLE ASSETS(2)
------------------------------- --------------------------------- -------------------------------
GEOGRAPHIC SEGMENTS 1994 1995 1996 1994(3) 1995 1996 1994 1995 1996
--------- --------- --------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Unaffiliated customers..... $ 548.4 $ 625.2 $ 706.0
Inter-segment.............. 45.6 51.1 46.6
--------- --------- ---------
Total.................... 594.0 676.3 752.6 $ 42.7 $ 81.4 $ 86.5 $ 439.3 $ 497.0 $ 615.4
--------- --------- --------- ----- --------- --------- --------- --------- ---------
EUROPE:
Unaffiliated customers..... 130.5 145.1 158.2
Inter-segment.............. 1.6 2.0 0.8
--------- --------- ---------
Total.................... 132.1 147.1 159.0 7.8 12.6 13.3 67.8 78.2 81.2
--------- --------- --------- ----- --------- --------- --------- --------- ---------
OTHER:
Unaffiliated customers..... 41.4 49.6 38.6 (1.2) 2.3 3.1 24.3 26.3 16.0
--------- --------- --------- ----- --------- --------- --------- --------- ---------
Eliminations inter-
segment.................. (47.2) (53.1) (47.4) -- -- -- (1.0) (1.2) (1.3)
--------- --------- --------- ----- --------- --------- --------- --------- ---------
Total.................... $ 720.3 $ 819.9 902.8 $ 49.3 $ 96.3 102.9 $ 530.4 $ 600.3 $ 711.3
--------- --------- --------- ----- --------- --------- --------- --------- ---------
--------- --------- --------- ----- --------- --------- --------- --------- ---------
</TABLE>

- ------------------------

(1) Excludes net interest and corporate expenses.

(2) Excludes corporate identifiable assets.

(3) Includes restructuring expense of $32.9 million ($29.2 million in the United
States, $1.3 million in Europe and $2.4 million in Other).

F-10
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4--RESTRUCTURING

The Company's restructuring expense of $32,893 in fiscal 1994 resulted from
management's decision to relocate Mail Processing Systems headquarters'
operations and consolidate certain of its domestic Mail Processing Systems
facilities at a new site that will be the base for developing innovative
technology and products (both software and hardware), and to consolidate certain
North American Information Management administrative and warehouse facilities in
order to more effectively serve its customer base with a reduced operating
expense infrastructure.

NOTE 5--INCOME TAXES

The pretax income (loss) amounts, before extraordinary items, on which
income taxes were provided in fiscal 1994, 1995 and 1996 were:

<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Domestic.................................................... $ (13,471) $ 27,251 $ 35,850
Foreign..................................................... 1,965 5,398 8,205
---------- --------- ---------
Pretax income (loss)...................................... $ (11,506) $ 32,649 $ 44,055
---------- --------- ---------
---------- --------- ---------
</TABLE>

The provision for income taxes in fiscal 1994, 1995 and 1996 included the
following:

<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Current income tax expense (benefit):
United States............................................. $ 1,814 $ 5,157 $ 1,996
State and local........................................... (62) 513 476
Foreign................................................... (379) 1,849 3,974
---------- --------- ---------
Current income tax expense.............................. 1,373 7,519 6,446
---------- --------- ---------
Deferred income tax expense (benefit):
United States............................................. (3,303) 3,906 9,035
State and local........................................... (147) 1,633 2,208
Foreign................................................... (413) 381 711
---------- --------- ---------
Deferred income tax expense (benefit)..................... (3,863) 5,920 11,954
---------- --------- ---------
Income tax expense (benefit).............................. $ (2,490) $ 13,439 $ 18,400
---------- --------- ---------
---------- --------- ---------
</TABLE>

The significant components of deferred income tax expense (benefit) in
fiscal 1994, 1995 and 1996 were as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Deferred income tax expense (benefit), exclusive of
components listed below................................... $ (11,230) $ (3,806) $ 12,557
Operating loss carryforwards................................ 5,654 9,974 (414)
Tax credits................................................. 1,713 (248) (189)
---------- --------- ---------
Deferred income tax expense (benefit)..................... $ (3,863) $ 5,920 $ 11,954
---------- --------- ---------
---------- --------- ---------
</TABLE>

F-11
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5--INCOME TAXES (CONTINUED)
Deferred income taxes are primarily provided for temporary differences
between the financial reporting bases and the tax bases of the Company's assets
and liabilities. The tax effects of the major temporary differences that gave
rise to the deferred tax asset (liability) at the end of fiscal 1995 and 1996
were as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets are attributable to:
Accrued expenses.................................................... $ 14,889 $ 9,236
Deferred compensation............................................... 8,094 9,194
Postretirement benefits............................................. 3,669 3,476
Accounts receivable................................................. 1,722 2,332
Operating loss carryforwards........................................ 17,934 22,188
Tax credits......................................................... 765 525
Other............................................................... 9,468 82
---------- ----------
Total gross deferred tax assets................................... 56,541 47,033
Valuation allowance............................................... (4,666) (7,049)
---------- ----------
Net deferred tax assets........................................... 51,875 39,984

Deferred tax liabilities are attributable to:
Property, plant and equipment....................................... (13,832) (14,410)
Intangibles......................................................... (16,293) (16,607)
Deferred income..................................................... (21,349) (23,346)
Undistributed foreign earnings...................................... (4,449) (3,305)
---------- ----------
Total gross deferred tax liabilities.............................. (55,923) (57,668)
---------- ----------
Net deferred tax liabilities...................................... $ (4,048) $ (17,684)
---------- ----------
---------- ----------
</TABLE>

Net deferred tax liabilities are classified as other long-term liabilities
in the balance sheet.

At the end of fiscal 1996, the net deferred tax assets of $39,984 are
expected to be realized through both the reversal of taxable temporary
differences as well as the Company's ability to generate future taxable income.
This is on the basis that it is more likely than not that both the timing of
reversal of taxable amounts and the generation of future taxable income allows
for offset with future deductible amounts in the permitted
carryback/carryforward periods.

F-12
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5--INCOME TAXES (CONTINUED)
The differences between the Company's effective rate for income taxes and
the statutory federal income tax rate in fiscal 1994, 1995 and 1996 were as
follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate................................... (35.0%) 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit........................ (24.2) 6.3 5.7
Foreign earnings.................................................. (1.9) 1.0 4.4
Amortization of intangibles....................................... 14.5 2.3 2.1
Repatriation of foreign earnings.................................. 19.4 (.8) (1.0)
Other............................................................. 5.6 (2.6) (4.4)
--------- --- ---
Effective income tax rate....................................... (21.6%) 41.2% 41.8%
--------- --- ---
--------- --- ---
</TABLE>

As a result of losses incurred in fiscal 1991 through 1993, domestic net
operating loss ("NOL") carryforwards of $40,007 exist for tax purposes expiring
as follows: $8,552 in 2006, $15,371 in 2007, $15,144 in 2008, $822 in 2009 and
$118 in 2010. Foreign NOL carryforwards of $13,044 exist for tax purposes
expiring as follows: $574 in 1997, $229 in 1998, $66 in 1999, $2,466 in 2000,
$4,789 in 2001, $4,834 in 2002 and $86 in 2003.

The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
("AMT"). Under this Act, the Company's current tax liability is the greater of
its regular tax or AMT. The Company has AMT credits of $6,306 that may be
carried forward indefinitely and used as credits in future tax returns against
regular tax in the event the regular tax expense exceeds the alternative minimum
tax expense, or are available to offset future AMT-NOL's which can be carried
back.

Net income taxes paid for fiscal 1994, 1995 and 1996 were $250, $4,803 and
$10,943, respectively.

NOTE 6--EXTRAORDINARY LOSSES

The fiscal 1996 extraordinary losses of $2,585 ($4,039 pretax) were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $17,920 of the 10 3/4% Senior
Subordinated Notes and $34,158 (accreted value) of the 11 1/2% Senior Discount
Debentures, which were redeemed with proceeds from the amended Credit Agreement
(as defined herein).

The fiscal 1995 extraordinary losses of $3,219 ($5,030 pretax) were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $50,000 of the 10 3/4% Senior
Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the prepayment of $17,628 of term loans under the Credit
Agreement, both of which reflect the application of the net proceeds from the
initial public equity offering.

The fiscal 1994 extraordinary loss of $978 ($1,528 pretax) represents the
write-off of unamortized debt issuance costs associated with the prepayment of a
term loan included in the Credit Agreement.

F-13
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--DEBT AND LINES OF CREDIT

Debt at the end of fiscal 1995 and 1996 consisted of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Notes payable......................................................... $ 14,939 $ 8,397
---------- ----------
---------- ----------
Long-term debt:
Credit Agreement:
Term loan......................................................... $ 91,765 $ --
Revolving Credit Line due 2001.................................... 5,000 195,100
9 1/4% Senior Notes due 2000...................................... 80,000 80,000
10 3/4% Senior Subordinated Notes due 2002........................ 75,000 57,080
11 1/2% Senior Discount Debentures due 2005....................... 221,930 211,675
Other long-term debt.............................................. 6,242 6,093
---------- ----------
Long-term debt, including current maturities.......................... 479,937 549,948
Less: current maturities.............................................. 14,707 1,667
---------- ----------
Long-term debt.................................................. $ 465,230 $ 548,281
---------- ----------
---------- ----------
</TABLE>

The weighted average interest rates on short-term borrowings at the end of
fiscal 1996 and 1995 were 7.0% and 7.4%, respectively.

The carrying amounts and fair values of certain long-term debt instruments
at the end of fiscal 1996, based on quoted market prices for the 9 1/4% Senior
Notes, the 10 3/4% Senior Subordinated Notes and the 11 1/2% Senior Discount
Debentures were as follows:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
9 1/4% Senior Notes due 2000.......................................... $ 80,000 $ 81,600
10 3/4% Senior Subordinated Notes due 2002............................ 57,080 60,505
11 1/2% Senior Discount Debentures due 2005........................... 211,675 221,602
---------- ----------
$ 348,755 $ 363,707
---------- ----------
---------- ----------
</TABLE>

At the end of fiscal 1996, the Company had foreign short-term lines of
credit totaling $33,764, of which $25,367 was unused. These short-term credit
lines are primarily denominated in foreign currencies and generally require no
compensating balances or commitment fees.

In fiscal 1996, BHOC amended its Bank Credit Agreement (the "Credit
Agreement") which increased its revolving credit facility to $350,000, reduced
its interest rate and extended the maturity on all outstanding Credit Agreement
borrowings (to April 2001). The interest rates on borrowings under the Credit
Agreement are determined at the time of borrowing, and are based upon the
Company's interest coverage ratio for the preceding four quarters. At December
1996, the interest rate in effect was (at the Company's option) either LIBOR +
.50% or the prime rate. The Credit Agreement requires maintenance of a minimum
fixed charge coverage ratio, a minimum net worth level and a maximum leverage
ratio. The Company and its domestic operating subsidiaries except Bell & Howell
Financial Services Co. ("BHFS"),

F-14
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--DEBT AND LINES OF CREDIT (CONTINUED)
the Company's financing subsidiary, are jointly and severally liable as
guarantors under the Credit Agreement.

The 9 1/4% Senior Notes are general unsecured obligations of BHOC. The
9 1/4% Senior Notes are redeemable at the option of BHOC in whole or in part on
or after July 15, 1997 or upon the occurrence of a Change of Control (as defined
therein), at a call price ranging from 104.625% in 1997 and declining to par on
July 15, 1999. In addition, BHOC may redeem up to $26,700 of the principal
amount of the 9 1/4% Senior Notes prior to July 15, 1997 with the proceeds from
an offering of equity securities of the Company, BHOC or their subsidiaries at a
call price of 108%. The 9 1/4% Senior Notes are guaranteed by certain of BHOC's
domestic operating subsidiaries, excluding, among others, BHFS.

The 10 3/4% Senior Subordinated Notes are general unsecured obligations of
BHOC. The 10 3/4% Senior Subordinated Notes are redeemable at the option of BHOC
in whole or in part (i) after October 1, 1997, at a call price ranging from
104.031% in 1997 and declining to par on October 1, 2000 or (ii) upon the
occurrence of a Change of Control (as defined therein) at a call price ranging
from 105.375% in 1997 and declining to par on October 1, 2000. The 10 3/4%
Senior Subordinated Notes are guaranteed by certain of BHOC's domestic operating
subsidiaries, excluding, among others, BHFS. In fiscal 1996, BHOC repurchased
$17,920 in principal value of the 10 3/4% Senior Subordinated Notes with
proceeds from the amended Credit Agreement. In fiscal 1995, BHOC repurchased
$50,000 in principal value of the 10 3/4% Senior Subordinated Notes with a
portion of the proceeds of the initial public equity offering of Bell & Howell
Company.

The 11 1/2% Senior Discount Debentures pay no cash interest until September
1, 2000. The 11 1/2% Senior Discount Debentures may be redeemed in whole or in
part, at any time at the option of the Company at a price equal to 100% of the
principal amount at maturity plus accrued interest to the date of redemption.
The principal amount at maturity of the Senior Discount Debentures is $301,500;
at the end of fiscal 1996 the Accreted Value (as defined therein) is $211,675.
In addition, the Company may redeem up to 50% of the original principal amount
of the 11 1/2% Senior Discount Debentures with the proceeds from an offering of
equity securities of the Company and its subsidiaries at any time prior to March
1, 1998, at a price equal to 110% of the Accreted Value thereof. In the event of
a Change of Control (as defined therein), the Company may redeem any or all of
the 11 1/2% Senior Discount Debentures at a price equal to 110% of the Accreted
Value thereof to March 1, 2000, and at the principal amount at maturity
thereafter. The 11 1/2% Senior Discount Debentures are senior, unsecured
obligations of the Company with no claim against the Company's subsidiaries and
are effectively subordinate to all subsidiary debt obligations. In fiscal 1996,
the Company repurchased $34,158 of Accreted Value ($52,000 of Principal Value)
of 11 1/2% Senior Discount Debentures with proceeds from the amended Credit
Agreement.

The Credit Agreement prohibits and the 9 1/4% Senior Notes, the 10 3/4%
Senior Subordinated Notes and the 11 1/2% Senior Discount Debentures restrict
the payment of cash dividends on the Company's Common Stock.

In fiscal 1996, BHFS entered into a new Receivables Purchase Agreement.
Under this agreement and the existing Lease Receivables Financing Agreement
(collectively, the "Agreements"), BHFS sells lease receivables on a non-recourse
basis. Both Agreements are renewable annually and include the buyers' commitment
to purchase new lease receivables. During fiscal 1996, BHFS sold $71.3 million
of lease receivables.

F-15
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7--DEBT AND LINES OF CREDIT (CONTINUED)
For the five years subsequent to 1996, annual maturities of long-term debt
are: 1997--$1,667; 1998-- $790; 1999--$354; 2000--$83,274 and 2001--$195,107.

Interest paid for fiscal 1994, 1995 and 1996 was $38,122, $34,142 and
$30,197, respectively.

NOTE 8--LEASES

LESSOR. The Company provides sales-type leases for its products and
additionally leases products to customers under direct financing leases,
primarily through BHFS. The Company's net investment in sales-type and direct
financing leases at the end of fiscal 1995 and 1996 were as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Minimum lease payments receivable..................................... $ 72,510 $ 69,172
Estimated unguaranteed residual values................................ 3,868 4,347
Unearned income....................................................... (17,508) (21,905)
Allowance for doubtful accounts....................................... (2,299) (2,805)
---------- ----------
Net investment...................................................... $ 56,571 $ 48,809
---------- ----------
---------- ----------
</TABLE>

The scheduled maturities for sales-type and direct financing lease
receivables at the end of fiscal 1996 were as follows:

<TABLE>
<S> <C>
1997............................................................... $ 17,092
1998............................................................... 15,148
1999............................................................... 13,299
2000............................................................... 13,490
2001............................................................... 10,143
---------
Total minimum lease payments to be received...................... $ 69,172
---------
---------
</TABLE>

LESSEE. The Company leases certain facilities and equipment for production
and selling and administrative purposes. Future minimum rental payments required
under long-term noncancelable operating leases at the end of fiscal 1996 were as
follows:

<TABLE>
<S> <C>
1997............................................................... $ 14,921
1998............................................................... 11,903
1999............................................................... 9,209
2000............................................................... 6,213
2001............................................................... 4,100
Subsequent to 2001................................................. 16,174
---------
$ 62,520
---------
---------
</TABLE>

Total rental expenses for fiscal 1994, 1995 and 1996 were $12,356, $14,216
and $16,007, respectively.

F-16
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 9--PENSION AND PROFIT-SHARING PLANS

Eligible employees of the Company's domestic and Canadian operations who
elect to do so participate in defined contribution profit-sharing retirement
plans. The amounts charged to earnings for fiscal 1994, 1995 and 1996 were
$5,413, $5,591 and $5,819, respectively.

The Company also has defined benefit pension plans covering certain domestic
and most foreign employees. The benefits are primarily based on years of service
and/or compensation during the years immediately preceding retirement. The
Company funds its foreign plans based on local statutes and funds its domestic
plans in amounts that fulfill the funding requirements of the Employee
Retirement Income Security Act of 1974.

Plan assets consist principally of common stocks, fixed income securities
and cash equivalents.

The net pension costs of defined benefit plans for fiscal 1994, 1995 and
1996 were as follows (with 1994 costs including the impact of a pension plan
curtailment resulting from the restructuring of the Mail Processing Systems
business):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................................. $ 2,210 $ 2,062 $ 2,108
Interest cost................................................. 4,098 4,225 4,602
Return on assets.............................................. (4,821) (6,745) (5,513)
Net amortization and deferral................................. 193 1,497 (1,037)
Curtailment loss (included in 1994 restructuring expense)..... 5,431 -- --
--------- --------- ---------
Net pension cost............................................ $ 7,111 $ 1,039 $ 160
--------- --------- ---------
--------- --------- ---------
</TABLE>

The projected benefit obligations were determined using assumed discount
rates of 8.0% to 8.5%, and assumed compensation increase rates of 4.0% to 5.5%.
The assumed long-term rates of return on plan assets are 9.5% to 10.0%.

The status of defined benefit plans at the end of fiscal 1995 and 1996 was
as follows:

<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
FUNDED UNFUNDED FUNDED UNFUNDED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Vested benefit obligation..................... $ 38,126 $ 13,848 $ 42,315 $ 16,505
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulated benefit obligation................ $ 38,527 $ 16,000 $ 42,578 $ 16,902
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Projected benefit obligation.................. $ 40,316 $ 17,576 $ 44,792 $ 18,384
Plan assets at fair value..................... 53,359 -- 63,566 --
---------- ---------- ---------- ----------
Plan assets in excess of (less than) projected
benefit obligation.......................... 13,043 (17,576) 18,774 (18,384)
Unrecognized net (gain) loss.................. (10,043) 2,377 (12,585) 2,098
Unrecognized prior service costs.............. 2,460 187 2,131 235
---------- ---------- ---------- ----------
Prepaid (accrued) pension cost.............. $ 5,460 $ (15,012) $ 8,320 $ (16,051)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>

F-17
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company has contributory and non-contributory postretirement medical
benefit plans and a non-contributory postretirement life insurance benefit plan
covering certain domestic employees; all plans are unfunded.

The net postretirement benefit costs in fiscal 1994, 1995 and 1996 were as
follows (with 1994 costs including the impact of a postretirement benefit plan
curtailment resulting from the restructuring of the Mail Processing Systems
business):

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost....................................................... $ 124 $ 41 $ 92
Interest cost...................................................... 764 898 1,033
Net amortization and deferral...................................... 19 49 322
Curtailment loss (included in 1994 restructuring expense).......... 1,446 -- --
--------- --------- ---------
Net postretirement benefit cost.................................. $ 2,353 $ 988 $ 1,447
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accumulated postretirement benefit obligations at the end of fiscal 1995
and 1996 were as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Retirees................................................................... $ 6,833 $ 6,820
Active employees eligible for retirement benefits.......................... 4,418 5,219
Active employees not yet eligible for retirement benefits.................. 296 217
--------- ---------
Accumulated postretirement benefit obligation............................ 11,547 12,256
Unrecognized net loss...................................................... 3,276 3,830
--------- ---------
Accrued postretirement benefit obligation................................ $ 8,271 $ 8,426
--------- ---------
--------- ---------
</TABLE>

For measurement purposes, discount rates of 8.0% and 8.8% were used for 1995
and 1996 respectively, with an assumed constant inflationary health care cost
trend rate of 5.5%. If the health care cost trend rate increased by 1%, the
accumulated postretirement benefit obligation at the end of fiscal 1996 would
increase by $1,506 and the net postretirement benefit cost for fiscal 1996 would
increase by $127.

NOTE 11--COMMON STOCK

The Company has 50,000 authorized shares of Common Stock, ($.001 par value
per share), 18,359 of which were issued and 18,309 outstanding at the end of
fiscal 1996. The Company is restricted from paying dividends on its Common
Stock, and the amount of stock repurchases is limited by the provisions of
certain debt agreements.

NOTE 12--STOCK COMPENSATION PLANS

STOCK OPTION PLAN

In May, 1995, the Company completed its initial public equity offering of
5,000 shares of Common Stock (which were issued at $15.50 per share). Coincident
with the initial public equity offering, the Company adopted the 1995 Stock
Option Plan (the "Option Plan"), under which 2,160 shares of Common

F-18
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
Stock have been reserved for issuance. The Option Plan is administered by the
Compensation Committee of the Board of Directors which has authority to
determine which officers and key employees of the Company will be granted
options. All options are granted at not less than the fair market value on the
date of the grant.

Additionally coincident with the initial public equity offering, the Company
granted options for 1,115 shares to Messrs. White, Roemer and Johansson (the
"Senior Executive Grantees"), with a series of six option exercise prices (the
first of which equaled the initial public equity offering price, with each
subsequent exercise price set at 120% of the preceding exercise price). The term
for these options is six years, with the options vesting in installments
commencing after year three. Options with respect to the remaining 1,045 shares
reserved under the Option Plan may be granted to other officers and key
employees of the Company (the "Key Executive Grantees"), selected by the
Compensation Committee. At the end of fiscal 1996 the Company had options
outstanding for 366 shares to the Key Executive Grantees. The term for these
options is ten years, vesting in equal annual increments over a five year
period.

Per the provisions of SFAS No. 123, the Company has elected to continue to
apply APB Opinion No. 25 and related Interpretations in accounting for the
Option Plan, and accordingly, no compensation cost has been recognized. Had
compensation cost for the Option Plan been determined based on the fair value of
options granted (consistent with SFAS No. 123), the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net Income:
As Reported........................................................... $ 15,991 $ 23,070
Pro Forma............................................................. 15,718 22,392

Primary Earnings Per Share:
As Reported........................................................... $ .96 $ 1.24
Pro Forma............................................................. .95 1.22

Fully Diluted Earnings Per Share:
As Reported........................................................... $ .96 $ 1.24
Pro Forma............................................................. .95 1.22
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
volatility of 20%; risk free interest rate of 6%; expected lives of 5 years; and
no dividend yield.

F-19
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
A summary of the stock option transactions for fiscal 1995 and 1996 is as
follows:

<TABLE>
<CAPTION>
SENIOR EXECUTIVE
KEY EXECUTIVE GRANTEES
GRANTEES
---------------------- ------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at the end of fiscal 1994................... -- -- -- --

1995:
Granted............................................. 1,115 $ 27.30 184 $ 15.99
Exercised........................................... -- -- -- --
Forfeited........................................... -- -- (14) 15.50
--------- ----------- ----- -----------
Options outstanding at the end of fiscal 1995..... 1,115 $ 27.30 170 $ 16.03
--------- ----------- ----- -----------
--------- ----------- ----- -----------
Options exercisable at the end of fiscal 1995....... -- -- -- --
--------- ----------- ----- -----------
Weighted average fair value of options granted
during fiscal 1995................................ $ 1.75 $ 4.96
--------- -----
Balance at the end of fiscal 1995................... 1,115 $ 27.30 170 $ 16.03

1996:
Granted............................................. -- -- 226 31.50
Exercised........................................... -- -- (2) 15.50
Forfeited........................................... -- -- (28) 18.09
--------- ----------- ----- -----------
Options outstanding at the end of fiscal 1996..... 1,115 $ 27.30 366 $ 25.42
--------- ----------- ----- -----------
--------- ----------- ----- -----------
Options exercisable at the end of fiscal 1996....... -- -- 28 $ 16.14
--------- ----------- ----- -----------
Weighted average fair value of options granted
during fiscal 1996................................ -- $ 9.78
--------- -----
</TABLE>

The following table provides additional information with respect to stock
options outstanding at the end of fiscal 1996:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE (000) LIFE (YEARS) PRICE (000) PRICE
------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$15.00--$20.00...................................... 351 5.8 $ 16.45 25 $ 15.50
20.01--$25.00...................................... 239 4.6 22.14 3 20.61
25.01--$30.00...................................... 240 4.7 26.89 -- --
30.01--$35.00...................................... 428 6.7 31.87 -- --
35.01--$40.00...................................... 223 4.3 38.50 -- --
-- --
----- ----------- -----------
1,481 5.5 $ 26.84 28 $ 16.14
-- --
-- --
----- ----------- -----------
----- ----------- -----------
</TABLE>

F-20
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN

In fiscal 1996, the Company's Board of Directors adopted the Associate Stock
Purchase Plan (the "ASPP"), whereby employees are afforded the opportunity to
purchase shares in the Company, by authorizing the sale of up to 500 shares of
Common Stock. The purchase price of the shares is 95% of the lower of the
closing market price at the beginning or end of each quarter. Under SFAS No.
123, the ASPP is a non-compensatory plan.

NOTE 13--FOREIGN CURRENCY TRANSACTIONS

The Company has entered into various contracts to buy or sell foreign
currencies. The contracts have maturity dates extending through May 1997, and
are for an aggregate amount of $12,294 (which approximates the fair value based
on quoted market prices). The Company is exposed to market risk in the event of
nonperformance by the other parties (major international banks) to these
contracts, however, such nonperformance is not anticipated.

Net transaction gains (losses) for fiscal 1994, 1995 and 1996 of ($522),
($322) and $4, respectively, have been included in the earnings of the
respective periods.

NOTE 14--CONTINGENT LIABILITIES

The Internal Revenue Service (the "IRS") has notified the Company of certain
proposed adjustments to its income tax returns for fiscal years 1984 through
1991. The proposed adjustments primarily relate to the potential disallowance of
certain deductions for depreciation and amortization. Certain of these proposed
adjustments would also be applicable to the Company's fiscal years subsequent to
1991 and accordingly could result in further adjustments. The Company cannot now
predict (i) when the examination process will be completed, (ii) the adjustments
that the IRS may ultimately propose or (iii) the final resolution of any
proposed adjustments. Accordingly, the outcome of the audits of the Company's
income tax returns by the IRS is not determinable at this time. However,
management believes that the resolution of these proposed adjustments will not
have a material adverse effect upon the consolidated operations or financial
condition of the Company.

NOTE 15--RELATED PARTY TRANSACTIONS

The Company has made loans (the balance of which totaled $1,444 at the end
of fiscal 1996) to certain key executives in connection with their purchases of
Common Stock. Pursuant to the terms of such loans, the shares acquired are
pledged as security. The following individuals have loans in excess of $60
outstanding at the end of fiscal 1996: Nils A. Johansson ($236), Stuart T.
Lieberman ($91), Maria T. Rubly ($360), Henry G. Riner ($258) and Ben L.
McSwiney ($357). Each loan is evidenced by an installment note which bears
interest at BHOC's marginal rate of borrowing (approximately 6% at this time),
and are primarily due on December 31, 1998. Interest and principal may be
deferred until that date.

F-21
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 16--INTERIM FINANCIAL INFORMATION (UNAUDITED)

The following table presents the Company's quarterly results of operations
for fiscal 1996 and fiscal 1995:

<TABLE>
<CAPTION>
FISCAL QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................................ $ 201,092 $ 213,973 $ 218,840 $ 268,892 $ 902,797
Gross profit......................................... 71,199 74,454 77,845 102,882 326,380
Earnings before extraordinary items.................. 1,853 3,344 4,823 15,635 25,655
Extraordinary losses................................. -- (2,585) -- -- (2,585)
---------- ---------- ---------- ---------- ----------
Net earnings....................................... $ 1,853 $ 759 $ 4,823 $ 15,635 $ 23,070
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings per common share(1):
Earnings before extraordinary items................ $ 0.10 $ 0.18 $ 0.26 $ 0.85 $ 1.38
Extraordinary losses............................... -- (0.14) -- -- (0.14)
---------- ---------- ---------- ---------- ----------
Net earnings per common share...................... $ 0.10 $ 0.04 $ 0.26 $ 0.85 $ 1.24
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

1995
Net sales............................................ $ 187,065 $ 190,119 $ 203,009 $ 239,696 $ 819,889
Gross profit......................................... 65,715 69,990 75,051 97,734 308,490
Earnings (loss) before extraordinary items........... (483) 998 3,835 14,860 19,210
Extraordinary losses................................. -- (3,219) -- -- (3,219)
---------- ---------- ---------- ---------- ----------
Net earnings (loss).................................. $ (483) $ (2,221) $ 3,835 $ 14,860 $ 15,991
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common share(1):
Earnings (loss) before extraordinary items......... $ (0.04) $ 0.06 $ 0.21 $ 0.80 $ 1.15
Extraordinary losses............................... -- (0.20) -- -- (0.19)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common share............... $ (0.04) $ (0.14) $ 0.21 $ 0.80 $ 0.96
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

- ------------------------

(1) Net earnings (loss) per common share reflects both primary and fully diluted
earnings per common share.

F-22
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------- ----------------------
JUNE 29, JUNE 28, JUNE 29, JUNE 28,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 213,973 $ 218,150 $ 415,065 $ 418,168
Operating costs and expenses:
Cost of sales.................................................. 139,519 135,561 269,412 264,720
Research and development....................................... 8,523 10,206 16,454 19,822
Selling and administrative..................................... 48,426 52,429 97,529 98,509
---------- ---------- ---------- ----------
Total operating costs and expenses......................... 196,468 198,196 383,395 383,051
Operating income................................................. 17,505 19,954 31,670 35,117
Net interest expense:
Interest (income).............................................. (3,994) (5,345) (8,266) (10,357)
Interest expense............................................... 15,794 17,418 31,008 34,089
---------- ---------- ---------- ----------
Net interest expense....................................... 11,800 12,073 22,742 23,732

Earnings before income taxes and extraordinary items............. 5,705 7,881 8,928 11,385
Income tax expense............................................... 2,361 3,271 3,731 4,725
---------- ---------- ---------- ----------
Earnings before extraordinary items.............................. 3,344 4,610 5,197 6,660
Extraordinary losses............................................. (2,585) (67) (2,585) (972)
---------- ---------- ---------- ----------
Net earnings..................................................... $ 759 $ 4,543 $ 2,612 $ 5,688
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common share:
Primary:
Earnings before extraordinary items.......................... $ 0.18 $ 0.25 $ 0.28 $ 0.36
Extraordinary losses......................................... (0.14) -- (0.14) (0.05)
---------- ---------- ---------- ----------
Net earnings per common share.................................... $ 0.04 $ 0.25 $ 0.14 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted:
Earnings before extraordinary items.......................... $ 0.18 $ 0.25 $ 0.28 $ 0.36
Extraordinary losses......................................... (0.14) -- (0.14) (0.05)
---------- ---------- ---------- ----------
Net earnings per common share.................................... $ 0.04 $ 0.25 $ 0.14 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of common shares and equivalents outstanding:
Primary........................................................ 18,636 18,473 18,601 18,430
Fully Diluted.................................................. 18,636 18,558 18,626 18,525
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-23
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 28,
1997
DECEMBER 28, -----------
1996 (UNAUDITED)
------------
(AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 15,500 $ 14,183
Accounts receivable, less allowance for doubtful accounts of $5,294 and $5,391,
respectively...................................................................... 186,862 164,158
Inventory........................................................................... 139,831 155,256
Other current assets................................................................ 11,826 13,363
------------ -----------
Total current assets.............................................................. 354,019 346,960
Property, plant and equipment, at cost................................................ 363,015 379,755
Accumulated depreciation.............................................................. (207,287) (229,193)
------------ -----------
Net property, plant and equipment................................................. 155,728 150,562
Long-term receivables................................................................. 54,707 52,083
Goodwill, net of accumulated amortization............................................. 189,868 190,835
Other assets.......................................................................... 42,464 41,680
------------ -----------
Total assets...................................................................... $ 796,786 $ 782,120
------------ -----------
------------ -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................................... $ 8,397 $ 5,821
Current maturities of long-term debt................................................ 1,667 1,089
Accounts payable.................................................................... 93,135 61,593
Accrued expenses.................................................................... 78,308 62,374
Deferred income..................................................................... 171,698 146,148
Accrued income taxes................................................................ 1,143 --
------------ -----------
Total current liabilities......................................................... 354,348 277,025
Long-term liabilities:
Long-term debt...................................................................... 548,281 605,185
Other liabilities................................................................... 61,049 62,295
------------ -----------
Total long-term liabilities....................................................... 609,330 667,480
Shareholders' equity:
Common Stock, $.001 par value, 18,359 shares issued and 18,309 shares outstanding at
December 28, 1996, and 18,385 shares issued and 18,346 shares outstanding at June
28, 1997.......................................................................... 18 18
Capital surplus..................................................................... 1,402 1,713
Notes receivable from executives.................................................... (1,444) (1,359)
Retained earnings (deficit)......................................................... (165,851) (160,163)
Cumulative foreign exchange translation adjustments................................. 616 (1,347)
Treasury stock...................................................................... (1,633) (1,247)
------------ -----------
Total shareholders' equity (deficit).............................................. (166,892) (162,385)
Commitments and contingencies......................................................... -- --
------------ -----------
Total liabilities and shareholders' equity........................................ $ 796,786 $ 782,120
------------ -----------
------------ -----------
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-24
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JUNE 29, JUNE 28,
1996 1997
----------- ----------
<S> <C> <C>
Operating Activities:
Net earnings........................................................................... $ 2,612 $ 5,688
Depreciation and amortization.......................................................... 23,791 28,889
Debt accretion......................................................................... 12,252 11,434
Changes in operating assets and liabilities:
Accounts receivable.................................................................. 29,994 23,954
Inventory............................................................................ (33,293) (7,878)
Other current assets................................................................. (1,052) (1,119)
Long-term receivables................................................................ 8,457 2,624
Income taxes......................................................................... (5,239) 847
Accounts payable..................................................................... (4,625) (33,027)
Accrued expenses..................................................................... (5,193) (16,730)
Deferred income and other long-term liabilities...................................... (26,361) (30,864)
Other, net........................................................................... (700) (5,280)
----------- ----------
Net cash provided (used) by operating activities................................... 643 (21,462)
Investing activities:
Expenditures for property, plant and equipment......................................... (20,384) (17,184)
Acquisitions........................................................................... (19,718) (5,753)
----------- ----------
Net cash used by investing activities.............................................. (40,102) (22,937)
Financing activities:
Proceeds from short-term debt.......................................................... 9,224 3,831
Repayment of short-term debt........................................................... (12,235) (6,407)
Proceeds from long-term debt........................................................... 192,050 70,903
Repayment of long-term debt............................................................ (146,602) (25,679)
Proceeds from Common Stock, net........................................................ 25 806
----------- ----------
Net cash provided by financing activities.......................................... 42,462 43,454
Effect of exchange rate changes on cash.................................................. (125) (372)
----------- ----------
Increase (decrease) in cash and cash equivalents......................................... 2,878 (1,317)
Cash and cash equivalents, beginning of period........................................... 7,262 15,500
----------- ----------
Cash and cash equivalents, end of period................................................. $ 10,140 $ 14,183
----------- ----------
----------- ----------
</TABLE>

The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.

F-25
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

Bell & Howell Company is a holding company, the primary assets of which are
all of the issued and outstanding shares of capital stock of Bell & Howell
Operating Company. Bell & Howell Company conducts business through Bell & Howell
Operating Company and has no operations of its own.

The consolidated financial statements include the accounts of Bell & Howell
Company and its subsidiaries (collectively the "Company") and have been prepared
without independent audit, except for the balance sheet data as of December 28,
1996.

In the opinion of the Company's management, the consolidated financial
statements include all adjustments necessary to present fairly the information
required to be set forth therein, and such adjustments are of a normal and
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company's management
believes, however, that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
included in Bell & Howell Company's annual report for the year ended December
28, 1996.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

NET EARNINGS PER COMMON SHARE. Net earnings per common share are determined
by dividing net earnings by the weighted average number of common shares
outstanding during the period. If dilutive, stock options are included as common
stock equivalents.

INVENTORY. The Company uses the last-in, first-out (LIFO) method of valuing
the majority of its domestic inventory. Use of the LIFO method is predicated on
a determination of inventory quantities and costs at the end of each fiscal
year, and therefore interim determinations of LIFO inventory values and results
of operations are by necessity based on management's estimates of expected
year-end inventory quantities and costs. The excess of replacement cost over the
LIFO values of inventory was $4,489 at December 28, 1996, and June 28, 1997.

NOTE 3--EXTRAORDINARY LOSSES

The extraordinary losses of $972 ($1,519 pretax) in first half 1997 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $15,598 (accreted value) of the
11 1/2% Senior Discount Debentures and $2,100 of the 10 3/4% Senior Subordinated
Notes, which were redeemed with proceeds from the Existing Credit Agreement.

The extraordinary losses of $2,585 ($4,039 pretax) in first half 1996 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $34,158 (accreted value) of the
11 1/2% Senior Discount Debentures and $17,920 of the 10 3/4% Senior
Subordinated Notes, which were redeemed with proceeds from the Existing Credit
Agreement.

F-26
<PAGE>
EXHIBIT A

PLAN OF
LIQUIDATION AND DISSOLUTION OF
BELL & HOWELL COMPANY

This Plan of Liquidation and Dissolution (this "Plan") of Bell & Howell
Company, a Delaware corporation (the "Holding Company"), is intended to
accomplish the complete liquidation and dissolution of the Holding Company in
accordance with the provisions of the Delaware General Corporation Law (the
"DGCL") and the Internal Revenue Code of 1986, as amended (the "Code"), in
substantially the following manner:

1. DEFINITION OF PLAN AND EFFECTIVE DATE. (a) The Board of Directors of
the Holding Company has adopted this Plan, pursuant to which it is proposed that
the Holding Company (i) shall transfer substantially all of its assets to Bell &
Howell Operating Company, a Delaware corporation ("BHOC"), in exchange for a
number of newly-issued shares of common stock of BHOC equal to the number of
shares of common stock of the Holding Company issued and outstanding on the date
of such exchange, and thereafter (ii) shall liquidate and distribute all of its
assets to the holders (the "Stockholders") of the outstanding shares of the
Common Stock, par value $.001 per share, of the Holding Company (the "Holding
Company Common Stock"). The Board of Directors has authorized the Holding
Company to notify the Stockholders of the terms of this Plan, and solicit the
consent of those individuals who were Stockholders at the close of business on
October 8, 1997 (the "Record Date"), in favor of this Plan.

(b) This Plan shall be deemed to be adopted immediately upon its approval
and adoption by the consent of holders of a majority of the shares of Holding
Company Common Stock entitled to vote thereon. Notwithstanding the preceding
sentence, the Holding Company shall not be deemed to have been liquidated or
dissolved for any purpose until a certificate of dissolution is filed on behalf
of the Holding Company with the Delaware Secretary of State and becomes
effective in accordance with the DGCL (the "Effective Date").

(c) Prior to the Plan's implementation, the Holding Company shall redeem its
11 1/2% Series B Senior Discount Debentures due 2005.

2. CESSATION OF BUSINESS ACTIVITIES. After the Effective Date, the Holding
Company shall not engage in any business activities except for the purpose of
preserving the value of its assets, prosecuting and defending suits (whether
civil, criminal or administrative) by or against the Holding Company, settling
and closing its business, disposing of and conveying its property, discharging
its liabilities and distributing to its stockholders any remaining assets. The
directors in office and, at their pleasure, the officers of the Holding Company
in office on the Effective Date shall continue in office solely for these
purposes and as otherwise provided in this Plan.

3. LIQUIDATION OF ASSETS. Except as provided in Section 4 hereof, on such
date as is determined by the officers of the Holding Company (the "Liquidation
Date"), the Holding Company shall distribute to all of the Stockholders as of
such date, all of the Holding Company's property and assets, which at the time
shall consist of shares of common stock of BHOC (the "BHOC Stock"), together
with any dividends or other distributions theretofore paid on the BHOC Stock
(together, the "Assets"), in the manner hereafter set forth hereof as the Board
of Directors deems expedient and in the best interests of the Holding Company
and the Stockholders. As part of the liquidation of the Assets, the Holding
Company shall pay, or make provision for the payment of, all accounts payable,
debts and claims owing by it, and shall collect, or make provision for the
collection of, all accounts receivable, debts and claims owing to it.

4. RESERVE FUND. Prior to making any distributions to the Stockholders,
the Holding Company shall pay or provide for or, if and to the extent deemed
necessary or appropriate by the Board of Directors, make reasonable provision to
set aside a reserve fund (the "Reserve Fund") from the Assets to pay all

A-1
<PAGE>

known or ascertainable claims, obligations and liabilities of the Holding
Company and the expenses of its liquidation and dissolution provided for in this
Plan, including all contingent, conditional or unmatured claims, obligations and
liabilities of the Holding Company, and shall make such provision, as determined
by the Board of Directors, as will be reasonably likely to be sufficient to
provide compensation for claims that have not been made known to the Holding
Company or that have not arisen, but that, based on facts known to the Holding
Company, are likely to arise or to become known to the Holding Company prior to
the expiration of applicable statutes of limitation or ten years, whichever is
less. Following the payment, satisfaction or other resolution of such claims,
obligations and liabilities, any Assets remaining in the Reserve Fund shall be
distributed as hereafter provided.

5. LIQUIDATION DISTRIBUTIONS. The Assets will be distributed to the
Stockholders pro rata among the Stockholders as of the Liquidation Date (i) on
the Liquidation Date (the "Initial Distribution") and (ii) with respect to
Assets committed to the Reserve Fund, as soon as practicable after the Assets
become available for distribution to the Stockholders (the "Final
Distribution"). If no Reserve Fund is created, then the Initial Distribution
shall also be the Final Distribution.

6. CANCELLATION OF CAPITAL STOCK. The distributions to the Holding
Company's Stockholders pursuant to Section 5 hereof shall be in complete
redemption and cancellation of all of the outstanding Holding Company Common
Stock. As a condition to the receipt of any distribution under this Plan, the
Board of Directors may require Stockholders to surrender their certificates
evidencing Holding Company Common Stock to the Holding Company or its agent for
recording thereon receipt of distributions and to surrender such certificates
for cancellation upon receipt of the Initial Distribution. If a Stockholder's
certificate for shares of Holding Company Common Stock has been lost, stolen or
destroyed, as a condition to the receipt of any distribution, such Stockholder
may be required to furnish to the Holding Company satisfactory evidence of the
loss, theft or destruction thereof, together with a surety bond or other
security or indemnity reasonably satisfactory to the Holding Company.

7. RESTRICTIONS ON TRANSFER OF SHARES. The Holding Company will close its
stock transfer books and discontinue recording transfers of Holding Company
Common Stock and options to purchase Holding Company Common Stock at the close
of business on the Liquidation Date, and as a result thereof certificates
representing Holding Company Common Stock shall not be assignable or
transferable on the books of the Holding Company except by will, intestate
succession or operation of law. The proportionate interests of all of the
Stockholders of the Holding Company shall be fixed on the basis of their
respective holdings at the close of business on the Liquidation Date, and, after
the Liquidation Date, any distributions made by the Holding Company shall be
made solely to the Stockholders of record at the close of business on the
Liquidation Date except as may be necessary to reflect subsequent transfers
recorded on the books of the Holding Company as a result of any assignments by
will, intestate succession or operation of law.

8. POWER OF BOARD OF DIRECTORS AND OFFICERS. The Board of Directors and,
if authorized by the directors, the officers of the Holding Company, shall have
authority to do or authorize any and all acts and things provided for in this
Plan and any and all further acts and things as they may consider desirable to
carry out the purposes of this Plan, including the execution and filing of all
such certificates, documents, information returns, tax returns and other
documents which may be necessary or appropriate to implement this Plan. The
directors may authorize such variations from or amendments to the provisions of
this Plan as may be necessary or appropriate to effectuate the complete
liquidation, dissolution and termination of existence of the Holding Company and
the distribution of its assets to the Stockholders in accordance with the laws
of the State of Delaware. The death, resignation or other disability of any
director or officer of the Holding Company shall not impair the authority of the
surviving or remaining directors or officers to exercise any of the powers
provided for in this Plan. Upon such death, resignation or other disability, the
surviving or remaining directors, or, if there be none, the surviving or
remaining officers, shall have authority to fill the vacancy or vacancies
created, but the failure to fill such vacancy or vacancies shall not impair the
authority of the surviving or remaining directors or officers to exercise any of
the powers provided for in this Plan.

A-2
<PAGE>
After the Effective Date, the Board of Directors shall continue to act as a
Board of Directors and shall have full power to wind up and settle the Holding
Company's affairs. The powers and duties of the directors and, if authorized by
the Board of Directors, the officers of the Holding Company shall include, but
are not limited to, the following acts in the name and on behalf of the Holding
Company: (a) to elect officers and to employ agents and attorneys to liquidate
or wind up its affairs; (b) to continue the conduct of the business of the
Holding Company to the extent permitted by the DGCL; (c) to carry out contracts
and collect, pay, compromise and settle debts and claims for or against the
Holding Company; (d) to defend suits brought against the Holding Company; (e) to
sue in the name of the Holding Company for all sums due or owing to the Holding
Company or to recover any of its property; and (f) in general, to make contracts
and to do any and all things in the name of the Holding Company which may be
proper or convenient for the purposes of winding up, settling and liquidating
the affairs of the Holding Company.

9. LIQUIDATING TRUST. If advisable for any reason to complete the
liquidation and distribution of the Holding Company's assets to the
Stockholders, the Board of Directors or officers may at any time transfer to a
trust (the "Trust") the remaining assets of the Holding Company. The Trust
thereupon shall succeed to all of the then remaining assets of the Holding
Company, including the Reserve Fund, and any remaining liabilities and
obligations of the Holding Company. The sole purposes of the Trust shall be to
prosecute and defend suits by or against the Holding Company, to settle and
close the business of the Holding Company, to dispose of and convey the assets
of the Holding Company, to satisfy the remaining liabilities and obligations of
the Holding Company and to distribute the remaining assets of the Holding
Company to the Stockholders as provided herein. The Board of Directors may
appoint one or more individuals or corporate persons to act as trustee or
trustees of the Trust and to cause the Holding Company to enter into a
liquidating trust agreement with such trustee or trustees on such terms and
conditions as the Board of Directors determines.

11. TAX TREATMENT. The Holding Company intends and, by their approval of
the Plan, the Stockholders agree, that the exchange of the Holding Company's
assets for newly-issued shares of BHOC Stock, followed by the liquidation of the
Holding Company, shall be treated for federal (and any applicable state) income
tax purposes as a reorganization of the Holding Company under the provisions of
Section 368(a)(1)(D) of the Code.

12. INDEMNIFICATION. The Holding Company shall continue to indemnify its
officers, directors, employees and agents in accordance with its certificate of
incorporation, bylaws and any contractual arrangements as therein provided, and
such indemnification shall apply to acts or omissions of such persons in
connection with the implementation of this Plan and the winding up of the
affairs of the Holding Company. The Board of Directors and the trustees of any
Trust are authorized to obtain and maintain insurance as may be necessary to
cover the Holding Company's indemnification obligations.

13. DISSOLUTION. At the direction of the Board of Directors, and upon the
taking of all acts required to be taken under the DGCL, the appropriate officers
of the Holding Company shall execute, acknowledge and file a certificate of
dissolution of the Holding Company in accordance with Section 275 of the DGCL,
thereby terminating the corporate existence of the Holding Company.

14. AMENDMENT. Notwithstanding the adoption of this Plan by the
Stockholders, the Board of Directors may modify or amend this Plan and, prior to
the filing of a certificate of dissolution with the Secretary of State of the
State of Delaware, may abandon this Plan, in each case without further action by
the Holding Company's Stockholders, to the extent permitted by the DGCL.

15. COSTS. The Board of Directors is authorized, empowered and directed to
pay all fees and expenses of persons rendering services to the Holding Company
in connection with the implementation of this Plan.

A-3
<PAGE>
PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
provides that a Delaware corporation may indemnify any person who was or is a
party to or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful,
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification may be made with respect to any matter to which
such person shall have been adjudged liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.

Article Tenth of the Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation") provides that each person who was or is
made a party or is threatened to be made a party to or is otherwise involved in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter, a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the Company
or is or was serving at the request of the Company as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to any employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Company to the fullest extent authorized by the Delaware GCL, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, finds, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director or officer
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; PROVIDED, HOWEVER, that, except as provided with respect to
proceedings to enforce rights to indemnification, the Company shall indemnify
any such indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors.

The right to indemnification shall include the right to be paid by the
Company for the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter, an "advancement of expenses"); provided, however, that, if the
Delaware GCL requires an advancement of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity) in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan shall be made only upon delivery
to the Company of an undertaking (hereinafter, an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter, a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses.

II-1
<PAGE>
The rights to indemnification and to the advancement of expenses shall be
contract rights. If a claim for indemnification is not paid in full by the
Company, the indemnitee may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim, and, if successful in whole
or in part in any such suit, or in a suit brought by the Company to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses, or by the Company to recover
an advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, shall be on the Company.

Article Tenth further provides that the rights to indemnification and to the
advancement of expenses conferred in the Certificate of Incorporation shall not
be exclusive of any other right which any person may have or hereafter acquire
under any statute, the Certificate of Incorporation, any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise. The Company may
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Company or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Company would have the power to indemnify such person against
such expense, liability or loss under the Delaware GCL. The Company may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of expenses to any employee or agent of
the Company or to any person serving at the request of the Company as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan, to
the fullest extent of the provisions of the Certificate of Incorporation with
respect to the indemnification and advancement of expenses of directors and
officers of the Company.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits for Bell & Howell Company and Bell & Howell Operating Company.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
<C> <S>
+3.1 Amendment to Certificate of Incorporation of Bell & Howell Company, as amended, Registration No.
33-59994.

+3.2 By-laws of Bell & Howell Company is incorporated herein by reference to Exhibit 3.2 to Bell & Howell
Company's Registration Statement on Form S-1 as amended, Registration No. 33-63556.

5.1 Opinion of McDermott, Will & Emery

+10.1 Certificate of Designation for the $121.33 Intercompany Preferred Stock of Bell & Howell Operating
Company is incorporated herein by reference to Exhibit 4.5 to bell & Howell Operating Company's
Registration Statement on Form S-1, as amended, Registration No. 33-63556.

+10.2 Amended and Restated Profit Sharing Retirement Plan is incorporated herein by reference to Exhibit
10.1 to Bell & Howell Operating Company's Registration Statement on Form S-1, as amended,
Registration No. 33-63556.

+10.3 Amended and Restated Replacement Benefit Plan is incorporated herein by reference to Exhibit 10.4 to
Bell & Howell Operating Company's Registration Statement on Form S-1, as amended, Registration No.
33-63556

+10.4 Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.3 to Bell & Howell
Operating Company's Registration Statement on Form S-1, as amended, Registration No. 33-63556
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------------
<C> <S>
+10.5 Management Incentive Bonus Plan is incorporated herein by reference to Exhibit 10.5 to Bell & Howell
Operating Company's Registration Statement on Form S-1, as amended, Registration No. 33-63556

+10.6 Long Term Incentive Plan II, 1993-1996, is incorporated herein by reference to Exhibit to Bell &
Howell Operating Company's Registration Statement on Form S-1, as amended, Registration No.
33-89992

+10.7 Deferred Benefit Trust is incorporated herein by reference to Exhibit 10.10 to Bell & Howell
Operating Company's Registration Statement on Form S-1, as amended, Registration No. 33-63556

+10.8 Employment Agreement with William J. White dated as of March 23, 1990 is incorporated herein by
reference to Exhibit 10.11 to Bell & Howell Operating Company's Registration Statement on Form
S-1, as amended, Registration No. 33-63556

+10.9 Shareholders Agreement dated May 10, 1988, as amended, among certain Management Stockholders (as
defined therein) and Investor Shareholders (as defined therein) is incorporated herein by
reference to Exhibit 10.17 to Bell & Howell Company's Registration Statement on Form S-1, as
amended, Registration No. 33-59994

+10.10 Registration Rights Agreement dated as of May 10, 1988 by and among Bell & Howell Group, Inc. and
each of the Purchasers referred to therein is incorporated herein by reference to Exhibit 10.1 to
Bell & Howell Operating Company's Registration Statement on Form S-1, as amended, Registration No.
33-63556

10.11 Revolving Credit Agreement, dated as of September 22, 1997, among Bell & Howell Operating Company,
the Lenders listed therein and Bankers Trust Company, as Agent

+10.12 Supplement to Fourth Amendment to the Shareholders Agreement dated May 10, 1988, as amended, among
certain Management Stockholders (as defined therein) and Investor Shareholders (as defined
therein) Registration Statement on Form S-1, as amended, Registration No. 33-89992

+10.13 Receivables Purchase Agreement dated May 1, 1996, between Bell & Howell Acceptance Corporation and
the First National Bank of Chicago, Registration No. 33-59994

+11.1 Computation of Earnings (Loss) per Common Share, incorporated herein by reference to Bell & Howell
Company's Registration Statement on Form S-1, as amended, Registration No. 333-33123

+21.1 Subsidiaries of Bell & Howell Company, incorporated herein by reference to Bell & Howell Company's
Registration Statement on Form S-1, as amended, Registration No. 333-33123

23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1)

23.2 Consent of KPMG Peat Marwick LLP

+24.1 Powers of Attorney

99.1 Consent card with respect to the Plan.
</TABLE>

- ------------------------

+ Previously filed.

(b) Financial Schedules.

II-3
<PAGE>
ITEM 22. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters in addition to the information called for
by the other Items of the applicable form.

The registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (h)(1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415(Section 230.415 of this chapter),
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) as asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on this 7th day of October 1997.

<TABLE>
<S> <C> <C>
BELL & HOWELL OPERATING COMPANY

By: /s/ STUART T. LIEBERMAN
-----------------------------------------
Stuart T. Lieberman
VICE PRESIDENT, CONTROLLER, CHIEF
ACCOUNTING OFFICER
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on October 7, 1997.

SIGNATURE TITLE
- ------------------------------ --------------------------

/s/ WILLIAM J. WHITE
- ------------------------------ Chairman of the Board
William J. White

/s/ JAMES P. ROEMER
- ------------------------------ President, Chief Executive
James P. Roemer Officer and Director

/s/ NILS A. JOHANSSON Executive Vice President,
- ------------------------------ Chief Financial Officer
Nils A. Johansson and Director

Vice President,
/s/ STUART T. LIEBERMAN Controller, Chief
- ------------------------------ Accounting Officer and
Stuart T. Lieberman Director

II-5

<PAGE>

October 7, 1997

Bell & Howell Operating Company
5215 Old Orchard Road
Skokie, Illinois 60077

Re: Registration Statement on Form S-4
File No. 333-36401
----------------------------------

Ladies and Gentlemen:

You have requested our opinion in connection with the
above-referenced registration statement (the "Registration Statement"), under
which Bell & Howell Operating Company (the "Company") intends to issue
25,518,316 shares of Common Stock (the "Shares"), par value $.001 per share,
of the Company ("Common Stock"), to existing stockholders of Bell & Howell
Company in connection with the liquidation and dissolution of Bell & Howell
Company.

In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary
to enable us to express the opinion hereinafter set forth. In addition, we
have examined and relied, to the extent we deem proper, on certificates of
officers of the Company as to factual matters, and on the originals or copies
certified or otherwise identified to our satisfaction, of all such corporate
records of the Company and such other instruments and certificates of public
officials and other persons as we have deemed appropriate. In our
examination, we have assumed the authenticity of all documents submitted to
us as originals, the conformity to the original documents of all documents
submitted to us as copies, the genuineness of all signatures on documents
reviewed by us and the legal capacity of natural persons.

<PAGE>

Bell & Howell Operating Company
October 7, 1997
Page 2

Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized and, when issued in accordance with the
terms and conditions set forth in the Registration Statement and the Plan of
Liquidation and Dissolution disclosed therein, will be validly issued, fully
paid and non-assessable.

We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion
as an exhibit to the Registration Statement. In giving this consent, we do
not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.

Very truly yours,

McDermott, Will & Emery

<PAGE>

$600,000,000

CREDIT AGREEMENT

DATED AS OF SEPTEMBER 22, 1997

AMONG

BELL & HOWELL OPERATING COMPANY,
AS BORROWER,

THE LENDERS LISTED HEREIN,
AS LENDERS,

AND

BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT

<PAGE>

BELL & HOWELL OPERATING COMPANY

CREDIT AGREEMENT

TABLE OF CONTENTS

PAGE

SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Utilization of GAAP for
Purposes of Calculations Under Agreement . . . . . . . . 29
1.3 Other Definitional Provisions. . . . . . . . . . . . . . 29

SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . 29
2.1 Commitments; Loans . . . . . . . . . . . . . . . . . . . 29
2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . 37
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.4 Prepayments and Reductions in Commitments;
General Provisions Regarding Payments. . . . . . . . . . 45
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 52
2.6 Special Provisions Governing Eurodollar Rate
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.7 Increased Costs; Taxes; Capital Adequacy . . . . . . . . 55
2.8 Lenders' Obligation to Mitigate. . . . . . . . . . . . . 59
2.9 Replacement of a Lender. . . . . . . . . . . . . . . . . 60
2.10 Defaulting Lenders . . . . . . . . . . . . . . . . . . . 62

SECTION 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . 63
3.1 Issuance of Letters of Credit and Lenders'
Purchase of Participations Therein . . . . . . . . . . . 63
3.2 Letter of Credit Fees. . . . . . . . . . . . . . . . . . 66
3.3 Drawings and Reimbursement of Amounts Drawn
Under Letters of Credit. . . . . . . . . . . . . . . . . 67
3.4 Obligations Absolute . . . . . . . . . . . . . . . . . . 70
3.5 Indemnification; Nature of Issuing Lenders'
Duties . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.6 Increased Costs and Taxes Relating to Letters
of Credit. . . . . . . . . . . . . . . . . . . . . . . . 73

SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . 74
4.1 Conditions to Initial Revolving Loans. . . . . . . . . . 74
4.2 Conditions to All Loans. . . . . . . . . . . . . . . . . 78
4.3 Conditions to Letters of Credit. . . . . . . . . . . . . 79

(i)

<PAGE>

PAGE

SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 80
5.1 Organization, Powers, Qualification, Good
Standing, Business and Subsidiaries. . . . . . . . . . . 80
5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . 81
5.3 Financial Condition. . . . . . . . . . . . . . . . . . . 83
5.4 No Material Adverse Change; No Restricted
Junior Payments. . . . . . . . . . . . . . . . . . . . . 83
5.5 Title to Properties; Liens . . . . . . . . . . . . . . . 83
5.6 Litigation; Adverse Facts. . . . . . . . . . . . . . . . 84
5.7 Payment of Taxes . . . . . . . . . . . . . . . . . . . . 84
5.8 Performance of Agreements; Materially Adverse
Agreements . . . . . . . . . . . . . . . . . . . . . . . 85
5.9 Governmental Regulation. . . . . . . . . . . . . . . . . 85
5.10 Securities Activities. . . . . . . . . . . . . . . . . . 85
5.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . 85
5.12 Certain Fees . . . . . . . . . . . . . . . . . . . . . . 86
5.13 Environmental Protection . . . . . . . . . . . . . . . . 86
5.14 Employee Matters . . . . . . . . . . . . . . . . . . . . 88
5.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 88
5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . 88
5.17 Intellectual Property. . . . . . . . . . . . . . . . . . 88

SECTION 6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . 89
6.1 Financial Statements and Other Reports . . . . . . . . . 89
6.2 Corporate Existence, etc.. . . . . . . . . . . . . . . . 94
6.3 Payment of Taxes and Claims; Tax Consolidation . . . . . 95
6.4 Maintenance of Properties; Insurance . . . . . . . . . . 95
6.5 Inspection; Lender Meeting . . . . . . . . . . . . . . . 95
6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . 96
6.7 Environmental Disclosure and Inspection. . . . . . . . . 96
6.8 Company's Remedial Action Regarding Hazardous
Materials. . . . . . . . . . . . . . . . . . . . . . . . 98
6.9 Execution of Subsidiary Guaranty and Collateral
Documents by Future Subsidiaries; Auxiliary
Pledge Agreements; Release of Liens and
Guarantees . . . . . . . . . . . . . . . . . . . . . . . 98
6.10 Additional Mortgages . . . . . . . . . . . . . . . . . . 101
6.11 BHFS Advances to Company . . . . . . . . . . . . . . . . 102

SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 102
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 102
7.2 Liens and Related Matters. . . . . . . . . . . . . . . . 105
7.3 Investments; Joint Ventures. . . . . . . . . . . . . . . 107
7.4 Contingent Obligations . . . . . . . . . . . . . . . . . 108
7.5 Restricted Junior Payments; Certain Other
Payments . . . . . . . . . . . . . . . . . . . . . . . . 110
7.6 Financial Covenants. . . . . . . . . . . . . . . . . . . 112

(ii)

<PAGE>

PAGE

7.7 Restriction on Fundamental Changes; Asset
Sales; Acquisitions. . . . . . . . . . . . . . . . . . . 114
7.8 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . 116
7.9 Sale or Discount of Receivables. . . . . . . . . . . . . 116
7.10 Transactions with Shareholders and Affiliates. . . . . . 117
7.11 Disposal of Subsidiary Stock . . . . . . . . . . . . . . 117
7.12 Conduct of Business. . . . . . . . . . . . . . . . . . . 117
7.13 Amendments of Certain Documents; Other Matters
Related to Indentures. . . . . . . . . . . . . . . . . . 118
7.14 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 119
7.15 Separate Identity of Parent and Company. . . . . . . . . 120

SECTION 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 120
8.1 Failure to Make Payments When Due. . . . . . . . . . . . 120
8.2 Default in Other Agreements. . . . . . . . . . . . . . . 120
8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . 121
8.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . 121
8.5 Other Defaults Under Loan Documents. . . . . . . . . . . 121
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. . 121
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc. . . 122
8.8 Judgments and Attachments. . . . . . . . . . . . . . . . 122
8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . 122
8.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . 123
8.11 Change in Control. . . . . . . . . . . . . . . . . . . . 123
8.12 Invalidity of Guaranties . . . . . . . . . . . . . . . . 123
8.13 Failure of Security. . . . . . . . . . . . . . . . . . . 123

SECTION 9. ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . 125
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . 125
9.2 Powers; General Immunity . . . . . . . . . . . . . . . . 125
9.3 Representations and Warranties; No
Responsibility For Appraisal of
Creditworthiness . . . . . . . . . . . . . . . . . . . . 127
9.4 Right to Indemnity . . . . . . . . . . . . . . . . . . . 127
9.5 Successor Administrative Agent and Swing Line
Lender . . . . . . . . . . . . . . . . . . . . . . . . . 128
9.6 Collateral Documents and Guaranties. . . . . . . . . . . 128

SECTION 10. GUARANTY OF PARENT . . . . . . . . . . . . . . . . . . . 129
10.1 Guaranty by Parent . . . . . . . . . . . . . . . . . . . 129
10.2 Terms of Guaranty. . . . . . . . . . . . . . . . . . . . 129

(iii)

<PAGE>

PAGE

SECTION 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 133
11.1 Assignments and Participations in Loans and
Letters of Credit. . . . . . . . . . . . . . . . . . . . 133
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 136
11.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 137
11.4 Set Off; Security Interest in Deposit Accounts . . . . . 138
11.5 Ratable Sharing. . . . . . . . . . . . . . . . . . . . . 139
11.6 Amendments and Waivers . . . . . . . . . . . . . . . . . 139
11.7 Independence of Covenants. . . . . . . . . . . . . . . . 141
11.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 141
11.9 Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . . . 142
11.10 Failure or Indulgence Not Waiver; Remedies
Cumulative . . . . . . . . . . . . . . . . . . . . . . . 142
11.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . 142
11.12 Severability . . . . . . . . . . . . . . . . . . . . . . 143
11.13 Obligations Several; Independent Nature of
Lenders' Rights. . . . . . . . . . . . . . . . . . . . . 143
11.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . 143
11.15 Applicable Law . . . . . . . . . . . . . . . . . . . . . 143
11.16 Successors and Assigns . . . . . . . . . . . . . . . . . 143
11.17 Consent to Jurisdiction and Service of Process . . . . . 144
11.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 144
11.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . 145
11.20 Counterparts; Effectiveness. . . . . . . . . . . . . . . 146

Signature pages . . . . . . . . . . . . . . . . . . . . S-1

(iv)

<PAGE>

EXHIBITS

I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT
IV FORM OF REVOLVING NOTE
V FORM OF SWINGLINE NOTE
VI FORM OF COMPLIANCE CERTIFICATE
VII FORM OF OPINIONS OF COUNSEL TO COMPANY
VIII FORM OF OPINION OF O'MELVENY & MYERS
IX FORM OF ASSIGNMENT AGREEMENT
X FORM OF FINANCIAL CONDITION CERTIFICATE
XI FORM OF COMPANY OR PARENT PLEDGE AGREEMENT
XII FORM OF SUBSIDIARY PLEDGE AGREEMENT
XIII FORM OF SUBSIDIARY GUARANTY
XIV FORM OF MORTGAGE
XV FORM OF COLLATERAL ACCOUNT AGREEMENT

(v)

<PAGE>

SCHEDULES

2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
3.1C EXISTING LETTERS OF CREDIT
5.1 SUBSIDIARIES OF COMPANY
5.5 REAL PROPERTY ASSETS
5.13 ENVIRONMENTAL MATTERS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS

(vi)

<PAGE>

BELL & HOWELL OPERATING COMPANY
CREDIT AGREEMENT

This CREDIT AGREEMENT is dated as of September 22, 1997 and entered
into by and among BELL & HOWELL OPERATING COMPANY, a Delaware corporation
("COMPANY"), BELL & HOWELL COMPANY, a Delaware corporation and owner of all of
the equity securities of Company ("PARENT"), THE FINANCIAL INSTITUTIONS LISTED
ON THE SIGNATURE PAGES HEREOF, together with their successors and permitted
assigns hereunder (each individually referred to herein as a "LENDER" and
collectively as "LENDERS") and BANKERS TRUST COMPANY ("BANKERS"), as
administrative agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT").

R E C I T A L S

WHEREAS, Parent and Company desire to effect a series of transactions
involving the Company (the "Transactions"), including the Common Stock Offering
(this and other capitalized terms used in these recitals without definition
being used as defined in subsection 1.1) and the refinancing of (i) that certain
Amended and Restated Credit Agreement dated as of April 22, 1996, among Parent,
Company, the Lenders, Administrative Agent and Bank of America National Trust
and Savings Association and The First National Bank of Chicago, as co-agents for
Lenders, as amended to the date hereof (the "Existing Credit Agreement"), (ii)
the Company's outstanding 10-3/4% Subordinated Notes, and (iii) the Parent's
outstanding 11-1/2% Senior Discount Debentures;

WHEREAS, Parent will receive not less than $95,000,000 in cash
proceeds from the Common Stock Offering;

WHEREAS, Lenders have agreed to extend certain credit facilities to
Company, the proceeds of which, together with the net proceeds from the Common
Stock Offering, will be used to (i) repay in full all Indebtedness outstanding
under the Existing Credit Agreement, (ii) repurchase or redeem the Company's
outstanding 10-3/4% Subordinated Notes, (iii) repurchase or redeem the
outstanding shares of the Parent Preferred Stock, and (iv) provide financing for
working capital and/or other general purposes of Company and its Subsidiaries;

WHEREAS, Parent has agreed to guarantee the Obligations hereunder and
under the Loan Documents;

<PAGE>

WHEREAS, the Domestic Subsidiaries of Company (other than the BHFS
Group and the Inactive Subsidiaries) have agreed to guarantee the Obligations
hereunder and under the Loan Documents and have agreed to secure such
Obligations under the Subsidiary Guaranty with the Liens on the Collateral
granted to Administrative Agent, on behalf of Lenders under the Collateral
Documents; and

WHEREAS, Company has agreed to secure the Obligations hereunder and
under the Loan Documents with the Liens on the Collateral granted to
Administrative Agent on behalf of Lenders under the Collateral Documents.

NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Parent, Lenders and
Administrative Agent agree as follows:

SECTION 1. DEFINITIONS

1.1 CERTAIN DEFINED TERMS.

The following terms used in this Agreement shall have the
following meanings:

"10-3/4% SUBORDINATED NOTE INDENTURE" means the Indenture dated
as of October 5, 1992 between Company and State Street Bank and Trust Company,
as Trustee, pursuant to which the 10-3/4% Subordinated Notes were issued, as
such Indenture may be amended supplemented or otherwise modified from time to
time after the Closing Date to the extent permitted under subsection 7.13.

"10-3/4% SUBORDINATED NOTES" means the 10-3/4% Series B Senior
Subordinated Notes due October 1, 2002 issued in the aggregate principal amount
of $125,000,000 by Company pursuant to the 10-3/4% Subordinated Note Indenture.

"11-1/2% SENIOR DISCOUNT DEBENTURE INDENTURE" means the Indenture
dated as of February 23, 1993 between Parent and State Street Bank and Trust
Company, as Trustee, pursuant to which the 11-1/2% Senior Discount Debentures
were issued, as such Indenture may be amended, supplemented or otherwise
modified from time to time after the Closing Date to the extent permitted under
subsection 7.13.

"11-1/2% SENIOR DISCOUNT DEBENTURES" means the 11-1/2% Series B
Senior Discount Debentures of Parent issued in an aggregate principal amount of
$353,500,000 pursuant to the 11-1/2% Senior Discount Debenture Indenture.

"ACQUISITION" means any transaction, or series of related
transactions, pursuant to which Company or any of its Subsidiaries acquires all
or a substantial portion of the business, property, fixed assets, stock or other
evidence of beneficial ownership of

<PAGE>

any Person or of a division or line of business of any Person and which in the
case of the acquisition of stock or other beneficial ownership interests, makes
such Person a direct or indirect Subsidiary of Company.

"ACQUISITION EXPENDITURES" means the aggregate consideration paid
by Company or any of its Subsidiaries, including without limitation the fair
market value of all Cash, property, stock or services paid or otherwise
transferred, and the amount of all assumed or incurred Indebtedness or other
incurred liabilities in connection with an Acquisition.

"ADDITIONAL MORTGAGE" and "ADDITIONAL MORTGAGES" have the
meanings assigned to those terms in subsection 6.10.

"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate
Determination Date with respect to a Eurodollar Rate Loan, the rate obtained by
dividing (i) the arithmetic average (rounded upward to the nearest 1/100 of one
percent) of the offered quotation, if any, to first class banks in the interbank
Eurodollar market by each of the Reference Lenders for U.S. dollar deposits of
amounts in same day funds comparable to the principal amount of the Eurodollar
Rate Loan for which the Adjusted Eurodollar Rate is then being determined with
maturities comparable to the Interest Period for which such Adjusted Eurodollar
Rate will apply as of approximately 10:00 A.M. (New York time) on such Interest
Rate Determination Date by (ii) a percentage equal to 100% minus the stated
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of "Eurocurrency
liabilities" as defined in Regulation D (or any successor category of
liabilities under Regulation D); PROVIDED that if any Reference Lender fails to
provide Administrative Agent with its aforementioned quotation then the Adjusted
Eurodollar Rate shall be determined based on the quotation(s) provided to
Administrative Agent by the other Reference Lender(s).

"ADMINISTRATIVE AGENT" has the meaning assigned to that term in
the introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 9.5.

"AFFECTED LENDER" has the meaning assigned to that term in
subsection 2.6C.

"AFFECTED LOANS" has the meaning assigned to that term in
subsection 2.6C.

"AFFILIATE", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of

<PAGE>

the management and policies of that Person, whether through the ownership of
voting securities or by contract or otherwise.

"AGREEMENT" means this Credit Agreement dated as of September 22,
1997, as it may be further amended, supplemented or otherwise modified from time
to time.

"ASSET SALE" means the sale by Company or any of its Subsidiaries
to any Person other than Company or any of its Wholly-Owned Subsidiaries of
(i) any of the stock of any of Company's Subsidiaries (other than an Inactive
Subsidiary), (ii) all or substantially all of the assets of any division or line
of business of Company or any of its Subsidiaries (other than an Inactive
Subsidiary), or (iii) any other assets (whether tangible or intangible) of
Company or any of its Subsidiaries other than (a) inventory sold in the ordinary
course of business, (b) receivables sold by BHFS Group in the ordinary course of
business so long as such sale is permitted under subsection 7.9, (c) receivables
sold by Foreign Subsidiaries in the ordinary course of business in accordance
with past practices so long as such sale is permitted under subsection 7.9, (d)
any other assets to the extent that the aggregate value of such assets sold in
any single transaction or related series of transactions is equal to $500,000 or
less or $5,000,000 or less in the aggregate for all such excluded transactions
and (e) the sale or sale and leaseback of the Real Property Asset located at
6800 McCormick, Lincolnwood, Illinois.

"ASSIGNMENT AGREEMENT" means an Assignment Agreement entered into
by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in
substantially the form of EXHIBIT IX annexed hereto.

"AUXILIARY PLEDGE AGREEMENT" means each pledge agreement or
similar instrument governed by the laws of a country other than the United
States, executed from time to time in accordance with subsection 6.9 by Company
or any Domestic Subsidiary (other than BHFS Group and any Inactive Subsidiaries)
that owns capital stock of the Foreign Subsidiaries organized in such country,
in form and substance satisfactory to Administrative Agent, as such Auxiliary
Pledge Agreement may be amended, supplemented or otherwise modified from time to
time, and "AUXILIARY PLEDGE AGREEMENTS" means all such pledge agreements,
collectively.

"BANKERS" has the meaning assigned to that term in the
introduction to this Agreement.

"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.

"BASE RATE" means, at any time, the higher of (x) the Prime Rate
or (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.

"BASE RATE LOANS" means Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.

<PAGE>

"BHFS" means Bell & Howell Financial Services Company, a Delaware
corporation and a Subsidiary of Company.

"BHFS GROUP" means BHFS and its Subsidiaries.

"BUSINESS DAY" means (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close, and (ii) with respect to all notices,
determinations, fundings and payments in connection with the Adjusted Eurodollar
Rate or any Eurodollar Rate Loans, any day that is a Business Day described in
clause (i) above and that is also a day during which trading is conducted by and
between banks in Dollar deposits in the applicable interbank Eurodollar market.

"CANADIAN RECEIVABLES DIVISION" means the division of Bell &
Howell Ltd., a Canadian corporation and a Wholly-Owned Subsidiary of Company,
engaged in receivables financing for Company's Canadian operations.

"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.

"CASH" means money, currency or a credit balance in a Deposit
Account.

"CASH EQUIVALENTS" means (i) marketable securities issued or
directly and unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having a rating of AA or
better from Moody's Investors Service, Inc. ("Moody's") or an equivalent rating
from Standard & Poor's Corporation ("S&P"); (iii) commercial paper maturing no
more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any Lender or any
commercial bank chartered in the United States of America or any state thereof
or the District of Columbia having unimpaired capital and surplus of not less
than $250,000,000 (each Lender and each such commercial bank herein called a
"CASH EQUIVALENT BANK"); (v) Eurodollar time deposits having a maturity of less
than one year purchased directly from any Cash Equivalent Bank (whether such
deposit is with such Cash Equivalent Bank or any other Cash Equivalent Bank);
(vi) shares of any money market mutual fund that (a) has at least 95% of its
assets continuously invested in the types of investments referred to in clauses
(i) - (iv) above, (b) has net assets of not less

<PAGE>

than $500,000,000, and (c) has a rating of AA or better from Moody's or
equivalent rating from S&P and (vii) with respect to Foreign Subsidiaries,
investments of the types described in clauses (iv) and (v) above issued by or
purchased from a Cash Equivalent Bank or any commercial bank of recognized
standing chartered in the country where such Foreign Subsidiary is domiciled
having unimpaired capital and surplus of at least $100,000,000.

"CASH PROCEEDS" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.

"CERTIFICATE RE NON-BANK STATUS" means a certificate in form and
substance satisfactory to Administrative Agent delivered by a Lender to
Administrative Agent pursuant to subsection 2.7B(iii) pursuant to which such
Lender certifies that it is not (i) a "bank" as such term is defined in
subsection 881(c)(3) of the Internal Revenue Code; (ii) a 10 percent shareholder
of Company within the meaning of Section 871(h)(3)(B) or Section 881(c)(3)(B) of
the Internal Revenue Code; or (iii) a "controlled" foreign corporation related
to Company within the meaning of Section 864(d)(4) of the Internal Revenue Code.

"CLOSING DATE" means September 22, 1997.

"COLLATERAL" means, collectively, all real, personal and mixed
property collateral securing the Obligations pursuant to the Collateral
Documents.

"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.

"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account
Agreement executed and delivered by Company and Administrative Agent on the
Closing Date, as such Collateral Account Agreement may hereafter be amended,
supplemented or otherwise modified from time to time.

"COLLATERAL DOCUMENTS" means the Company Pledge Agreement, the
Parent Pledge Agreement, the Collateral Account Agreement, the Subsidiary Pledge
Agreements, the Mortgages, the Auxiliary Pledge Agreements and all other
instruments or documents delivered by any Loan Party pursuant to this Agreement
or any of the other Loan Documents in order to grant to Administrative Agent, on
behalf of Lenders, Liens in real, personal or mixed property of that Loan Party
as security for the Obligations.

"COLLATERAL RELEASE DATE" has the meaning assigned to that term
in subsection 6.9D.

<PAGE>

"COMMERCIAL LETTER OF CREDIT" means any letter of credit or
similar instrument issued for the purpose of providing the primary payment
mechanism in connection with the purchase of any materials, goods or services by
Company or any of its Subsidiaries in the ordinary course of business of Company
or its Subsidiaries.

"COMMITMENT TERMINATION DATE" means December 31, 2003.

"COMMITMENTS" means the commitments of Lenders to make Loans as
set forth in subsection 2.1A.

"COMMON STOCK OFFERING" means the public offering of Parent's
common stock to be made on or before the Closing Date.

"COMPANY" has the meaning assigned to that term in the
introduction to this Agreement, and upon consummation of any combination of
Parent and Company permitted by subsection 7.7(vii) in which Parent is the
surviving corporation, shall mean and include Parent.

"COMPANY COMMON STOCK" means the common stock of Company, par
value $.01 per share, as such par value may be changed from time to time.

"COMPANY PLEDGE AGREEMENT" means the Pledge Agreement executed
and delivered by Company on the Closing Date, substantially in the form of
Exhibit XI annexed hereto, as such Pledge Agreement may hereafter be amended,
supplemented or otherwise modified from time to time.

"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form annexed hereto as EXHIBIT VI delivered to Administrative Agent and Lenders
by Company pursuant to subsection 6.1(iv).

"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the
sum of (i) the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability and including that portion of Capital
Leases which is capitalized on the consolidated balance sheet of Company and its
Subsidiaries) by Company and its Subsidiaries during that period that, in
conformity with GAAP, are included in "additions to property, plant or
equipment" or comparable items reflected in the consolidated statement of cash
flows of Company and its Subsidiaries plus (ii) to the extent not covered by
clause (i) of this definition, the aggregate of all expenditures by Company and
its Subsidiaries during that period to acquire (by purchase or otherwise) the
business, property or fixed assets of, or stock or other beneficial ownership
of, any Person.

"CONSOLIDATED EBITDA" means, for any period, the sum (without
duplication) of the amounts for such period of (i) Consolidated Net Income,
(ii) Consolidated Net Interest Expense, (iii) provisions for taxes based on
income, (iv) total depreciation expense, (v) total amortization expense and
(vi) other non-cash items reducing

<PAGE>

Consolidated Net Income LESS other non-cash items increasing Consolidated Net
Income, all of the foregoing as determined on a consolidated basis for Company
and its Subsidiaries in conformity with GAAP.

"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any period,
the ratio of (i) Consolidated EBITDA to (ii) Consolidated Fixed Charges for any
four consecutive fiscal quarters.

"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of
the amounts for such period of (i) Consolidated Net Cash Interest Expense,
(ii) all dividends on Preferred Stock paid or payable in Cash to the extent
required to permit Parent to pay Cash interest on the 11-1/2% Senior Discount
Debentures, (iii) all dividends on Company Common Stock paid or payable in Cash
to the extent permitted to be so paid pursuant to subsection 7.5, (iv) scheduled
amortization payments made on all Indebtedness of Company and its Subsidiaries
(other than BHFS Group and the Canadian Receivables Division) other than payment
of the Senior Notes upon the final scheduled maturity thereof or the repurchase
or redemption thereof, and (v) Consolidated Capital Expenditures MINUS
Acquisition Expenditures for such period, all of the foregoing as determined on
a consolidated basis for Company and its Subsidiaries in conformity with GAAP.

"CONSOLIDATED NET INTEREST EXPENSE" means, for any period, total
interest expense (including that portion attributable to Capital Leases in
accordance with GAAP and capitalized interest), net of cash interest income, of
Company and its Subsidiaries on a consolidated basis with respect to all
outstanding Indebtedness of Company and its Subsidiaries, including, without
limitation, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs
under Interest Rate Agreements, but excluding, however, any amounts referred to
in subsection 2.3 payable to the Administrative Agent and Lenders on or before
the Closing Date.

"CONSOLIDATED NET CASH INTEREST EXPENSE" means, for any period,
Consolidated Net Interest Expense less the sum of any amounts not payable in
cash (including amortization of deferred financing fees).

"CONSOLIDATED NET INCOME" means, for any period, the net income
(or loss) of Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP;
PROVIDED that there shall be excluded (i) the income (or loss) of any Person
(other than a Subsidiary of Company) in which any other Person (other than
Company or any of its Subsidiaries) has a joint interest, except to the extent
of the amount of dividends or other distributions actually paid to Company or
any of its Subsidiaries by such Person during such period, (ii) the income (or
loss) of any Person accrued prior to the date it becomes a Subsidiary of Company
or is merged into or consolidated with Company or any of its Subsidiaries or
that Person's assets are acquired by Company or any of its Subsidiaries,
(iii) the income of any Subsidiary of Company to the extent that the declaration
or payment of dividends or

<PAGE>

similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales
or returned surplus assets of any Pension Plan, and (v) (to the extent not
included in clauses (i) through (iv) above) any net extraordinary gains or net
extraordinary losses, and increases or decreases resulting from cumulative
accounting changes.

"CONSOLIDATED NET WORTH" means, as at any date of determination,
the sum of the capital stock and additional paid-in capital plus retained
earnings (or minus accumulated deficits) of Company and its Subsidiaries on a
consolidated basis determined in conformity with GAAP; PROVIDED that increases
or decreases resulting from (i) cumulative currency translation adjustments,
(ii) extraordinary gains or losses incurred subsequent to December 28, 1996
(determined in accordance with GAAP), (iii) cumulative accounting changes, (iv)
one-time write-offs or write-downs of goodwill but not including any
amortization of goodwill in the ordinary course) and (v) redemptions of
Preferred Stock to the extent required to permit Parent to make Debt Repurchases
permitted in accordance with subsection 7.5, shall be excluded.

"CONSOLIDATED TOTAL DEBT" means, as at any date of determination,
the aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.

"CONSOLIDATING" means for the purposes of subsections 5.3 and
6.1, with respect to quarterly financial statements, consolidating by major
business line of Company as prepared by Company on June 28, 1997 for internal
use, and with respect to annual financial statements, consolidating by
Subsidiary of Company.

"CONTINGENT OBLIGATION", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person, other
than Contractual Obligations or liabilities that constitute Indebtedness,
(i) with respect to any Indebtedness, lease, dividend or other obligation of
another if the primary purpose or intent thereof by the Person incurring the
Contingent Obligation is to provide assurance to the obligee of such obligation
of another that such obligation of another will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the holders of
such obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under Interest Rate Agreements and Currency Agreements.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another Person, (b) the obligation
to make take-or-pay or similar payments if required regardless of non-
performance by any other party or parties to an agreement, PROVIDED that nothing
in this clause (b) shall be deemed to include payments in the nature of damages
which arise solely as a result of a

<PAGE>

breach of or default in a contractual obligation and which are payable by such
breaching or defaulting party, and (c) any liability of such Person for the
obligation of another through any agreement (contingent or otherwise) (x) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (x) or (y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited. In the event any such amount is
not readily determinable, the Company may make a good faith estimate of such
amount.

"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.

"CURRENCY AGREEMENT" means any foreign exchange contract,
currency swap agreement, futures contract, forward or futures contracts for the
purchase of bullion or foreign currencies and other similar arrangements, option
contract, synthetic cap or other similar agreement or arrangement (but excluding
any option contract or other similar agreement or arrangement under which
Company and its Subsidiaries have no liability for the payment of any amounts
other than the payment of a usual and customary purchase price), in each case
with a term of 60 months or less, designed to protect Company or any of its
Subsidiaries against fluctuations in currency values with respect to (i) known
or reasonably anticipated receipts or disbursements of funds or (ii) currency
translations of earnings of the Company's Foreign Subsidiaries.

"DEBT REPURCHASES" means the aggregate principal amount or
accreted value, as the case may be, of all Senior Notes, 10-3/4% Subordinated
Notes and 11-1/2% Senior Discount Debentures redeemed or otherwise repurchased
by Company or Parent after the Closing Date as permitted by subsection 7.5.

"DEFAULT EXCESS" has the meaning assigned to such term in
subsection 2.10.

"DEFAULT PERIOD" has the meaning assigned to such term in
subsection 2.10.

"DEFAULTED REVOLVING LOAN" has the meaning assigned to such term
in subsection 2.10.

"DEFAULTING LENDER" has the meaning assigned to such term in
subsection 2.10.

<PAGE>

"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.

"DOLLARS" and the sign "$" mean the lawful money of the United
States of America.

"DOMESTIC SUBSIDIARY" means a Subsidiary of Company which is
incorporated in a state of the United States or in the District of Columbia.

"DM" means Deutschemarks, the lawful money of the Federal
Republic of Germany.

"ELIGIBLE ASSIGNEE" means (i) (a) a commercial bank organized
under the laws of the United States or any state thereof having unimpaired
capital and surplus of not less than $250,000,000; (b) a commercial bank
organized under the laws of any other country or a political subdivision thereof
having unimpaired capital and surplus of not less than $250,000,000; provided
that (x) such bank is acting through a branch or agency located in the United
States or (y) such bank is organized under the laws of a country that is a
member of the Organization for Economic Cooperation and Development or a
political subdivision of such country; and (c) any other entity which is an
"accredited investor" (as defined in Regulation D under the Securities Act)
which extends credit or buys loans as one of its businesses having unimpaired
capital and surplus of not less than $250,000,000, including, but not limited
to, insurance companies, mutual funds and lease financing companies, and
(ii) any Lender and any Affiliate of any Lender and, with respect to any Lender
that is a fund that invests in loans, any other fund that invests in loans and
is managed by the same investment advisor of such Lender or by an Affiliate of
such investment advisor; PROVIDED that no Affiliate of Company shall be an
Eligible Assignee.

"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as
defined in Section 3(3) of ERISA which is, or was at any time during the three
years preceding the Closing Date, maintained or contributed to by Company or any
of its ERISA Affiliates, or as to which Company or any of its ERISA Affiliates
has any liability or obligation as a current or former employer or sponsor.

"ENVIRONMENTAL CLAIM" means any notice of violation, claim,
demand, abatement order or other order or direction by any governmental
authority or any Person for any damage, including, without limitation, personal
injury (including sickness, disease or death), property damage, contribution,
indemnity, indirect or consequential damages, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to Company, any of
its Subsidiaries, any of their respective Affiliates or any Facility.

<PAGE>

"ENVIRONMENTAL LAWS" means all applicable statutes, ordinances,
orders, rules, regulations or decrees relating to (i) environmental matters,
including, without limitation, those relating to fines, injunctions, penalties,
damages, contribution, cost recovery compensation, losses or injuries resulting
from the Release or threatened Release of Hazardous Materials, (ii) the
generation, use, storage, transportation or disposal of Hazardous Materials, or
(iii) occupational safety and health, industrial hygiene, land use or the
protection of human, plant or animal health or welfare, applicable to Company or
any of its Subsidiaries or any or their respective properties, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Federal Water Pollution
Control Act ( 33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C.
Section 7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601
ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 ET SEQ.), the Occupational Safety and Health Act (29 U.S.C. Section
651 ET SEQ.) and the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 ET SEQ.), each as amended or supplemented, and any
analogous future or present local, state and federal statutes and regulations
promulgated pursuant thereto, each as in effect as of the date of determination.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.

"ERISA AFFILIATE", as applied to any Person, means (i) any
corporation which is, or was at any time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time, a member; (ii) any trade or
business (whether or not incorporated) which is, or was at any time, a member of
a group of trades or businesses under common control within the meaning of
Section 414(c) of the Internal Revenue Code of which that Person is, or was at
any time, a member; and (iii) any member of an affiliated service group within
the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is, or was at any time, a member.

"ERISA EVENT" means (i) a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations issued thereunder with respect to
any Pension Plan (excluding those for which the provision for 30-day notice to
the PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure (excluding an inadvertent immaterial
failure) to make by its due date a required installment under Section 412(m) of
the Internal Revenue Code with respect to any Pension Plan or the failure to
make any required contribution to a Multiemployer Plan; (iii) the provision by
the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of
a notice of intent to terminate such plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the withdrawal by Company or any of its ERISA
Affiliates from any Pension

<PAGE>

Plan with two or more contributing sponsors or the termination of any such
Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of ERISA;
(v) the institution by the PBGC of proceedings to terminate any Pension Plan, or
the occurrence of any event or condition which might reasonably be expected to
constitute grounds under ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; (vi) the imposition of liability on
Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of
ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal by Company or any of its ERISA Affiliates in a complete or partial
withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any
Multiemployer Plan if there is any potential liability therefor, or the receipt
by Company or any of its ERISA Affiliates of notice from any Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA, or that it intends to terminate or has terminated under Section 4041A or
4042 of ERISA; (viii) the occurrence of an act or omission which could
reasonably be expected to give rise to the imposition on Company or any of its
ERISA Affiliates of material fines, penalties, taxes or related charges under
Chapter 43 of the Internal Revenue Code or under Section 409 or 502(c), (i) or
(l) or 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion
of a material claim (other than routine claims for benefits) against any
Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or
against Company or any of its ERISA Affiliates in connection with any such
Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice
of the failure of any Pension Plan (or any other Employee Benefit Plan intended
to be qualified under Section 401(a) of the Internal Revenue Code) to qualify
under Section 401(a) of the Internal Revenue Code, or the failure of any trust
forming part of any Pension Plan to qualify for exemption from taxation under
Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien
pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.

"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.

"EVENT OF DEFAULT" means each or any one of the events set forth
in Section 8.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.

"EXCHANGE RATE" means, on any date when an amount expressed in a
currency other than Dollars is to be determined with respect to any Letter of
Credit, the rate of exchange of the applicable Issuing Lender in the New York
foreign exchange market for the purchase by such Issuing Lender (by cable
transfer) of such currency in exchange for Dollars at 12:00 noon (New York time)
one Business Day prior to such date, expressed as a number of units of such
currency per one Dollar.

<PAGE>

"EXISTING CREDIT AGREEMENT" has the meaning assigned to that term
in the recitals to this Agreement.

"EXISTING LETTER OF CREDIT" shall have the meaning provided in
subsection 3.1C.

"FACILITIES" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by Company or any of its
Subsidiaries or any of their respective Affiliates.

"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by Administrative Agent from three Federal funds
brokers of recognized standing selected by Administrative Agent.

"FISCAL YEAR" means the fiscal year of Company and its
Subsidiaries ending on the Saturday nearest to December 31 of each calendar
year. For purposes of this Agreement, any particular Fiscal Year shall be
designated by reference to the calendar year in which the majority of such
Fiscal Year occurs.

"FOREIGN FINANCIAL ACCOMMODATIONS" means, with respect to any
Foreign Subsidiary (excluding the Canadian Receivables Division), arrangements
for the extension of credit to such Foreign Subsidiary or other financial
accommodation for the benefit of such Foreign Subsidiary, in each case from a
Person other than the Company or any Subsidiary, including committed or
uncommitted lines of credit for advances or other financial accommodation,
letters of credit, performance or surety bonds and the like, committed or
uncommitted agreements for the purchase of accounts receivable or other
financial assets, with or without recourse or repurchase obligation, but
excluding trade accounts payable arising in the ordinary course of business of
such Foreign Subsidiary. For the purposes of this Agreement, the amount of any
Foreign Financial Accommodation shall be equal to the maximum liability which
may be asserted against the relevant Foreign Subsidiary with respect thereto.

"FOREIGN SUBSIDIARY" means a direct or indirect Subsidiary of
Company which is incorporated in a jurisdiction other than the states of the
United States and the District of Columbia.

"FUNDING DATE" means the date of the funding of a Loan.

<PAGE>

"FUNDING DEFAULT" has the meaning assigned to such term in
subsection 2.10.

"GAAP" means, subject to the limitations on the application
thereof set forth in subsection 1.2, generally accepted accounting principles
set forth in opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case as the same are applicable to the
circumstances as of the date of determination.

"GOVERNMENTAL AUTHORIZATION" means any applicable permit,
license, authorization, plan, directive, consent order or consent decree of or
from any federal, state or local governmental authority, agency or court.

"GUARANTIES" means collectively the Subsidiary Guaranty and the
guaranty made by Parent pursuant to Section 10 hereof, and "GUARANTY" means any
one of such Guaranties.

"HAZARDOUS MATERIALS" means (i) any chemical, material or
substance at any time defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
waste", "restricted hazardous waste", "infectious waste", "toxic substances" or
any other formulations intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws;
(ii) any oil, petroleum, petroleum fraction or petroleum derived substance;
(iii) any drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (iv) any explosives; (v) any radioactive materials; (vi) asbestos in
any form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; and (ix) pesticides (other than
those used in routine maintenance).

"INACTIVE SUBSIDIARY" means any Subsidiary of Company that does
not engage in any significant business activity or own any asset or assets
(including capital stock of another Person) with an aggregate fair market value
in excess of $100,000 or generate revenues in excess of $50,000 annually and
does not have any Subsidiary other than an Inactive Subsidiary; PROVIDED that
neither the aggregate assets owned nor the aggregate revenues generated by all
Inactive Subsidiaries shall exceed $250,000.

"INDEBTEDNESS", as applied to any Person, means (i) all
indebtedness for borrowed money, (ii) that portion of obligations with respect
to Capital Leases that is properly classified as a liability on a balance sheet
in conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing

<PAGE>

obligations for borrowed money, (iv) any obligation owed for all or any part of
the deferred purchase price of property or services (excluding any such
obligations incurred under ERISA and royalty payments and similar liabilities
accrued in the ordinary course of business in accordance with past practices
that are not overdue by more than 90 days), which purchase price is (a) due more
than six months from the date of incurrence of the obligation in respect thereof
or (b) evidenced by a note or similar written instrument, and (v) all
indebtedness secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is nonrecourse to the credit of that Person.
Obligations which constitute Contingent Obligations are not Indebtedness.

"INDEMNITEE" has the meaning assigned to that term in subsection
11.3.

"INDENTURES" means the Senior Note Indenture, the 11-1/2% Senior
Discount Debenture Indenture, and the 10-3/4% Subordinated Note Indenture.

"INTELLECTUAL PROPERTY" means all patents, trademarks,
tradenames, republishing rights, copyrights, technology, know-how and processes
used in or necessary for the conduct of the business of Company and its
Subsidiaries as currently conducted that are material to the condition
(financial or otherwise), business or operations of Company and its
Subsidiaries, taken as a whole.

"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate
Loan, each February 28 (or 29, as the case may be), May 31, August 31 and
November 30 of each year, commencing on the first such date to occur after the
Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of
each Interest Period applicable to such Loan; PROVIDED that in the case of each
Interest Period of six months, "Interest Payment Date" shall also include the
date that is three months after the commencement of such Interest Period.

"INTEREST PERIOD" has the meaning assigned to that term in
subsection 2.2B.

"INTEREST RATE AGREEMENT" means any interest rate agreement,
including swaps, collars or other similar agreement or arrangement (but
excluding any interest rate cap agreement) designed to protect Company or any of
its Subsidiaries against fluctuations in interest rates.

"INTEREST RATE DETERMINATION DATE" means the second Business Day
prior to the first day of the related Interest Period for a Eurodollar Rate
Loan.

"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
as amended to the date hereof and from time to time hereafter.

"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, stock or other

<PAGE>

Securities of any other Person (other than a direct or indirect Wholly-Owned
Domestic Subsidiary of Company), or (ii) any direct or indirect loan, advance
(other than advances to employees for moving, entertainment and travel expenses,
drawing accounts and similar expenditures in the ordinary course of business) or
capital contribution by Company or any of its Subsidiaries to any other Person
(other than a direct or indirect Domestic Subsidiary of Company), including all
indebtedness and accounts receivable from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.

"ISSUING LENDER" means, with respect to any Letter of Credit, the
Lender which agrees or is otherwise obligated to issue such Letter of Credit,
determined as provided in subsection 3.1B(ii).

"JOINT VENTURE" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
PROVIDED that in no event shall any corporate Subsidiary of any Person be
considered to be a Joint Venture to which such Person is a party.

"KEYSTONE" means Keystone, Inc. or its successors.

"LENDER" and "LENDERS" means the persons identified as "Lenders"
and listed on the signature pages of this Agreement, together with their
successors and permitted assigns pursuant to subsection 11.1.

"LETTER OF CREDIT" or "LETTERS OF CREDIT" means the Standby
Letters of Credit and Commercial Letters of Credit issued or to be issued by
Issuing Lenders for the account of Company pursuant to subsection 3.1.

"LETTER OF CREDIT USAGE" means, as at any date of determination,
the sum of (i) the maximum aggregate amount which is or at any time thereafter
may become available for drawing under all Letters of Credit then outstanding
PLUS (ii) the aggregate amount of all drawings under Letters of Credit honored
by Issuing Lenders and not theretofore reimbursed by Company.

"LEVERAGE RATIO" means the ratio of (i) Consolidated Total Debt
LESS the amount of Non-Recourse Debt of the BHFS Group to the extent included in
Consolidated Total Debt as of the last day of any fiscal quarter to
(ii) Consolidated EBITDA for the four consecutive fiscal quarters ended as of
the last day of such fiscal quarter.

"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest)

<PAGE>

and any trust or other preferential arrangement having the practical effect of
any of the foregoing.

"LOAN" or "LOANS" means one or more of the Revolving Loans or
Swingline Loans or any combination thereof.

"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit (and any applications for, or reimbursement agreements or other documents
or certificates executed by Company in favor of an Issuing Lender relating to,
the Letters of Credit), the Guaranties and the Collateral Documents.

"LOAN PARTY" means each of Company, Parent and any of Company's
Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES"
means all such Persons, collectively.

"LOCAL FOREIGN DEBT" means with respect to any Foreign
Subsidiary, Foreign Financial Accommodations incurred by such Foreign Subsidiary
in any country where such Foreign Subsidiary conducts its business.

"MARGIN DETERMINATION CERTIFICATE" means an Officer's Certificate
of Company delivered pursuant to subsection 6.1(iv) setting forth in reasonable
detail the Leverage Ratio for the four-fiscal quarter period ending as of the
last day of the fiscal quarter immediately preceding the fiscal quarter during
which such Officer's Certificate is delivered.

"MARGIN STOCK" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.

"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect
upon the business, operations, properties, assets, condition (financial or
otherwise) or prospects of Company and its Subsidiaries, taken as a whole, or
(ii) the impairment in any material respect of the ability of the Loan Parties,
taken as a whole, to perform, or of Administrative Agent or Lenders to enforce,
the Obligations; PROVIDED THAT, failure to perform as projected in the reports
provided pursuant to subsection 6.1(xii) shall not be the sole basis for a
Material Adverse Effect and a decline in the price of Parent or Company's stock
shall not be the basis for a Material Adverse Effect.

"MORTGAGE" means an instrument (whether designated as a deed of
trust, a trust deed or a mortgage or by any similar title) executed and
delivered by Company or any of its Subsidiaries on the Closing Date,
substantially in the form of Exhibit XIV annexed hereto, encumbering a fee
interest in Real Property Assets as such instrument may be further amended,
supplemented or otherwise modified from time to time, and "MORTGAGES" means all
such instruments, including any Additional Mortgages, collectively.

<PAGE>

"MORTGAGE POLICIES" means ALTA mortgagee title insurance policies
issued by a title insurance company satisfactory to Administrative Agent, in the
amounts satisfactory to Administrative Agent with respect to any particular Real
Property Assets subject to Mortgages, assuring Administrative Agent that the
applicable Mortgages create valid and enforceable first priority mortgage liens
on the respective Real Property Assets subject to Mortgages, free and clear of
all defects and encumbrances except Permitted Encumbrances and subject to a
standard survey exception, which Mortgage Policies shall be in form and
substance reasonably satisfactory to Administrative Agent and shall include an
endorsement for mechanics' liens, for any other matters that Administrative
Agent may reasonably request and for future advances under this Agreement, the
Notes and the other Loan Documents, and shall provide for affirmative insurance
and such reinsurance as Administrative Agent may request, all of the foregoing
in form and substance reasonably satisfactory to Administrative Agent.

"MULTIEMPLOYER PLAN" means a "multiemployer plan", as defined in
Section 3(37) of ERISA, to which Company or any of its ERISA Affiliates is
contributing, or within the three years preceding the Closing Date has
contributed to, or to which Company or any of its ERISA Affiliates has, or has
had within the three years preceding the Closing Date, an obligation to
contribute, or has any liability or obligation as a current or former employer
or sponsor.

"NET CASH PROCEEDS" means, with respect to any Asset Sale, Cash
Proceeds of such Asset Sale net of bona fide cash costs and expenses directly
related to such sale including (i) income taxes reasonably estimated to be
payable within two years of the date of such Asset Sale or that would be payable
in the absence of net operating or capital loss carryforwards or tax credits, in
each case as a result of such Asset Sale, (ii) severance payments made or to be
made as a result of such Asset Sale, (iii) moving expenses directly related to
such Asset Sale and (iv) payment of the outstanding principal amount of, premium
or penalty, if any, and interest on any Indebtedness (other than the Loans)
required to be repaid under the terms thereof as a result of such Asset Sale,
PROVIDED, that Net Cash Proceeds shall include the amount of all income taxes
estimated to be payable as a result of such Asset Sale that are not actually
paid within two years from the consummation of such Asset Sale or for which net
operating loss carryforwards and tax credits are not reduced.

"NON-RECOURSE DEBT" means Indebtedness which (i) is not secured
by any asset of Company or any of its Subsidiaries (other than BHFS Group);
(ii) by its terms does not restrict the operations and activities of Company and
its Subsidiaries (other than BHFS Group); (iii) by its terms contains no
financial covenants applicable to Company and its Subsidiaries (other than BHFS
Group); (iv) is not guarantied by Company or any of its Subsidiaries (other than
BHFS Group); and (v) is non-recourse in every way to Company and its
Subsidiaries (other than BHFS Group).

"NOTES" means one or more of the Revolving Notes or Swingline
Note or any combination thereof (as such promissory notes may be amended,
endorsed or

<PAGE>

otherwise modified from time to time, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof).

"NOTICE OF BORROWING" means a notice substantially in the form of
EXHIBIT I annexed hereto delivered by Company to Administrative Agent pursuant
to subsection 2.1B with respect to a proposed borrowing.

"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially
in the form of EXHIBIT II annexed hereto delivered by Company to Administrative
Agent pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.

"NOTIFICATION DATE" has the meaning assigned to that term in
subsection 3.1A.

"OBLIGATIONS" means all obligations of every nature of each Loan
Party from time to time owed to Administrative Agent, Lenders or any of them
under the Loan Documents, whether for principal, interest, reimbursement of
amounts drawn under Letters of Credit, fees, expenses, indemnification or
otherwise.

"OFFICER'S CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer), its president, one of its vice presidents, its chief financial
officer, its chief accounting officer or its treasurer; PROVIDED that every
Officer's Certificate with respect to the compliance with a condition precedent
to the making of any Loans hereunder shall include (i) a statement that the
officer or officers making or giving such Officer's Certificate have read such
condition and any definitions or other provisions contained in this Agreement
relating thereto, (ii) a statement that, in the opinion of the signer, he has
made or has caused to be made such examination or investigation as is necessary
to enable him to express an informed opinion as to whether or not such condition
has been complied with, and (iii) a statement as to whether, in the opinion of
the signer, such condition has been complied with.

"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.

"OWNED REAL PROPERTY ASSETS" means Real Property Assets that are
owned in fee by Company or any of its Subsidiaries.

"PARENT" has the meaning assigned to that term in the
introduction to this Agreement and, upon consummation of any combination of
Parent and Company permitted by subsection 7.7(vii) in which Company is the
surviving corporation, shall mean and include Company.

<PAGE>

"PARENT PLEDGE AGREEMENT" means the Pledge Agreement executed and
delivered by Parent pursuant to subsection 6.9, as such Pledge Agreement may
hereafter be amended, supplemented or otherwise modified from time to time.

"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor thereto).

"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.

"PERMITTED ENCUMBRANCES" means the following types of Liens
(other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of
the Internal Revenue Code or by ERISA):

(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by subsection
6.3;

(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;

(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);

(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8;

(v) leases or subleases granted to others not interfering in
any material respect with the ordinary conduct of the business of Company
or any of its Subsidiaries;

(vi) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of Company or any of its Subsidiaries;

(vii) any interest or title of a lessor or sublessor under any
lease permitted by this Agreement;

<PAGE>

(viii) Liens arising from filing Uniform Commercial Code
financing statements relating solely to leases permitted by this
Agreement;

(ix) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with
the importation of goods; and

(x) licenses or sublicenses relating to any patents or any
trademarks granted to others by Company or a Subsidiary of Company in
accordance with the provisions of any such agreement.

"PERSON" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, Joint
Ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.

"PLEDGED SUBSIDIARY" means any Subsidiary of Company, the capital
stock of which has been pledged to Administrative Agent, on behalf of Lenders,
pursuant to the Company Pledge Agreement, or a Subsidiary Pledge Agreement or
Auxiliary Pledge Agreement, as applicable.

"POTENTIAL EVENT OF DEFAULT" means a condition or event that,
after notice or lapse of time or both, would constitute an Event of Default.

"PREFERRED STOCK" means the $121.33 Preferred Stock of Company,
with a liquidation preference of $1,000 per share, plus accrued and unpaid
dividends thereon, if any, with the terms set forth in the Certificate of
Designations filed with the Secretary of State of Delaware on February 23, 1993
or any preferred stock of Company issued in substitution therefor upon terms,
including, without limitation, preferences, amount and type of dividends payable
with respect thereto, dividend payment dates, redemption provisions, voting
rights and the like, and subject to documentation, acceptable to Administrative
Agent and Requisite Lenders.

"PRIME RATE" means the rate that Bankers announces from time to
time as its prime lending rate, as in effect from time to time. The Prime Rate
is a reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.

"PRO FORMA" means, with respect to any calculation made or
required to be made pursuant to the terms of this Agreement, a calculation
showing the impact of a proposed transaction on the consolidated financial
position and operations of the Company for the twelve-month period immediately
preceding the date of the proposed transaction and giving effect to the
occurrence of the proposed transaction at the beginning of such

<PAGE>

twelve-month period and including appropriate adjustments to give effect to such
proposed transaction, including without limitation after giving effect to all
Indebtedness incurred or assumed in connection therewith and calculating
interest on any such Indebtedness at a fixed rate equal to the rate (whether
fixed or floating) which such Indebtedness would bear on the date of
determination.

"PRO RATA SHARE" means with respect to each Lender, the
percentage obtained by DIVIDING (x) the Revolving Loan Exposure of that Lender
BY (y) the aggregate Revolving Loan Exposure of all Lenders, as such percentage
may be adjusted by assignments permitted pursuant to subsection 11.1. The
initial Pro Rata Share of each Lender is set forth opposite the name of that
Lender in SCHEDULE 2.1 annexed hereto.

"PROCEEDINGS" has the meaning assigned to that term in subsection
6.1(ix).

"REAL PROPERTY ASSETS" means interests in land, buildings,
improvements and fixtures attached thereto or used in the operation thereof, in
each case owned or leased (as lessee) by Company or any of its Subsidiaries.

"REFERENCE LENDERS" means Bankers, The First National Bank of
Chicago and The Bank of Nova Scotia.

"REFUNDED SWINGLINE LOANS" has the meaning assigned to that term
in subsection 2.1A(ii).

"REGISTER" has the meaning assigned to such term in subsection
2.1E.

"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time.

"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.

"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.

"REPLACED LENDER" has the meaning assigned to such term in
subsection 2.9C.

"REPLACEMENT LENDER" has the meaning assigned to such term in
subsection 2.9C.

<PAGE>

"REQUEST FOR ISSUANCE OF LETTER OF CREDIT" means a notice
substantially in the form of Exhibit III annexed hereto delivered by Company to
Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed
issuance of a Letter of Credit.

"REQUISITE LENDERS" means Lenders having or holding 51% or more
of the aggregate Revolving Loan Exposure of all Lenders.

"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the holders of that class, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of Company now or
hereafter outstanding, (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Company now or hereafter outstanding, and
(iv) any payment or prepayment of principal of, premium, if any, or interest on,
or redemption, purchase, retirement, defeasance (including in-substance or legal
defeasance), sinking fund or similar payment with respect to, any Subordinated
Indebtedness.

"REVOLVING LOAN COMMITMENT" or "REVOLVING LOAN COMMITMENTS" means
the commitment or commitments of a Lender or Lenders to make Revolving Loans to
Company pursuant to subsection 2.1A(i).

"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of
any date of determination (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment, and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender PLUS (b) in
the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage
in respect of all Letters of Credit issued by that Lender (in each case net of
any participations purchased by other Lenders in the applicable Letters of
Credit and any unreimbursed drawings under any Letters of Credit) PLUS (c) the
aggregate amount of all participations purchased by that Lender in outstanding
Letters of Credit and any unreimbursed drawings under any Letters of Credit PLUS
(d) in the event that Lender is the Swingline Lender, the aggregate outstanding
principal amount of the Swingline Loans (net of any participations therein
purchased by other Lenders) PLUS (e) the aggregate amount of all participations
purchased by that Lender in any outstanding Swingline Loans.

"REVOLVING LOANS" means the Loans made by Lenders to Company
pursuant to subsection 2.1A(i).

"REVOLVING NOTES" means (i) the promissory notes of Company
issued pursuant to subsection 2.1D on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection 11.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Lenders, in

<PAGE>

each case substantially in the form of EXHIBIT IV annexed hereto, as they may be
amended, supplemented or otherwise modified from time to time.

"SECURITIES" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.

"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and any successor statute.

"SENIOR DEBT REPURCHASE FACILITY" has the meaning assigned to
that term in subsection 2.1A(i).

"SENIOR NOTE INDENTURE" means the Indenture dated as of June 21,
1993 between Company and State Street Bank and Trust Company, as Trustee, as
such Indenture may be amended, supplemented or otherwise modified from time to
time after the Closing Date to the extent permitted under subsection 7.13.

"SENIOR NOTES" means the $80,000,000 aggregate principal amount
of 9-1/4% Senior Notes due July 15, 2000 of Company issued pursuant to the
Senior Note Indenture.

"SENIOR INDEBTEDNESS" means (i) the Indebtedness of Company
evidenced by the Senior Notes and (ii) any other senior indebtedness of Company
permitted under subsection 7.1(vii).

"SHAREHOLDERS AGREEMENT" means that certain Shareholders
Agreement dated as of May 10, 1988 among Company, Management Shareholders (as
defined therein) and Investor Shareholders (as defined therein), as amended to
the Closing Date and as it may thereafter be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof and hereof.

"SOLVENT" means, with respect to any Person, that as of the date
of determination, considering all financing alternatives and potential asset
sales reasonably available to such Person, both (A) (i) the then fair saleable
value of the assets of such Person is (y) greater than the total amount of
liabilities (including Contingent Obligations) of such Person and (z) greater
than the amount that will be required to pay the probable liabilities on such
Person's then existing debts as they become absolute and matured; (ii) such
Person's capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe that it will incur, debts beyond its ability to pay such debts
as they become due;

<PAGE>

and (B) such Person is "solvent" within the meaning given that term and similar
terms under applicable laws relating to fraudulent transfers and conveyances.

"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries, (iv) obligations with respect to
Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; PROVIDED that Standby
Letters of Credit may not be issued for the purpose of supporting trade
payables.

"SUBORDINATED DEBT REPURCHASE FACILITY" has the meaning assigned
to that term in subsection 2.1A(i).

"SUBORDINATED INDEBTEDNESS" means (i) the Indebtedness of Company
evidenced by the 10-3/4% Subordinated Notes, (ii) any other Indebtedness of
Company permitted under subsection 7.1 that is subordinated in right of payment
to the Obligations, including without limitation upon any combination of Company
and Parent permitted under subsection 7.7(vii), the 11-1/2% Senior Discount
Debentures, and (iii) any other Indebtedness of Company subordinated in right of
payment to the Obligations pursuant to documentation containing maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions
and other material terms in form and substance satisfactory to Administrative
Agent and Requisite Lenders.

"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which more
than 50% of the total voting power of shares of stock or other ownership
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of the Person or Persons (whether directors, managers, trustees
or other Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof.

"SUBSIDIARY GUARANTY" means each Guaranty executed and delivered
by Domestic Subsidiaries of Company (other than BHFS Group and the Inactive
Subsidiaries) on the Closing Date, substantially in the form of Exhibit XIII
annexed hereto, and any other guaranty substantially in the form of such
Guaranties executed from time to time thereafter in accordance with subsection
6.9, as any such Subsidiary Guaranty may be amended, supplemented or otherwise
modified from time to time, and "SUBSIDIARY GUARANTIES" means all such
Guaranties, collectively.

<PAGE>

"SUBSIDIARY PLEDGE AGREEMENT" means each Pledge Agreement
executed and delivered by the Domestic Subsidiaries of Company (other than BHFS
Group and the Inactive Subsidiaries) on the Closing Date, substantially in the
form of Exhibit XII annexed hereto, and any other pledge agreement substantially
in the form of such Pledge Agreements executed from time to time thereafter in
accordance with subsection 6.9, as any such Subsidiary Pledge Agreement may be
amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY
PLEDGE AGREEMENTS" means all such Pledge Agreements, collectively.

"SWINGLINE LENDER" means Bankers, in its capacity as Swingline
Lender hereunder.

"SWINGLINE LOAN COMMITMENT" means the commitment of Swingline
Lender to make Swingline Loans pursuant to subsection 2.1A(ii).

"SWINGLINE LOANS" means the Swingline Loans made by Swingline
Lender to Company pursuant to subsection 2.1A(ii).

"SWINGLINE NOTE" means the promissory note of Company issued
pursuant to subsection 2.1D on the Closing Date substantially in the form of
EXHIBIT V annexed hereto, as it may be amended, supplemented or otherwise
modified from time to time.

"TAX" or "TAXES" means any present or future tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature and whatever called,
by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld
or assessed; PROVIDED that "TAX ON THE OVERALL NET INCOME" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person's principal office (and/or, in the case of a Lender, its lending office)
is located on all or part of the net income, profits or gains of that Person
(whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction, or otherwise).

"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at
any date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans PLUS (ii) the aggregate principal amount of all
outstanding Swingline Loans PLUS (iii) the Letter of Credit Usage.

"TRANSACTION COSTS" means the fees, costs and expenses payable by
Company pursuant hereto in connection with the execution and delivery of this
Agreement.

"TRANSACTIONS" has the meaning assigned to that term in the
recitals to this Agreement.

"WHOLLY-OWNED" means, with respect to any Subsidiary of a Person,
a Subsidiary to the extent all of the capital stock or other ownership interests
in such Subsidiary (except for directors' qualifying shares required by
applicable law) is owned

<PAGE>

directly or indirectly by such Person; PROVIDED that Bell & Howell France, S.A.
shall also be a "Wholly-Owned" Subsidiary of Company.

1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
AGREEMENT.

Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
(iii) and (xii) of subsection 6.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation; PROVIDED that the consolidated and
Consolidating financial statements and other information required to be
delivered pursuant to clauses (i) and (ii) of subsection 6.1 will not be
prepared in accordance with GAAP to the extent that GAAP requires that
information be provided in footnotes. Calculations in connection with the
definitions, covenants and other provisions of this Agreement shall utilize
accounting principles and policies in conformity with GAAP as in effect on the
Closing Date.

1.3 OTHER DEFINITIONAL PROVISIONS.

References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. For the purposes of this Agreement, "amended, supplemented or
otherwise modified" shall mean amended, restated, extended, renewed,
supplemented or modified in any manner.

SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS

2.1 COMMITMENTS; LOANS.

A. COMMITMENTS. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Company
herein set forth, each Lender hereby severally agrees to make the Loans
described in this subsection 2.1A to the extent of its Commitment with respect
thereto.

(i) REVOLVING LOANS. Each Lender severally agrees, subject
to the limitations set forth below with respect to the maximum amount of
Revolving Loans permitted to be outstanding from time to time, to lend to
Company from time to time during the period from the Closing Date to but
excluding the Commitment Termination Date an aggregate amount not
exceeding its Pro Rata Share of the aggregate Revolving Loan Commitments
to be used for the purposes identified in subsection 2.5A. Each Lender's
commitment to make Revolving Loans to Company pursuant to this subsection
2.1A(i) is herein called its

<PAGE>

"Revolving Loan Commitment" and such commitments of all Lenders in the
aggregate are herein called the "Revolving Loan Commitments". The
original amount of each Lender's Revolving Loan Commitment is set forth
opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate amount
of the Revolving Loan Commitments as of the Closing Date is $600,000,000;
PROVIDED that (x) until July 15, 2000, $80,000,000 of such Revolving Loan
Commitments shall be available only for redemptions or repurchases of
Senior Notes permitted pursuant to subsection 7.5 (the "Senior Debt
Repurchase Facility") and (y) until February 1, 1998, $170,000,000 (less
the amount of Debt Repurchases made on or after the Closing Date in
excess of the first $95,000,000) of Revolving Loan Commitments shall be
available only for redemptions or repurchases of the 10 3/4% Subordinated
Notes, the Preferred Stock and/or the 11-1/2% Senior Discount Debentures
permitted pursuant to subsection 7.5 (the "Subordinated Debt Repurchase
Facility"); PROVIDED further that the Revolving Loan Commitments of
Lenders shall be adjusted to give effect to any assignments of the
Revolving Loan Commitments pursuant to subsection 11.1B; and PROVIDED
FURTHER that the amount of the Revolving Loan Commitments shall be
reduced from time to time by the amount of any reductions thereto made
pursuant to subsections 2.4A(ii) and 2.4A(iii). Each Lender's Revolving
Loan Commitment shall expire on the Commitment Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to the
Revolving Loans and the Revolving Loan Commitments shall be paid in full
no later than that date; PROVIDED that each Lender's Revolving Loan
Commitment shall expire immediately and without further action on October
15, 1997 if the initial Revolving Loans are not made on or before that
date. Amounts borrowed under this subsection 2.1A(i) may be repaid and
reborrowed to but excluding the Commitment Termination Date.

Anything contained in this Agreement to the contrary
notwithstanding, the Revolving Loans and the Revolving Loan Commitments
shall be subject to the following limitations in the amounts and during
the periods indicated:

(a) the amount otherwise available to be borrowed or
maintained as Revolving Loans under the Revolving Loan
Commitments as of any time of determination (other than to the
extent such borrowing will be used to repay Swingline Loans,
reimburse any Issuing Lender for the amount of any drawings under
any Letters of Credit honored by such Issuing Lender and not
theretofore reimbursed by Company) shall be reduced by (1) the
aggregate principal amount of Swingline Loans outstanding as of
such time of determination PLUS (2) the Letter of Credit Usage as
of such time of determination; and

(b) in no event shall the Total Utilization of
Revolving Loan Commitments at any time exceed the Revolving Loan
Commitments then in effect.

<PAGE>

(ii) SWINGLINE LOANS. Swingline Lender hereby agrees, subject
to the limitations set forth below with respect to the maximum amount of
Swingline Loans permitted to be outstanding from time to time, to make a
portion of the Revolving Loan Commitments available to Company from time
to time during the period from the Closing Date to but excluding the
Commitment Termination Date by making Swingline Loans to Company in an
aggregate amount not exceeding the amount of the Swingline Loan
Commitment to be used for the purposes identified in subsection 2.5A,
notwithstanding the fact that such Swingline Loans, when aggregated with
Swingline Lender's outstanding Revolving Loans and Swingline Lender's Pro
Rata Share of the Letter of Credit Usage then in effect, may exceed
Swingline Lender's Revolving Loan Commitment. Swingline Lender's
commitment to make Swingline Loans to Company pursuant to this subsection
2.1A(ii) is herein called its "SWINGLINE LOAN COMMITMENT", and the
original amount of the Swingline Loan Commitment is $15,000,000. The
Swingline Loan Commitment shall expire on the Commitment Termination Date
and all Swingline Loans and all other amounts owed hereunder with respect
to the Swingline Loans shall be paid in full no later than that date;
PROVIDED that Swingline Lender's Swingline Loan Commitment shall expire
immediately and without further action on October 15, 1997 if the initial
Revolving Loans are not made on or before that date. Amounts borrowed
under this subsection 2.1A(ii) may be repaid and reborrowed to but
excluding the Commitment Termination Date.

Anything contained in this Agreement to the contrary
notwithstanding, the Swingline Loans and the Swingline Loan Commitment
shall be subject to the following limitations in the amounts and during
the periods indicated:

(a) in no event shall the Total Utilization of
Revolving Loan Commitments at any time exceed the Revolving Loan
Commitments then in effect; and

(b) any reduction of the Revolving Loan Commitments
made pursuant to subsection 2.4A which reduces the aggregate
Revolving Loan Commitments to an amount less than the then
current amount of the Swingline Loan Commitment shall result in
an automatic corresponding reduction of the Swingline Loan
Commitment to the amount of the Revolving Loan Commitments, as so
reduced, without any further action on the part of Administrative
Agent or Swingline Lender.

With respect to any Swingline Loans which have not been
voluntarily prepaid by Company pursuant to subsection 2.4A(i) within 14
days after the making thereof, Swingline Lender shall, and prior to such
time, may, in its sole and absolute discretion, deliver to Administrative
Agent (with a copy to Company), no later than 12:00 Noon (New York time)
at least one Business Day in advance of the proposed Funding Date, a
notice (which shall be deemed to be a Notice of Borrowing given by
Company) requesting Lenders having Revolving Loan

<PAGE>

Commitments to make Revolving Loans that are Base Rate Loans on such
Funding Date in an amount equal to the amount of such Swingline Loans
(the "REFUNDED SWINGLINE LOANS") outstanding on the date such notice is
given which Swingline Lender requests Lenders to prepay. Anything
contained in this Agreement to the contrary notwithstanding, (i) the
proceeds of such Revolving Loans made by Lenders other than Swingline
Lender shall be immediately delivered by Administrative Agent to
Swingline Lender (and not to Company) and applied to repay a
corresponding portion of the Refunded Swingline Loans and (ii) on the day
such Revolving Loans are made, Swingline Lender's Pro Rata Share of the
Refunded Swingline Loans shall be deemed to be paid with the proceeds of
a Revolving Loan made by Swingline Lender and such portion of the
Swingline Loans deemed to be so paid shall no longer be outstanding as
Swingline Loans, shall no longer be due under the Swingline Note of
Swingline Lender, shall become a Revolving Loan of Swingline Lender and
shall be due under the Revolving Note of Swingline Lender. Company
hereby authorizes Administrative Agent and Swingline Lender to charge
Company's accounts with Administrative Agent and Swingline Lender (up to
the amount available in each such account) in order to immediately pay
Swingline Lender the amount of the Refunded Swingline Loans to the extent
the proceeds of such Revolving Loans made by Lenders, including the
Revolving Loan deemed to be made by Swingline Lender, are not sufficient
to repay in full the Refunded Swingline Loans. If any portion of any
such amount paid (or deemed to be paid) to Swingline Lender should be
recovered by or on behalf of Company from Swingline Lender in bankruptcy,
by assignment for the benefit of creditors or otherwise, the loss of the
amount so recovered shall be ratably shared among all Lenders having
Revolving Loan Commitments in the manner contemplated by subsection 11.5.

Immediately upon the funding of each Swingline Loan by Swingline
Lender, each Lender having a Revolving Loan Commitment shall be deemed
to, and hereby agrees to, have purchased a participation in such
outstanding Swingline Loans in an amount equal to its Pro Rata Share of
the unpaid amount together with accrued interest thereon. Upon one
Business Day's notice from Swingline Lender, each such Lender shall
deliver to Swingline Lender an amount equal to its respective
participation in same day funds at the office of Swingline Lender located
at One Bankers Trust Plaza, New York, New York. In order to evidence
such participation each such Lender agrees to enter into a participation
agreement at the request of Swingline Lender in form and substance
reasonably satisfactory to all parties. In the event any such Lender
fails to make available to Swingline Lender the amount of such Lender's
participation as provided in this paragraph, Swingline Lender shall be
entitled to recover such amount on demand from such Lender together with
interest thereon at the rate customarily used by Swingline Lender for the
correction of errors among banks for three Business Days after such
demand and thereafter at the Base Rate. In the event Swingline Lender
receives payment of any amount in which other Lenders have purchased
participations as provided in this paragraph,

<PAGE>

Swingline Lender shall promptly distribute to each other Lender its Pro
Rata Share of such payment.

Anything contained herein to the contrary notwithstanding,
(i) each such Lender's obligation to make Revolving Loans for the purpose
of repaying any Refunded Swingline Loans pursuant to the second preceding
paragraph of this subsection 2.1A(ii) and each such Lender's obligation
to purchase a participation in any unpaid Swingline Loans pursuant to the
immediately preceding paragraph of this subsection 2.1A(ii) shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (a) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against Swingline
Lender, Company or any other Person for any reason whatsoever; (b) the
occurrence or continuance of an Event of Default or a Potential Event of
Default; (c) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries; (d) any breach of this Agreement or any other Loan
Document by any party thereto; or (e) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing;
PROVIDED that such obligations of each such Lender are subject to one of
the following: (X) Swingline Lender believed in good faith that all
conditions under Section 4 to the making of the applicable Refunded
Swingline Loans or other unpaid Swingline Loans, as the case may be, were
satisfied at the time such Refunded Swingline Loans or unpaid Swingline
Loans were made, (Y) such Lender had actual knowledge, by receipt of any
notices required to be delivered to Lenders pursuant to subsection
6.1(viii) or otherwise, that any such condition had not been satisfied
and such Lender failed to notify Swingline Lender and Administrative
Agent in writing that it had no obligation to make Revolving Loans until
such condition was satisfied (any such notice to be effective as of the
date of receipt thereof by Swingline Lender and Administrative Agent), or
(Z) the satisfaction of any such condition not satisfied had been waived
in accordance with subsection 11.6; and (ii) Swingline Lender shall not
be obligated to make any Swingline Loans if it has elected not to do so
after the occurrence and during the continuation of a Potential Event of
Default or Event of Default.

B. BORROWING MECHANICS. Revolving Loans made on any Funding Date
(other than Revolving Loans made pursuant to a request by Swingline Lender
pursuant to subsection 2.1A(ii) for the purposes of repaying any Refunded
Swingline Loans or Revolving Loans made pursuant to subsection 3.3B for the
purpose of reimbursing any Issuing Lender for the amount of a drawing under a
Letter of Credit issued by it) shall be in an aggregate minimum amount of
$1,000,000 and integral multiples of $500,000 in excess of that amount; PROVIDED
Revolving Loans made on any Funding Date as Eurodollar Rate Loans with a
particular Interest Period shall be in an aggregate minimum amount of $3,000,000
and integral multiples of $500,000 in excess of that amount. Swingline Loans
made on any Funding Date shall be in an aggregate minimum amount of $500,000 and
integral multiples of $100,000 in excess of that amount. Whenever Company
desires that Lenders make Revolving Loans it shall deliver to Administrative
Agent a Notice of

<PAGE>

Borrowing no later than 12:00 noon (New York time) at least three Business Days
in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan),
or at least one Business Day in advance of the proposed Funding Date (in the
case of a Base Rate Loan). Whenever Company desires that Swingline Lender make
a Swingline Loan under subsection 2.1A(ii), it shall deliver to Administrative
Agent a Notice of Borrowing no later than 1:00 P.M. (New York time) on the
proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed
Funding Date (which shall be a Business Day), (ii) the amount and type of Loans
requested, (iii) in the case of Swingline Loans, that such Loans shall be Base
Rate Loans, (iv) in the case of Loans made on the Closing Date, that such Loans
shall be Base Rate Loans, (v) in the case of Revolving Loans not made on the
Closing Date, whether such Loans shall be Base Rate Loans or Eurodollar Rate
Loans, and (vi) in the case of any Loans requested to be made as Eurodollar Rate
Loans, the initial Interest Period requested therefor. Revolving Loans may be
continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the
manner provided in subsection 2.2D. In lieu of delivering the above-described
Notice of Borrowing, Company may give Administrative Agent telephonic notice by
the required time of any proposed borrowing under this subsection 2.1B; PROVIDED
that such notice shall be promptly confirmed in writing by delivery of a Notice
of Borrowing to Administrative Agent on or before the applicable Funding Date.

Neither Administrative Agent nor any Lender shall incur any
liability to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of Loans by Lenders in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected Loans hereunder.

Company shall notify Administrative Agent prior to the funding of
any Loans in the event that any of the matters to which Company is required to
certify in the applicable Notice of Borrowing is no longer true and correct as
of the applicable Funding Date, and the acceptance by Company of the proceeds of
any Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing as modified pursuant to the notice provided for
in the first clause of this sentence (it being understood that the making of
such Loans by Lenders shall not in any way be construed as a waiver by Lenders
of any matter set forth in such notice).

Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G,
a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in accordance
therewith.

C. DISBURSEMENT OF FUNDS. All Revolving Loans under this Agreement
shall be made by Lenders simultaneously and proportionately to their respective
Pro Rata

<PAGE>

Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in that other Lender's obligation to make a Revolving Loan
requested hereunder nor shall the Revolving Loan Commitment of any Lender be
increased or decreased as a result of a default by any other Lender in that
other Lender's obligation to make a Revolving Loan requested hereunder.
Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant
to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent
shall notify each Lender or Swingline Lender, as the case may be, of the
proposed borrowing. Each Lender shall make the amount of its Revolving Loan
available to Administrative Agent not later than 12:00 noon (New York time) on
the applicable Funding Date and Swingline Lender shall make the amount of its
Swingline Loan available to Administrative Agent not later than 2:00 P.M. (New
York time) on the applicable Funding Date, in each case in same day funds, at
the office of Administrative Agent located at One Bankers Trust Plaza, New York,
New York. Except as provided in subsection 2.1A(ii) or subsection 3.3B with
respect to Revolving Loans used to repay Swingline Loans or to reimburse any
Issuing Lender for the amount of a drawing under a Letter of Credit issued by
it, upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the
case of all Loans), Administrative Agent shall make the proceeds of such Loans
available to Company on the applicable Funding Date by causing an amount of same
day funds equal to the proceeds of all such Loans received by Administrative
Agent from Lenders to be credited to the account of Company at the office of
Administrative Agent specified in the preceding sentence.

Unless Administrative Agent shall have been notified by any
Lender prior to the Funding Date for any Loans that such Lender does not intend
to make available to Administrative Agent the amount of such Lender's Loan
requested on such Funding Date, Administrative Agent may assume that such Lender
has made such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Administrative Agent by
such Lender, Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the customary rate set by Administrative Agent for the
correction of errors among banks for three Business Days and thereafter at the
Base Rate. If such Lender does not pay such corresponding amount forthwith upon
Administrative Agent's demand therefor, Administrative Agent shall promptly
notify Company and Company shall immediately pay such corresponding amount to
Administrative Agent together with interest thereon, for each day from such
Funding Date until the date such amount is paid to Administrative Agent, at the
rate payable under this Agreement for Base Rate Loans; PROVIDED, HOWEVER, that
Company shall have no additional obligations to pay interest on such amount
hereunder. Nothing in this subsection 2.1C shall be deemed to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Company may have against any Lender as a result of any default
by such Lender hereunder.

<PAGE>

D. NOTES. Company shall execute and deliver on the Closing
Date (i) to each Lender (or to Administrative Agent for that Lender) a Revolving
Note substantially in the form of Exhibit IV annexed hereto to evidence that
Lender's Revolving Loans in the principal amount of that Lender's Revolving Loan
Commitment and with other appropriate insertions; and (ii) to Swingline Lender,
a Swingline Note substantially in the form of Exhibit V annexed hereto to
evidence Swingline Lender's Swingline Loans in the principal amount of the
Swingline Loan Commitment and with other appropriate insertions.

E. THE REGISTER.

(i) Administrative Agent shall maintain, at its
address set forth on its signature page hereto, a register for the
recordation of the name and addresses of Lenders and the
Commitments and Loans of each Lender from time to time (the
"REGISTER"). The Register shall be available for inspection by
Company or any Lender at any reasonable time and from time to time
upon reasonable prior notice.

(ii) Administrative Agent shall record in the Register
the Revolving Loan Commitment and Revolving Loans from time to
time of each Lender, the Swingline Loan Commitment and the
Swingline Loans from time to time of Swingline Lender, and each
repayment or prepayment in respect of the principal amount of the
Revolving Loans of each Lender or the Swingline Loans of Swingline
Lender. Any such recordation shall be conclusive and binding on
Company and each Lender, absent manifest error; PROVIDED that
failure to make any such recordation, or any error in such
recordation, shall not affect Company's Obligations in respect of
the applicable Loans.

(iii) Each Lender shall record on its internal records
(including, without limitation, the Notes held by such Lender) the
amount of each Revolving Loan made by it and each payment in
respect thereof. Any such recordation shall be conclusive and
binding on Company, absent manifest error; PROVIDED that failure
to make any such recordation, or any error in such recordation,
shall not affect Company's Obligations in respect of the
applicable Loans; and PROVIDED, FURTHER that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.

(iv) Company, Administrative Agent and Lenders shall
deem and treat the Persons listed as Lenders in the Register as
the holders and owners of the corresponding Commitments and Loans
listed therein for all purposes hereof, and no assignment or
transfer of any such Commitment or Loan shall be effective, in
each case unless and until an Assignment Agreement effecting the
assignment or transfer thereof shall have been accepted by
Administrative Agent and recorded in the Register as provided in
subsection

<PAGE>

11.1B(ii). Prior to such recordation, all amounts owed with respect to
the applicable Commitment or Loan shall be owed to the Lender listed in
the Register as the owner thereof, and any request, authority or consent
of any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or transferee
of the corresponding Commitments or Loans.

(v) Company hereby designates Bankers to serve as
Company's agent solely for purposes of maintaining the Register as
provided in this subsection 2.1E, and Company hereby agrees that,
to the extent Bankers serves in such capacity, Bankers and its
officers, directors, employees, agents and affiliates shall
constitute Indemnitees for all purposes under subsection 11.3.

2.2 INTEREST ON THE LOANS.

A. RATE OF INTEREST. Subject to the provisions of subsections 2.6
and 2.7, each Revolving Loan shall bear interest on the unpaid principal amount
thereof from the date made up to, but not including, the date of maturity
(whether by acceleration or otherwise) at a rate determined by reference to the
Base Rate or the Adjusted Eurodollar Rate (computed as described in subsection
2.2F). Subject to the provisions of subsection 2.7, each Swingline Loan shall
bear interest on the unpaid principal amount thereof from the date made up to,
but not including, the date of maturity (whether by acceleration or otherwise)
at a rate determined by reference to the Base Rate (computed as described in
subsection 2.2F). The applicable basis for determining the rate of interest
with respect to any Loan shall be selected by Company initially at the time a
Notice of Borrowing is given with respect to such Loan pursuant to subsection
2.1B. The basis for determining the interest rate with respect to any Revolving
Loan may be changed from time to time pursuant to subsection 2.2D. If on any
day a Revolving Loan is outstanding with respect to which notice has not been
delivered to Administrative Agent in accordance with the terms of this Agreement
specifying the applicable basis for determining the rate of interest, then for
that day that Loan shall bear interest determined by reference to the Base Rate.

(i) Subject to the provisions of subsections 2.2E and 2.7,
the Revolving Loans shall bear interest through maturity as follows:

(a) if a Base Rate Loan, then at the sum of the Base
Rate PLUS the Base Rate Margin set forth in the table below
opposite Company's Leverage Ratio for the four-fiscal quarter
period for which the applicable Margin Determination Certificate
is being delivered pursuant to subsection 6.1(iv); or

(b) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate PLUS the Eurodollar Rate Margin set
forth in the table below

<PAGE>

opposite Company's Leverage Ratio for the four-fiscal quarter
period for which the applicable Margin Determination Certificate
is being delivered pursuant to subsection 6.1(iv):

<TABLE>
<CAPTION>
Applicable Applicable
Leverage Eurodollar Rate Base Rate
Ratio Margin Margin
------------------------------------ ----------------- ----------
<S> <C> <C>
Greater than
or equal to 4.25:1.00 1.25% .25%

Greater than or
equal to 4.00:100
but less than 4.25:1.00 1.00% 0.00%

Greater than or
equal to 3.50:1.00
but less than 4.00:1.00 0.75% 0.00%

Greater than or
equal to 3.25:1.00
but less than 3.50:1.00 0.625% 0.00%

Greater than or
equal to 2.75:1.00
but less than 3.25:1.00 0.50% 0.00%

Greater than or
equal to 2.00:1.00
but less than 2.75:1.00 0.375% 0.00%

Less than 2.00:1.00 0.25% 0.00%
</TABLE>

; PROVIDED that, for the period from the Closing Date through the fourth
quarter of Fiscal Year 1997, the applicable margin for Eurodollar Rate
Loans shall be 0.75% per annum and for Base Rate Loans shall be 0.00% per
annum.

Upon delivery of the Margin Determination Certificate by Company to
Administrative Agent pursuant to subsection 6.1(iv), the Applicable Base
Rate Margin and the Applicable Eurodollar Margin shall automatically be
adjusted in accordance with such Margin Determination Certificate, such
adjustment to become effective on the next succeeding Business Day
following the receipt by Administrative Agent of such Margin
Determination Certificate; PROVIDED that at any time a Margin
Determination Certificate is not delivered at the time required pursuant
to subsection 6.1(iv), from the time such Margin Determination
Certificate was required to be delivered until delivery of such Margin
Determination Certificate, the Applicable Eurodollar Rate Margin shall be
1.25% per annum and the Applicable Base Rate Margin shall be 0.25% per
annum; PROVIDED FURTHER that if

<PAGE>

a Margin Determination Certificate erroneously indicates an applicable
margin more favorable to Company than would be afforded by the actual
calculation of the Leverage Ratio, Company shall promptly pay such
additional interest and letter of credit fees as shall correct for such
error.

(ii) Subject to the provisions of subsection 2.2E and 2.7, the
Swingline Loans shall bear interest (computed as described in subsection
2.2F) through maturity at the sum of the Base Rate plus the Applicable
Base Rate Margin less the commitment fee percentage applicable under
subsection 2.3A set forth in subsection 2.2A(i).

B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan,
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at Company's option, a one, two, three or six month period; PROVIDED that:

(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date of such Loan, in the case of a Loan
initially made as a Eurodollar Rate Loan, or on the date specified in the
applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a Eurodollar Rate Loan;

(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;

(iii) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED that if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;

(iv) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;

(v) no Interest Period with respect to any portion of the
Revolving Loans shall extend beyond the Commitment Termination Date;

(vi) there shall be no more than 20 Interest Periods
outstanding at any time; and

<PAGE>

(vii) in the event Company fails to specify an Interest Period
for any Eurodollar Rate Loan in the applicable Notice of Borrowing or
Notice of Conversion/Continuation, Company shall be deemed to have
selected an Interest Period of one month.

C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and up to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity of any Loan
(including final maturity) PROVIDED that in the event any Swingline Loans or any
Revolving Loans that are Base Rate Loans are prepaid pursuant to subsection
2.4A(i), interest accrued on such Swingline Loans or Revolving Loans up to the
date of such prepayment shall be payable on the next succeeding Interest Payment
Date applicable to Base Rate Loans (or, if earlier, at final maturity).

D. CONVERSION OR CONTINUATION. Subject to the provisions of
subsection 2.6, Company shall have the option (i) to convert at any time all or
any part of its outstanding Revolving Loans equal to $3,000,000 and integral
multiples of $500,000 in excess of that amount (or in the case of a conversion
to Base Rate Loans, $1,000,000 and integral multiples of $500,000 in excess
thereof) from Loans bearing interest at a rate determined by reference to one
basis to Loans bearing interest at a rate determined by reference to an
alternative basis or (ii) upon the expiration of any Interest Period applicable
to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to
$3,000,000 and integral multiples of $500,000 in excess of that amount as a
Eurodollar Rate Loan, as the case may be; PROVIDED, HOWEVER, that a Eurodollar
Rate Loan may only be converted into a Base Rate Loan on the expiration date of
an Interest Period applicable thereto; and PROVIDED, FURTHER that no Loan may be
made as or converted into a Base Rate Loan during the period from December 24 of
any year to and including January 7 of the immediately succeeding year for the
intended purpose of investing in Securities bearing interest at a rate
determined by reference to any other basis for the purpose of arbitrage or
speculation.

Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 12:00 noon (New York time) at least one
Business Day in advance of the proposed conversion/continuation date (in the
case of a conversion to a Base Rate Loan), and at least three Business Days in
advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of
Conversion/Continuation shall specify (i) the proposed conversion/continuation
date (which shall be a Business Day), (ii) the amount of the Loan to be
converted/continued, (iii) the nature of the proposed conversion/continuation
and (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan, the requested Interest Period, and that no Potential Event of Default or
Event of Default has occurred and is continuing. In lieu of delivering the
above-described Notice of Conversion/Continuation, Company may give
Administrative Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; PROVIDED that such notice
shall be promptly confirmed in writing by delivery of a Notice of Conversion/

<PAGE>

Continuation to Administrative Agent on or before the proposed conversion/
continuation date.

Neither Administrative Agent nor any Lender shall incur any
liability to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise acting in good faith under this subsection 2.2D, and upon conversion
or continuation of the applicable basis for determining the interest rate with
respect to any Loans in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected a conversion or continuation, as
the case may be, hereunder.

Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G,
a Notice of Conversion/Continuation for conversion to, or continuation of, a
Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable
on and after the related Interest Rate Determination Date, and Company shall be
bound to effect a conversion or continuation in accordance therewith.

E. DEFAULT RATE. Upon the occurrence and during the continuation of
any Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement (with fees and other amounts bearing interest at a
rate that is 2% per annum in excess of the rate payable with respect to Base
Rate Loans); PROVIDED that, in the case of Eurodollar Rate Loans, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective such Eurodollar Rate Loans shall thereupon become
Base Rate Loans and shall thereafter bear interest payable upon demand at a rate
which is 2% per annum in excess of the interest rate otherwise payable under
this Agreement for Base Rate Loans; PROVIDED, FURTHER that with respect to an
Event of Default other than an Event of Default under subsection 8.1, such
increased interest rates shall not be applicable for 30 days after the
occurrence of such Event of Default. Payment or acceptance of the increased
rates of interest provided for in this subsection 2.2E is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Administrative
Agent or any Lender.

F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed
on the basis of a 360-day year, for the actual number of days elapsed in the
period during which it accrues. In computing interest on any Loan, the date of
the making of such Loan or the first day of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar
Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate
Loan shall be included, and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan or, with respect

<PAGE>

to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of
conversion of such Base Rate Loan to such Eurodollar Rate Loan shall be
excluded; PROVIDED that if a Loan is repaid on the same day on which it is made,
one day's interest shall be paid on that Loan.

2.3 FEES.

A. COMMITMENT FEES. Company agrees to pay to Administrative Agent,
for distribution to each Lender in proportion to that Lender's Pro Rata Share of
the Revolving Loan Commitments, commitment fees for the period from and
including the Closing Date to and excluding the Commitment Termination Date
equal to the average of the daily excess of the Revolving Loan Commitments over
the sum of the aggregate principal amount of Revolving Loans outstanding (but
not any Swingline Loans outstanding) PLUS the Letter of Credit Usage then in
effect MULTIPLIED BY the commitment fee percentage set forth in the table below
opposite Company's Leverage Ratio for the four-fiscal quarter period for which
the applicable Margin Determination Certificate is being delivered pursuant to
subsection 6.1(iv):

Commitment
Leverage Ratio Fee Percentage
-------------------- --------------
Greater than or
equal to 4.25:1.00 0.30%

Greater than or
equal to 4.00:1.00
but less than 4.25:1.00 0.275%

Greater than or
equal to 3.50:1.00
but less than 4.00:1.00 0.25%

Greater than or
equal to 3.25:1.00
but less than 3.50:1.00 0.225%

Greater than or
equal to 2.75:1.00
but less than 3.25:1.00 0.20%

Greater than or
equal to 2.00:1.00
but less than 2.75:1.00 0.15%

less than 2:00:1.00 0.125%

<PAGE>

such commitment fees to be calculated on the basis of a 360-day year and the
actual number of days elapsed and to be payable quarterly in arrears on
February 28 (or 29, as the case may be), May 31, August 31 and November 30 of
each year, commencing on the first such date to occur after the Closing Date,
and on the Commitment Termination Date; PROVIDED that for the period from the
Closing Date through the fourth quarter of Fiscal Year 1997, the commitment fee
shall be 0.25% per annum. Upon delivery of the Margin Determination Certificate
by Company to Administrative Agent pursuant to subsection 6.1(iv), the
applicable commitment fee percentage shall automatically be adjusted in
accordance with such Margin Determination Certificate, such adjustment to become
effective on the next succeeding Business Day following the receipt by
Administrative Agent of such Margin Determination Certificate; PROVIDED that in
the event that Company fails to deliver a Margin Determination Certificate
timely in accordance with the provisions of subsection 6.1(iv), from the time
such Margin Determination Certificate should have been delivered until such date
as such a Margin Determination Certificate is actually delivered, the applicable
commitment fee percentage shall be 0.30% per annum.

B. OTHER FEES. Company agrees to pay to Administrative Agent for
its own account such fees in the amounts and at the times separately agreed upon
between Company and Administrative Agent. Company agrees to pay to
Administrative Agent for the benefit of Lenders, and Administrative Agent
thereupon agrees to pay to Lenders, such other fees in the amounts and at the
times as have been agreed upon between Company and each Lender.

2.4 PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS REGARDING
PAYMENTS.

A. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS.

(i) VOLUNTARY PREPAYMENTS.

(a) Company may, upon written or telephonic notice to
Administrative Agent on or prior to 12:00 Noon (New York time) on the
date of prepayment, which notice, if telephonic, shall be promptly
confirmed in writing, at any time and from time to time prepay, without
premium or penalty, any Swingline Loan in whole or in part on any
Business Day in an aggregate minimum amount of $500,000 and integral
multiples of $100,000 in excess of that amount (or such lesser amount as
shall constitute the aggregate amount of all outstanding Swingline
Loans). Company may, upon one Business Day's prior written or telephonic
notice confirmed in writing to Administrative Agent (which notice
Administrative Agent will promptly transmit by telecopy, telegram, telex
or telephone to each Lender), at any time and from time to time prepay
any other Loans in whole or in part on any Business Day in an aggregate
minimum amount of $1,000,000 and integral multiples of $500,000 in excess
of that amount; PROVIDED, HOWEVER, that upon payment of breakage costs
pursuant to subsection 2.6D, Eurodollar Rate Loans may be prepaid on a
Business Day other than the date of the expiration of the Interest

<PAGE>

Period applicable thereto. Notice of prepayment having been given as
aforesaid, the principal amount of the Loans specified in such notice
shall become due and payable on the prepayment date specified therein.
Any such voluntary prepayment shall be applied as specified in subsection
2.4A(iv).

(b) In the event of certain refusals by a Lender as
provided in subsection 11.6B to consent to certain proposed changes,
waivers, discharges or terminations with respect to this Agreement which
have been approved by Requisite Lenders, the Company may, subject to its
compliance with the requirements of said subsection 11.6B, upon five
Business Days' written notice to the Administrative Agent (which notice
the Administrative Agent shall promptly transmit to each of the Lenders)
terminate the Revolving Loan Commitment of such Lender so long as all
Loans, together with accrued and unpaid interest, fees and other amounts
owing to such Lender are repaid concurrently with the effectiveness of
such termination (at which time Schedule 2.1 shall be deemed modified to
reflect such changed amounts), and at such time such Lender shall no
longer constitute a "Lender" for purposes of this Agreement, except with
respect to indemnifications under this Agreement (including, without
limitation, subsections 2.6D, 2.7, 3.6, 11.2 and 11.3), which shall
survive as to such repaid Lender.

(ii) VOLUNTARY REDUCTIONS OF REVOLVING LOAN AND SWINGLINE LOAN
COMMITMENTS.

(a) Company may, upon not less than three Business
Days' prior written or telephonic notice confirmed in writing to
Administrative Agent (which notice Administrative Agent will promptly
transmit by telecopy, telegram, telex or telephone to each Lender), at
any time and from time to time terminate in whole or permanently reduce
in part, without premium or penalty, the Revolving Loan Commitments in an
amount up to the amount by which the Revolving Loan Commitments exceed
the Total Utilization of Revolving Loan Commitments at the time of such
proposed termination or reduction; PROVIDED that any such partial
reduction of the Revolving Loan Commitments shall be in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount. Company may, upon same day prior written or
telephonic notice confirmed in writing to Administrative Agent (which
notice Administrative Agent will promptly transmit by telecopy, telegram,
telex or telephone to Swingline Lender), at any time and from time to
time terminate in whole or permanently reduce in part, without premium or
penalty, the Swingline Loan Commitment in an amount up to the amount by
which the Swingline Loan Commitment exceeds the Swingline Loans at the
time of such proposed termination or reduction; PROVIDED that any such
partial reduction of the Swingline Loan Commitment shall be in an
aggregate minimum amount of $500,000 and integral multiples of $100,000
in excess of that amount. Company's notice to Administrative Agent shall
designate (i) the date (which shall be a Business Day) of such
termination or reduction, (ii) the amount of any partial reduction, and
(iii) if Company desires to terminate or

<PAGE>

reduce the Senior Debt Repurchase Facility or the Subordinated Debt
Repurchase Facility that such reduction applies to the Senior Debt
Repurchase Facility or the Subordinated Debt Repurchase Facility, as the
case may be, and such termination or reduction shall be effective on the
date specified in Company's notice, and in the case of Revolving Loan
Commitments, shall reduce the Revolving Loan Commitment of each Lender
proportionately to its Pro Rata Share thereof and, in the case of the
Swingline Loan Commitment, shall reduce the Swingline Loan Commitment of
the Swingline Loan Lender in the amount specified in Company's notice.

(iii) MANDATORY PREPAYMENTS AND MANDATORY REDUCTIONS OF
REVOLVING LOAN COMMITMENTS. The Loans shall be prepaid and/or the
Revolving Loan Commitments shall be permanently reduced in the amounts
and under the circumstances set forth below, all such prepayments and/or
reductions to be applied as set forth below or as more specifically
provided in subsection 2.4A(iv):

(a) PREPAYMENTS AND REDUCTIONS FROM ASSET SALES.
Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an amount equal to
Net Cash Proceeds of Asset Sales in any Fiscal Year in excess of
$10,000,000 (the "Excess Asset Sale Proceeds"); PROVIDED,
however, that so long as no Event of Default or Potential Event
of Default shall have occurred and be continuing, Excess Asset
Sale Proceeds which are reinvested as Acquisition Expenditures or
as Consolidated Capital Expenditures in the business of Company
and its Subsidiaries within twelve months of the date of such
Asset Sale, up to a maximum aggregate amount of $75,000,000 from
the Closing Date for such reinvested Excess Asset Sale Proceeds,
need not be applied to prepay the Loans and/or permanently reduce
the Revolving Loan Commitments. Any prepayment from such
unreinvested Excess Asset Sale Proceeds shall be made by Company
within one Business Day after the termination of such

<PAGE>

twelve month period. If, following the receipt by Company or any
of its Subsidiaries of Net Cash Proceeds from Asset Sales,
Company is required to apply or cause to be applied any portion
of such Net Cash Proceeds to prepay any Indebtedness permitted
pursuant to subsections 7.1(v), (vii) or (xiii), then,
notwithstanding anything contained in this subsection
2.4A(iii)(a), Company shall prepay the Loans and/or reduce the
Revolving Loan Commitments as set forth in this subsection
2.4A(iii)(a) so as to eliminate any obligation to prepay such
Indebtedness.

(b) PREPAYMENTS AND REDUCTIONS OF DEBT REPURCHASE
FACILITIES.

(i) On February 1, 1998, the Revolving Loan
Commitments shall be permanently reduced by an amount equal to
the difference (if positive) between (1)(A) $170,000,000 MINUS
(B) any commitment reductions made to the Subordinated Debt
Repurchase Facility pursuant to subsection 2.4A(ii) and (2) the
aggregate amount of Debt Repurchases made of the 10 3/4%
Subordinated Notes and the 11-1/2% Senior Discount Debentures
(other than any such 11-1/2% Senior Discount Debentures
repurchased from up to $95,000,000 in proceeds of the Common
Stock Offering) from the Closing Date to and including
February 1, 1998; PROVIDED that if the amount of such Debt
Repurchases is $150,000,000 or greater, no such reduction need be
made.

(ii) On July 15, 2000, the Revolving Loan
Commitments shall be permanently reduced by an amount equal to
the difference between (1)(A) $80,000,000 MINUS (B) any
commitment reductions made to the Senior Debt Repurchase Facility
pursuant to subsection 2.4A(ii) and (2) the aggregate amount of
Debt Repurchases made of the Senior Notes from the Closing Date
to and including July 15, 2000.

(iii) On the date of the issuance of any
refinancing Senior Indebtedness pursuant to subsection 7.1(vii),
the Senior Debt Repurchase Facility shall be permanently reduced
by an amount equal to the principal amount of the refinancing
Senior Indebtedness so issued and the Revolving Loan Commitments
shall be permanently reduced to the same extent as the reduction
in the Senior Debt Repurchase Facility.

(iv) Notwithstanding the foregoing, in no event
shall the Revolving Loan Commitments be reduced below
$350,000,000 pursuant to the operation of this subsection
2.4A(iii)(b).

(c) PREPAYMENTS AND REDUCTIONS DUE TO ISSUANCE OF DEBT
SECURITIES. Within one Business Day of the date of receipt by
Parent or Company of the Cash proceeds (any such proceeds, net of
underwriting discounts and commissions and other reasonable costs
and expenses

<PAGE>

associated therewith, being the "Net Debt Proceeds") from the
issuance or sale of any debt Securities of Company or Parent or
their respective Subsidiaries (other than the BHFS Group or
Foreign Subsidiaries) permitted pursuant to subsection 7.1(xiii),
Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate amount
equal to 50% of such Net Debt Proceeds; PROVIDED that the
Company's pro forma Leverage Ratio is greater than or equal to
2.25:1.0. If the Company's pro forma Leverage Ratio is less than
2.25:1.0, the Company shall not be required to prepay the Loans
and/or permanently reduce the Revolving Loan Commitments.

(d) SCHEDULED MANDATORY COMMITMENT REDUCTIONS. On
December 31, 2002, the Revolving Loan Commitments shall be
permanently and automatically reduced by $100,000,000 and such
reduction shall reduce the Revolving Loan Commitment of each
Lender proportionately to its Pro Rata Share.

(e) PREPAYMENTS DUE TO RESTRICTIONS OF REVOLVING LOAN
COMMITMENTS. Company shall from time to time prepay FIRST the
Swingline Loans and SECOND the Revolving Loans to the extent
necessary so that the Total Utilization of Revolving Loan
Commitments shall not at any time exceed the Revolving Loan
Commitments then in effect. Any such mandatory prepayments shall
be applied as specified in subsection 2.4A(iv) and shall not
reduce the amount of the Revolving Loan Commitments then in
effect.

(f) CALCULATIONS OF NET CASH PROCEEDS AMOUNTS;
ADDITIONAL PREPAYMENTS AND REDUCTIONS BASED ON SUBSEQUENT
CALCULATIONS. Concurrently with any prepayment of the Loans
and/or reduction of the Revolving Loan Commitments pursuant to
subsections 2.4A(iii)(a)-(c), Company shall deliver to
Administrative Agent an Officer's Certificate demonstrating the
calculation of the amount of the applicable Excess Asset Sale
Proceeds or Net Debt Proceeds (as such terms are defined in
subsections 2.4A(iii)(a) and (c)) or of the amount of the unused
availability under the Subordinated Debt Repurchase Facility or
the Senior Debt Repurchase Facility, as the case may be, that
gave rise to such prepayment and/or reduction. In the event that
Company shall subsequently determine that the actual Excess Asset
Sale Proceeds, Net Debt Proceeds or such unused availability was
greater than the amount set forth in such Officer's Certificate,
Company shall promptly make an additional prepayment of the Loans
(and/or, if applicable, the Revolving Loan Commitments shall be
permanently reduced) in an amount equal to the amount of such
excess or additional portion, and Company shall concurrently
therewith deliver to Administrative Agent an Officer's
Certificate demonstrating the derivation of

<PAGE>

the additional Excess Asset Sale Proceeds, Net Debt Proceeds or
such unused availability resulting in such excess or additional
portion.

(iv) APPLICATION OF PREPAYMENTS.

(a) APPLICATION OF VOLUNTARY PREPAYMENTS. Any
voluntary prepayments pursuant to subsection 2.4A(i) shall be
applied to the Loans specified by Company in the applicable
notice of prepayment; PROVIDED that in the event Company fails to
specify the Loans to which any such prepayment shall be applied,
such prepayment shall be applied FIRST to repay outstanding
Swingline Loans to the full extent thereof, and SECOND to repay
outstanding Revolving Loans to the full extent thereof.

(b) APPLICATION OF MANDATORY PREPAYMENTS. Any amount
(the "APPLIED AMOUNT") required to be applied as a mandatory
prepayment of the Loans and/or a reduction of the Revolving Loan
Commitments pursuant to subsections 2.4A(iii)(a)-(c) shall be
applied FIRST to prepay the Swingline Loans to the full extent
thereof and to permanently reduce the Revolving Loan Commitments
by the amount of any such prepayment or commitment reduction,
SECOND, to the extent of any remaining portion of the Applied
Amount, to prepay the Revolving Loans to the full extent thereof
and to further permanently reduce the Revolving Loan Commitments
by the amount of any such prepayment or commitment reduction, and
THIRD, to the extent of any remaining portion of the Applied
Amount, to further permanently reduce the Revolving Loan
Commitments to the full extent thereof.

(c) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND
EURODOLLAR RATE LOANS. Considering Swingline Loans and Revolving
Loans being prepaid separately, any prepayment shall be applied
first to Base Rate Loans to the full extent thereof before
application to Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by
Company pursuant to subsection 2.6D.

B. GENERAL PROVISIONS REGARDING PAYMENTS.

(i) MANNER AND TIME OF PAYMENT. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in same day funds and without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to
Administrative Agent not later than 12:00 Noon (New York time) on the
date due at its office located at One Bankers Trust Plaza, New York, New
York for the account of Lenders; funds received by Administrative Agent
after that time on such due date may, at Administrative Agent's
discretion, be deemed to have been paid by Company on the next succeeding
Business Day. Company hereby authorizes Administrative Agent to charge
its accounts with Administrative Agent in order to cause timely payment
to

<PAGE>

be made to Administrative Agent of all principal, interest, fees and
expenses due hereunder (subject to sufficient funds being available in
its accounts for that purpose).

(ii) APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. All
payments in respect of the principal amount of any Loan shall include
payment of accrued interest on the principal amount being repaid or
prepaid, and all such payments shall be applied to the payment of
interest before application to principal; PROVIDED that accrued interest
on the principal amount of any Base Rate Loan being repaid or prepaid on
a date other than an Interest Payment Date shall be payable on the
earlier of the final maturity date of such Loan or the Interest Payment
Date next succeeding the date of such repayment or prepayment.

(iii) APPORTIONMENT OF PAYMENTS. Aggregate principal and
interest payments shall be apportioned among all outstanding Loans to
which such payments relate, in each case proportionately to Lenders'
respective Pro Rata Shares. Administrative Agent shall promptly
distribute to each Lender, at its primary address set forth below its
name on the appropriate signature page hereof or at such other address as
such Lender may request, its Pro Rata Share of all such payments received
by Administrative Agent and the commitment fees of such Lender, if any,
when received by Administrative Agent pursuant to subsection 2.3.
Notwithstanding the foregoing provisions of this subsection 2.4B(iii),
if, pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of
any Eurodollar Rate Loans, Administrative Agent shall give effect thereto
in apportioning payments received thereafter.

(iv) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business
Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the
payment of interest hereunder or of the commitment fees hereunder, as the
case may be.

(v) NOTATION OF PAYMENT. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon (or on an allonge thereto) of all Loans evidenced by that Note
and all principal payments previously made thereon and of the date to
which interest thereon has been paid; PROVIDED that the failure to make
(or any error in the making of) a notation of any Loan made under such
Note shall not limit or otherwise affect the obligations of Company
hereunder or under such Note with respect to any Loan or any payments of
principal or interest on such Note.

<PAGE>

2.5 USE OF PROCEEDS.

A. REVOLVING LOANS; SWINGLINE LOANS. The proceeds of any Revolving
Loans or of any Swingline Loans shall be applied by Company for working capital
or general corporate purposes of the Company and its Subsidiaries, including
without limitation (i) the financing of Acquisitions permitted by subsection 7.7
hereof, (ii) the repayment in full of all Indebtedness outstanding under the
Existing Credit Agreement, (iii) the repurchase or redemption of the aggregate
principal amount of the Company's outstanding 10-3/4% Subordinated Notes,
(iv) the repurchase or redemption of the outstanding shares of the Preferred
Stock and/or the 11-1/2% Senior Discount Debentures, (v) the issuance of Standby
and Commercial Letters of Credit up to a $20,000,000 sublimit, and (vi) the
payment of fees, premiums and expenses incurred as a result of the Transactions.

B. MARGIN REGULATIONS. No portion of the proceeds of any borrowing
under this Agreement shall be used by Company or any of its Subsidiaries in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.

2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.

Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:

A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as
practicable after 10:00 A.M. (New York time) on each Interest Rate Determination
Date, Administrative Agent shall determine (which determination shall, absent
manifest error, be final, conclusive and binding upon all parties) the interest
rate that shall apply to the Eurodollar Rate Loans for which an interest rate is
then being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.

B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event
that Administrative Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the interbank Eurodollar market, adequate and fair means
do not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telecopy or by telephone confirmed in
writing) to Company and each Lender of such determination, whereupon (i) no
Loans may be made as, or converted to, Eurodollar Rate Loans, as the case may
be, until such time as Administrative Agent notifies Company and Lenders that
the circumstances giving rise to such notice no longer exist and (ii) any

<PAGE>

Notice of Borrowing or Notice of Conversion/Continuation given by Company with
respect to the Loans in respect of which such determination was made shall be
deemed to be a Notice of Borrowing requesting Base Rate Loans or a Notice of
Conversion/Continuation requesting conversion to or continuation as Base Rate
Loans, or at Company's option, shall be deemed to be of no force and effect.

C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Administrative Agent) that the
making, maintaining or continuation of its Eurodollar Rate Loans (i) has become
unlawful as a result of compliance by such Lender in good faith with any law,
treaty, governmental rule, regulation, guideline or order (or would conflict
with any such treaty, governmental rule, regulation, guideline or order not
having the force of law even though the failure to comply therewith would not be
unlawful) or (ii) has become impracticable, or would cause such Lender material
hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market,
or the position of such Lender in that market, then, and in any such event, such
Lender shall be an "AFFECTED LENDER" and it shall on or promptly following that
day give notice (by telecopy or by telephone confirmed in writing) to Company
and Administrative Agent of such determination (which notice Administrative
Agent shall promptly transmit to each other Lender). Thereafter (a) the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by
the Affected Lender, (b) to the extent such determination by the Affected Lender
relates to a Eurodollar Rate Loan then being requested by Company pursuant to a
Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender
shall make such Loan as (or convert such Loan to, as the case may be) a Base
Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding
Eurodollar Rate Loans (the "AFFECTED LOANS"), shall be terminated at the earlier
to occur of the expiration of the Interest Period then in effect with respect to
the Affected Loans or when required by law, and (d) the Affected Loans shall
automatically convert into Base Rate Loans on the date of such termination.
Once the conditions causing a Lender to be an Affected Lender no longer exist,
such Lender shall, promptly after it becomes aware thereof, withdraw the notice
that it is an Affected Lender by giving notice (by telecopy or by telephone
confirmed in writing) to Company and Administrative Agent and such Lender's
obligations to make Eurodollar Rate Loans hereunder shall be immediately
reinstated. Notwithstanding the foregoing, to the extent a determination by an
Affected Lender as described above relates to a Eurodollar Rate Loan then being
requested by Company pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Company shall have the option, subject to the
provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of
Conversion/Continuation as to all Lenders by giving notice (by telecopy or by
telephone confirmed in writing) to Administrative Agent of such rescission on
the date on which the Affected Lender gives notice of its determination as
described above (which notice of rescission Administrative Agent shall promptly
transmit to each other Lender). Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6C shall affect the

<PAGE>

obligation of any Lender other than an Affected Lender to make or maintain Loans
as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms
of this Agreement.

D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST
PERIODS. Company shall compensate each Lender, upon written request by that
Lender (which request shall be signed by an officer or employee of such Lender
with knowledge and responsibility for such matters and shall set forth in
reasonable detail the basis for requesting such amounts), for all reasonable
losses, expenses and liabilities (including, without limitation, any interest
paid by that Lender to lenders of funds borrowed by it to make or carry its
Eurodollar Rate Loans and any loss, expense or liability sustained by that
Lender in connection with the liquidation or re-employment of such funds in the
Eurodollar market) which that Lender may sustain: (i) if for any reason (other
than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not
occur on a date specified therefor in a Notice of Borrowing or a telephonic
request for borrowing, or a conversion to or continuation of any Eurodollar Rate
Loan does not occur on a date specified therefor in a Notice of Conversion/
Continuation or a telephonic request for conversion or continuation, (ii) if any
prepayment or conversion of any of its Eurodollar Rate Loans occurs on a date
that is not the last day of an Interest Period applicable to that Loan, (iii) if
any prepayment of any of its Eurodollar Rate Loans is not made on any date
specified in a notice of prepayment given by Company, or (iv) as a consequence
of any other default by Company to repay its Eurodollar Rate Loans when required
by the terms of this Agreement.

E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.

F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to a Lender under this subsection 2.6 and
under subsection 2.7A shall be made as though that Lender had actually funded
each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at the rate obtained pursuant to clause (i) of the
definition of Adjusted Eurodollar Rate in an amount equal to the amount of such
Eurodollar Rate Loan and having a maturity comparable to the relevant Interest
Period and through the transfer of such Eurodollar deposit from an offshore
office of that Lender to a domestic office of that Lender in the United States
of America; PROVIDED, HOWEVER, that each Lender may fund each of its Eurodollar
Rate Loans in any manner it sees -fit and the foregoing assumptions shall be
utilized only for the purposes of calculating amounts payable under this
subsection 2.6 and under subsection 2.7A.

G. EURODOLLAR RATE LOANS AFTER DEFAULT. Unless Requisite Lenders
agree otherwise, after the occurrence of and during the continuation of a
Potential Event of Default or an Event of Default, (i) Company may not elect to
have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan
after the expiration of any Interest

<PAGE>

Period then in effect for that Loan and (ii) subject to the provisions of
subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation
given by Company with respect to a requested borrowing or conversion/
continuation that has not yet occurred shall be deemed to be rescinded by
Company.

2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.

A. COMPENSATION FOR INCREASED COSTS AND TAXES. In the event that
any Lender shall determine (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto) that any law, treaty
or governmental rule, regulation or order, or any change therein or in the
interpretation, administration or application thereof (including the
introduction of any new law, treaty or governmental rule, regulation or order),
or any determination of a court or governmental authority, in each case that
becomes effective after the date hereof, or compliance by such Lender with any
guideline, request or directive issued or made after the date hereof by any
central bank, the National Association of Insurance Commissioners ("NAIC") or
other governmental or quasi-governmental authority (whether or not having the
force of law):

(i) subjects such Lender (or its applicable lending office)
to any additional Tax (other than any Tax on the overall net income of
such Lender) with respect to this Agreement or any of the Loans or any of
its obligations hereunder, or changes the basis of taxation of payments
to such Lender (or its applicable lending office) of principal, interest,
fees or any other amount payable hereunder (except for changes in the
rate of Tax on the overall net income of such Lender or its applicable
lending office);

(ii) imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement against assets held by, or deposits or
other liabilities in or for the account of, or advances or loans by, or
other credit extended by, or any other acquisition of funds by, any
office of such Lender (other than any such reserve or other requirements
with respect to Eurodollar Rate Loans that are reflected in the
definition of Adjusted Eurodollar Rate); or

(iii) imposes any other condition on or affecting such Lender
(or its applicable lending office), its obligations hereunder or the
interbank Eurodollar market;

and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Company shall promptly pay to such
Lender, upon demand, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine) as

<PAGE>

may be necessary to compensate such Lender on an after-tax basis for any such
increased cost or reduction in amounts received or receivable hereunder. Such
Lender shall deliver to Company a written statement, signed by an officer or
employee of such Lender with knowledge and responsibility for such matters
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this subsection 2.7A, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.

B. WITHHOLDING OF TAXES.

(i) PAYMENTS TO BE FREE AND CLEAR. All sums payable by
Company under this Agreement and the other Loan Documents shall be paid
free and clear of and (except to the extent required by law) without any
deduction or withholding on account of any Tax imposed, levied,
collected, withheld or assessed by or within the United States of America
or any political subdivision in or of the United States of America or any
other jurisdiction from or to which a payment is made by or on behalf of
Company or by any federation or organization of which the United States
of America or any such jurisdiction is a member at the time of payment.

(ii) GROSSING-UP OF PAYMENTS. If Company or any other Person
is required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by Company to Administrative Agent
or any Lender under any of the Loan Documents:

(a) Company shall notify Administrative Agent of any
such requirement or any change in any such requirement as soon as
Company becomes aware of it;

(b) Company shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on Company) for its own account or
(if that liability is imposed on Administrative Agent or such
Lender, as the case may be) on behalf of and in the name of
Administrative Agent or such Lender;

(c) the sum payable by Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the
making of that deduction, withholding or payment, Administrative
Agent or such Lender, as the case may be, receives on the due
date and retains (free from any liability in respect of any such
deduction, withholding or payment) a net sum equal to what it
would have received and so retained had no such deduction,
withholding or payment been required or made; and

(d) within 30 days after paying any sum from which it
is required by law to make any deduction or withholding, and
within 30 days after the

<PAGE>

due date of payment of any Tax which it is required by clause (b)
above to pay, Company shall deliver to Administrative Agent
evidence satisfactory to the other affected parties of such
deduction, withholding or payment and of the remittance thereof
to the relevant taxing or other authority;

PROVIDED that no such additional amount shall be required to be paid to
any Lender under clause (c) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature
pages hereof) or after the date of the Assignment Agreement pursuant to
which such Lender became a Lender (in the case of each other Lender) in
any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of this
Agreement or at the date of such Assignment Agreement, as the case may
be, in respect of payments to such Lender.

(iii) EVIDENCE OF EXEMPTION FROM U.S. WITHHOLDING TAX.

(a) Each Lender that is organized under the
laws of any jurisdiction other than the United States or
any state or other political subdivision thereof (for
purposes of this subsection 2.7B(iii), a "NON-US LENDER")
shall deliver to Administrative Agent for transmission to
Company, on or prior to the Closing Date (in the case of
each Lender listed on the signature pages hereof) or on
the date of the Assignment Agreement pursuant to which it
becomes a Lender (in the case of each other Lender), and
at such other times as may be necessary in the
determination of Company or Administrative Agent (each in
the reasonable exercise of its discretion), (1) two
original copies of Internal Revenue Service Form 1001 or
4224 (or any successor forms), properly completed and duly
executed by such Lender, together with any other
certificate or statement of exemption required under the
Internal Revenue Code or the regulations issued thereunder
to establish that such Lender is not subject to deduction
or withholding of United States federal income tax with
respect to any payments to such Lender of principal,
interest, fees or other amounts payable under any of the
Loan Documents or (2) if such Lender is not a "bank" or
other person described in Section 881(c)(3) of the
Internal Revenue Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224 pursuant to clause (1)
above, a Certificate re Non-Bank Status together with two
original copies of Internal Revenue Service Form W-8 (or
any successor form), properly completed and duly executed
by such Lender, together with any other certificate or
statement of exemption required under the Internal Revenue
Code or the regulations issued thereunder to establish
that such Lender is not subject to deduction or
withholding of United

<PAGE>

States federal income tax with respect to any payments to such
Lender of interest payable under any of the Loan Documents.

(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United
States federal income tax withholding matters pursuant to
subsection 2.7B(iii)(a)(2) hereby agrees, from time to
time after the initial delivery by such Lender of such
forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms,
certificates or other evidence obsolete or inaccurate in
any material respect, such Lender shall (1) deliver to
Administrative Agent for transmission to Company a
Certificate re Non-Bank Status and two original copies of
Internal Revenue Service Form W-8, properly completed and
duly executed by such Lender, together with any other
certificate or statement of exemption required in order to
confirm or establish that such Lender is not subject to
deduction or withholding of United States federal income
tax with respect to payments to such Lender of interest
payable under the Loan Documents or (2) immediately notify
Administrative Agent and Company of its inability to
deliver any such forms, certificates or other evidence.

(c) Company shall not be required to pay any
additional amount to any Non-US Lender under clause (c) of
subsection 2.7B(ii) if such Lender shall have failed to
satisfy the requirements of subsection 2.7B(iii)(a);
PROVIDED that if such Lender shall have satisfied such
requirements on the Closing Date (in the case of each
Lender listed on the signature pages hereof) or on the
date of the Assignment Agreement pursuant to which it
became a Lender (in the case of each other Lender),
nothing in this subsection 2.7B(iii)(c) shall relieve
Company of its obligation to pay any additional amounts
pursuant to clause (c) of subsection 2.7B(ii) in the event
that, as a result of any change in any applicable law,
treaty or governmental rule, regulation or order, or any
change in the interpretation, administration or
application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence
at a subsequent date establishing the fact that such
Lender is not subject to withholding as described in
subsection 2.7B(iii)(a).

C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability of any law, rule or
regulation (or any provision thereof) after the date hereof regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, NAIC or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of

<PAGE>

any such governmental authority, central bank, NAIC or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of, or with
reference to, such Lender's Loans or Commitments or Letters of Credit or
participations therein or other obligations hereunder with respect to the Loans
or the Letters of Credit to a level below that which such Lender or such
controlling corporation could have achieved but for such adoption,
effectiveness, phase-in, applicability, change or compliance (taking into
consideration the policies of such Lender or such controlling corporation with
regard to capital adequacy), then from time to time, within five Business Days
after demand by such Lender (with a copy of such demand to Administrative
Agent), Company shall pay to such Lender such additional amount or amounts as
will compensate such Lender or such controlling corporation on an after-tax
basis for such reduction. Each Lender, upon determining in good faith that any
additional amounts will be payable pursuant to this subsection 2.7C, will give
prompt written notice thereof to Company, which notice shall be signed by an
officer or employee of such Lender with knowledge and responsibility for such
matters and shall set forth in reasonable detail the basis of the calculation of
such additional amounts, although the failure to give any such notice shall not
release or diminish any of Company's obligations to pay additional amounts under
this subsection 2.7C.

2.8 LENDERS' OBLIGATION TO MITIGATE.

Each Lender agrees that, as promptly as practicable after the
officer of such Lender responsible for administering the Loans or Letters of
Credit of such Lender under this Agreement becomes aware of the occurrence of an
event or the existence of a condition that would cause such Lender to become an
Affected Lender or that would entitle such Lender to receive payments under
subsection 2.7A, 2.7C or 3.6, it will, to the extent not inconsistent with such
Lender's internal policies, use reasonable efforts (i) to make, fund or maintain
the Commitments of such Lender or the affected Loans or Letters of Credit of
such Lender through another lending office of such Lender, or (ii) take such
other measures as such Lender may deem reasonable, if as a result thereof the
circumstances which would cause such Lender to be an Affected Lender would cease
to exist or the additional amounts which would otherwise be required to be paid
to such Lender pursuant to subsection 2.7A, 2.7C or 3.6 would be materially
reduced and if, as determined by such Lender in its sole discretion, the making,
funding or maintaining of such Commitments or Loans or Letters of Credit through
such other lending office or in accordance with such other measures, as the case
may be, would not otherwise materially adversely affect such Commitments or
Loans or Letters of Credit or the interests of such Lender; PROVIDED that such
Lender will not be obligated to utilize such other lending office pursuant to
this subsection 2.8 unless Company agrees to pay all incremental expenses
incurred by such Lender in utilizing such other lending office. A certificate
as to the amount of any such expenses payable by Company pursuant to this
subsection 2.8 (setting forth in reasonable detail the basis for requesting such
amount) submitted by such Lender to Company shall be conclusive absent manifest
error.

<PAGE>

2.9 REPLACEMENT OF A LENDER.

A. In the event that any Lender shall give notice to Company that
such Lender is an Affected Lender or that such Lender is entitled to receive
payments under subsection 2.7 or subsection 3.6 or in the event that any Lender
is unable to fund Loans as described in subsection 4.2B(iv), and unless the
circumstances which have caused such Lender to be an Affected Lender or which
entitle such Lender to receive such payments or which cause such Lender to be
unable to fund Loans are no longer in effect, Company may, if no Event of
Default or Potential Event of Default then exists, if such Lender is not then an
Issuing Lender and such Lender shall fail to withdraw such notice within 5
Business Days after Company's request for such withdrawal, upon ten days' prior
written notice by Company to Administrative Agent and such Lender, elect to
cause such Lender to assign its Loans and Commitments in full to an Eligible
Assignee in accordance with the provisions of subsection 11.1B.

B. In the event that any Lender is a Defaulting Lender, and unless
the Default Period for such Defaulting Lender is no longer continuing, Company
may, if no Event of Default or Potential Event of Default then exists, if such
Lender is not then an Issuing Lender and such Lender shall fail to cure the
default as a result of which it has become a Defaulting Lender within five
Business Days after Company's request that it cure such default, elect to cause
such Lender to assign its Loans and Commitments in full to an Eligible Assignee
in accordance with the provisions of subsection 11.1B.

C. In the event of certain refusals by a Lender as provided in
subsection 11.6B to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Requisite Lenders, the Company may, if no Event of Default or Potential Event of
Default then exists, upon five Business Days' written notice to the
Administrative Agent (which notice the Administrative Agent shall promptly
transmit to each of the Lenders) repay all Loans, together with accrued and
unpaid interest, fees and other amounts owing to such Lender (a "Replaced
Lender") in accordance with, and subject to the requirements of, said subsection
11.6B so long as (A) in the case of the repayment of Revolving Loans of any
Lender pursuant to this subsection 2.9C the Revolving Loan Commitment of such
Lender is terminated concurrently with such repayment (at which time Schedule
2.1 shall be deemed modified to reflect the changed Revolving Loan Commitments)
and (B) in the case of the repayment of Loans of any Lender the consents
required by subsection 11.6B in connection with the repayment pursuant to this
subsection 2.9C have been obtained.

(i) At the time of any replacement pursuant to this
subsection 2.9C, the lender replacing such Replaced Lender (the
"Replacement Lender") shall enter into one or more assignment agreements,
in form and substance satisfactory to the Administrative Agent, pursuant
to which the Replacement Lender shall acquire all of the Commitments and
outstanding Loans of, and participations in Letters of Credit by, the
Replaced Lender and, in connection therewith, shall pay to (x) the
Replaced Lender in respect thereof an amount equal to the sum of (A) an
amount

<PAGE>

equal to the principal of, and all accrued interest on, all outstanding
Loans of the Replaced Lender, (B) an amount equal to all unpaid drawings
with respect to Letters of Credit that have been funded by (and not
reimbursed to) such Replaced Lender, together with all then unpaid
interest with respect thereto at such time and (C) an amount equal to all
accrued, but theretofore unpaid, fees owing to the Replaced Lender and
(y) the appropriate Issuing Lender an amount equal to such Replaced
Lender's Pro Rata Share of any unpaid drawings with respect to Letters of
Credit (which at such time remains an unpaid drawing), to the extent such
amount was not theretofore funded by such Replaced Lender; and

(ii) all obligations of the Company owing to the Replaced
Lender (excluding those specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid) shall be paid in full to such Replaced Lender
concurrently with such replacement.

Upon the execution of the respective assignment documentation,
the payment of amounts referred to in clauses (i) and (ii) above and, if so
requested by the Replacement Lender, delivery to the Replacement Lender of the
appropriate Note or Notes executed by the Company, the Replacement Lender shall
become a Lender hereunder and the Replaced Lender shall cease to constitute a
Lender hereunder, except with respect to Company's obligations regarding the
indemnification and clawback provisions under this Agreement, which shall
survive for the benefit of such Replaced Lender. Notwithstanding anything to
the contrary contained above, no Issuing Lender may be replaced hereunder at any
time while it has Letters of Credit outstanding hereunder unless arrangements
satisfactory to such Issuing Lender (including the furnishing of a standby
letter of credit in form and substance, and issued by an issuer satisfactory to
such Issuing Lender or the furnishing of cash collateral in amounts and pursuant
to arrangements satisfactory to such Issuing Lender) have been made with respect
to such outstanding Letters of Credit.

2.10 DEFAULTING LENDERS.

Anything contained herein to the contrary notwithstanding, in the
event that any Lender having a Revolving Loan Commitment (a "DEFAULTING LENDER")
defaults (a "FUNDING DEFAULT") in its obligation to fund any Revolving Loan (a
"DEFAULTED REVOLVING LOAN") in accordance with subsection 2.1, then (i) during
any Default Period (as defined below) with respect to such Defaulting Lender,
the Revolving Loan Exposure of such Defaulting Lender shall be determined as
though the Revolving Loan Commitments of such Lender have been terminated (but
such Commitments shall not actually be terminated) for purposes of voting on any
matters (including without limitation the granting of any consents or waivers)
with respect to any of the Loan Documents; (ii) until such time as the Default
Excess (as defined below) with respect to such Defaulting Lender shall have been
reduced to zero (a) any voluntary prepayment of the Revolving Loans pursuant to
subsection 2.4A(i) shall be applied to the Revolving Loans of other Lenders as
if such Defaulting Lender had no Revolving Loans outstanding and the Revolving
Loan Exposure of such Defaulting Lender were zero and (b) any mandatory

<PAGE>

prepayment of the Revolving Loans pursuant to subsection 2.4A(iii) shall be
applied to the Revolving Loans of other Lenders (but not to the Revolving Loans
of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted
Revolving Loans of such Defaulting Lender, it being understood and agreed that
Company shall be entitled to retain any portion of any mandatory prepayment of
the Revolving Loans that is not paid to such Defaulting Lender solely as a
result of the operation of the provisions of this clause (b); PROVIDED that the
provisions of this clause (b) shall not affect any mandatory reductions of the
Revolving Loan Commitment of such Defaulting Lender pursuant to subsection
2.4A(iii); (iii) such Defaulting Lender's Revolving Loan Commitment and
outstanding Revolving Loans and such Defaulting Lender's Pro Rata Share of the
Letter of Credit Usage in respect of Letters of Credit shall be excluded for
purposes of calculating the commitment fee payable to Lenders having Revolving
Loan Commitments pursuant to subsection 2.3A in respect of any day during any
Default Period with respect to such Defaulting Lender, and such Defaulting
Lender shall not be entitled to receive any commitment fee pursuant to
subsection 2.3A with respect to such Defaulting Lender's Revolving Loan
Commitment in respect of any Default Period with respect to such Defaulting
Lender; and (iv) the Total Utilization of Revolving Loan Commitments as at any
date of determination shall be calculated as if such Defaulting Lender had
funded all Defaulted Revolving Loans of such Defaulting Lender.

For purposes of this Agreement (A) "DEFAULT PERIOD" means, with
respect to any Defaulting Lender, the period commencing on the date of the
applicable Funding Default and ending on the earliest of the following dates:
(a) the date on which all Revolving Loan Commitments are cancelled or terminated
and/or the Obligations are declared or become immediately due and payable,
(b) the date on which (1) the Default Excess with respect to such Defaulting
Lender shall have been reduced to zero (whether by the funding by such
Defaulting Lender of any Defaulted Revolving Loans of such Defaulting Lender or
by the non-pro rata application of any voluntary or mandatory prepayments of the
Revolving Loans in accordance with the terms of this subsection 2.10 or by a
combination thereof) and (2) such Defaulting Lender shall have delivered to
Company and Administrative Agent a written reaffirmation of its intention to
honor its obligations under this Agreement with respect to its Revolving Loan
Commitment, and (c) the date on which Company, Administrative Agent and
Requisite Lenders waive all Funding Defaults of such Defaulting Lender in
writing, and (B) "DEFAULT EXCESS" means, with respect to any Defaulting Lender,
the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate
outstanding principal amount of Revolving Loans of all Lenders (calculated as if
all Defaulting Lenders (other than such Defaulting Lender) had funded all of
their respective Defaulting Revolving Loans) over the aggregate outstanding
principal amount of Revolving Loans of such Defaulting Lender.

No Commitment of any Lender shall be increased or otherwise
affected, and, except as otherwise expressly provided in this subsection 2.10,
performance by Company of its obligations under this Agreement and the other
Loan Documents shall not be excused or otherwise modified, as a result of any
Funding Default or the operation of this subsection 2.10.

<PAGE>

SECTION 3. LETTERS OF CREDIT

3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.

A. LETTERS OF CREDIT. In addition to Company requesting that
Lenders having Revolving Loan Commitments make Revolving Loans pursuant to
subsection 2.1A(i), Company may request, in accordance with the provisions of
this subsection 3.1, from time to time during the period from the Closing Date
to but excluding the Commitment Termination Date, that one or more of such
Lenders issue Letters of Credit for the account of Company or any Domestic
Subsidiary (other than BHFS Group or an Inactive Subsidiary) for the purposes
specified in the definition of Commercial Letters of Credit and Standby Letters
of Credit. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Company herein set forth,
any one or more of such Lenders may, but (except as provided in subsection
3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance
with the provisions of this subsection 3.1; PROVIDED that Company shall not
request that any Lender issue (and no Lender shall issue):

(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the Revolving Loan Commitments then in effect;

(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $20,000,000;

(iii) any Standby Letter of Credit having an expiration date
later than the earlier of (a) the Commitment Termination Date and (b) the
date which is one year from the date of issuance of such Standby Letter
of Credit; PROVIDED that the immediately preceding clause (b) shall not
prevent any Issuing Lender from agreeing that a Standby Letter of Credit
will automatically be extended for a period not to exceed one year unless
such Issuing Lender elects not to extend for such additional period;
PROVIDED, FURTHER that, unless Requisite Lenders otherwise consent, such
Issuing Lender shall give notice that it will not extend such Standby
Letter of Credit if it has knowledge that an Event of Default has
occurred and is continuing on such Notification Date;

(iv) any Commercial Letter of Credit having an expiration date
(a) later than the earlier of (x) the date which is 30 days prior to the
Commitment Termination Date and (y) the date which is 270 days from the
date of issuance of such Commercial Letter of Credit or (b) that is
otherwise acceptable to the applicable Issuing Lender in its reasonable
discretion;

(v) any Letter of Credit denominated in a currency other than
Dollars if the maximum stated amount of such Letter of Credit, together
with the maximum

<PAGE>

stated amount of all other Letters of Credit denominated in a currency
other than Dollars, exceeds $10,000,000, such valuation to be based on
the applicable Exchange Rate for such currency as of the applicable date
of determination; or

(vi) any Letter of Credit payable other than on a sight basis.

B. MECHANICS OF ISSUANCE.

(i) NOTICE OF ISSUANCE. Whenever Company desires the
issuance of a Letter of Credit, it shall deliver to the proposed Issuing
Lender (with a copy to Administrative Agent, if Administrative Agent is
not the proposed Issuing Lender) a Request For Issuance of Letter of
Credit in the form of Exhibit III no later than 10:00 A.M. (New York
time) at least three Business Days, or such shorter period as may be
agreed to by the Issuing Lender in any particular instance, in advance of
the proposed date of issuance. The Request For Issuance of Letter of
Credit shall specify (a) the Lender requested to issue the Letter of
Credit, (b) the proposed date of issuance (which shall be a Business
Day), (c) whether the Letter of Credit is to be a Standby Letter of
Credit or a Commercial Letter of Credit, (d) the face amount of the
Letter of Credit, (e) the expiration date of the Letter of Credit,
(f) the name and address of the beneficiary, and (g) the verbatim text of
the proposed Letter of Credit or the proposed terms and conditions
thereof, including a precise description of any documents and the
verbatim text of any certificates to be presented by the beneficiary
which, if presented by the beneficiary prior to the expiration date of
the Letter of Credit, would require the Issuing Lender to make payment
under the Letter of Credit; provided that the Issuing Lender, in its
reasonable discretion, may require changes in the text of the proposed
Letter of Credit or any such documents or certificates.

Company shall notify the applicable Issuing Lender (and
Administrative Agent, if Administrative Agent is not such Issuing Lender)
prior to the issuance of any Letter of Credit in the event that any of
the matters to which Company is required to certify in the applicable
Request For Issuance of Letter of Credit is no longer true and correct as
of the proposed date of issuance of such Letter of Credit, and upon the
issuance of any Letter of Credit Company shall be deemed to have
re-certified, as of the date of such issuance, as to the matters to which
Company is required to certify in the applicable Request For Issuance of
Letter of Credit.

(ii) DETERMINATION OF ISSUING LENDER. Upon receipt by
Administrative Agent of a Request For Issuance of Letter of Credit
pursuant to subsection 3.1B(i) requesting the issuance of a Letter of
Credit, if the Administrative Agent elects to issue such Letter of
Credit, Administrative Agent shall promptly so notify the Borrower, and
Administrative Agent shall be the Issuing Lender with respect thereto.
In the event that Administrative Agent, in its sole discretion elects not
to issue such Letter of Credit, Administrative Agent shall promptly so
notify Borrower whereupon Borrower may request any other Lender to issue
such Letter of Credit

<PAGE>

by delivering to such Lender a copy of the applicable Request For
Issuance of Letter of Credit. Any Lender so requested to issue such
Letter of Credit shall promptly notify Borrower and Administrative Agent
whether or not, in its sole discretion, it has elected to issue such
Letter of Credit, and any such Lender which so elects to issue such
Letter of Credit, shall be the Issuing Lender with respect thereto. In
the event that all other Lenders shall have declined to issue such Letter
of Credit, notwithstanding the prior election of Administrative Agent not
to issue such Letter of Credit, Administrative Agent shall be obligated
to issue such Letter of Credit and shall be the Issuing Lender with
respect thereto, notwithstanding the fact that the Letter of Credit Usage
with respect to such Letter of Credit and with respect to all other
Letters of Credit issued by Administrative Agent, when aggregated with
Administrative Agent's outstanding Revolving Loans and Swing Line Loans,
may exceed Administrative Agent's Revolving Loan Commitment then in
effect.

(iii) NOTIFICATION TO LENDERS. Promptly upon the issuance of
or amendments to a Standby Letter of Credit, the applicable Issuing
Lender shall notify the Administrative Agent and all participating
Lenders of such issuance or amendment and such notice shall be
accompanied by a copy of such Standby Letter of Credit or such
amendments.

(iv) ISSUANCE OF LETTER OF CREDIT. Upon satisfaction or
waiver (in accordance with subsection 11.6) of the conditions set forth
in subsection 4.3, the Issuing Lender shall issue the requested Letter of
Credit in accordance with the Issuing Lender's standard operating
procedures.

(v) COMMERCIAL LETTERS OF CREDIT. When the Administrative
Agent is not the Issuing Lender, the Issuing Lender shall send to the
Administrative Agent on the first Business Day of each month, by telefax,
its daily outstanding Commercial Letter of Credit balances for the
previous month. The Administrative Agent shall deliver to each Lender
upon each calendar month end and upon each payment of a Commercial Letter
of Credit fee payable to the Lenders a report setting forth for such
period the aggregate daily amount available to be drawn under Commercial
Letters of Credit issued by all Issuing Lenders that were outstanding
during such period.

C. LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT.
Immediately upon the issuance of each Letter of Credit, each Lender having a
Revolving Loan Commitment shall be deemed to, and hereby agrees to, have
irrevocably purchased from the Issuing Lender a participation in such Letter of
Credit and drawings thereunder in an amount equal to such Lender's Pro Rata
Share of the maximum amount which is or at any time may become available to be
drawn thereunder. Upon satisfaction of the conditions set forth in Section 4.1,
the Existing Letters of Credit set forth on Schedule 3.1C shall, effective as of
such Closing Date, become letters of credit under this Agreement to the same
extent as if initially issued hereunder and each Lender having a Revolving Loan

<PAGE>

Commitment shall be deemed to have irrevocably purchased from the Issuing Lender
a participation in such Letters of Credit and drawings thereunder in an amount
equal to such Lender's Pro Rata Share of the maximum amount which is or at any
time may become available to be drawn thereunder.

3.2 LETTER OF CREDIT FEES.

Company agrees to pay the following amounts to Administrative
Agent or each Issuing Lender with respect to Letters of Credit issued by it, as
the case may be:

(i) with respect to each Letter of Credit (a) a fronting fee
equal to 0.25% per annum or, in the event that the applicable Eurodollar
Rate Margin set forth in subsection 2.2A hereof is 0.25% per annum, a
fronting fee equal to 0.125% per annum, of the daily amount available
from time to time to be drawn under such Letter of Credit but in any
event not less than $500 per year per Letter of Credit shall be payable
as a fronting fee to such Issuing Lender and (b) a letter of credit fee
equal to (x) the applicable Eurodollar Rate Margin set forth in
subsection 2.2A hereof for Eurodollar Rate Loans MINUS the applicable
fronting fee MULTIPLIED by (y) the daily amount available from time to
time to be drawn under such Letter of Credit shall be payable as a letter
of credit fee to Administrative Agent, in each case under clause (a) or
(b) payable in arrears on each February 28 (or 29, as the case may be),
May 31, August 31 and November 30 of each year and computed on the basis
of a 360-day year for the actual number of days elapsed;

(ii) with respect to the issuance, amendment, cancellation or
transfer of each Letter of Credit and each payment made thereunder
(without duplication of the fees payable under clauses (i) and (ii)
above), documentary and processing charges in accordance with such
Issuing Lender's standard schedule for such charges in effect at the time
of such issuance, amendment, transfer, cancellation or drawing, as the
case may be.

For purposes of calculating any fees payable under clause (i) of this subsection
3.2, (1) the daily amount available to be drawn under any Letter of Credit shall
be determined as of the close of business on any date of determination and (2)
any amount which is denominated in a currency other than Dollars shall be valued
based on the applicable Exchange Rate for such currency as of the applicable
date of determination. Promptly upon receipt by Administrative Agent of any
amount described in clause (i)(b) of this subsection 3.2, Administrative Agent
shall distribute to each Lender its Pro Rata Share of such amount. With respect
to Existing Letters of Credit, the fees described in clause (i) above shall
accrue from and including the Closing Date.

3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.

A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO REQUESTS FOR
DRAWINGS. In determining whether to honor any drawing under any Letter of
Credit by

<PAGE>

the beneficiary thereof, the Issuing Lender shall be responsible only to
determine that the documents and certificates required to be delivered under
such Letter of Credit have been delivered and that they substantially comply on
their face with the requirements of such Letter of Credit.

B. REIMBURSEMENT BY COMPANY OF AMOUNTS DRAWN UNDER LETTERS OF
CREDIT. As soon as reasonably practical after the beneficiary of a Letter of
Credit attempts to make a drawing under such Letter of Credit, the Issuing
Lender of such Letter of Credit shall use reasonable efforts to notify Company
thereof; PROVIDED, that the failure to provide such notice shall not in any way
affect Company's obligation to reimburse such Issuing Lender in accordance with
this subsection 3.3 nor shall such Issuing Lender incur any liability to Company
as a result of such failure. In the event an Issuing Lender has determined to
honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall
immediately notify Company and Administrative Agent, and Company shall reimburse
such Issuing Lender on or before the Business Day immediately following the date
on which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in
Dollars (which amount, in the case of a drawing under a Letter of Credit which
is denominated in a currency other than Dollars, shall be calculated by
reference to the applicable Exchange Rate) and in same day funds equal to the
amount of such drawing (whether or not Company is the account party under such
Letter of Credit); PROVIDED that, anything contained in this Agreement to the
contrary notwithstanding, (i) unless Company shall have notified Administrative
Agent and such Issuing Lender prior to 12:00 noon (New York time) on the date of
such drawing that Company intends to reimburse such Issuing Lender for the
amount of such drawing with funds other than the proceeds of Revolving Loans,
Company shall be deemed to have given a timely Notice of Borrowing to
Administrative Agent requesting Lenders to make Revolving Loans that are Base
Rate Loans on the Reimbursement Date in an amount in Dollars (which amount, in
the case of a drawing under a Letter of Credit which is denominated in a
currency other than Dollars, shall be calculated by reference to the applicable
Exchange Rate) equal to the amount of such drawing and (ii) subject to
satisfaction or waiver of the conditions specified in subsection 4.2B, Lenders
having Revolving Loan Commitments shall, on the Reimbursement Date, make
Revolving Loans that are Base Rate Loans in the amount of such drawing, the
proceeds of which shall be applied directly by Administrative Agent to reimburse
such Issuing Lender for the amount of such drawing; and PROVIDED, FURTHER that
if for any reason proceeds of Revolving Loans are not received by such Issuing
Lender on the Reimbursement Date in an amount equal to the amount of such
drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in
same day funds equal to the excess of the amount of such drawing over the
aggregate amount of such Revolving Loans, if any, which are so received.
Nothing in this subsection 3.3B shall be deemed to relieve any Lender having a
Revolving Loan Commitment from its obligation to make Revolving Loans on the
terms and conditions set forth in this Agreement, and Company shall retain any
and all rights it may have against any Lender resulting from the failure of such
Lender to make such Revolving Loans under this subsection 3.3B.

<PAGE>

C. PAYMENT BY LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS OF
CREDIT.

(i) PAYMENT BY LENDERS. In the event that Company shall fail
for any reason to reimburse any Issuing Lender as provided in subsection
3.3B in an amount (calculated, in the case of a drawing under a Letter of
Credit denominated in a currency other than Dollars, by reference to the
applicable Exchange Rate) equal to the amount of any drawing honored by
such Issuing Lender under a Letter of Credit issued by it, such Issuing
Lender shall promptly notify each other Lender having a Revolving Loan
Commitment of the unreimbursed amount of such drawing and of such other
Lender's respective participation therein based on such Lender's Pro Rata
Share. Each such Lender shall make available to such Issuing Lender an
amount equal to its respective participation, in same day funds, at the
office of such Issuing Lender specified in such notice, not later than
12:00 noon (New York time) on the first business day (under the laws of
the jurisdiction of such Issuing Lender) after the date notified by such
Issuing Lender. In the event that any such Lender fails to make
available to such Issuing Lender on such business day the amount of such
Lender's participation in such Letter of Credit as provided in this
subsection 3.3C, such Issuing Lender shall be entitled to recover such
amount on demand from such Lender together with interest thereon at the
rate customarily used by such Issuing Lender for the correction of errors
among banks for three Business Days and thereafter at the Base Rate.
Nothing in this subsection 3.3C shall be deemed to prejudice the right of
any Lender to recover from any Issuing Lender any amounts made available
by such Lender to such Issuing Lender pursuant to this subsection 3.3C in
the event that it is determined by the final judgment of a court of
competent jurisdiction that the payment with respect to a Letter of
Credit by such Issuing Lender in respect of which payment was made by
such Lender constituted gross negligence or willful misconduct on the
part of such Issuing Lender.

(ii) DISTRIBUTION TO LENDERS OF REIMBURSEMENTS RECEIVED FROM
COMPANY. In the event any Issuing Lender shall have been reimbursed by
other Lenders pursuant to subsection 3.3C(i) for all or any portion of
any drawing honored by such Issuing Lender under a Letter of Credit
issued by it, such Issuing Lender shall distribute to each other Lender
which has paid all amounts payable by it under subsection 3.3C(i) with
respect to such drawing such other Lender's Pro Rata Share of all
payments subsequently received by such Issuing Lender from Company in
reimbursement of such drawing when such payments are received. Any such
distribution shall be made to a Lender at its primary address set forth
below its name on the appropriate signature page hereof or at such other
address as such Lender may request.

D. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.

<PAGE>

(i) PAYMENT OF INTEREST BY COMPANY. Company agrees to pay to
each Issuing Lender, with respect to drawings honored under any Letters
of Credit issued by it (whether or not Company is the account party
thereunder), interest on the amount paid by such Issuing Lender in
respect of each such drawing from the date of such drawing through the
date such amount is reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B) at a rate equal to (a) for the period from the date of
such drawing to and including the Reimbursement Date, the rate then in
effect under this Agreement with respect to Revolving Loans that are Base
Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Agreement with respect
to Revolving Loans that are Base Rate Loans (it being understood that no
interest shall be payable for amounts reimbursed on or before the date
the drawing is honored). Interest payable pursuant to this subsection
3.3D(i) shall be computed on the basis of a 360-day year for the actual
number of days elapsed in the period during which it accrues and shall be
payable on demand or, if no demand is made, on the date on which the
related drawing under a Letter of Credit is reimbursed in full.

(ii) DISTRIBUTION OF INTEREST PAYMENTS BY ISSUING LENDER.
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i), (a) such Issuing Lender shall distribute
to each other Lender having a Revolving Loan Commitment, out of the
interest received by such Issuing Lender in respect of the period from
the date of the applicable drawing under a Letter of Credit issued by
such Issuing Lender to and including the date on which such Issuing
Lender is reimbursed for the amount of such drawing (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B), the amount that such other Lender would have been
entitled to receive in respect of the letter of credit fee that would
have been payable in respect of such Letter of Credit for such period
pursuant to subsection 3.2 if no drawing had been made under such Letter
of Credit, and (b) in the event such Issuing Lender shall have been
reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any
portion of such drawing, such Issuing Lender shall distribute to each
other Lender which has paid all amounts payable by it under subsection
3.3C(i) with respect to such drawing such other Lender's Pro Rata Share
of any interest received by such Issuing Lender in respect of that
portion of such drawing so reimbursed by other Lenders for the period
from the date on which such Issuing Lender was so reimbursed by other
Lenders to and including the date on which such portion of such drawing
is reimbursed by Company. Any such distribution shall be made to a
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Lender may
request.

3.4 OBLIGATIONS ABSOLUTE.

The obligation of Company to reimburse each Issuing Lender for
drawings honored under the Letters of Credit issued by it (whether or not
Company is the account

<PAGE>

party thereunder) and to repay any Revolving Loans made by Lenders pursuant to
subsection 3.3B and the obligations of Lenders under subsection 3.3C(i) shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including, without limitation,
any of the following circumstances:

(i) any lack of validity or enforceability of any Letter of
Credit;

(ii) the existence of any claim, set-off, defense or other
right which Company, any Domestic Subsidiary that is an account party
thereunder or any Lender may have at any time against a beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Issuing Lender or other Lender or any
other Person or, in the case of a Lender, against Company or any Domestic
Subsidiary that is an account party under a Letter of Credit, whether in
connection with this Agreement, the transactions contemplated herein or
any unrelated transaction (including any underlying transaction between
Company or one of its Subsidiaries and the beneficiary for which any
Letter of Credit was procured);

(iii) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;

(iv) payment by the applicable Issuing Lender under any Letter
of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit;
provided that any such noncompliance was not material or was waived by
Company;

(v) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of
Company or any of its Subsidiaries;

(vi) any breach of this Agreement or any other Loan Document
by any party thereto;

(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing; or

(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;

PROVIDED, in each case, that payment by the applicable Issuing Lender under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).

<PAGE>

3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.

A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by such Issuing Lender of a proper demand for payment made under any Letter of
Credit issued by it or (ii) the failure of such Issuing Lender to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"GOVERNMENTAL ACTS").

B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation
of the foregoing, such Issuing Lender shall not be responsible for: (i) the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of any such Letter of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of such Issuing Lender, including without limitation any Governmental
Acts, and none of the above shall affect or impair, or prevent the vesting of,
any of such Issuing Lender's rights or powers hereunder.

In furtherance and extension and not in limitation of the
specific provisions set forth in the first paragraph of this subsection 3.5B,
any action taken or omitted by any Issuing Lender under or in connection with
the Letters of Credit issued by it or any documents and certificates delivered
thereunder, if taken or omitted in good faith and in

<PAGE>

the exercise of reasonable and customary care, shall not put such Issuing Lender
under any resulting liability to Company.

Notwithstanding anything to the contrary contained in this
subsection 3.5, Company shall retain any and all rights it may have against any
Issuing Lender for any liability arising solely out of the gross negligence or
willful misconduct of such Issuing Lender, as determined by a final judgment of
a court of competent jurisdiction.

3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.

In the event that any Issuing Lender or Lender shall determine
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) that any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective after the
date hereof, or compliance by any Issuing Lender or Lender with any guideline,
request or directive issued or made after the date hereof by any central bank,
NAIC or other governmental or quasi-governmental authority (whether or not
having the force of law):

(i) subjects such Issuing Lender or Lender (or its applicable
lending or letter of credit office) to any additional Tax (other than any
Tax on the overall net income of such Issuing Lender or Lender) with
respect to the issuing or maintaining of any Letters of Credit or the
purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being
imposed on or suffered by any particular Issuing Lender;

(ii) imposes, modifies or holds applicable any reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC
insurance or similar requirement in respect of any Letters of Credit
issued by any Issuing Lender or participations therein purchased by any
Lender; or

(iii) imposes any other condition on or affecting such Issuing
Lender or Lender (or its applicable lending or letter of credit office)
regarding this Section 3 or any Letter of Credit or any participation
therein;

and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Lender of agreeing to issue, issuing or maintaining any Letter of
Credit or agreeing to purchase, purchasing or maintaining any participation
therein or to reduce any amount received or receivable by such Issuing Lender or
Lender (or its applicable lending or letter of credit office) with respect
thereto; then, in any case, Company shall promptly pay to such Issuing Lender or
Lender, upon demand, such additional amount or amounts as may be necessary to
compensate such Issuing Lender or Lender on an after-tax basis for any

<PAGE>

such increased cost or reduction in amounts received or receivable hereunder.
Such Issuing Lender or Lender shall deliver to Company a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Issuing Lender or Lender under this subsection 3.6, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.

SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT

The effectiveness of this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date.

4.1 CONDITIONS TO INITIAL REVOLVING LOANS.

The obligations of Lenders to make the initial Revolving Loans
and any Swingline Loans are, in addition to the conditions precedent specified
in subsection 4.2, subject to prior or concurrent satisfaction of the following
conditions:

A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company
shall deliver or cause to be delivered to Lenders (or to Administrative Agent
for Lenders with sufficient originally executed copies, where appropriate, for
each Lender and its counsel) the following with respect to each Loan Party,
each, unless otherwise noted, dated the Closing Date:

(i) Certified copies of its Articles or Certificate of
Incorporation certified by the Secretary of State of the jurisdiction of
its incorporation, together with a good standing certificate from the
Secretary of State of the jurisdiction of its incorporation, the
jurisdiction in which its principal place of business is located and each
other state in which it is qualified as a foreign corporation to do
business where the failure to so qualify could reasonably be expected to
have a Material Adverse Effect, each dated a recent date prior to the
Closing Date;

(ii) Copies of its Bylaws, certified as of the Closing Date by
its corporate secretary or an assistant secretary;

(iii) Resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of the Loan Documents
to which it is a party and which are to be executed and delivered on the
Closing Date, certified as of the Closing Date by its corporate secretary
or an assistant secretary as being in full force and effect without
modification or amendment;

(iv) Signature and incumbency certificates of its officers
executing the Loan Documents to which it is a party;

<PAGE>

(v) Executed originals of this Agreement, the Notes (duly
executed in accordance with subsection 2.1D, drawn to the order of each
Lender as applicable and the Swingline Lender and with appropriate
insertions), the Company Pledge Agreement, the Subsidiary Pledge
Agreements, the Subsidiary Guarantees, the Collateral Account Agreement,
the Mortgages, the Auxiliary Pledge Agreements and the other Loan
Documents; and

(vi) an Officer's Certificate, in form and substance
satisfactory to Administrative Agent, to the effect that the Indebtedness
permitted under this Agreement is permitted under each of the Indentures
and that the incurrence of all Indebtedness under this Agreement will not
require equal and ratable security to be provided to the Senior Notes;
and

(vii) Such other documents as Administrative Agent may
reasonably request.

B. CORPORATE STRUCTURE. The corporate, capital and ownership
structure of the Parent, Company and Company's Subsidiaries after the
Transactions shall be satisfactory to the Administrative Agent and the Lenders.
Notwithstanding the foregoing, Administrative Agent and Lenders hereby agree
that the Company's existing corporate structure is satisfactory to
Administrative Agent and Lenders and the contemplated combination of Parent and
Company is satisfactory to Administrative Agent and Lenders.

C. DELIVERY OF MORTGAGES; MORTGAGE POLICIES. Administrative Agent
shall have received from Company (i) fully executed counterparts of Mortgages
encumbering the fee interest of Company in each Owned Real Property Asset
designated on SCHEDULE 4.1B annexed hereto (each a "Mortgaged Property" and
collectively, the "Mortgaged Properties"), together with evidence that
counterparts of such Mortgages have been recorded in all places to the extent
necessary or desirable, in the judgment of Administrative Agent, so as to
effectively create a valid and enforceable first priority Lien, subject only to
Permitted Encumbrances, on each Mortgaged Property in favor of Administrative
Agent (or such other trustee as may be required or desired under local law) for
the benefit of Lenders; (ii) an opinion of counsel (which counsel shall be
satisfactory to Administrative Agent) in the state in which each Mortgaged
Property is located with respect to the enforceability of the form of Mortgage
recorded in such state and such other matters as Administrative Agent may
request, in form and substance satisfactory to Administrative Agent;
(iii) Mortgage Policies with respect to the Mortgaged Properties constituting
Owned Real Property Assets, in amounts not less than the respective amounts
designated on SCHEDULE 4.1B annexed hereto with respect to any particular
Mortgaged Property; (iv) evidence, which may be in the form of a letter from an
insurance broker or a municipal engineer, as to whether (a) any Mortgaged
Property is in an area designated by the Federal Emergency Management Agency as
having special flood or mud slide hazards (a "Flood Hazard Property") and
(b) the community in which such Flood Hazard Property is located is
participating in the National Flood Insurance Program; and (v) if there are any
Flood Hazard Properties, Company's written acknowledgement of receipt of

<PAGE>

written notification from Administrative Agent (a) as to the existence of each
such Flood Hazard Property and (b) as to whether the community in which each
such Flood Hazard Property is located is participating in the National Flood
Insurance Program.

D. SECURITY INTERESTS. To the extent not otherwise satisfied
pursuant to subsection 4.1C, Company and its Subsidiaries shall have taken or
caused to be taken (and Administrative Agent shall have received satisfactory
evidence thereof) such actions in such a manner so that Administrative Agent has
a valid and perfected first priority security interest as of such date in the
entire Collateral (subject to Permitted Encumbrances and except to the extent
any such security interest cannot be granted under applicable laws). Such
actions shall include, without limitation, (i) delivery to Administrative Agent
of certificates (which certificates shall be properly endorsed in blank for
transfer or accompanied by irrevocable undated stock powers duly endorsed in
blank, all in form and substance satisfactory to Administrative Agent)
representing the capital stock pledged pursuant to the Company Pledge Agreement,
the applicable Auxiliary Pledge Agreement or the applicable Subsidiary Pledge
Agreement and delivery to Administrative Agent of all other instruments (duly
endorsed where appropriate) evidencing the Collateral; (ii) filing of Uniform
Commercial Code financing statements as to the Collateral for all jurisdictions
as may be necessary or desirable to perfect the security interests in the
Collateral; and (iii) delivery of evidence satisfactory to Administrative Agent
that all other filings, recordings and other actions that Administrative Agent
deems necessary or advisable to establish, preserve and perfect the first
priority Liens granted to Administrative Agent on behalf of Lenders under the
Collateral Documents shall have been made.

E. TERMINATION OF EXISTING CREDIT AGREEMENT. On or prior to the
Closing Date, Company shall have repaid in full all amounts outstanding under
the Existing Credit Agreement and shall have terminated any commitments to lend
or make other extensions of credit thereunder, and Company shall have made
arrangements satisfactory to Administrative Agent with respect to any
outstanding letters of credit issued pursuant to the Existing Credit Agreement
that will remain outstanding after the Closing Date, including payment of all
accrued and unpaid letter of credit fees. On the Closing Date, Administrative
Agent shall have received all terminations and releases requested by
Administrative Agent with respect to any collateral security for or guarantees
of Company's obligations under the Existing Credit Agreement, including, without
limitation, Uniform Commercial Code financing statement terminations and real
property releases, satisfaction of mortgages or similar release instruments.

F. ISSUANCE OF COMMON STOCK. On or prior to the Closing Date, the
Parent shall have received not less than $95,000,000 in cash proceeds from the
Common Stock Offering.

G. SOLVENCY ASSURANCES. On the Closing Date, Administrative Agent
and Lenders shall have received a Financial Condition Certificate dated the
Closing Date, substantially in the form of EXHIBIT XI annexed hereto and with
appropriate attachments, in

<PAGE>

each case demonstrating that, after giving effect to the Transactions and the
related transactions contemplated by the Loan Documents, the Company will be
Solvent.

H. OPINIONS OF COUNSEL TO LOAN PARTIES. Administrative Agent shall
have received on behalf of the Lenders and their respective counsel originally
executed copies of one or more favorable written opinions of McDermott Will &
Emery and Gary S. Salit, counsel for the Loan Parties, in form and substance
reasonably satisfactory to Administrative Agent and its counsel, dated as of the
Closing Date and setting forth substantially the matters in the opinions
designated in EXHIBIT VII annexed hereto and as to such other matters as
Administrative Agent acting on behalf of Lenders may reasonably request.

I. OPINIONS OF ADMINISTRATIVE AGENT'S COUNSEL. Lenders shall have
received originally executed copies of one or more favorable written opinions of
O'Melveny & Myers, counsel to Administrative Agent, dated as of the Closing
Date, substantially in the form of EXHIBIT VIII annexed hereto and as to such
other matters as Administrative Agent acting on behalf of Lenders may reasonably
request.

J. EXISTING INDEBTEDNESS. No Indebtedness of the Parent and its
Subsidiaries shall be existing other than the Indebtedness permitted in
subsection 7.1.

K. FEES. Company shall have paid to Administrative Agent, for
distribution (as appropriate) to Administrative Agent and Lenders under this
Agreement, the fees payable on the Closing Date referred to in subsection 2.3B.

L. NO MATERIAL ADVERSE EFFECT. Since December 28, 1996, no Material
Adverse Effect (in the sole opinion of Administrative Agent) shall have
occurred.

M. NO EVENT OF DEFAULT. Upon giving effect to this Agreement as of
the Closing Date, no "Event of Default" or "Potential Event of Default" shall
have occurred and be continuing and Company shall have delivered an Officer's
Certificate to such effect.

N. NECESSARY CONSENTS. On or before the Closing Date, each Loan
Party shall have obtained all consents to the transactions contemplated under
this Agreement and the other Loan Documents of any Person required under any
Contractual Obligation of any Loan Party, except for such consents, the failure
of which to obtain could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, all of the foregoing in form and
substance reasonably satisfactory to Administrative Agent.

O. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. On
the Closing Date, Company shall have delivered to Administrative Agent an
Officer's Certificate dated as of the Closing Date, in form and substance
satisfactory to Administrative Agent, to the effect that the representations and
warranties in Section 5 hereof are true, correct and complete in all material
respects on and as of the Closing Date

<PAGE>

to the same extent as though made on and as of that date and that Company shall
have performed in all material respects all agreements and satisfied all
conditions which this Agreement provides shall be performed or satisfied by it
on or before the Closing Date except as otherwise disclosed to and agreed to in
writing by Administrative Agent and Requisite Lenders.

P. COMPLETION OF PROCEEDINGS. All corporate and other proceedings
taken or to be taken on or before the Closing Date in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by Administrative Agent, acting on behalf of
Lenders, and its counsel shall be satisfactory in form and substance to
Administrative Agent and such counsel, and Administrative Agent and such counsel
shall have received all such counterpart originals or certified copies of such
documents as Administrative Agent may reasonably request.

4.2 CONDITIONS TO ALL LOANS.

The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:

A. Administrative Agent shall have received before that Funding
Date, in accordance with the provisions of subsection 2.1B, an originally
executed Notice of Borrowing, in each case signed by the chief executive
officer, the chief financial officer, the chief accounting officer, the
treasurer or the assistant treasurer of Company or by any officer of Company
designated by any of the above-described officers on behalf of Company in a
writing delivered to Administrative Agent.

B. As of that Funding Date:

(i) The representations and warranties contained herein and
in the other Loan Documents shall be true, correct and complete in all
material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date;

(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such Notice
of Borrowing that would constitute an Event of Default or a Potential
Event of Default;

(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this Agreement
provides shall be performed or satisfied by it on or before that Funding
Date;

<PAGE>

(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;

(v) The making of the Loans requested on such Funding Date
shall not violate any law including, without limitation, Regulation G,
Regulation T, Regulation U or Regulation X of the Board of Governors of
the Federal Reserve System; and

(vi) There shall not be pending or, to the knowledge of
Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries that
has not been disclosed by Company in writing pursuant to subsection 5.6
or 6.1(x) prior to the making of the last preceding Loans (or, in the
case of the initial Loans, prior to the execution of this Agreement), and
there shall have occurred no development not so disclosed in any such
action, suit, proceeding, governmental investigation or arbitration so
disclosed, that, in either event, could reasonably be expected to have a
Material Adverse Effect; and no injunction or other restraining order
shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise prevent
the consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated by this Agreement or the making
of Loans hereunder.

4.3 CONDITIONS TO LETTERS OF CREDIT.

The issuance of any Letter of Credit hereunder (whether or not
the applicable Issuing Bank is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:

A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, each of the conditions set forth in subsection 4.1
shall have been satisfied.

B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), an originally executed Request For Issuance of Letter of
Credit, in each case signed by the chief executive officer, the chief financial
officer, the chief accounting officer or the treasurer of Company or by any
officer of Company designated by any of the above-described officers on behalf
of Company in a writing delivered to Administrative Agent, together with all
other information specified in subsection 3.1B(i) and such other documents or
information as the applicable Issuing Lender may reasonably require in
connection with the issuance of such Letter of Credit.

<PAGE>

C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.

SECTION 5. REPRESENTATIONS AND WARRANTIES

In order to induce Lenders to enter into this Agreement and to
make the Loans, to induce Issuing Lenders to issue Letters of Credit and to
induce other Lenders to purchase participations therein, Parent and Company
represent and warrant to each Lender, on the date of this Agreement, on each
Funding Date and on the date of issuance of each Letter of Credit, that the
following statements are true, correct and complete:

5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.

A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Loan Party has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into and perform its
obligations under the Loan Documents, to carry out the transactions contemplated
thereby and to issue and pay the Notes, in each case to the extent it is a party
thereto.

B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to
do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, except
in jurisdictions where the failure to be so qualified or in good standing could
not reasonably be expected to have a Material Adverse Effect.

C. CONDUCT OF BUSINESS. Company and its Subsidiaries are engaged
only in the businesses permitted to be engaged in pursuant to subsection 7.14.

D. SUBSIDIARIES. All of the Subsidiaries of Company are identified
in SCHEDULE 5.1 annexed hereto, as said SCHEDULE 5.1 may be supplemented from
time to time pursuant to the provisions of subsection 6.1(xvi). The capital
stock of each of the Subsidiaries of Company identified in SCHEDULE 5.1 is duly
authorized, validly issued, fully paid and nonassessable and none of such
capital stock constitutes Margin Stock. Each of the Subsidiaries of Company
identified in SCHEDULE 5.1 is validly existing and in good standing under the
laws of its respective jurisdiction of incorporation set forth therein, has full
corporate power and authority to own its assets and properties and to operate
its business as presently owned and conducted, and is qualified to do business
and in good standing in every jurisdiction where its assets are located and
wherever necessary to carry out its business and operations, in each case except
where failure to be so qualified or in good standing or a lack of such corporate
power and authority could not reasonably be

<PAGE>

expected to have a Material Adverse Effect. SCHEDULE 5.1 correctly sets forth
the ownership interest of Company in each of its Subsidiaries identified
therein.

5.2 AUTHORIZATION OF BORROWING, ETC.

A. AUTHORIZATION OF BORROWING. The execution, delivery and
performance of the Loan Documents and the issuance, delivery and payment of the
Notes have been duly authorized by all necessary corporate action on the part of
each Loan Party that is a party thereto.

B. NO CONFLICT. The execution, delivery and performance by Parent,
Company and its Subsidiaries of the Loan Documents, the issuance, delivery and
payment of the Notes and the consummation of the transactions contemplated by
the Loan Documents do not and will not (i) violate any provision of any law or
any written governmental rule or regulation then in existence and applicable to
Parent, Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Parent, Company or any of its Subsidiaries or any
order, judgment or decree of any court or other agency of government binding on
Parent, Company or any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of Parent, Company or any of its Subsidiaries,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Parent, Company or any of its Subsidiaries (other
than any Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Parent, Company or any of its Subsidiaries, except for such
approvals or consents which will be obtained on or before the Closing Date and
disclosed in writing to Lenders.

C. GOVERNMENTAL CONSENTS. The execution, delivery and performance
by Parent, Company and its Subsidiaries of the Loan Documents, the issuance,
delivery and payment of the Notes and the consummation of the transactions
contemplated by the Loan Documents do not and, as of the date of this
representation, will not require any registration with, consent or approval of,
or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body, EXCEPT for filings and recordings
required in connection with the perfection of the security interests and Liens
granted pursuant to the Loan Documents.

D. BINDING OBLIGATION. Each of the Loan Documents to which any Loan
Party is a party has been duly executed and delivered by each Loan Party that is
a party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.

77
<PAGE>

E. VALID ISSUANCE OF COMPANY COMMON STOCK, PARENT COMMON STOCK,
PREFERRED STOCK AND SUBORDINATED INDEBTEDNESS; 11-1/2% SENIOR DISCOUNT
DEBENTURES.

(i) COMPANY COMMON STOCK; PARENT COMMON STOCK; PREFERRED
STOCK. The Company Common Stock has been duly and validly issued, and is fully
paid and nonassessable. The Parent common stock has been duly and validly
issued and is fully paid and nonassessable. The Preferred Stock has been duly
and validly issued, and is fully paid and non-assessable. No stockholder of
Company has or will have any preemptive rights to subscribe for any additional
equity Securities of Company. The issuance and sale of such Company Common
Stock, Parent common stock and Preferred Stock have been registered or qualified
under applicable federal and state securities laws or are exempt therefrom.

(ii) 10-3/4% SUBORDINATED NOTES; SENIOR NOTES. The 10-3/4%
Subordinated Notes if outstanding at the Closing, and Senior Notes are the
legally valid and binding obligations of Company, enforceable against Company in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability. The subordination provisions of the 10-3/4% Subordinated Notes
and Senior Notes are enforceable against the holders thereof and the Loans and
all other monetary Obligations hereunder are and will be within the definition
of "Senior Debt" included in such provisions. The 10-3/4% Subordinated Notes
and the Senior Notes either (a) have been registered or qualified under
applicable federal and state securities laws or (b) are exempt therefrom.

(iii) 11-1/2% SENIOR DISCOUNT DEBENTURES. The 11-1/2% Senior
Discount Debentures are the legally valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors rights generally or by equitable principles
relating to enforceability. Upon the occurrence of a Subordination Event (as
defined in the 11-1/2% Senior Discount Debentures), the subordination provisions
of the 11-1/2% Senior Discount Debentures will be enforceable against the
holders thereof and Parent obligations with respect to its guaranty of the Loans
and all other monetary Obligations hereunder will be within the definition of
"Senior Debt" included in such provisions. The 11-1/2% Senior Discount
Debentures either (a) have been duly registered or qualified under applicable
federal and state securities law or (b) are exempt therefrom.

5.3 FINANCIAL CONDITION.

Company has heretofore delivered to Lenders, at Lenders' request,
the following financial statements and information: (i) the audited
consolidated balance sheet of Company and its Subsidiaries as at December 28,
1996 and the related consolidated statements of income, stockholders' equity and
cash flows of Company and its Subsidiaries

<PAGE>

for the Fiscal Year then ended and (ii) the unaudited consolidated and
Consolidating balance sheets of Company and its Subsidiaries as at June 28, 1997
and the related unaudited consolidated statement of income and cash flows of
Company and its Subsidiaries for the fiscal month then ended (with respect to
statements of income only) and for the six months then ended. All such
statements were prepared in conformity with GAAP and fairly present the
financial position (on a consolidated basis) of the entities described in such
financial statements as at the respective dates thereof and the results of
operations and cash flows (on a consolidated basis) of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to changes resulting from audit and normal year-
end adjustments. Company does not (and will not following the funding of the
initial Loans) have any Contingent Obligation, contingent liability or liability
for taxes, long-term lease or unusual forward or long-term commitment that is
not reflected in the foregoing financial statements or the notes thereto and
which in any such case is material in relation to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of Company
and its Subsidiaries, taken as a whole.

5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.

Since December 28, 1996, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect. Since the Closing Date, neither Company nor any of its Subsidiaries has
directly or indirectly declared, ordered, paid or made, or set apart any sum or
property for, any Restricted Junior Payment or agreed to do so except as
permitted by subsection 7.5.

5.5 TITLE TO PROPERTIES; LIENS.

Company and its Subsidiaries have (i) good, marketable and legal
title, to (in the case of fee interests in real property), (ii) valid leasehold
interests in (in the case of leasehold interests in real or personal property),
or (iii) good title to (in the case of all other personal property) all of their
respective material properties and assets reflected in the financial statements
referred to in subsection 5.3 or in the most recent financial statements
delivered pursuant to subsection 6.1, except for assets disposed of since the
date of such financial statements in the ordinary course of business or as
otherwise permitted under subsection 7.7. Except as permitted by this Agreement
(including without limitation Permitted Encumbrances), all such properties and
assets are free and clear of Liens. SCHEDULE 5.5 sets forth a complete and
accurate list of all real property owned by Company and its Subsidiaries as of
the Closing Date identifying the owner thereof, the street address, city or
other relevant jurisdiction, and state thereof, and further identifying those
properties subject to a Mortgage in favor of Administrative Agent for the
benefit of Lenders. Any properties not so subject to a Mortgage have been
excluded in compliance with the provisions of subsection 6.10.

<PAGE>

5.6 LITIGATION; ADVERSE FACTS.

There is no action, suit, proceeding, arbitration or governmental
investigation (whether or not purportedly on behalf of Parent, Company or any of
its Subsidiaries) at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of Company or
Parent, threatened against or affecting Parent, Company or any of its
Subsidiaries or any property of Parent, Company or any of its Subsidiaries that
could reasonably be expected to result in, a Material Adverse Effect. Neither
Parent, Company nor any of its Subsidiaries is (i) in violation of any
applicable law that could reasonably be expected to result in, a Material
Adverse Effect or (ii) subject to or in default with respect to any final
judgment, writ, injunction, decree, rule or regulation of any court or any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that could reasonably be
expected to result in a Material Adverse Effect.

5.7 PAYMENT OF TAXES.

Except to the extent permitted by subsection 6.3, all material
tax returns and reports of Parent, Company and its Subsidiaries required to be
filed by any of them have been timely filed, and all material taxes,
assessments, fees and other governmental charges upon Parent, Company and its
Subsidiaries and upon their respective properties, assets, income, businesses
and franchises which are due and payable have been paid when due and payable.
Neither Parent nor Company knows of any proposed tax assessment against Parent,
Company or any of its Subsidiaries which is not being actively contested by
Parent, Company or such Subsidiary in good faith and by appropriate proceedings;
PROVIDED that such reserves or other appropriate provisions, if any, as shall be
required in conformity with GAAP shall have been made or provided therefor.

5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.

A. Neither Parent, Company nor any of its Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default, except where the consequences, direct or
indirect, of such default or defaults, if any, could not reasonably be expected
to have a Material Adverse Effect.

B. Neither Parent, Company nor any of its Subsidiaries is a
party to or is otherwise subject to any agreement or instrument or any charter
or other internal restriction which could reasonably be expected to result in,
individually or in the aggregate, a Material Adverse Effect.

<PAGE>

5.9 GOVERNMENTAL REGULATION.

Neither Parent, Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or
under any other federal or state statute or regulation which may limit its
ability to incur Indebtedness or which may otherwise render all or any portion
of the Obligations unenforceable.

5.10 SECURITIES ACTIVITIES.

Neither Parent, Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.

5.11 EMPLOYEE BENEFIT PLANS.

A. Parent, Company and each of their respective ERISA
Affiliates are in compliance with all applicable material provisions and
requirements of ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and have performed all
their material obligations under each Employee Benefit Plan. Each Employee
Benefit Plan which is intended to qualify under Section 401(a) of the Internal
Revenue Code is so qualified.

B. No ERISA Event has occurred within the three years
preceding the Closing Date (excluding ERISA Events occurring after Parent or
Company ceased to maintain the applicable Employee Benefit Plan, unless Parent
or Company is potentially liable with respect to such ERISA Event) or for which
there is an outstanding liability or obligation. No ERISA Event is reasonably
expected to occur.

C. Except to the extent required under Section 4980B of the
Internal Revenue Code or except for such Employee Benefit Plans the payment of
benefits under which, individually or in the aggregate for all such Employee
Benefit Plans, could not reasonably be expected to have a Material Adverse
Effect, no Employee Benefit Plan provides health or welfare benefits (through
the purchase of insurance or otherwise) for any retired or former employees of
Parent, Company or any of their respective ERISA Affiliates.

D. As of the most recent valuation date for any Pension
Plan, the amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect to
which assets exceed benefit liabilities), does not exceed $2,000,000.

<PAGE>

5.12 CERTAIN FEES.

No broker's or finder's fee or commission will be payable with
respect to this Agreement and Company hereby indemnifies Lenders against, and
agrees that it will hold Lenders harmless from, any claim, demand or liability
for any such broker's or finder's fees alleged to have been incurred in
connection herewith or any of the transactions contemplated hereby, and any
expenses (including reasonable fees, expenses and disbursements of counsel)
arising in connection with any such claim, demand or liability.

5.13 ENVIRONMENTAL PROTECTION.

Except as set forth in SCHEDULE 5.13 annexed hereto:

(i) to the best knowledge of Company and its Subsidiaries
after reasonable investigation, the operations of Company and each of its
Subsidiaries (including, without limitation, all operations and
conditions at or in the Facilities) comply in all material respects with
all Environmental Laws;

(ii) Company and each of its Subsidiaries have obtained all
Governmental Authorizations under Environmental Laws necessary to their
respective operations, and all such Governmental Authorizations are in
good standing, and Company and each of its Subsidiaries are in compliance
with all material terms and conditions of such Governmental
Authorizations;

(iii) neither Company nor any of its Subsidiaries has received
(a) any written notice or claim to the effect that it is or may be liable
with respect to any material liability to any Person as a result of or in
connection with any Hazardous Materials or (b) any letter or request for
information under Section 104 of the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or
comparable state laws, and, to the best of Company's knowledge, none of
the operations of Company or any of its Subsidiaries is the subject of
any federal or state investigation relating to or in connection with any
Hazardous Materials at any Facility or at any other location;

(iv) none of the operations of Company or any of its
Subsidiaries is subject to any pending judicial or administrative
proceeding alleging the violation of or liability under any Environmental
Laws which if adversely determined is reasonably likely to have a
Material Adverse Effect;

(v) neither Company nor any of its Subsidiaries nor any of
their respective Facilities or operations are subject to any outstanding
written order or agreement with any governmental authority or private
party relating to (a) any Environmental Laws or (b) any Environmental
Claims where such order or agreement provides for pending or continuing
obligations;

<PAGE>

(vi) neither Company nor any of its Subsidiaries has any
material contingent liability in connection with any Release of any
Hazardous Materials by Company or any of its Subsidiaries;

(vii) neither Company nor any of its Subsidiaries nor, to the
best knowledge of Company, any predecessor of Company or any of its
Subsidiaries has filed any notice under any Environmental Law indicating
past or present treatment or Release of Hazardous Materials at any
Facility;

(viii) to the best knowledge of Company and its Subsidiaries
after reasonable investigation, no Hazardous Materials exist on, under or
about any Facility in a manner that has a reasonable possibility of
giving rise to an Environmental Claim having a Material Adverse Effect,
and neither Company nor any of its Subsidiaries has filed any notice or
report of a Release of any Hazardous Materials that has a reasonable
possibility of giving rise to an Environmental Claim having a Material
Adverse Effect;

(ix) neither Company nor any of its Subsidiaries nor, to the
best knowledge of Company, any of their respective predecessors has
disposed of any Hazardous Materials in a manner that has a reasonable
possibility of giving rise to an Environmental Claim having a Material
Adverse Effect;

(x) to the best knowledge of Company and its Subsidiaries
after reasonable investigation, no underground storage tanks or surface
impoundments are on or at any Facility; and

(xi) no Lien in favor of any Person relating to or in
connection with any Environmental Claim has been filed or has been
attached to any Facility.

5.14 EMPLOYEE MATTERS.

There is no strike or work stoppage in existence or threatened
involving Company or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.

5.15 SOLVENCY.

Each Loan Party is and, upon the incurrence of any Obligations by
each Loan Party on any date on which this representation is made, will be,
Solvent.

5.16 DISCLOSURE.

No representation or warranty of Parent, Company or any of its
Subsidiaries contained in any Loan Document or in any other document,
certificate or written statement furnished to Lenders by or on behalf of Parent,
Company or any of its Subsidiaries for use

<PAGE>

in connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
Parent or Company, in the case of any document not furnished by it) necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made. Any projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by Parent and Company to be reasonable at the
time made, it being recognized by Lenders that such projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such projections may differ from the projected
results. There is no fact known to Parent or Company (other than matters of a
general economic nature) that has had, or could reasonably be expected to result
in, a Material Adverse Effect and that has not been disclosed herein or in such
other documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.

5.17 INTELLECTUAL PROPERTY.

A. Company and its Subsidiaries own, or are licensed (to the
extent required to be so licensed) to use, the Intellectual Property and all
such Intellectual Property, title to which can be protected by registration, is
duly and properly registered, filed or issued in the appropriate office in all
material jurisdictions for such registrations, filing or issuances, and with
respect to such owned Intellectual Property Company owns all of the right, title
and interest in and to such Intellectual Property under the applicable laws of
the United States and with respect to such licensed Intellectual Property
Company owns valid title in and to such Intellectual Property, in each case free
and clear of any Lien other than Permitted Encumbrances.

B. No material claim has been asserted by any Person with
respect to the use of any such Intellectual Property, or challenging or
questioning the validity or effectiveness of any such Intellectual Property.
The use of such Intellectual Property by Company or any of its Subsidiaries does
not infringe on the rights of any Person, subject to such claims and
infringements as do not, in the aggregate, give rise to any liabilities on the
part of Company or any of its Subsidiaries that are material to Company and its
Subsidiaries, taken as a whole. The consummation of the transactions
contemplated by this Agreement will not in any material manner or to any
material extent impair the ownership of (or the license to use, as the case may
be) any of such Intellectual Property by Company or any of its Subsidiaries.

SECTION 6. AFFIRMATIVE COVENANTS

Parent and Company covenant and agree that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, Parent and Company shall

<PAGE>

perform, and shall cause each of Company's Subsidiaries to perform, all
covenants in this Section 6.

6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.

Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
conformity with GAAP. Company will deliver to Administrative Agent and Lenders:

(i) MONTHLY FINANCIALS: as soon as available and in any
event within 25 days after the end of each month ending after the Closing
Date, the consolidated balance sheets of Company and its Subsidiaries as
at the end of such month and the related consolidated statements of
income and cash flows of Company and its Subsidiaries for such month and
for the period from the beginning of the then current Fiscal Year to the
end of such month and a breakdown by major business line of sales,
Consolidated Capital Expenditures and Consolidated EBITDA figures for
such period, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous
Fiscal Year, all in reasonable detail and a summary of any Debt
Repurchases or Acquisition Expenditures during such month, together with
the total of all such Debt Repurchases or Acquisition Expenditures since
the Closing Date;

(ii) QUARTERLY FINANCIALS: as soon as available and in any
event within 50 days after the end of the first three fiscal quarters of
each Fiscal Year, (a) the consolidated and Consolidating balance sheets
of Company and its Subsidiaries as at the end of such fiscal quarter and
the related consolidated and Consolidating statements of income and cash
flows of Company and its Subsidiaries for the period from the beginning
of the then current Fiscal Year to the end of such fiscal quarter and for
the fiscal quarter then ended (with respect to statements of income
only), a breakdown by major business line of sales, Consolidated Capital
Expenditures and Consolidated EBITDA figures for such period, setting
forth in each case in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding
figures from the consolidated plan for the current Fiscal Year delivered
pursuant to subsection 6.1(xii) for consolidated sales, Consolidated
EBITDA and Consolidated Capital Expenditures, all in reasonable detail
and certified by the chief financial officer or chief accounting officer
of Company that they fairly present the financial condition of Company
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments, and (b) a
narrative report setting forth "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" for the fiscal quarter
then ended and for the period from the beginning of the then current
Fiscal Year to the end of such fiscal quarter;

<PAGE>

(iii) YEAR-END FINANCIALS: as soon as available and in any
event within 95 days after the end of each Fiscal Year, (a) the
consolidated balance sheet of Company and its Subsidiaries as at the end
of such Fiscal Year and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for
such Fiscal Year, a breakdown by major business line of sales,
Consolidated Capital Expenditures and Consolidated EBITDA figures for
such period, setting forth in each case in comparative form the
corresponding figures for the previous Fiscal Year and the corresponding
figures from the consolidated plan and financial forecast for the current
Fiscal Year delivered pursuant to subsection 6.1(xii), and within 120
days after the end of each Fiscal Year, a Consolidating balance sheet of
Company and its Subsidiaries as at the end of such Fiscal Year and the
related Consolidating statement of income of Company and its Subsidiaries
for such Fiscal Year, all in reasonable detail and certified by the chief
financial officer or chief accounting officer of Company that they fairly
present the financial condition of Company and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated, (b) a narrative report setting forth
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations" for such Fiscal Year, and (c) in the case of such
consolidated financial statements, a report thereon of KMPG Peat Marwick
or other independent certified public accountants of recognized national
standing selected by Company and reasonably satisfactory to
Administrative Agent, which report shall be unqualified, shall express no
doubts about the ability of Company and its Subsidiaries to continue as a
going concern, and shall state that such consolidated financial
statements fairly present the consolidated financial position of Company
and its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards;

(iv) OFFICER'S AND COMPLIANCE CERTIFICATES: together with
each delivery of financial statements of Company and its Subsidiaries
pursuant to subdivisions (ii) and (iii) above, (1) an Officer's
Certificate of Company stating that the signer has reviewed the terms of
this Agreement and has made, or caused to be made under his supervision,
a review in reasonable detail of the transactions and condition of
Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence
during or at the end of such accounting period, and that the signer does
not have knowledge of the existence as at the date of such Officer's
Certificate, of any condition or event that constitutes an Event of
Default or Potential Event of Default, or, if any such condition or event
existed or exists, specifying the nature and period of existence thereof
and what action Company has taken, is taking and proposes to take with
respect thereto, (2) a Margin Determination Certificate demonstrating in
reasonable detail the Leverage Ratio for the four consecutive fiscal
quarters ending

<PAGE>

on the last day of the accounting period covered by such financial
statements and (3) a Compliance Certificate demonstrating in reasonable
detail compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 7, including without
limitation the amount of Debt Repurchases and Acquisition Expenditures;

(v) RECONCILIATION STATEMENTS: if, as a result of any change
in accounting principles from those in effect on the Closing Date, the
consolidated financial statements of Company and its Subsidiaries
delivered pursuant to subdivisions (ii), (iii) or (xii) of this
subsection 6.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles been made, then
together with the first delivery of a Compliance Certificate pursuant to
subdivision (iv)(3) above following such change and each subsequent
delivery of a Compliance Certificate, a written statement of the chief
accounting officer or chief financial officer of Company setting forth
the differences in the calculations contained therein which would have
resulted if such Compliance Certificates had been prepared after giving
effect to such change; notwithstanding any such change in accounting
principles and practices, calculations made in connection with the
definitions, covenants and other provisions of this Agreement shall be
made in accordance with GAAP as in effect on the Closing Date;

(vi) ACCOUNTANTS' CERTIFICATION: together with each delivery
of consolidated financial statements of Company and its Subsidiaries
pursuant to subdivision (iii) above, a written statement by the
independent certified public accountants giving the report thereon (a)
stating that their audit examination has included a review of the terms
of this Agreement and the other Loan Documents as they relate to
accounting matters, (b) stating whether, in connection with their audit
examination, any condition or event that constitutes an Event of Default
or Potential Event of Default has come to their attention and, if such a
condition or event has come to their attention, specifying the nature and
period of existence thereof; PROVIDED that such accountants shall not be
liable by reason of any failure to obtain knowledge of any such Event of
Default or Potential Event of Default that would not be disclosed in the
course of their audit examination, and (c) stating that based on their
audit examination nothing has come to their attention that causes them to
believe either or both that the information contained in the certificates
delivered therewith pursuant to subdivision (iv) above is not correct or
that the matters set forth in the Compliance Certificate delivered
therewith pursuant to clause (3) of subdivision (iv) above for the
applicable Fiscal Year are not stated in accordance with the terms of
this Agreement;

(vii) SEC FILINGS AND PRESS RELEASES: promptly upon their
becoming available, copies of (a) all financial statements, reports,
notices and proxy statements sent or made available generally by Parent
or Company to their respective public security holders or by any
Subsidiary of Company to its security

<PAGE>

holders other than Company, another Subsidiary of Company, or an
Affiliate of Company, (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by Parent, Company or any of Company's
Subsidiaries with any securities exchange or with the Securities and
Exchange Commission or any governmental or private regulatory authority,
and (c) all press releases and other statements made available generally
by Parent, Company or any of Company's Subsidiaries to the public
concerning material developments in the business of Parent, Company and
Company's Subsidiaries, taken as a whole;

(viii) EVENTS OF DEFAULT, ETC.: promptly upon any officer of
Parent or Company obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, or
becoming aware that any Lender or Administrative Agent has given any
notice or taken any other action with respect to a claimed Event of
Default or Potential Event of Default, (b) that any Person has given any
notice to Parent or Company or any of Company's Subsidiaries or taken any
other action with respect to a claimed default or event or condition of
the type referred to in subsection 8.2, or (c) of the occurrence of any
event or change that has caused or evidences, either in any case or in
the aggregate, a Material Adverse Effect, an Officer's Certificate
specifying the nature and period of existence of such condition, event or
change, or specifying the notice given or action taken by any such Person
and the nature of such claimed Event of Default, Potential Event of
Default, default, event or condition, and what action Parent or Company
has taken, is taking and proposes to take with respect thereto;

(ix) LITIGATION: promptly upon any officer of Parent or
Company obtaining knowledge of (a) the institution of, or non-frivolous
threat of, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or
any property of Parent or Company or any of Company's Subsidiaries
(collectively, "PROCEEDINGS") or (b) any material development in any
Proceeding that, in any case was not previously disclosed in writing by
Company to Administrative Agent and:

(1) if adversely determined, is reasonably likely to
cause a Material Adverse Effect; or

(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated hereby;

written notice thereof together with such other information as may be
reasonably available to Parent or Company to enable Lenders and their
counsel to evaluate such matters;

<PAGE>

(x) ERISA EVENTS: promptly upon becoming aware of the
occurrence of any ERISA Event, a written notice specifying the nature
thereof, what action Parent, Company or any of their respective ERISA
Affiliates has taken, is taking or proposes to take with respect thereto
and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor or the PBGC with respect thereto;

(xi) ERISA NOTICES: with reasonable promptness, upon request
of Administrative Agent, copies of (a) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by Parent,
Company or any of their respective ERISA Affiliates with the Internal
Revenue Service with respect to each Pension Plan; (b) all notices
received by Parent, Company or any of their respective ERISA Affiliates
from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) such
other documents or governmental reports or filings relating to any
Employee Benefit Plan as Administrative Agent shall reasonably request;

(xii) BUDGETS AND FORECASTS: within 120 days after the
beginning of each Fiscal Year, a consolidated plan and financial forecast
for the then current Fiscal Year and the next succeeding four Fiscal
Years, including, without limitation, forecasted consolidated balance
sheets and forecasted consolidated statements of income and cash flows of
Company and its Subsidiaries for such Fiscal Years, in each case in the
form provided to Lenders prior to the Closing Date, together with (a) an
explanation of the assumptions on which such forecasts are based and
(b) a breakdown by major business line of sales, Consolidated Capital
Expenditures and Consolidated EBITDA figures for such periods;

(xiii) INSURANCE: within 120 days after the last day of each
Fiscal Year, a report in form and substance satisfactory to
Administrative Agent outlining all material insurance coverage maintained
as of the date of such report by Company and its Subsidiaries and all
material planned changes for insurance coverage by Company and its
Subsidiaries in the immediately succeeding Fiscal Year;

(xiv) ENVIRONMENTAL AUDITS AND REPORTS: as soon as practicable
following receipt thereof, copies of all environmental audits and
reports, whether prepared by personnel of Company or any of its
Subsidiaries or by independent consultants, with respect to significant
environmental matters at any Facility or which relate to an Environmental
Claim, in each case which could result in a Material Adverse Effect;

(xv) BOARD OF DIRECTORS: with reasonable promptness, written
notice of any change in the Board of Directors of Parent or Company;

(xvi) NEW SUBSIDIARIES: with respect to each Person becoming a
Subsidiary of Company, a written notice setting forth with respect to
such Person (a) the date on which such Person became a Subsidiary of
Company and (b) all of

<PAGE>

the data required to be set forth in SCHEDULE 5.1 annexed hereto with
respect to all Subsidiaries of Company (it being understood that such
written notice shall be deemed to supplement SCHEDULE 5.1 annexed hereto
for all purposes of this Agreement), which notice shall be delivered with
each delivery of the financial statements required pursuant to subsection
6.1(ii) hereof; and

(xvii) OTHER INFORMATION: with reasonable promptness, such
other information and data with respect to Parent, Company or any of
Company's Subsidiaries as from time to time may be reasonably requested
by any Lender.

6.2 CORPORATE EXISTENCE, ETC.

Except as permitted under subsection 7.7, Parent and Company
will, and will cause each of Company's Subsidiaries other than any Inactive
Subsidiary to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.

6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.

A. Parent and Company will, and will cause each of Company's
Subsidiaries to, pay all material taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its income, businesses or franchises before any material penalty accrues
thereon, and all material claims (including, without limitation, claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or may become a Lien upon any of its properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; PROVIDED that no such tax, assessment, penalty, other charge or
claim need be paid if being contested in good faith by appropriate proceedings
instituted in a timely manner, and diligently conducted and if such reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor.

B. Neither Parent nor Company will, nor will they permit any
of Company's Subsidiaries to, file or consent to the filing of any consolidated
income tax return with any Person (other than Parent, Company or any of
Company's Subsidiaries).

6.4 MAINTENANCE OF PROPERTIES; INSURANCE.

Parent and Company will, and will cause each of Company's
Subsidiaries to, maintain or cause to be maintained in good repair, working
order and condition, ordinary wear and tear excepted, all material properties
owned or leased by Company or any of its Subsidiaries and used in the business
of Company and its Subsidiaries and from time to time will make or cause to be
made all appropriate repairs, renewals and replacements thereof. Company will
maintain or cause to be maintained, with financially sound and reputable
insurers, insurance (with appropriate deductibles) with respect to its
properties and business and the properties and businesses of its Subsidiaries
against loss or damage of

<PAGE>

the kinds customarily carried or maintained under similar circumstances by
corporations of established reputation engaged in similar businesses. Each such
policy of insurance that insures against loss or damage with respect to any
Collateral shall name Administrative Agent for the benefit of Lenders as the
loss payee thereunder for amounts payable under such policy in excess of
$500,000 and shall provide for at least 30 days prior written notice to
Administrative Agent of any modification or cancellation of such policy.

6.5 INSPECTION; LENDER MEETING.

Parent and Company shall, and shall cause each of Company's
Subsidiaries to, permit any authorized representatives designated by any Lender
to visit and inspect any of the properties of Parent, Company or any of
Company's Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and accounts with its and their officers and independent
public accountants (provided that Parent or Company may, if it so chooses, be
present at or participate in any such discussion), all as reasonably requested,
upon reasonable notice and at such reasonable times during normal business hours
and as often as may be reasonably requested. Without in any way limiting the
foregoing, Company will, upon the request of Administrative Agent or Requisite
Lenders, participate in a meeting of Administrative Agent and Lenders once
during each Fiscal Year to be held at Company's corporate offices (or such other
location as may be agreed to by Company and Administrative Agent) at such time
as may be agreed to by Company and Administrative Agent.

6.6 COMPLIANCE WITH LAWS, ETC.

Parent and Company shall, and shall cause each of Company's
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
is reasonably likely to cause a Material Adverse Effect.

6.7 ENVIRONMENTAL DISCLOSURE AND INSPECTION.

A. Company shall, and shall cause each of its Subsidiaries
to, exercise reasonable due diligence in order to comply and cause (i) all
tenants under any leases or occupancy agreements affecting any portion of the
Facilities and (ii) all other Persons on or occupying such Facilities, to comply
with all Environmental Laws.

B. Company agrees that Administrative Agent may, from time
to time and in its discretion, retain, at Company's expense, an independent
professional consultant to review any report relating to Hazardous Materials
prepared by or for Company and to conduct its own investigation of any Facility
with respect to which the Administrative Agent and Requisite Lenders have cause
to believe that there is a reasonable possibility of an Environmental Claim
having a Material Adverse Effect and that is currently owned, leased, operated
or used by Company or any of its Subsidiaries, and Company agrees to

<PAGE>

use its best efforts to obtain permission for Administrative Agent's
professional consultant to conduct its own investigation of any Facility
previously owned, leased, operated or used by Company or any of its
Subsidiaries. Company hereby grants to Administrative Agent and its agents,
employees, consultants and contractors upon reasonable notice to Company the
right to enter into or on to the Facilities to perform such tests on such
property as are reasonably necessary to conduct such a review and/or
investigation. Any such investigation of any Facility shall be conducted,
unless otherwise agreed to by Company and Administrative Agent, during normal
business hours and, to the extent reasonably practicable, shall be conducted so
as not to interfere with the ongoing operations at any such Facility or to cause
any damage or loss to any property at such Facility. Company and Administrative
Agent hereby acknowledge and agree that any report of any investigation
conducted at the request of Administrative Agent pursuant to this subsection
6.7B will be obtained and shall be used by Administrative Agent and Lenders for
the purposes of Lenders' internal credit decisions, to monitor and police the
Loans and to protect Lenders' security interests, if any, created by the Loan
Documents. Administrative Agent agrees to deliver a copy of any such report to
Company with the understanding that Company acknowledges and agrees that (i) it
will indemnify and hold harmless Administrative Agent and each Lender from any
costs, losses or liabilities relating to Company's use of or reliance on such
report, (ii) neither Administrative Agent nor any Lender makes any
representation or warranty with respect to such report, and (iii) by delivering
such report to Company, neither Administrative Agent nor any Lender is requiring
or recommending the implementation of any suggestions or recommendations
contained in such report.

C. Company shall promptly advise Lenders in writing and in
reasonable detail of (i) any Release of any Hazardous Materials required to be
reported to any federal, state or local governmental or regulatory agency under
any Environmental Laws, (ii) any and all written communications with respect to
any Environmental Claims that have a reasonable possibility of giving rise to a
Material Adverse Effect or with respect to any Release of Hazardous Materials
required to be reported to any federal, state or local governmental or
regulatory agency, (iii) any remedial action taken by Company or any other
Person in response to (x) any Hazardous Materials on, under or about any
Facility, the existence of which has a reasonable possibility of resulting in an
Environmental Claim having a Material Adverse Effect, or (y) any Environmental
Claim that could have a Material Adverse Effect, (iv) Company's discovery of any
occurrence or condition on any real property adjoining or in the vicinity of any
Facility that could cause such Facility or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use thereof under
any Environmental Laws, and (v) any request for information from any
governmental agency that suggests such agency is investigating whether Company
or any of its Subsidiaries may be potentially responsible for a Release of
Hazardous Materials.

D. Company shall promptly notify Lenders of (i) any proposed
acquisition of stock, assets, or property by Company or any of its Subsidiaries
that could reasonably be expected to expose Company or any of its Subsidiaries
to, or result in,

<PAGE>

Environmental Claims that could have a Material Adverse Effect or that could
reasonably be expected to have a material adverse effect on any Governmental
Authorization then held by Company or any of its Subsidiaries and (ii) any
proposed action to be taken by Company or any of its Subsidiaries to commence
manufacturing, industrial or other operations that could reasonably be expected
to subject Company or any of its Subsidiaries to additional laws, rules or
regulations, including, without limitation, laws, rules and regulations
requiring additional environmental permits or licenses.

E. Company shall, at its own expense, provide copies of such
documents or information as Administrative Agent may reasonably request in
relation to any matters disclosed pursuant to this subsection 6.7.

6.8 COMPANY'S REMEDIAL ACTION REGARDING HAZARDOUS MATERIALS.

Company shall promptly take, and shall cause each of its
Subsidiaries promptly to take, conduct and complete, any and all necessary
remedial action in connection with the presence, storage, use, disposal,
transportation or Release of any Hazardous Materials on, under or about any
Facility in order to comply with all applicable Environmental Laws and
Governmental Authorizations. In the event Company or any of its Subsidiaries
undertakes any remedial action with respect to any Hazardous Materials on, under
or about any Facility, Company or such Subsidiary shall conduct and complete
such remedial action in compliance with all applicable Environmental Laws, and
in accordance with the policies, orders and directives of all federal, state and
local governmental authorities except when, and only to the extent that, either
Company's or such Subsidiary's liability for such presence, storage, use,
disposal, transportation or discharge of any Hazardous Materials or the
applicability of certain Environmental Laws is being contested in good faith by
Company or such Subsidiary.

6.9 EXECUTION OF SUBSIDIARY GUARANTY AND COLLATERAL DOCUMENTS BY FUTURE
SUBSIDIARIES; AUXILIARY PLEDGE AGREEMENTS; RELEASE OF LIENS AND
GUARANTEES.

A. In the event that any Person becomes a Subsidiary of
Company after the Closing Date, Company will promptly notify Administrative
Agent of that fact and cause such Subsidiary, if such Subsidiary is a Domestic
Subsidiary (other than a Subsidiary of BHFS or an Inactive Subsidiary), to
execute and deliver to Administrative Agent a counterpart of the Subsidiary
Guaranty, and prior to the Collateral Release Date, a Subsidiary Pledge
Agreement. Company shall deliver to Administrative Agent, together with such
Subsidiary Pledge Agreement and Guaranty and the pledge amendment described
below, (i) certified copies of such Domestic Subsidiary's Articles or
Certificate of Incorporation, together with a good standing certificate from the
Secretary of State of the jurisdiction of its incorporation, each to be dated a
recent date prior to their delivery to Administrative Agent, (ii) a copy of such
Domestic Subsidiary's Bylaws, certified by its corporate secretary or an
assistant corporate secretary as of a recent date prior to their delivery to
Administrative Agent, (iii) a certificate executed by the secretary or an
assistant secretary of such Domestic Subsidiary as to (a) the incumbency and
signatures of the

<PAGE>

officers of such Domestic Subsidiary executing the Subsidiary Guaranty and the
Subsidiary Pledge Agreement to which such Domestic Subsidiary is a party and (b)
the fact that the attached resolutions of the Board of Directors of such
Domestic Subsidiary authorizing the execution, delivery and performance of the
Subsidiary Guaranty and such Subsidiary Pledge Agreement are in full force and
effect and have not been modified or rescinded, and (iv) if required by
Administrative Agent, a favorable opinion of counsel to such Domestic
Subsidiary, in form and substance satisfactory to Administrative Agent and its
counsel, as to (a) the valid existence and good standing of such Domestic
Subsidiary, (b) the due authorization, execution and delivery by such Domestic
Subsidiary of the Subsidiary Guaranty and such Subsidiary Pledge Agreement, (c)
the enforceability of the Subsidiary Guaranty and such Subsidiary Pledge
Agreement against such Domestic Subsidiary, and (d) such other matters as
Administrative Agent may reasonably request, all of the foregoing to be
satisfactory in form and substance to Administrative Agent and its counsel.
With respect to any such Domestic Subsidiary prior to the Collateral Release
Date, Company shall also deliver to Administrative Agent a pledge amendment to
the Company Pledge Agreement or the applicable Subsidiary Pledge Agreement, as
appropriate, granting to Administrative Agent on behalf of Lenders a first
priority security interest in 100% of the capital stock of such Domestic
Subsidiary, and with respect to any such Foreign Subsidiary (other than an
Inactive Subsidiary or a Foreign Subsidiary acquired in accordance with clause
(d) of subsection 7.7(iv)) prior to the Collateral Release Date, Company shall
deliver to Administrative Agent an Auxiliary Pledge Agreement granting to
Administrative Agent on behalf of Lenders a first priority security interest in
66% of the capital stock of such Foreign Subsidiary, and, in each case, Company
shall take, or cause to be taken, all such other actions as Administrative Agent
shall deem necessary or desirable to perfect such security interest.

B. Anything contained in this Agreement or any of the other
Loan Documents to the contrary notwithstanding, in the event that, as a result
of any changes in United States tax laws after the date hereof, (i) the
continuation of any pledges of any shares of stock of any Foreign Subsidiaries
pursuant to any of the Collateral Documents would cause Company and its
Subsidiaries on a consolidated basis to incur net tax liabilities in an
aggregate amount that is $1,000,000 or more in excess of the aggregate net
consolidated tax liabilities that Company and its Subsidiaries would incur in
the absence of such stock pledges, then, so long as no Event of Default or
Potential Event of Default has occurred and is continuing and upon the consent
of Administrative Agent, which consents shall not be unreasonably withheld, such
pledges of shares of stock shall terminate, and no further pledges of shares of
stock of any Foreign Subsidiaries shall be required under any of the Collateral
Documents, in each case to the extent, and only to the extent, necessary so that
the aggregate net consolidated tax liabilities of Company and its Subsidiaries
are no more than $1,000,000 in excess of the aggregate net consolidated tax
liabilities that Company and its Subsidiaries would incur if no shares of stock
of any Foreign Subsidiaries were pledged pursuant to any of the Collateral
Documents; provided that if less than all of the shares of stock of Foreign
Subsidiaries pledged under the Collateral Documents are required to be released
from such pledges pursuant to the terms of this sentence, Administrative Agent
shall be entitled to select which of such shares shall be

<PAGE>

released so long as the required reduction in the aggregate net consolidated tax
liabilities of Company and its Subsidiaries is achieved as a result thereof, or
(ii) the pledge of any additional shares of stock of any Foreign Subsidiaries
pursuant to any of the Collateral Documents would not result in an increase in
the aggregate net consolidated tax liabilities of Company and its Subsidiaries,
then prior to the Collateral Release Date, Company shall, or Company shall cause
its relevant Subsidiary to, promptly pledge such additional shares of stock
under the applicable Collateral Document. Further, notwithstanding anything to
the contrary herein contained, upon the consummation of any sale of assets,
including an Asset Sale, permitted by this Agreement or consented to by the
Requisite Lenders, the Liens under the Collateral Documents with respect to such
assets will be released in accordance with the terms of the Collateral Documents
and, if such asset sale involves the sale of a Subsidiary that has executed a
Subsidiary Guaranty, such Subsidiary Guaranty will terminate and be of no
further force and effect with respect to such Subsidiary in accordance with the
terms of such Subsidiary Guaranty. Administrative Agent and Lenders agree to
take all actions necessary to effectuate the releases of Liens and guarantors
under the Subsidiary Guaranties contemplated by this subsection 6.9, in each
case in accordance with the terms of the applicable Collateral Documents and
Guaranties.

C. In the event that Company and Parent have not combined in
a combination permitted pursuant to subsection 7.7 on or prior to February 1,
1998, Parent shall as soon as practicable after such date execute and deliver to
Administrative Agent the Parent Pledge Agreement, substantially in the form of
Exhibit XI annexed hereto, and shall deliver to Administrative Agent
certificates (which certificates shall be properly endorsed in blank for
transfer or accompanied by irrevocable undated stock powers duly endorsed in
blank, all in form and substance satisfactory to Administrative Agent)
representing all of the Company Common Stock, and shall take all such other
actions as may be necessary or desirable to create in favor of Administrative
Agent for the benefit of Lenders a first priority perfected security interest in
all shares of the Company Common Stock; PROVIDED that the granting of such Lien
shall not be in violation of the 11-1/2% Senior Discount Debenture Indenture.

D. Anything contained in this Agreement or any of the other
Loan Documents to the contrary notwithstanding, in the event that: (i) as of
the first day of any fiscal quarter, the actual or implied rating established
and publicly announced or provided in a private letter with respect to senior,
unsecured non-credit enhanced long term debt of the Company (a "RATING") from
either Standard & Poor's Rating Group or Moody's Investors Service, Inc.
(collectively, the "RATING AGENCIES") is BBB or Baa2, as applicable, or higher
as of such date or, in the event that the Ratings assigned by the Rating
Agencies are not equivalent, the lower of such two Ratings shall be equal to or
better than BBB- or Baa3, as applicable, or higher as of such date, (ii) such
Rating has, or Ratings have, as the case may be continuously been BBB or Baa2,
or BBB- or Baa3, as applicable, or higher during the two consecutive fiscal
quarters immediately preceding such date, (iii) the Company is not and shall not
have been on credit watch with negative implications by the Rating Agencies, and
(iv) no Event of Default or Potential Event of Default has occurred and is
continuing, the Company may request that the Administrative

<PAGE>

Agent shall, at the Company's expense, release the Liens under the Collateral
Documents with respect to the Collateral in accordance with the terms of the
Collateral Documents and, on a date (the "Collateral Release Date") as soon as
practicable thereafter, Administrative Agent shall release all Liens under the
Collateral Documents.

E. To the extent actions required to be taken and documents
required to be delivered under subsection 4.1D with respect to the Auxiliary
Pledge Agreements or under subsection 4.1C with respect to the Mortgages have
not been so taken or delivered on the Closing Date, in each case as may be
approved by Administrative Agent on the Closing Date, Company shall take such
actions or shall deliver such documents by a date which is no later than 60 days
after the Closing Date, all such actions and documents to be in form and
substance satisfactory to Administrative Agent.

6.10 ADDITIONAL MORTGAGES.

On and after the Closing Date and prior to the Collateral Release
Date, Company shall, excluding Owned Real Property Assets with an aggregate
value for all such excluded assets of $2,000,000 or less, with respect to Owned
Real Property Assets hereafter acquired by Company or any of its Domestic
Subsidiaries (including any Domestic Subsidiary formed or acquired after the
date hereof), deliver (a) fully executed counterparts of Mortgages (each an
"ADDITIONAL MORTGAGE" and collectively the "ADDITIONAL MORTGAGES") encumbering
such fee interest, together with evidence that counterparts of such Additional
Mortgages have been recorded in all places to the extent necessary or desirable,
in the judgment of Administrative Agent, so as to effectively create a valid and
enforceable first priority Lien, subject only to Permitted Encumbrances, on such
Owned Real Property Asset in favor of Administrative Agent (or such other
trustee as may be required or desired under local law) for the benefit of
Lenders; (b) a title report obtained by Company in respect of any such Owned
Real Property Asset; (c) if required by Administrative Agent, an opinion of
counsel (which counsel shall be satisfactory to Administrative Agent) in the
state in which such Owned Real Property Asset is located with respect to the
enforceability of the form of Additional Mortgage recorded in such state and
such other matters as Administrative Agent may request, in form and substance
satisfactory to Administrative Agent; (d) if required by Administrative Agent,
in the case of each such Owned Real Property Asset, an environmental audit
prepared by professional consultants mutually acceptable to Company and
Administrative Agent, in form, scope and substance satisfactory to
Administrative Agent; (e) if required by Administrative Agent, in the case of
each such Owned Real Property Asset, a Mortgage Policy in an amount satisfactory
to Administrative Agent with respect to such Additional Mortgage; and (f)
evidence, which may be in the form of a letter from an insurance broker or a
municipal engineer, as to whether (1) any such Owned Real Property Asset
("ADDITIONAL FLOOD HAZARD PROPERTY") is in an area designated by the Federal
Emergency Management Agency as having special flood or mud slide hazards and (2)
the community in which each Additional Flood Hazard Property is located is
participating in the National Flood Insurance Program; and (h) if there are any
Additional Flood Hazard Properties, Company's written acknowledgment of receipt
of written notification from Administrative

<PAGE>

Agent (1) as to the existence of each such Additional Flood Hazard Property and
(2) as to whether the community in which each such Flood Hazard Property is
located is participating in the National Flood Insurance Program.

Company shall, permit authorized representatives designated by
Administrative Agent, upon reasonable notice, to visit and inspect any Owned
Real Property Assets to be subject to the Lien of an Additional Mortgage, for
the purpose of obtaining an appraisal of value, conducted by consultants
retained by Administrative Agent in compliance with all applicable banking
regulations, with respect to such real property fee interest.

6.11 BHFS ADVANCES TO COMPANY.

Periodically, BHFS Group shall make available its cash to
Company, and the Canadian Receivable Division shall make available its cash to
Bell & Howell Ltd., each in accordance with the past practices of BHFS Group.

SECTION 7. NEGATIVE COVENANTS

7.1 INDEBTEDNESS.

Parent and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, create, incur, assume or
guaranty, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:

(i) Company may become and remain liable with respect to the
Obligations;

(ii) Parent, Company and Company's Subsidiaries may become and
remain liable with respect to Contingent Obligations permitted by
subsection 7.4 and, upon any matured obligations actually arising
pursuant thereto, the Indebtedness corresponding to the Contingent
Obligations so extinguished;

(iii) (a) Company may become and remain liable with respect to
Indebtedness to any of its Wholly-Owned Subsidiaries; (b) any Wholly-
Owned Subsidiary of Company (other than BHFS Group) that prior to the
Collateral Release Date is a Pledged Subsidiary or after the Collateral
Release Date is a

<PAGE>

Wholly-Owned Domestic Subsidiary may become and remain liable with
respect to Indebtedness to Company or any other Wholly-Owned Domestic
Subsidiary of Company; (c) any Wholly-Owned Foreign Subsidiary that prior
to the Collateral Release Date is a Pledged Subsidiary or after the
Collateral Release Date is a Wholly-Owned Foreign Subsidiary of the
Company may become and remain liable with respect to Indebtedness to any
other Foreign Subsidiary of the Company; and (d) Persons in the BHFS
Group may become and remain liable with respect to Indebtedness to
Company in an aggregate principal amount which does not exceed $5,000,000
outstanding at any one time and to any other Person in the BHFS Group;
PROVIDED that (1) all such intercompany Indebtedness shall be evidenced
by promissory notes which notes (other than notes issued and payable to
Foreign Subsidiaries) prior to the Collateral Release Date shall be
pledged to Administrative Agent, on behalf of Lenders, as security for
the Obligations, (2) all such intercompany Indebtedness owed by Company
to any of its Subsidiaries or by any of such Subsidiaries to Company
shall be subordinated in right of payment to the payment in full of the
Obligations pursuant to the terms of the applicable promissory notes or
an intercompany subordination agreement, in each case in form and
substance satisfactory to Administrative Agent and its counsel, and
(3) any payment by any Domestic Subsidiary of Company under the
Subsidiary Guaranty shall result in a PRO TANTO reduction of the amount
of any intercompany Indebtedness owed by such Subsidiary to Company or to
any of its Subsidiaries for whose benefit such payment is made; PROVIDED
further that the aggregate amount of all outstanding Indebtedness of
Foreign Subsidiaries to Company and its Wholly-Owned Domestic
Subsidiaries shall not exceed $25,000,000 at any time;

(iv) Company and its Domestic Subsidiaries (other than BHFS
Group), as applicable, may remain liable with respect to unsecured
Indebtedness described in SCHEDULE 7.1 annexed hereto;

(v) Parent may remain liable with respect to the Indebtedness
evidenced by the 11-1/2% Senior Discount Debentures; PROVIDED that Parent
within the time period permitted by the 11-1/2% Senior Discount Debenture
Indenture shall have called for redemption and shall have redeemed
11-1/2% Senior Discount Debentures from not less than $95,000,000 in
proceeds from the Common Stock Offering and Parent shall commence a
tender offer for its 11-1/2% Senior Discount Debentures in accordance
with the provisions of subsection 7.13D;

(vi) Company and its Wholly-Owned Subsidiaries (other than
BHFS Group) may become and remain liable with respect to Indebtedness
incurred or assumed in connection with an Acquisition permitted under
subsection 7.7(iv) PROVIDED that the proceeds of any such incurred
Indebtedness are applied to make Acquisition Expenditures permitted under
subsection 7.7(iv);

(vii) Company may remain liable with respect to the Indebtedness
evidenced by the Senior Notes and the 10-3/4% Subordinated Notes PROVIDED
that

<PAGE>

Company calls its 10 3/4% Subordinated Notes for redemption in accordance
with the provisions of subsection 7.13A; and the Company may incur and
remain liable with respect to unsecured Indebtedness incurred to
refinance the Senior Notes and/or the outstanding amount of any Debt
Repurchases related to redemptions or repurchases of Senior Notes;
PROVIDED that (a) the aggregate principal amount of such refinancing
Indebtedness and any outstanding Senior Notes shall not exceed
$100,000,000; (b) the weighted average life to maturity of such
refinancing Indebtedness shall be no shorter than 180 days after the
Commitment Termination Date; and (c) the terms and conditions of any such
refinancing Indebtedness and any guarantees of such refinancing
Indebtedness are no less favorable to the Lenders than the terms and
conditions of the Senior Notes or are as otherwise approved by Requisite
Lenders;

(viii) Company's Foreign Subsidiaries may become and remain
liable with respect to Foreign Financial Accommodations in an aggregate
amount which, together with the aggregate outstanding amount of
receivables sold by Foreign Subsidiaries permitted under subsection
7.9(a), the aggregate amount of assumed Indebtedness outstanding which
Company elects under the proviso to clause (vi)(c) hereof to apply
against this clause (viii) and the aggregate amount of outstanding
Contingent Obligations permitted under subsection 7.4(xi), shall not
exceed $80,000,000 at any time outstanding;

(ix) BHFS Group may become and remain liable with respect to
Indebtedness that is Non-Recourse Debt;

(x) Company and its Domestic Subsidiaries (other than BHFS
Group) may become and remain liable with respect to other Indebtedness in
an aggregate principal amount, which together with outstanding Contingent
Obligations permitted under subsection 7.4(xiii), does not exceed
$25,000,000 at any time outstanding;

(xi) Company and its Subsidiaries may become and remain liable
with respect to Capital Leases in an amount not exceeding $10,000,000 and
other Capital Leases permitted under clauses (vi) or (x) of this
subsection 7.1;

(xii) the Canadian Receivables Division may become and remain
liable with respect to Indebtedness that is Non-Recourse Debt in an
aggregate amount which, together with the aggregate outstanding
receivables sold as permitted under subsection 7.9(c) by the Canadian
Receivables Division, does not exceed $15,000,000 at any time
outstanding; and

(xiii) Company may become and remain liable with respect to
Subordinated Indebtedness up to a maximum aggregate principal amount of
$200,000,000, the terms and conditions of such Subordinated Indebtedness
and of any guarantees of such Subordinated Indebtedness to be subject to
the approval of the Requisite Lenders which approval shall not be
unreasonably withheld; PROVIDED that after

<PAGE>

giving effect to the incurrence of such Indebtedness, Company's total
Indebtedness shall not exceed the permitted Leverage Ratio pursuant to
subsection 7.6B.

7.2 LIENS AND RELATED MATTERS.

A. PROHIBITION ON LIENS. Parent and Company shall not, and shall
not permit any of Company's Subsidiaries to, directly or indirectly, create,
incur, assume or permit to exist any Lien on or with respect to any property or
asset of any kind (including any document or instrument in respect of goods or
accounts receivable) of Parent, Company or any of Company's Subsidiaries,
whether now owned or hereafter acquired, or any income or profits therefrom, or
file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any Lien with respect to any such property,
asset, income or profits under the Uniform Commercial Code of any State or under
any similar recording or notice statute, except:

(i) Permitted Encumbrances;

(ii) (a) Liens on the assets of Company's Foreign Subsidiaries
(other than the Canadian Receivables Division) and Liens on the
Friedberg, Germany, plant owned by Bell & Howell GmbH, in each case
securing Indebtedness permitted under subsection 7.1 (viii) and (b) Liens
on the accounts receivable, inventory and proceeds thereof of the
Canadian Receivables Division securing Indebtedness permitted under
subsection 7.1 (xii);

(iii) Liens on the receivables, inventory and proceeds thereof
of BHFS Group securing Indebtedness permitted under subsection 7.1(ix);

(iv) Liens described in SCHEDULE 7.2 annexed hereto;

(v) Liens securing the Contingent Obligations of Company or
BHFS with respect to Interest Rate Agreements and Currency Agreements
with any Lender or any Affiliates of any Lender that are permitted under
subsections 7.4(v) or (vii), as the case may be;

(vi) Liens granted pursuant to the Collateral Documents;

(vii) Liens securing Indebtedness permitted under subsection
7.1(vi) so long as such Liens do not encumber any asset other than the
assets acquired in such Acquisition;

(viii) Any Liens on receivables of Foreign Subsidiaries, the
Canadian Receivables Division or BHFS Group arising in connection with
the sale or pledge of such receivables permitted under subsection 7.9 in
the ordinary course of business;

100

<PAGE>

(ix) Additional Liens which do not in the aggregate secure
liabilities in excess of $10,000,000; and

(x) Liens securing Indebtedness under Capital Leases
permitted under subsection 7.1(xi).

B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Parent, Company or any of
its Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; PROVIDED that, notwithstanding the foregoing,
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.

C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to any sale of assets (including
without limitation, an Asset Sale) or as set forth in the Indentures or any
other indenture governing Indebtedness permitted pursuant to subsection 7.1(vii)
or 7.1(xiii), neither Parent, Company nor any of its Subsidiaries shall enter
into any agreement prohibiting the creation or assumption of any Lien upon any
of its properties or assets, whether now owned or hereafter acquired.

D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein and in the Indentures or any other
indenture governing Indebtedness permitted pursuant to subsection 7.1(vii) or
7.1(xiii), Company will not, and will not permit any of its Subsidiaries to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction (other than a prior notice requirement) of any kind
on the ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or any
other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other Subsidiary of Company (other than BHFS
Group), (iii) make loans or advances to Company or any other Subsidiary of
Company (other than BHFS Group), or (iv) transfer any of its property or assets
to Company or any other Subsidiary of Company (other than BHFS Group).

7.3 INVESTMENTS; JOINT VENTURES.

Parent and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, make or own any Investment in
any Person, including any Joint Venture, except:

(i) Company and its Subsidiaries may make and own Investments
in Cash Equivalents;

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(ii) Company and its Subsidiaries may make intercompany loans
to the entities and to the extent permitted under subsection 7.1(iii);

(iii) Company and its Subsidiaries may continue to own their
existing Investments in their respective Subsidiaries as of the Closing
Date and may make additional Investments in their respective Wholly-Owned
Domestic Subsidiaries as of the Closing Date (other than BHFS Group);
PROVIDED that Persons in BHFS Group may make additional Investments in
other Persons in BHFS Group;

(iv) Company and its Wholly-Owned Domestic Subsidiaries may
make additional Investments in their respective Wholly-Owned Foreign
Subsidiaries that (a) prior to the Collateral Release Date such Wholly-
Owned Foreign Subsidiaries are Pledged Subsidiaries and (b) the aggregate
of all such Investments consisting of equity contributions do not exceed
$15,000,000 in the aggregate for all such Investments since the Closing
Date;

(v) Company and its Wholly-Owned Domestic Subsidiaries (other
than BHFS Group) may make and own Investments in Persons that, as a
result of such Investments, become additional Wholly-Owned Domestic
Subsidiaries and Company may make and own Investments in Persons that, as
a result of such Investments become additional direct Wholly-Owned
Foreign Subsidiaries, in each case to the extent such Investments are
permitted under subsection 7.7(iv); PROVIDED, that Company shall, and
shall cause its Subsidiaries to comply with the requirements of
subsections 6.9 and 6.10 with respect to each such additional Subsidiary;

(vi) Company and its Subsidiaries may make loans and advances
to employees that constitute Investments in an aggregate amount not to
exceed at any time outstanding $2,500,000 in addition to other
Investments otherwise permitted hereunder;

(vii) Company and its Subsidiaries may continue to own the
Investments owned by them and described in SCHEDULE 7.3 annexed hereto;

(viii) Parent may continue to own and make Investments in
Company;

(ix) Parent and Company may purchase shares of Parent common
stock from management of Company and Parent, in each case as permitted
under subsection 7.5;

(x) Parent and Company may make loans to employees of Parent,
Company or any of its Subsidiaries for the purchase of shares of capital
stock of Parent issued by Parent; PROVIDED that the aggregate amount of
all such loans does not exceed $12,000,000 at any time outstanding;

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(xi) Company and its Wholly-Owned Domestic Subsidiaries (other
than BHFS Group) may make and own an Investment in a Person that is
engaged in businesses that are similar, related or complementary to the
business engaged in by the Company or its direct and indirect
Subsidiaries as of the Closing Date, including providing facilities,
equipment or services to them; PROVIDED that the amount of such
Investment does not exceed $15,000,000 for any single such Investment or
$40,000,000 in the aggregate at any time outstanding for all such
Investments; and

(xii) Company and its Wholly-Owned Domestic Subsidiaries and
its Foreign Subsidiaries may make Investments of up to a maximum
aggregate amount of $10,000,000 with respect to funds being held for the
account of employees pursuant to deferred compensation or employee
benefit or retirement plans.

7.4 CONTINGENT OBLIGATIONS.

Parent and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, create or become or remain
liable with respect to any Contingent Obligation, except:

(i) Company and its Domestic Subsidiaries (other than BHFS
Group and Inactive Subsidiaries) may become and remain liable with
respect to Contingent Obligations in respect of Letters of Credit;

(ii) Loan Parties may become and remain liable with respect to
Contingent Obligations under the Guaranties;

(iii) Company may become and remain liable with respect to
Contingent Obligations of up to $25,000,000 in respect of Foreign
Financial Accommodations permitted under subsection 7.1(viii); PROVIDED
the Company shall notify Administrative Agent upon the incurrence,
satisfaction or other change with respect to such Contingent Obligations;

(iv) Company's Domestic Subsidiaries (other than BHFS Group)
may become and remain liable with respect to guaranties of the Senior
Notes and the 10-3/4% Subordinated Notes and other guarantees to the
extent permitted pursuant to subsection 7.1(viii) or 7.1(xiii);

(v) Company may become and remain liable with respect to
Contingent Obligations under Interest Rate Agreements with respect to
permitted Indebtedness of Company and its Subsidiaries (other than BHFS
Group), PROVIDED that the aggregate notional principal amount under all
such Interest Rate Agreements of Company does not exceed at any time the
amount of the Commitments; and BHFS may become and remain liable with
respect to Contingent Obligations under Interest

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Rate Agreements with respect to permitted Indebtedness of BHFS Group and
the Canadian Receivable Division;

(vi) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets;

(vii) Company and its Domestic Subsidiaries may become and
remain liable with respect to Contingent Obligations under Currency
Agreements with respect to an aggregate notional amount not to exceed at
any time $150,000,000 and the Foreign Subsidiaries may become and remain
liable with respect to Contingent Obligations under Currency Agreements
with respect to an aggregate notional amount not to exceed at any time
$50,000,000 and BHFS may become and remain liable with respect to
Contingent Obligations under Currency Agreements with respect to an
aggregate notional amount not to exceed at any time $10,000,000; PROVIDED
that no more than $100,000,000 in aggregate notional amount of Currency
Agreements with a term greater than 12 months shall be outstanding at any
time;

(viii) Persons in BHFS Group may become and remain liable with
respect to guarantees of Indebtedness of other Persons in BHFS Group
permitted under subsection 7.1(ix) and BHFS may become and remain liable
with respect to guarantees of up to $15,000,000 in Indebtedness of the
Canadian Receivables Division permitted under subsection 7.1(xii);

(ix) Company and its Subsidiaries, as applicable, may remain
liable with respect to Contingent Obligations described in SCHEDULE 7.4
annexed hereto;

(x) Company may become and remain liable with respect to
Contingent Obligations in respect of tax indemnity payments to management
of Company owning Company Common Stock or common stock of Parent to the
extent permitted under subsection 7.5;

(xi) Foreign Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of Commercial Letters of
Credit obtained in the ordinary course of business to the extent such
Contingent Obligations are permitted under subsection 7.1(viii);

(xii) Company and its Domestic Subsidiaries may become and
remain liable with respect to Contingent Obligations in an aggregate
amount of up to $15,000,000; PROVIDED that all such outstanding
Contingent Obligations together with the Indebtedness outstanding under
subsection 7.1(x) does not exceed the maximum amount permitted under
subsection 7.1(x);

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(xiii) Company and its Domestic Subsidiaries may become and
remain liable with respect to Contingent Obligations of up to $10,000,000
with respect to obligations and liabilities of suppliers incurred in the
ordinary course of business; and

(xiv) Parent and Company may become and remain liable with
respect to Contingent Obligations relating to Indebtedness and other
obligations of its direct and indirect Domestic Subsidiaries (other than
BHFS Group) permitted under this Agreement.

7.5 RESTRICTED JUNIOR PAYMENTS; CERTAIN OTHER PAYMENTS.

A. Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Junior Payment; PROVIDED that so long as no Event of
Default or Potential Event of Default shall have occurred and be continuing or
would result therefrom:

(i) Company may make payments of regularly scheduled interest
in respect of the 10-3/4% Subordinated Notes and any other Subordinated
Indebtedness permitted pursuant to subsection 7.1(xiii), in each case in
accordance with the terms of, and to the extent required by, and subject
to the subordination provisions contained in, the 10-3/4% Subordinated
Note Indenture and the indenture governing any such other Subordinated
Indebtedness;

(ii) Company may repurchase or redeem its outstanding 10-3/4%
Subordinated Notes in accordance with the terms of and to the extent not
prohibited under the Indentures;

(iii) on and after September 1, 2000, Company may pay Cash
dividends on its Preferred Stock to Parent to the extent required to
permit Parent to pay Cash interest on the 11-1/2% Senior Discount
Debentures, and Parent shall use such Cash dividends to make regularly
scheduled interest payments on the 11-1/2% Senior Discount Debentures in
accordance with the terms of, and to the extent required by, the 11-1/2%
Senior Discount Debenture Indenture;

(iv) Company may redeem its Preferred Stock to the extent
required to permit Parent to purchase or redeem outstanding 11-1/2%
Senior Discount Debentures, and Parent shall use such redemption payments
to repurchase or redeem the 11-1/2% Senior Discount Debentures, and
Company or Parent may redeem or repurchase 11-1/2% Senior Discount
Debentures, in each case in accordance with the terms of and to the
extent not prohibited under the Indentures;

(v) Company may make Cash payments to Parent in an amount not
to exceed $600,000 in the aggregate annually for the purpose of paying
Parent's general operating expenses and franchise tax obligations;

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(vi) If no Event of Default or Potential Event of Default then
exists or would occur as a result thereof, Company may pay cash dividends
to stockholders and may repurchase shares of capital stock from
stockholders so long as the aggregate amount of the cash dividends so
paid or repurchases so made do not exceed the sum of (x) $10,000,000 plus
(y); PROVIDED that the Company's Leverage Ratio on a pro forma basis
after giving effect to such dividends or repurchases and to any
Indebtedness incurred therewith is less than 3.0:1, 25% of cumulative
Consolidated Net Income from June 29, 1997; and

(vii) Company may make tax indemnification payments under the
Shareholders Agreement in accordance with Section 8(c) thereof as in
effect on the Closing Date in an aggregate amount not to exceed
$4,000,000 after the Closing Date.

Neither Company nor any of its Subsidiaries will directly or
indirectly declare, order, pay or make, or set apart any sum or property for,
any Restricted Junior Payment or agree to do so except as permitted by this
subsection 7.5.

B. Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set
apart any sum for any payment or prepayment of principal of, premium, if
any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or other
similar payment with respect to, its Senior Notes or any other Senior
Indebtedness permitted pursuant to subsection 7.1(vii); PROVIDED that, so
long as no Event of Default or Potential Event of Default shall have
occurred and be continuing or occurs as a result thereof, (1) Company may
make payments of regularly scheduled interest in respect of its Senior
Notes and any other Senior Indebtedness permitted pursuant to subsection
7.1(vii), in each case in accordance with the terms of, and to the extent
required by, the Senior Note Indenture or any other indenture governing
such other Senior Indebtedness and (2) Company may repurchase or redeem
its outstanding Senior Notes in accordance with the terms of and to the
extent not prohibited under the Indentures.

7.6 FINANCIAL COVENANTS.

A. MINIMUM CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Company shall
not permit the Consolidated Fixed Charge Coverage Ratio for any four-fiscal
quarter period ending as of the last day of any fiscal quarter of Company
occurring during any of the periods set forth below to be less than the
correlative amount indicated:

MINIMUM CONSOLIDATED FIXED
PERIOD CHARGE COVERAGE RATIO
------------------------ ---------------------

1997
----

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Third Fiscal Quarter 1.85:1.00
Fourth Fiscal Quarter 1.85:1.00

1998
----

First Fiscal Quarter 1.85:1.00
Second Fiscal Quarter 1.85:1.00
Third Fiscal Quarter 1.85:1.00
Fourth Fiscal Quarter 2.00:1.00

1999
----

First Fiscal Quarter 2.00:1.00
Second Fiscal Quarter 2.00:1.00
Third Fiscal Quarter 2.00:1.00
Fourth Fiscal Quarter 2.15:1.00

2000
----

First Fiscal Quarter 2.15:1.00
Second Fiscal Quarter 2.15:1.00
Third Fiscal Quarter 2.15:1.00
Fourth Fiscal Quarter 2.25:1.00

2001
----

First Fiscal Quarter 2.25:1.00
Second Fiscal Quarter 2.25:1.00
Third Fiscal Quarter 2.25:1.00
Fourth Fiscal Quarter 2.50:1.00
and thereafter

B. MAXIMUM LEVERAGE RATIO. Company shall not permit its Leverage
Ratio as of the last day of any fiscal quarter occurring during the periods set
forth below to exceed the correlative ratio set forth below:

PERIOD MAXIMUM LEVERAGE RATIO
-------------------------- ----------------------

1997
----

Third Fiscal Quarter 4.25:1.00
Fourth Fiscal Quarter 4.00:1.00

1998
----

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First Fiscal Quarter 4.00:1.00
Second Fiscal Quarter 3.75:1.00
Third Fiscal Quarter 3.75:1.00
Fourth Fiscal Quarter 3.50:1.00

1999
----

First Fiscal Quarter 3.50:1.00
Second Fiscal Quarter 3.50:1.00
Third Fiscal Quarter 3.35:1.00
Fourth Fiscal Quarter 3.10:1.00

2000
----

First Fiscal Quarter 3.10:1.00
Second Fiscal Quarter 3.10:1.00
Third Fiscal Quarter 3.10:1.00
Fourth Fiscal Quarter 2.85:1.00
and thereafter

C. MINIMUM CONSOLIDATED NET WORTH. The Company shall not permit
Consolidated Net Worth at any time to be less than the sum of (i) 75% of the sum
of Consolidated Net Worth on December 28, 1996 PLUS $95,000,000 PLUS (ii) 75% of
positive Consolidated Net Income as of the last day of each fiscal quarter after
December 28, 1996.

7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES; ACQUISITIONS.

Neither Parent nor Company shall, and shall not permit any of
Company's Subsidiaries to, alter the corporate, capital or legal structure of
Parent, Company or any of Company's Subsidiaries, or enter into any transaction
of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer
any liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
part of its business, property or fixed assets, whether now owned or hereafter
acquired, or make an Acquisition, except:

(i) (a) any Subsidiary of Company may be merged or
consolidated with or into Company or any Wholly-Owned Domestic Subsidiary
of Company (other than BHFS Group), or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any Wholly-Owned
Domestic Subsidiary of Company (other than BHFS Group); PROVIDED that, in
the case of such a merger or consolidation, Company or such Wholly-Owned
Domestic Subsidiary shall be the continuing or surviving corporation;
(b) any Foreign Subsidiary may be merged or consolidated with or into

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Company, any Wholly-Owned Domestic Subsidiary or any Wholly-Owned Foreign
Subsidiary that prior to the Collateral Release Date is a Pledged
Subsidiary, or be liquidated, wound up or dissolved, or all or any part
of its business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
related transactions, to Company any Wholly-Owned Domestic Subsidiary or
any Wholly-Owned Foreign Subsidiary that prior to the Collateral Release
Date is a Pledged Subsidiary; PROVIDED that in the case of such a merger
or consolidation Company, such Wholly-Owned Domestic Subsidiary, or
Wholly-Owned Foreign Subsidiary that prior to the Collateral Release Date
is a Pledged Subsidiary shall be the continuing or surviving corporation;
and (c) any Person in BHFS Group may be merged or consolidated with or
into any other Person in BHFS Group, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of related transactions, to any other Person in
BHFS Group;

(ii) subject to subsection 7.11, Company and its Subsidiaries
may sell or otherwise dispose of assets in transactions that do not
constitute Asset Sales; PROVIDED that the consideration received for such
assets shall be in an amount at least equal to the fair market value
thereof;

(iii) Company and its Subsidiaries may make Asset Sales;
PROVIDED that (w) the consideration received for such assets shall be in
an amount at least equal to the fair market value thereof; (x) for Asset
Sales in excess of $5,000,000, not less than 85% of the total
consideration received in connection with such Asset Sales shall be Cash;
and (y) the proceeds of such Asset Sales shall be applied as required by
subsection 2.4A(iii)(a).

(iv) Company and its Wholly-Owned Domestic Subsidiaries (other
than BHFS Group) may make non-hostile Acquisitions of the capital stock
of or of the assets of a Person located in the United States, (b) Company
and its Wholly-Owned Domestic Subsidiaries (other than the BHFS Group)
may make non-hostile Acquisitions of all of the capital stock of a
foreign Person so long as prior to the Collateral Release Date such
foreign Person becomes a Pledged Subsidiary, (c) Company and its
Subsidiaries that prior to the Collateral Release Date are Pledged
Subsidiaries may make non-hostile Acquisitions of the assets of a Person
that is located outside of the United States and (d) Company's Foreign
Subsidiaries may make non-hostile Acquisitions of all of the capital
stock of a foreign Person up to an aggregate amount for all such
Investments of not greater than $15,000,000, PROVIDED that each
Acquisition permitted in (a) - (d) above is useful in, complementary to
or related to the businesses of the Company and its Subsidiaries (other
than BHFS Group) existing on the Closing Date; PROVIDED FURTHER that with
respect to Acquisition Expenditures of $20,000,000 or more, the Company
shall submit to Administrative Agent an Officer's Certificate
demonstrating that Company and its Subsidiaries will comply on a pro
forma basis (including any

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synergies which are not objected to by Administrative Agent) with the
covenants set forth in subsection 7.6 and evidencing such synergies, and
with respect to any Acquisition Expenditures of $100,000,000 or more for
any single acquisition or series of related acquisitions, Company shall
obtain the prior written consent of Administrative Agent and Requisite
Lenders;

(v) Company and its Subsidiaries may sell receivables to the
extent permitted under subsection 7.9;

(vi) Company and its Subsidiaries may sell equipment,
equipment leases, use agreements, service agreements, subscription
agreements, installment sales contracts and any other long-term
receivables to BHFS Group and the Canadian Receivables Division on a non-
recourse basis and in accordance with past practices of Company and its
Subsidiaries; and

(vii) Parent and Company may combine with and into each other;
PROVIDED that in the event that Parent is the surviving corporation,
Parent shall assume all obligations of Company under this Agreement and
Parent shall execute and deliver to Administrative Agent such
documentation, and shall take such other actions, as Administrative Agent
may deem necessary or desirable to effect such assumption.

7.8 SALES AND LEASE-BACKS.

Neither Parent nor Company shall, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease, whether an
Operating Lease or a Capital Lease, of any property (whether real, personal or
mixed), whether now owned or hereafter acquired, (i) which Parent, Company or
any of Company's Subsidiaries has sold or transferred or is to sell or transfer
to any other Person (other than Company or any of its Domestic Subsidiaries
(other than BHFS Group)) or (ii) which Parent, Company or any of Company's
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Parent, Company or
any of Company's Subsidiaries to any Person (other than Company or any of its
Domestic Subsidiaries (other than BHFS Group)) in connection with such lease;
PROVIDED that the foregoing shall not prohibit sale and lease back transactions
to the extent that the Net Cash Proceeds are applied in accordance with the
provisions of subsection 2.4A(iii)(a).

7.9 SALE OR DISCOUNT OF RECEIVABLES.

Neither Parent nor Company shall, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of its
notes or accounts receivable except: (a) Company's Foreign Subsidiaries (other
than the Canadian Receivables Division) may sell with recourse or discount
receivables in the ordinary course of business in accordance with past practices
so long as the aggregate outstanding amount of sold receivables,

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together with the other Indebtedness described under subsection 7.1(viii), does
not exceed the aggregate amount of Indebtedness permitted under subsection
7.1(viii); (b) BHFS Group may sell or discount receivables in the ordinary
course of business in accordance with past practices; and (c) the Canadian
Receivables Division may sell with recourse or discount receivables in the
ordinary course of business in accordance with past practices so long as the
aggregate outstanding amount of sold receivables, together with the other
Indebtedness described under subsection 7.1 (xii), does not exceed the aggregate
amount of Indebtedness permitted under subsection 7.1 (xii).

7.10 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.

Neither Parent nor Company shall, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, enter into or permit to exist
any transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any holder of 5%
or more of any class of equity Securities of Parent or Company or with any
Affiliate of Company or Parent or of any such holder, on terms that are less
favorable to Company or that Subsidiary, as the case may be, than those that
might be obtained at the time from Persons who are not such a holder or
Affiliate; PROVIDED that the foregoing restriction shall not apply to (i) any
transaction between Company and any of its Wholly-Owned Subsidiaries (other than
BHFS Group) or between any of its Wholly-Owned Subsidiaries (other than BHFS
Group), or between Persons in BHFS Group; (ii) reasonable and customary fees
paid to members of the Boards of Directors of Company and its Subsidiaries;
(iii) the Shareholders Agreement; or (iv) transactions permitted under
subsections 7.3(ix) and (x).

7.11 DISPOSAL OF SUBSIDIARY STOCK.

Except for any sale of 100% of the capital stock or other equity
Securities of any of its Subsidiaries in compliance with the provisions of
subsection 7.7(iii), Company shall not:

(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of capital stock or other equity
Securities of any of its Subsidiaries, except to qualify directors if
required by applicable law; or

(ii) permit any of its Subsidiaries directly or indirectly to
sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock or other equity Securities of it or any of its
Subsidiaries, except to Company, another Wholly-Owned Domestic Subsidiary
of Company (other than BHFS Group), or to qualify directors if required
by applicable law; PROVIDED that Foreign Subsidiaries may so sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other Securities of it or any of its Subsidiaries to any other
Wholly-Owned Foreign Subsidiary that prior to the Collateral Release Date
is a Pledged Subsidiary; and PROVIDED, FURTHER, that a person in BHFS
Group may so sell, assign,

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pledge or otherwise encumber or dispose of any shares of capital stock or
other Securities of it or any of its Subsidiaries to any other Person in
BHFS Group.

7.12 CONDUCT OF BUSINESS.

A. Prior to the consummation of a merger of Parent and Company
permitted by subsection 7.7(vii), Parent shall not engage in any business, and
shall not own any assets other than (1) the Company Common Stock, (2) the
Preferred Stock, (3) the loans to employees permitted under subsection 7.3(x)
and any subsequent Investments made in Company permitted under subsection 7.3(x)
with the cash proceeds received by Parent from employees in connection with the
purchase of capital stock of Parent by such employees, (4) prepaid director and
officer insurance in an amount not to exceed $600,000 at any time, (5) deferred
organization costs in an amount not to exceed $15,000 at any time, (6) deferred
financing fees in an amount not to exceed $6,200,000 at any time, (7) up to
$500,000 in Cash at any one time for the purposes of paying general operating
expenses and franchise tax obligations and (8) temporary cash advances made to
Company.

B. The Inactive Subsidiaries shall not engage in any significant
business, own or hold any assets not held or owned on the Closing Date, or incur
any Indebtedness, Contingent Obligations or other obligations or liabilities
whatsoever. Neither Company nor any of its Subsidiaries shall incur any
Indebtedness, Contingent Obligations or other obligations or liabilities
whatsoever on behalf of, or with respect to, the Inactive Subsidiaries.
Company's and its Subsidiaries' aggregate Investments in the Inactive
Subsidiaries shall not exceed $250,000.

7.13 AMENDMENTS OF CERTAIN DOCUMENTS; OTHER MATTERS RELATED TO INDENTURES.

A. Within five Business Days of the Closing Date, Company shall not
have failed to deliver to the trustee for the 10-3/4% Subordinated Notes an
irrevocable notice of redemption to be distributed to all holders of 10-3/4%
Subordinated Notes in accordance with the terms of the Indenture pursuant to
which such 10-3/4% Subordinated Notes were issued, calling for the redemption of
all outstanding 10-3/4% Subordinated Notes which notice shall be satisfactory in
form and substance to Administrative Agent. Other than with respect to the
redemption required by the preceding sentence with respect to the 10-3/4%
Subordinated Notes, Company shall not, and shall not permit any of its
Subsidiaries to, amend or otherwise change the terms of any Subordinated
Indebtedness or any Indenture in respect thereof, or make any payment consistent
with an amendment thereof or change thereof; PROVIDED that Company may agree to
amend the provisions of the Subordinated Indebtedness or any Indenture in
respect thereof (i) to cure any ambiguity, to correct or supplement any
provision therein which may be defective or inconsistent with any other
provision of such Subordinated Indebtedness or any Indenture in respect thereof,
(ii) to comply with the Trust Indenture Act of 1939 or (iii) to make
modifications of a technical or clarifying nature which are no less favorable to
Lenders than the provisions of the Subordinated Indebtedness and any Indentures
in respect thereof as in effect on the Closing Date.

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B. Other than as may be expressly permitted hereunder with respect
to repurchases of the Preferred Stock, Company shall not amend or otherwise
change the terms of its Certificate of Designations as in effect on the Closing
Date or make any payment consistent with an amendment thereof or change thereto.

C. Other than repurchases or redemptions of the Senior Notes made
with the proceeds of Revolving Loans under the Senior Debt Repurchase Facility,
Company shall not amend or otherwise change the terms of the Senior Notes or the
Senior Note Indenture or any indenture in respect of Senior Indebtedness
permitted pursuant to subsection 7.1(vii) or make any payment consistent with an
amendment thereof or change thereto; PROVIDED that Company may agree to amend
the provisions of the Senior Notes and the Senior Note Indenture or any
indenture in respect of Senior Indebtedness permitted pursuant to subsection
7.1(vii) (i) to cure any ambiguity, to correct or supplement any provision
therein which may be defective or inconsistent with any other provision of such
Senior Notes or the Senior Note Indenture, (ii) to comply with the Trust
Indenture Act of 1939 or (iii) to make modifications of a technical or
clarifying nature which are no less favorable to Lenders than the provisions of
the Senior Notes and the Senior Note Indenture or any indenture in respect of
Senior Indebtedness permitted pursuant to subsection 7.1(vii) as in effect on
the Closing Date.

D. Within five Business Days of the Closing Date, Parent shall not
have failed to commence a tender offer for all of its outstanding 11-1/2% Senior
Discount Debentures in accordance with the Indenture pursuant to which such
11-1/2% Senior Discount Debentures were issued which tender offer materials
shall be reasonably satisfactory in form and substance to Administrative Agent
and Parent shall not have failed to seek the consent of the holders of the
11-1/2% Senior Discount Debentures to the amendment of certain covenants under
such Indenture, including without limitation the deletion of any covenant
prohibiting Parent from granting a Lien with respect to any of its assets.
Other than with respect to the tender offer required pursuant to the preceding
sentence and the redemption of the 11-1/2% Senior Discount Debentures from the
proceeds of the Common Stock Offering, Parent shall not amend or otherwise
change the terms of the 11-1/2% Senior Discount Debentures or the 11-1/2% Senior
Discount Debenture Indenture or make any payment consistent with an amendment
thereof or change thereto; PROVIDED that Parent may agree to amend the
provisions of the 11-1/2% Senior Discount Debentures and the 11-1/2% Senior
Discount Debenture Indenture, (i) to cure any ambiguity, to correct or
supplement any provision therein which may be defective or inconsistent with any
other provision of such 11-1/2% Senior Discount Debentures or the 11-1/2% Senior
Discount Debenture Indenture, (ii) to comply with the Trust Indenture Act of
1939 or (iii) to make modifications of a technical or clarifying nature which
are no less favorable to Lenders than the provisions of the 11-1/2% Senior
Discount Indentures and the 11-1/2% Senior Discount Debenture Indenture as in
effect on the Closing Date.

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7.14 FISCAL YEAR.

Other than any change to a Fiscal Year ending on December 31 of
each year, Company shall not change its Fiscal Year-end from the Saturday
nearest to December 31.

7.15 SEPARATE IDENTITY OF PARENT AND COMPANY.

Until the consummation of any merger of Company and Parent
permitted under subsection 7.7(vii): Parent shall not appoint or elect as a
director or officer of Parent any Person who is simultaneously an officer or
director of Company; PROVIDED, that Parent and Company may have overlapping
directors so long as (i) such directors constitute 50% or less of each of the
boards of directors of Parent and Company and (ii) the non-overlapping directors
are not employees of Parent or Company; PROVIDED, FURTHER that Parent and
Company may have overlapping officers so long as at least 2 of the officers of
each of Parent and Company are not also officers of the other; and Parent shall
not commingle any assets, offices or business functions of Parent with any
assets, offices or business functions of Company.

SECTION 8. EVENTS OF DEFAULT

If any of the following conditions or events ("Events of
Default") shall occur:

8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.

Failure to pay any installment of principal of any Loan when due,
whether at stated maturity, by acceleration, by notice of prepayment or
otherwise; failure to pay when due any amount payable to an Issuing Lender in
reimbursement of any drawing under a Letter of Credit; or failure to pay any
interest on any Loan or any fee or any other amount due under this Agreement
within five days after the date due; or

8.2 DEFAULT IN OTHER AGREEMENTS.

(i) Failure of Parent, Company or any of Company's
Subsidiaries to pay when due (a) any principal of or interest on any
Indebtedness (other than Indebtedness referred to in subsection 8.1) in an
individual principal amount of $5,000,000 or more or any items of Indebtedness
with an aggregate principal amount of $7,500,000 or more or (b) any Contingent
Obligation in an individual principal amount of $5,000,000 or more or any
Contingent Obligations with an aggregate principal amount of $7,500,000 or
more, in each case beyond the end of any grace period provided therefor; or
(ii) breach or default by Parent, Company or any of Company's Subsidiaries with
respect to any other material term of (a) any evidence of any Indebtedness in an
individual principal amount of $5,000,000 or more or any items of Indebtedness
with an aggregate principal amount of

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$7,500,000 or more or any Contingent Obligation in an individual principal
amount of $5,000,000 or more or any Contingent Obligations with an aggregate
principal amount of $7,500,000 or more or (b) any loan agreement, mortgage,
indenture or other agreement relating to such Indebtedness or Contingent
Obligation(s), if the effect of such breach or default is to cause, or to permit
the holder or holders of that Indebtedness or Contingent Obligation(s) (or a
trustee on behalf of such holder or holders) to cause, that Indebtedness or
Contingent Obligation(s) to become or be declared due and payable prior to its
stated maturity or the stated maturity of any underlying obligation, as the case
may be (upon the giving or receiving of notice, lapse of time, both, or
otherwise); or

8.3 BREACH OF CERTAIN COVENANTS.

Failure of Parent, Company or any of Company's Subsidiaries to
perform or comply with any term or condition contained in subsection 2.5,
6.1(ix) or 6.2, or Section 7 of this Agreement; or

8.4 BREACH OF WARRANTY.

Any representation, warranty, certification or other statement
made by Parent, Company or any of Company's Subsidiaries in any Loan Document or
in any statement or certificate at any time given by Parent, Company or any of
Company's Subsidiaries in writing pursuant hereto or thereto or in connection
herewith or therewith shall be false in any material respect on the date as of
which made; or

8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.

Parent, Company or any of Company's Subsidiaries shall default in
the performance of or compliance with any term contained in this Agreement or
any of the other Loan Documents, other than any such term referred to in any
other subsection of this Section 8, and such default shall not have been
remedied or waived within 30 days after the earlier of (i) an officer of Company
becoming aware of such default or (ii) receipt by Company of notice from
Administrative Agent or any Lender of such default; or

8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.

(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Parent, Company or any of Company's
Subsidiaries (other than an Inactive Subsidiary) in an involuntary case under
the Bankruptcy Code or under any other applicable bankruptcy, insolvency or
similar law now or hereafter in effect, which decree or order is not stayed; or
any other similar relief shall be granted under any applicable federal or state
law; or (ii) an involuntary case shall be commenced against Parent, Company or
any of Company's Subsidiaries (other than an Inactive Subsidiary) under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect; or a decree or order of a court having
jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian

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or other officer having similar powers over Parent, Company or any of Company's
Subsidiaries (other than an Inactive Subsidiary), or over all or a substantial
part of its property, shall have been entered; or there shall have occurred the
involuntary appointment of an interim receiver, trustee or other custodian of
Parent, Company or any of Company's Subsidiaries (other than an Inactive
Subsidiary) for all or a substantial part of its property; or a warrant of
attachment, execution or similar process shall have been issued against any
substantial part of the property of Company or any of its Subsidiaries (other
than an Inactive Subsidiary), and any such event described in this clause (ii)
shall continue for 60 days unless dismissed, bonded or discharged; or

8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.

(i) Parent, Company or any of Company's Subsidiaries (other
than an Inactive Subsidiary) shall have an order for relief entered with respect
to it or commence a voluntary case under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or to
the conversion of an involuntary case to a voluntary case, under any such law,
or shall consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property; or
Parent, Company or any of Company's Subsidiaries (other than an Inactive
Subsidiary) shall make any assignment for the benefit of creditors; or
(ii) Parent, Company or any of Company's Subsidiaries (other than an Inactive
Subsidiary) shall be unable or shall fail, or shall admit in writing its
inability, to pay its debts as such debts become due; or the Board of Directors
of Parent, Company or any of Company's Subsidiaries (other than an Inactive
Subsidiary) (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the actions referred to in clause (i)
above or this clause (ii); or

8.8 JUDGMENTS AND ATTACHMENTS.

Any money judgment, writ or warrant of attachment or similar
process involving (i) in any individual case an amount in excess of $5,000,000
or (ii) in the aggregate at any time an amount in excess of $7,500,000 (in
either case not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Parent, Company or any of Company's Subsidiaries or any of their
respective assets and shall remain undischarged, unvacated, unbonded or unstayed
for a period of 60 days (or in any event later than five days prior to the date
of any proposed sale thereunder); or

8.9 DISSOLUTION.

Any order, judgment or decree shall be entered against Parent,
Company or any of Company's Subsidiaries decreeing the dissolution or split up
of Parent, Company or that Subsidiary and such order shall remain undischarged
or unstayed for a period in excess of 30 days; or

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8.10 EMPLOYEE BENEFIT PLANS.

There shall occur one or more ERISA Events which individually or
in the aggregate results in or might reasonably be expected to result in
liability of Parent, Company or any of their respective ERISA Affiliates in
excess of $2,000,000 during the term of this Agreement; or there shall exist an
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which assets
exceed benefit liabilities), which exceeds $4,000,000; or

8.11 CHANGE IN CONTROL.

(i) Any Person or any two or more Persons acting in concert
(other than Keystone or its Affiliates) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Exchange Act), directly or indirectly, of Securities of Company and/or
Parent (or other Securities convertible into such Securities) representing
directly or indirectly 30% or more of the combined voting power of all
Securities of Company and/or Parent entitled to vote in the election of
directors, managers or trustees of Company or Parent, as the case may be (other
than Securities having such power only by reason of the failure of Company
and/or Parent to pay dividends on any series of its preferred stock); or (ii)
there shall have occurred any "Change of Control" as defined in any of the
Indentures other than any "Change of Control" under the 11-1/2% Senior Discount
Debenture Indenture arising in connection with any combination of Company and
Parent permitted pursuant to subsection 7.7(vii); in making any determination
hereunder with respect to the beneficial ownership of any such Person of
Securities of Company, such determination shall take into account not only the
shares of Company Securities directly or indirectly owned by such Person but
also the proportionate ownership interest in Company Securities represented by
any shares of Parent Securities directly or indirectly owned by any such Person;
or

8.12 INVALIDITY OF GUARANTIES.

Any of the Guaranties for any reason, other than the satisfaction
in full of all Obligations, ceases to be in full force and effect (other than in
accordance with its terms) or is declared to be null and void, or any Loan Party
denies in writing that it has any further liability, including without
limitation with respect to future advances by Lenders, under any Loan Document
to which it is a party; or

8.13 FAILURE OF SECURITY.

Any Collateral Document shall, at any time, cease to be in full
force and effect (other than by reason of a release of Collateral thereunder in
accordance with the terms hereof or thereof, the satisfaction in full of the
Obligations or any other termination of such Collateral Document in accordance
with the terms hereof or thereof) or shall be declared null and void, or the
validity or enforceability thereof shall be contested in

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writing by any Loan Party, or Administrative Agent shall not have or shall cease
to have a valid and perfected first priority security interest (subject to
Permitted Encumbrances) in all Collateral purported to be covered (excluding
Collateral having a fair market value in the aggregate of up to $2,000,000).

THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Company, and the obligation of each Lender to make any Loan (including
the obligation of Swingline Lender to make any Swingline Loan), the obligation
of Administrative Agent to issue any Letter of Credit and the right of any
Lender to issue any Letter of Credit hereunder shall thereupon terminate, and
(ii) upon the occurrence and during the continuation of any other Event of
Default, Administrative Agent shall, upon the written request of Requisite
Lenders, by written notice to Company, declare all or any portion of the amounts
described in clauses (a) through (c) above to be, and the same shall forthwith
become, immediately due and payable, and the obligation of each Lender to make
any Loan (including the obligation of Swingline Lender to make any Swingline
Loan), the obligation of Administrative Agent to issue any Letter of Credit and
the right of any Lender to issue any Letter of Credit hereunder shall thereupon
terminate; PROVIDED that the foregoing shall not affect in any way the
obligations of Lenders under subsection 3.3C(i) or the obligations of Lenders to
repay Swingline Loans or purchase participations therein as provided in
subsection 2.1A(ii). Any amounts described in clause (b) above, when received
by Administrative Agent, shall be held by Administrative Agent in the Collateral
Account pursuant to the terms of the Collateral Account Agreement and shall be
applied as therein provided.

Notwithstanding anything contained in the preceding paragraph, if
at any time within 60 days after an acceleration of the Loans pursuant to such
paragraph Company shall pay all arrears of interest and all payments on account
of principal which shall have become due otherwise than as a result of such
acceleration (with interest on principal and, to the extent permitted by law, on
overdue interest, at the rates specified in this Agreement) and all Events of
Default and Potential Events of Default (other than non-payment of the principal
of and accrued interest on the Loans, in each case which is due and payable
solely by virtue of acceleration) shall be remedied or waived pursuant to
subsection 11.6, then Requisite Lenders, by written notice to Company, may at
their option rescind and annul such acceleration and its consequences; but such
action shall not affect any subsequent Event of Default or Potential Event of
Default or impair any right consequent thereon. The provisions of this
paragraph are intended merely to bind Lenders to a decision which may be made at
the election of Requisite Lenders and are not intended

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to benefit Company and do not grant Company the right to require Lenders to
rescind or annul any acceleration hereunder, even if the conditions set forth
herein are met.

SECTION 9. ADMINISTRATIVE AGENT

9.1 APPOINTMENT.

Bankers is hereby appointed Administrative Agent hereunder and
under the other Loan Documents by each Lender. Each Lender hereby authorizes
Administrative Agent to act as its agent in accordance with the terms of this
Agreement and the other Loan Documents. Administrative Agent agrees to act upon
the express conditions contained in this Agreement and the other Loan Documents,
as applicable. The provisions of this Section 9 are solely for the benefit of
Administrative Agent and Lenders and neither Parent nor Company shall have any
rights as a third party beneficiary of any of the provisions thereof. In
performing its functions and duties under this Agreement, Administrative Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for Parent, Company or any of Company's Subsidiaries. Parent and
Company hereby acknowledge that neither the Administrative Agent nor any Lender
has any fiduciary relationship with or fiduciary duty toward Parent or Company
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Administrative Agent and the
Lenders, on the one hand, and the Company and Parent, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor.

9.2 POWERS; GENERAL IMMUNITY.

A. DUTIES SPECIFIED. Each Lender irrevocably authorizes
Administrative Agent to take such action on such Lender's behalf and to exercise
such powers hereunder and under the other Loan Documents as are specifically
delegated to Administrative Agent, as the case may be, by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto.
Administrative Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents and it may
perform such duties by or through its agents or employees. Administrative Agent
shall not have, by reason of this Agreement or any of the other Loan Documents,
a fiduciary relationship in respect of any Lender; and nothing in this Agreement
or any of the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon Administrative Agent any obligations in
respect of this Agreement or any of the other Loan Documents except as expressly
set forth herein or therein.

B. NO RESPONSIBILITY FOR CERTAIN MATTERS. Administrative Agent
shall not be responsible to any Lender for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any other Loan Document

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or for any representations, warranties, recitals or statements made herein or
therein or made in any written or oral statement or in any financial or other
statements, instruments, reports or certificates or any other documents
furnished or made by Administrative Agent to Lenders or by or on behalf of
Parent or Company to Administrative Agent or any Lender in connection with the
Loan Documents and the transactions contemplated thereby or for the financial
condition or business affairs of Parent or Company or any other Person liable
for the payment of any Obligations, nor shall Administrative Agent be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained in any of the Loan
Documents or as to the use of the proceeds of the Loans or the use of the
Letters of Credit or as to the existence or possible existence of any Event of
Default or Potential Event of Default. Anything contained in this Agreement to
the contrary notwithstanding, Administrative Agent shall not have any liability
arising from confirmations of the amount of outstanding Loans or the Letter of
Credit Usage or the component amounts thereof.

C. EXCULPATORY PROVISIONS. Neither Administrative Agent nor any of
its respective officers, directors, employees or agents shall be liable to
Lenders for any action taken or omitted by Administrative Agent hereunder or in
connection herewith except to the extent caused by Administrative Agent's gross
negligence or willful misconduct. If Administrative Agent shall request
instructions from Lenders with respect to any act or action (including the
failure to take an action) in connection with this Agreement or any of the other
Loan Documents, Administrative Agent shall be entitled to refrain from such act
or taking such action unless and until Administrative Agent shall have received
instructions from Requisite Lenders (or if required pursuant to subsection 11.6,
all Lenders). Without prejudice to the generality of the foregoing,
(i) Administrative Agent shall be entitled to rely, and shall be fully protected
in relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Parent, or Company
and its Subsidiaries), accountants, experts and other professional advisors
selected by it; and (ii) no Lender shall have any right of action whatsoever
against Administrative Agent as a result of Administrative Agent acting or
(where so instructed) refraining from acting under this Agreement or any of the
other Loan Documents in accordance with the instructions of Requisite Lenders
(or if required pursuant to subsection 11.6, all Lenders). Administrative Agent
shall be entitled to refrain from exercising any power, discretion or authority
vested in it under this Agreement or any of the other Loan Documents unless and
until it has obtained the instructions of Requisite Lenders (or if required
pursuant to subsection 11.6, all Lenders).

D. ADMINISTRATIVE AGENT ENTITLED TO ACT AS LENDER. The agency
hereby created shall in no way impair or affect any of the rights and powers of,
or impose any duties or obligations upon, Administrative Agent in its individual
capacity as a Lender hereunder. With respect to its participation in the Loans
and the Letters of Credit, Administrative Agent shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not performing the duties and functions

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delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include
Administrative Agent in its individual capacity. Administrative Agent and its
respective Affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
Company or any of its Affiliates as if it were not performing the duties
specified herein, and may accept fees and other consideration from Company for
services in connection with this Agreement and otherwise without having to
account for the same to Lenders.

9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.

Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Parent,
Company and Company's Subsidiaries in connection with the making of the Loans
and the issuance of Letters of Credit hereunder and that it has made and shall
continue to make its own appraisal of the creditworthiness of Company.
Administrative Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to make any such investigation or any such appraisal
on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter, and Administrative Agent
shall not have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.

9.4 RIGHT TO INDEMNITY.

Each Lender, in proportion to its Pro Rata Share, severally
agrees to indemnify Administrative Agent, to the extent that Administrative
Agent shall not have been reimbursed by Company, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including, without limitation, counsel fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against Administrative Agent in performing its duties
hereunder or under the other Loan Documents or otherwise in its capacity as
Administrative Agent in any way relating to or arising out of this Agreement or
the other Loan Documents; PROVIDED that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Administrative
Agent's gross negligence or willful misconduct. If any indemnity furnished to
Administrative Agent for any purpose shall, in the opinion of Administrative
Agent be insufficient or become impaired, Administrative Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.

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9.5 SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER.

A. SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign
at any time by giving 30 days' prior written notice thereof to Lenders and
Company. Upon any such notice of resignation, with respect to Administrative
Agent, Requisite Lenders shall have the right, upon five Business Days' notice
to Company, to appoint a successor Administrative Agent from among the Lenders
who shall be reasonably acceptable to Company; PROVIDED that if Requisite
Lenders do not appoint such successor Administrative Agent within 30 days or
Company fails to accept any such successor Administrative Agent appointed by
Requisite Lenders, the resigning Administrative Agent may appoint a successor
Administrative Agent which shall be a commercial bank organized or licensed
under the laws of the United States or any State thereof and having a combined
capital and surplus of at least $250,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement.

B. SUCCESSOR SWINGLINE LENDER. Any resignation of Administrative
Agent pursuant to subsection 9.5A shall also constitute the resignation of
Bankers or its successor as Swingline Lender, and any successor Administrative
Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such
appointment, become the successor Swingline Lender for all purposes hereunder.
In such event (i) Company shall prepay any outstanding Swingline Loans made by
the retiring Administrative Agent in its capacity as Swingline Lender, (ii) upon
such prepayment, the retiring Administrative Agent and Swingline Lender shall
surrender the Swingline Note held by it to Company for cancellation, and
(iii) Company shall issue a new Swingline Note to the successor Administrative
Agent and Swingline Lender substantially in the form of EXHIBIT V annexed
hereto, in the principal amount of the Swingline Loan Commitment then in effect
and with other appropriate insertions.

9.6 COLLATERAL DOCUMENTS AND GUARANTIES.

Each Lender hereby further authorizes Administrative Agent to
enter into the Collateral Documents as secured party on behalf of and for the
benefit of Lenders and agrees to be bound by the terms of the Collateral
Documents; PROVIDED that Administrative Agent shall not (i) enter into or
consent to any amendment, modification, termination or waiver of any provision
contained in the Collateral Documents or (ii) release any Collateral (except as
expressly permitted or required pursuant to the terms of this Agreement or the
applicable Collateral Document), in each case without the prior consent of
Requisite Lenders (or if required pursuant to subsection 11.6, all Lenders).
Each

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Lender agrees that no Lender shall have any right individually to realize upon
any of the Guaranties or any of the collateral under any Collateral Document, it
being understood and agreed that all rights and remedies under the Collateral
Documents may be exercised solely by Administrative Agent for the benefit of
Lenders in accordance with the terms thereof.

SECTION 10. GUARANTY OF PARENT

10.1 GUARANTY BY PARENT.

As consideration for Lenders agreeing to enter into this
Agreement and extend the Commitments hereunder, Parent hereby unconditionally
and irrevocably guaranties the due and punctual payment when due (whether by
required prepayment, declaration, demand or otherwise) (including amounts that
would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) of all Obligations of
Company (including, without limitation, interest which, but for the filing of a
petition in bankruptcy with respect to Company, would accrue on such Obligations
whether or not such interest would be an allowable claim in such proceeding).
For purposes of this Section 10, Parent, as party to this Agreement, is referred
to as a "GUARANTOR" and the obligations of Parent under this Section 10 are
referred to as the "GUARANTY".

10.2 TERMS OF GUARANTY.

Guarantor agrees that the Obligations of Company may be extended
or renewed, and the Loans repaid and reborrowed in whole or in part, without
notice or further assent from it, and that it will remain bound upon this
Guaranty notwithstanding any extension, renewal or other alteration of any such
Obligation or repayment and reborrowing of the Loans.

Guarantor waives presentation of, demand of, payment from and
protest of any Obligation of Company and also waives notice of protest for
nonpayment. The obligations of the Guarantor under this Guaranty shall not be
affected by, and the Guarantor hereby waives its rights (to the extent permitted
by law) in connection with:

(a) the failure of Administrative Agent or any Lender to
assert any claim or demand or to enforce any right or remedy against
Company under the provisions of this Agreement or any other agreement or
otherwise,

(b) any extension or renewal of any provision thereof,

(c) any rescission, waiver, amendment or modification of any
of the terms or provisions of this Agreement or any instrument executed
pursuant hereto,

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(d) the release of any of the security held by Administrative
Agent, or any Lender for the Obligations of Company,

(e) the failure of Administrative Agent or any Lender to
exercise any right or remedy against any other guarantor of the
Obligations of Company,

(f) Administrative Agent or any Lender taking and holding
security or collateral for the payment of this Guaranty, any other
guaranties of the Obligations or other liabilities of Company and the
Obligations guarantied hereby, and exchanging, enforcing, waiving and
releasing any such security or collateral,

(g) Administrative Agent or any Lender applying any such
security or collateral and directing the order or manner of sale thereof
as Administrative Agent in its discretion may determine, or

(h) Administrative Agent or any Lender settling, releasing,
compromising, collecting or otherwise liquidating the Obligations and any
security or collateral therefor in any manner determined by
Administrative Agent or such Lender.

Guarantor further agrees that this Guaranty constitutes a
guaranty of payment when due and not of collection and waives any right to
require that any resort be had by Administrative Agent or any other Person to
any of the security held for payment of the Obligations of Company or to any
balance of any deposit account or credit on the books of Administrative Agent or
any other Person in favor of Company or any other Person.

The obligations of Guarantor under this Guaranty shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, 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, discharge of Company from the
Obligations in a bankruptcy or similar proceeding or otherwise. Without
limiting the generality of the foregoing, the obligations of Guarantor under
this Guaranty shall not be discharged or impaired or otherwise affected by the
failure of Administrative Agent or any Lender to assert any claim or demand or
to enforce any remedy under this Agreement or any other agreement, by any waiver
or modification of any provision thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Obligations of Company, or by
any other act or thing or omission or delay to do any other act or thing that
may or might in any manner or to any extent vary the risk of Guarantor or would
otherwise operate as a discharge of Guarantor as a matter of law or equity.

Guarantor acknowledges that all or a portion of the Obligations
are secured by deeds of trust, deeds to secure debt or mortgages covering
certain interests in real property (including, but not limited, to the
Mortgages) and authorizes Administrative

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Agent, at its sole option, without notice or demand and without affecting the
liability of Guarantor under this Guaranty, to foreclose pursuant to the terms
thereof or the deeds of trust and mortgages and the interests in real property
secured thereby (including, but not limited to the Mortgages) by non-judicial or
other sale. Guarantor understands that the exercise by Lenders or
Administrative Agent, or any of them, of certain rights and remedies contained
in this Agreement and such deeds of trust and mortgages may affect or eliminate
Guarantor's right of subrogation against Company and that Guarantor may
therefore incur a partially or totally nonreimbursable liability hereunder.
Nevertheless, Guarantor hereby authorizes and empowers Administrative Agent and
any Lender to exercise, in its sole discretion, any rights and remedies, or any
combination thereof, which may then be available, since it is the intent and
purpose of Guarantor that the obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances. To the extent
permitted by law, without limiting the generality of the foregoing, Guarantor
hereby expressly waives any and all benefits under California Code of Civil
Procedure Sections 580a, 580d and 726. Notwithstanding any foreclosure of the
lien of any such deeds of trust and mortgages with respect to any or all real or
personal property secured thereby, whether by the exercise of the power of sale
contained therein, by an action for judicial foreclosure or by an acceptance of
a deed in lieu of foreclosure, Guarantor shall remain bound under this Guaranty,
including its obligation to pay any deficiency after a nonjudicial foreclosure.
Guarantor hereby waives any defense to the recovery by Administrative Agent or
any Lender against Guarantor of any deficiency after such sale, and Guarantor
expressly waives any defense or benefits that may be derived from statutes and
laws relating thereto.

Administrative Agent may, at its election, foreclose on any
security held by Administrative Agent by one or more judicial or nonjudicial
sales, whether or not every aspect of any such sale is commercially reasonable,
or exercise any other right or remedy Administrative Agent may have against
Company or any security without affecting or impairing in any way the liability
of the Guarantor hereunder except to the extent the Obligations have been paid.
Guarantor waives any defense arising out of such election by Administrative
Agent, even though such election operates to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of Guarantor against
Company or any security.

Guarantor further agrees that, to the extent that any Loan Party
makes a payment or payments to Administrative Agent or any Lender, or
Administrative Agent or any Lender receives any proceeds of Collateral, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or otherwise required to be repaid
to any Loan Party, its estate, trustee, receiver or any other party, including,
without limitation, under any bankruptcy law, state or federal law, common law
or equitable cause, then to the extent of such payment or repayment, the
obligation or part thereof which has been paid, reduced or satisfied by such
amount and this Guaranty shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred.
Guarantor shall defend and indemnify Administrative Agent and each Lender from
and against any claim or loss hereunder

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(including reasonable attorneys' fees and expenses) or in the defense of any
action or suit relating to the foregoing matters.

Guarantor further agrees, in furtherance of the foregoing and not
in limitation of any other right that Administrative Agent or any Lender may
have at law or in equity against the Guarantor by virtue hereof, upon the
failure of Company to pay any of its Obligations when and as the same shall
become due (whether by required prepayment, declaration, demand or otherwise),
Guarantor will forthwith pay, or cause to be paid, in cash, to Administrative
Agent an amount equal to the sum of the unpaid principal amount of such
Obligations, accrued and unpaid interest on such Obligations and all other
Obligations of Company to Administrative Agent or such Lender.

Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against any Loan Party that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under this Guaranty or any other Loan Document, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution,
indemnification or any right to participate in any claim or remedy of any Lender
against any Loan Party or any Collateral which Administrative Agent or any
Lender now has or hereafter acquires, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from any Loan Party, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to Guarantor in violation of the preceding sentence and the
Obligations shall not have been paid in full in cash, such amount shall be
deemed to have been paid to Guarantor for the benefit of, and held in trust for
the benefit of, Lenders, and shall forthwith be paid to Administrative Agent for
the benefit of Lenders to be applied (in the case of cash) to, or held as
collateral (in the case of non-cash property or securities, or in the case of
any assets to the extent of Obligations in respect of Letters of Credit to the
extent not drawn upon) for the payment or prepayment of the Obligations of
Guarantor in accordance with the terms of this Agreement or the other Loan
Documents. Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Loan Documents and
that the waiver set forth herein is knowingly made in contemplation of such
benefits.

In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon any failure
of Company to pay its Obligations when due (whether by required prepayment,
declaration, demand or otherwise), each Lender, or Administrative Agent with
respect to any Obligation owed under the Letters of Credit and any Affiliate of
any of them is hereby authorized by Guarantor at any time or from time to time,
without notice to Guarantor or to any other Person, any such notice being hereby
expressly waived (provided that any such Lender shall use reasonable efforts to
notify Company promptly after any such setoff; PROVIDED, FURTHER, HOWEVER, that
failure to give such notice shall not be a defense of any kind to Guarantor's
liability under this Guaranty nor shall such Lender incur any liability of any

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kind to Guarantor for failure to provide such notice), to set off and to
appropriate and to apply any and all deposits (general or special, including,
not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time owing by any Lender or any subsequent holder of any
Note or Administrative Agent with respect to any Obligation owed under the
Letters of Credit, or any Affiliate of any of them to or for the credit or the
account of Guarantor against and on account of the obligations and liabilities
of Guarantor to any Lender or Administrative Agent with respect to any
Obligation owed under the Letters of Credit, or any Affiliate of any of them
under this Agreement, this Guaranty or the Letters of Credit including but not
limited to, all claims of any nature or description arising out of or connected
with this Agreement, this Guaranty or the Letters of Credit or any of the other
Loan Documents irrespective of whether or not (a) Lenders or Administrative
Agent with respect to any Obligation owed under the Letters of Credit, or any
Affiliate of any of them shall have made any demand hereunder or (b) Lenders or
Administrative Agent with respect to any Obligation owed under the Letters of
Credit, or any Affiliate of any of them shall have declared the principal of and
interest on the Loans or the Letters of Credit and other amounts due hereunder
or under the other Loan Documents to be due and payable as permitted by Section
8.

SECTION 11. MISCELLANEOUS

11.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.

A. GENERAL. Subject to subsection 11.1B, each Lender shall have the
right at any time to (i) sell, assign, transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of any Loan or Loans
made by it or its Commitments or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; PROVIDED
that (1) no such assignment or participation shall, without the consent of
Company, require Company to file a registration statement with the Securities
and Exchange Commission or apply to qualify such assignment or participation of
the Loans, the Letters of Credit or participations therein or the other
Obligations under the securities laws of any state; (2) no such sale,
assignment, transfer or participation of any Letter of Credit or any
participation therein may be made separately from a sale, assignment, transfer
or participation of a corresponding interest in the Revolving Loan Commitment
and the Revolving Loans of the Lender effecting such sale, assignment, transfer
or participation; (3) anything contained herein to the contrary notwithstanding,
the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may
not be sold, assigned or transferred as described in clause (1) above to any
Person other than a successor Administrative Agent and Swing Line Lender; and
(4) no such sale, assignment or transfer described in clause (i) above shall be
effective unless and until an Assignment Agreement effecting such sale,
assignment or transfer shall have been accepted by Administrative Agent and
recorded in the Register as provided in subsection 11.1B(ii) and notice thereof
shall have been duly given to Company. Except as otherwise provided in this
subsection 11.1, no Lender shall, as between Company and such Lender, be
relieved

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of any of its obligations hereunder as a result of any sale, assignment,
transfer of, or any granting of participations in, all or any part of the Loans,
the Commitments, the Letters of Credit or participations therein or the other
Obligations owed to such Lender.

B. ASSIGNMENTS.

(i) AMOUNTS AND TERMS OF ASSIGNMENTS. Each Loan, Commitment,
Letter of Credit or participation therein or other Obligation may (a) be
assigned in any amount to another Lender, or to an Affiliate of the
assigning Lender or another Lender, with the giving of notice to Company
and Administrative Agent or (b) be assigned in an amount of not less than
$5,000,000 (or such lesser amount as shall constitute the aggregate
amount of all Loans, Commitments, Letters of Credit and participations
therein and other Obligations of the assigning Lender) to any other
Eligible Assignee with the giving of notice to Company and Administrative
Agent and with the consent of Administrative Agent and except during the
continuance of an Event of Default, in the case of assigning Lenders
other than Bankers, Company (which consent of Administrative Agent and
Company shall not be unreasonably withheld or delayed). To the extent of
any such assignment in accordance with either clause (a) or (b) above,
the assigning Lender shall be relieved of its obligations with respect to
its Loans, Commitments, Letters of Credit or participations therein or
other Obligations or the portion thereof so assigned. The parties to
each such assignment shall execute and deliver to Administrative Agent
for its acceptance and recording in the Register an Assignment Agreement,
together with, except in connection with an assignment pursuant to
subsection 2.9C, a processing fee of $1,000 with respect to an assignment
in accordance with clause (a) above or $3,500 with respect to an
assignment in accordance with clause (b) above and such certificates,
documents or other evidence, if any, with respect to United States
federal income tax withholding matters as the assignee under such
Assignment Agreement may be required to deliver to Administrative Agent
pursuant to subsection 2.7B(iii). Upon such execution, delivery and
acceptance and recordation, from and after the effective date specified
in such Assignment Agreement, (y) the assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment Agreement, shall
have the rights and obligations of a Lender hereunder and (z) the
assigning Lender thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such
Assignment Agreement, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment
Agreement covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to
be a party hereto); PROVIDED that the assigning Lender shall retain its
rights (concurrently with such assignee) under subsections 2.6D, 2.7,
3.5A, 3.6, 11.2, 11.3 and 11.4. The Commitments hereunder shall be
modified to reflect the Commitment of such assignee and any remaining
Commitment of such assigning Lender and, if any such assignment occurs
after the issuance of the Notes hereunder, the assigning Lender shall,
upon the effectiveness

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of such assignment or as promptly thereafter as practicable, surrender
its applicable Notes to Administrative Agent for cancellation, and
thereupon new Notes shall be issued to the assignee and to the assigning
Lender, substantially in the form of EXHIBIT IV annexed hereto, with
appropriate insertions, to reflect the new Commitments of the assignee
and the assigning Lender.

(ii) ACCEPTANCE BY ADMINISTRATIVE AGENT; RECORDATION IN
REGISTER. Upon its receipt of an Assignment Agreement executed by an
assigning Lender and an assignee representing that it is an Eligible
Assignee, together with the processing fee referred to in subsection
11.1B(i) and any certificates, documents or other evidence with respect
to United States federal income tax withholding matters that such
assignee may be required to deliver to Administrative Agent pursuant to
subsection 2.7B(iii), Administrative Agent shall, if such Assignment
Agreement has been completed and is in substantially the form of EXHIBIT
IX hereto and if Administrative Agent and Company have consented to the
assignment evidenced thereby (to the extent such consent is required
pursuant to subsection 11.1B(i)), (a) accept such Assignment Agreement by
executing a counterpart thereof as provided therein (which acceptance
shall evidence any required consent of Administrative Agent to such
assignment) and (b) record the information contained therein in the
Register, and (c) give prompt notice thereof to Company, the assigning
Lender and the assignee. Administrative Agent shall maintain a copy of
each Assignment Agreement delivered to and accepted by it as provided in
this subsection 11.1B(ii).

C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation or the extension of the stated expiration
date beyond the Commitment Termination Date of any Letter of Credit allocated to
such participation or (ii) a reduction of the principal amount of or the rate of
interest payable on or fees payable with respect to any Loan allocated to such
participation (other than any waiver of any increase in the interest rate
applicable to the Loans pursuant to subsection 2.2E), and all amounts payable by
Company hereunder shall be determined as if such Lender had not sold such
participation. Company hereby acknowledges and agrees that any participation
will give rise to a direct obligation of Company to the participant and the
participant shall, for purposes of subsections 2.6D, 2.7, 3.6, 11.4 and 11.5, be
considered to be a "Lender"; PROVIDED that no participant shall be entitled to
receive any greater amount pursuant to subsection 2.6D, 2.7 or 3.6 than the
transferor Lender would have been entitled to receive in respect of the amount
of the participation effected by such transferor Lender to such participant had
no such participation occurred.

D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the
assignments and participations permitted under the foregoing provisions of this
subsection 11.1, any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed

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to such Lender, and its Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any operating circular issued by such Federal Reserve Bank and with the
consent of Company and Administrative Agent, any Lender which is a fund may
pledge all or any portion of its Notes or Loans to its trustee in support of its
obligations to its trustee; PROVIDED that (i) no Lender shall, as between
Company and such Lender, be relieved of any of its obligations hereunder as a
result of any such assignment and pledge and (ii) in no event shall such Federal
Reserve Bank be considered to be a "Lender" or be entitled to require the
assigning Lender to take or omit to take any action hereunder.

E. INFORMATION. Each Lender may furnish any information concerning
Parent, Company and Company's Subsidiaries in the possession of that Lender from
time to time to assignees and participants (including prospective assignees and
participants), subject to subsection 11.19; PROVIDED that any such prospective
assignees and participants will agree to be bound by the terms of subsection
11.19.

11.2 EXPENSES.

Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
costs and expenses of preparation of the Loan Documents; (ii) all the costs of
furnishing all opinions by counsel for Company (including without limitation any
opinions requested by Lenders as to any legal matters arising hereunder) and of
Company's performance of and compliance with all agreements and conditions on
its part to be performed or complied with under this Agreement and the other
Loan Documents including, without limitation, with respect to confirming
compliance with environmental and insurance requirements; (iii) the reasonable
fees, expenses and disbursements of counsel to Administrative Agent (including
allocated costs of internal counsel) in connection with the negotiation,
preparation, execution and syndication of the Loan Documents and the Loans and
any consents, amendments, waivers or other modifications hereto or thereto and
any other documents or matters requested by Company; (iv) all other actual and
reasonable costs and expenses incurred by Administrative Agent in connection
with the negotiation, preparation, execution, syndication and administration of
the Loan Documents and the transactions contemplated hereby and thereby; and
(v) after the occurrence of an Event of Default, all costs and expenses,
including reasonable attorneys' fees (including allocated costs of internal
counsel) and costs of settlement, incurred by Administrative Agent and Lenders
in enforcing any Obligations of or in collecting any payments due from Company
hereunder or under the other Loan Documents by reason of such Event of Default
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings.

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11.3 INDEMNITY.

In addition to the payment of expenses pursuant to subsection
11.2, whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend, indemnify, pay and hold harmless Administrative Agent
and Lenders and any holder of any of the Notes, and the officers, directors,
employees, agents and affiliates of Administrative Agent, Lenders and such
holders (collectively called the "INDEMNITEES") from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever including without limitation the reasonable fees and disbursements of
inside or outside counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto, whether direct, indirect or consequential and whether
based on any federal, state or foreign laws, statutes, rules or regulations
(including without limitation securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or equitable cause or on
contract or otherwise, that may be imposed on, incurred by, or asserted against
any such Indemnitee, in response to or as a result of any such legal, judicial,
administrative, regulatory or other process, directive or request, in any manner
relating to or arising out of this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby (including without limitation any
Environmental Claims, Lenders' agreement to make the Loans hereunder or the use
or intended use of the proceeds of any of the Loans or the issuance of Letters
of Credit hereunder or the use or intended use of any of the Letters of Credit)
or the statements contained in the commitment letter delivered by any Lender to
Company with respect thereto (collectively called the "INDEMNIFIED
LIABILITIES"); PROVIDED that Company shall not have any obligation to any
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
such Indemnified Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction; PROVIDED FURTHER that the indemnity contained herein
shall not apply to the extent that such losses, claims, damages, liabilities or
other expenses arise out of litigation between the Company and such indemnified
person in which the Company is the prevailing party as finally determined by a
court of competent jurisdiction. To the extent that the undertaking to defend,
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.

11.4 SET OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.

In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default each Lender and each subsequent holder of any
Note is hereby authorized by Company at any time or from time to time, without
notice to Company or to any other Person, any such notice being hereby expressly
waived (provided that such Lender or subsequent

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holder shall use reasonable efforts to notify Company promptly after any such
setoff; PROVIDED, FURTHER, HOWEVER, that failure to give such notice shall not
in any way affect Company's Obligations nor shall such Lender or subsequent
holder incur any liability of any kind to Company for failure to provide such
notice), to set off and to appropriate and to apply any and all deposits
(general or special, including, but not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time held or owing by that Lender or
that subsequent holder to or for the credit or the account of Company against
and on account of the obligations and liabilities of Company to that Lender or
that subsequent holder under this Agreement, the Notes, the Letters of Credit
and participations therein, including, but not limited to, all claims of any
nature or description arising out of or connected with this Agreement, the
Notes, the Letters of Credit and participations therein or any other Loan
Document, irrespective of whether or not (i) that Lender or that subsequent
holder shall have made any demand hereunder or (ii) the principal of or the
interest on the Loans or any amounts in respect of the Letters of Credit or any
other amounts due hereunder shall have become due and payable pursuant to
Section 8 and although said obligations and liabilities, or any of them, may be
contingent or unmatured. Company hereby further grants to Administrative Agent
and each Lender a security interest in all deposits and accounts maintained with
Administrative Agent or such Lender as security for the Obligations.

11.5 RATABLE SHARING.

Lenders and each subsequent holder by acceptance of a Note hereby
agree among themselves that if any of them shall, whether by voluntary payment,
by realization upon security, through the exercise of any right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
right under the Loan Documents or otherwise, or as adequate protection of a
deposit treated as cash collateral under the Bankruptcy Code, receive payment or
reduction of a proportion of the aggregate amount of principal, interest,
amounts payable in respect of Letters of Credit, fees and other amounts then due
and owing to that Lender or holder hereunder or under the other Loan Documents
(collectively, the "AGGREGATE AMOUNTS DUE" to such Lender or holder) which is
greater than the proportion received by any other Lender or holder of the Notes
in respect of the Aggregate Amounts Due to such other Lender or holder, then the
Lender or holder of the Notes receiving such proportionately greater payment
shall (i) notify Administrative Agent and each other Lender of the receipt of
such payment and (ii) apply a portion of such payment to purchase participations
(which it shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders and holders so that all such
recoveries of Aggregate Amounts Due shall be shared by all Lenders and holders
of the Notes in proportion to the Aggregate Amounts Due to them; PROVIDED that
if all or part of such proportionately greater payment received by such
purchasing Lender or holder is thereafter recovered from such Lender or holder
upon the bankruptcy or reorganization of Company or otherwise, those purchases
shall be rescinded and the purchase prices paid for such participations shall be
returned to such purchasing Lender or holder ratably to the extent of such
recovery, but without interest. Company expressly consents to the

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foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Company to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder.

11.6 AMENDMENTS AND WAIVERS.

A. No amendment, modification, termination or waiver of any
provision of this Agreement or of the Notes, or consent to any departure by
Company therefrom, shall in any event be effective without the written
concurrence of Requisite Lenders; PROVIDED that no such amendment, modification,
termination, waiver or consent shall, without the consent of each Lender (other
than a Defaulting Lender) with obligations directly affected in the case of the
following clause (a): (a) extend the scheduled final maturity date of any Loan
or any Note; reduce the amount payable in respect of, or extend beyond the
Commitment Termination Date the stated expiration date of, any Letter of Credit;
postpone the dates on which any interest or any fees are payable; decrease the
interest rate borne by any of the Loans (other than any waiver of any increase
in the interest rate applicable to any of the Loans pursuant to subsection 2.2E)
or the amount of any fees payable hereunder; reduce the principal amount of any
Loan or any Note; (b) release all or substantially all of the Collateral or
release all or substantially all of the Subsidiary Guarantors from their
obligations under the Subsidiary Guaranty or, prior to a combination of Parent
and Company pursuant to subsection 7.7(vii), the Parent from its obligations
under its Guaranty, in each case other than in accordance with the terms of the
Loan Documents; (c) amend, modify, terminate or waive the provisions contained
in this subsection 11.6A; (d) reduce the percentage specified in the definition
of "Requisite Lenders" (it being understood that, with the consent of the
"Requisite Lenders" additional extensions of credit pursuant to this Agreement
may be made on substantially the same basis as the extensions of the Revolving
Loan Commitments); or (e) amend, modify, terminate or waive any provision
expressly requiring the approval or concurrence of all Lenders; PROVIDED FURTHER
that no such amendment, modification, termination or waiver shall increase the
Commitment of any Lender over the amount thereof then in effect without the
consent of such Lender (it being understood that amendments, modifications,
terminations or waivers of conditions precedent, covenants, defaults or events
of default or of a mandatory reduction in the aggregate Commitments shall not
constitute an increase of the Commitment of any Lender and that an increase in
the available portion of any Commitment of any Lender shall not constitute an
increase in Commitment of such Lender). In addition, (i) no amendment,
modification, termination or waiver of any provision of Section 9 or of any
other provision of this Agreement expressly requiring the approval or
concurrence of Administrative Agent shall be effective without the written
concurrence of Administrative Agent, (ii) no amendment, modification,
termination or waiver of provision of subsection 2.1A(ii) or any other provision
of this Agreement relating to the Swingline Loan Commitment or the Swingline
Loans shall be effective without the written concurrence of Swingline Lender,
and (iii) no amendment, modification, termination or waiver of any obligations
of Lenders relating to the purchase of participations in Letters of Credit shall
be effective without the written concurrence of

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each Issuing Lender having a Letter of Credit then outstanding or which has not
been reimbursed for a drawing under a Letter of Credit issued by it and of
Administrative Agent. Administrative Agent may, but shall have no obligation
to, with the concurrence of any Lender execute amendments, modifications,
waivers or consents on behalf of that Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand on Company in any case shall entitle
Company to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 11.6 shall be binding upon each
holder of the Notes at the time outstanding, each future holder of the Notes
and, if signed by Company, on Company.

B. If in connection with any proposed amendment,
modification, termination or waiver to any of the provisions of this Agreement
as contemplated by clauses (a) through (e) of the first proviso of subsection
11.6A, the consent of the Requisite Lenders is obtained but the consent of one
or more of such other Lenders whose consent is required is not obtained, then
the Company shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either clause (A) or
(B) below, to either (A) replace each such non-consenting Lender or Lenders with
one or more Replacement Lenders pursuant to subsection 2.9C so long as at the
time of such replacement, each such Replacement Lender consents to the proposed
amendment, modification, termination or waiver, or (B) terminate such non-
consenting Lender's Revolving Loan Commitment and repay each outstanding
Revolving Loan of such Lender, in accordance with subsections 2.4A(ii)(b) and
2.4A(i)(b) PROVIDED that unless the Commitments that are terminated, and the
Loans that are repaid pursuant to the preceding clause (B) are immediately
replaced in full at such time through the addition of new Lenders or the
increase of the Commitments and/or outstanding Loans of existing Lenders (who in
each case must specifically consent thereto), then in the case of any action
pursuant to the preceding clause (B) the Requisite Lenders (determined before
giving effect to the proposed action) shall specifically consent thereto;
PROVIDED FURTHER that in any event the Company shall not have the right to
replace a Lender, terminate its Revolving Loan Commitment or repay its Loans
solely as a result of the exercise of such Lender's rights (and the withholding
of any required consent by such Lender) pursuant to the second proviso to
subsection 11.6A.

11.7 INDEPENDENCE OF COVENANTS.

All covenants hereunder shall be given independent effect so that
if a particular action or condition is not permitted by any of such covenants,
the fact that it would be permitted by an exception to, or would otherwise be
within the limitations of, another covenant shall not avoid the occurrence of an
Event of Default or Potential Event of Default if such action is taken or
condition exists.

134

<PAGE>

11.8 NOTICES.

Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in writing
and may be personally served, telecopied or sent by United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service, upon receipt of telecopy, or four Business Days after
depositing it in the United States mail, registered or certified, with postage
prepaid and properly addressed; PROVIDED that notices to Administrative Agent
shall not be effective until received. For the purposes hereof, the address of
each party hereto shall be as set forth under such party's name on the signature
pages hereof or (i) as to Parent, Company and Administrative Agent, such other
address as shall be designated by such Person in a written notice delivered to
the other parties hereto and (ii) as to each other party, such other address as
shall be designated by such party in a written notice delivered to
Administrative Agent.

11.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

A. All representations, warranties and agreements made
herein shall survive the execution and delivery of this Agreement and the making
of the Loans and the issuance of the Letters of Credit hereunder.

B. Notwithstanding anything in this Agreement or implied by
law to the contrary, the agreements of Company set forth in subsections 2.6D,
2.7, 3.6, 11.2 and 11.3 and the agreements of Lenders set forth in subsections
9.2C, 9.4, 11.4 and 11.5 shall survive the payment of the Loans, the
cancellation or expiration of the Letters of Credit and the reimbursement of any
amounts drawn thereunder, and the termination of this Agreement.

11.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.

No failure or delay on the part of any Lender or any holder of
any Note or any interest in any Letter of Credit in the exercise of any power,
right or privilege hereunder or under such Note or Letter of Credit shall impair
such power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. All rights and remedies existing under this
Agreement, the Notes, the Letters of Credit and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

11.11 MARSHALLING; PAYMENTS SET ASIDE.

Neither Administrative Agent nor any Lender shall be under any
obligation to marshal any assets in favor of Company or any other party or
against or in payment of any or all of the Obligations. To the extent that
Company makes a payment or payments

135

<PAGE>

to Administrative Agent or Lenders (or to Administrative Agent for the benefit
of Lenders), or Administrative Agent or Lenders enforce any security interests
or exercise their rights of setoff, and such payment or payments or the proceeds
of such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.

11.12 SEVERABILITY.

In case any provision in or obligation under this Agreement or
the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

11.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.

The obligations of Lenders hereunder are several and no Lender
shall be responsible for the obligations or Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no
action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.

11.14 HEADINGS.

Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.

11.15 APPLICABLE LAW.

THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

136

<PAGE>

11.16 SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders. The terms and provisions of
this Agreement shall inure to the benefit of any assignee or transferee of any
of the Loans, and in the event of any such transfer or assignment the rights and
privileges herein conferred upon Lenders shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof. Neither Company's nor Parent's rights or obligations hereunder nor any
interest therein may be assigned or delegated by Company or Parent without the
prior written consent of all Lenders. Lenders' rights of assignment are subject
to subsection 11.1.

11.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.

ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY OR PARENT
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
OBLIGATION MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT EACH OF PARENT AND COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION. Each of the
Parent and Company designates and appoints CT Corporation System, and such other
Persons as may hereafter be selected by Parent or Company, as the case may be,
irrevocably agreeing in writing to so serve, as its agent to receive on its
behalf service of all process in any such proceedings in any such court, such
service being hereby acknowledged by Company and Parent to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to Company and at their respective addresses provided
in subsection 11.8; PROVIDED that, unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of such
process. If any agent appointed by Company or Parent refuses to accept service,
each of Parent and Company hereby agrees that service of process sufficient for
personal jurisdiction in any action against Parent or Company, as the case may
be, in the State of New York may be made by registered or certified mail, return
receipt requested, to Company at its address provided in subsection 11.8, and
each of Parent and Company hereby acknowledges that such service shall be
effective and binding in every respect. Nothing herein shall affect the right
to serve process in any other manner permitted by law or shall limit the right
of any Lender to bring proceedings against Parent or Company, as the case may
be, in the courts of any other jurisdiction.

137

<PAGE>

11.18 WAIVER OF JURY TRIAL.

EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty claims
and all other common law and statutory claims. Each party hereto acknowledges
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future dealings.
Each party hereto further warrants and represents that it has reviewed this
waiver with its legal counsel and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.

11.19 CONFIDENTIALITY.

Each Lender shall hold all non-public information obtained
pursuant to the requirements of this Agreement or any Collateral Document which
has been identified as confidential by Parent or Company in accordance with such
Lender's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices, and shall not
use such information except in connection with matters relating to (a) the
extension of credit to Company under this Agreement, (b) the provision of other
services or products to Parent, Company and any of Company's Subsidiaries or (c)
the exercise of any right, power or remedy available to such Lender under the
Loan Documents, it being understood and agreed by Parent and Company that in any
event a Lender may make disclosures to any of its Affiliates (who shall agree to
be bound by the terms of this subsection 11.19 and who agree not to use such
information for the purpose of buying, selling or holding any securities or
advising others in connection with buying, selling or holding such securities
issued by Parent or Company), outside auditors and counsel or as reasonably
required by any bona fide assignee, transferee or participant in connection with
the contemplated assignment or transfer by such Lender of any Loans or any
participation therein or to any direct or indirect contractual counterparties in
swap agreements or such contractual counterparties' professional advisors
provided that such contractual counterparties or their professional advisors
agree to handle

138

<PAGE>

the above-described confidential information in accordance with safe and sound
practices which are substantially the same as those followed by banking
institutions or as required or requested by any governmental agency (including,
without limitation, any regulatory body having jurisdiction over such Lender) or
representative thereof or the NAIC or pursuant to legal process; PROVIDED that,
unless specifically prohibited by applicable law or court order, each Lender
shall notify Parent and Company of any request by any governmental agency or
representative thereof (other than any such request in connection with any
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and PROVIDED, FURTHER that in no event shall any Lender be
obligated or required to return any materials furnished by Parent, Company or
any of Company's Subsidiaries.

11.20 COUNTERPARTS; EFFECTIVENESS.

This Agreement and any amendments, waivers, consents or
supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Agreement shall become effective upon the execution of
a counterpart hereof by each of the parties hereto and receipt by Company and
Administrative Agent of written or telephonic notification of such execution and
authorization of delivery thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

139

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

COMPANY:

BELL & HOWELL OPERATING COMPANY

By:
----------------------------------
Title:
----------------------------------

Notice Address:

5215 Old Orchard Road
Skokie, Illinois 60077-1076
Attn: Law Department

PARENT:

BELL & HOWELL COMPANY

By:
----------------------------------
Title:
----------------------------------

Notice Address:

5215 Old Orchard Road
Skokie, Illinois 60077-1076
Attn: Law Department

S-1

<PAGE>

LENDERS:

BANKERS TRUST COMPANY,
individually and as Administrative Agent

By:
----------------------------------
Title:
----------------------------------

Notice Address:

BANKERS TRUST COMPANY
One Bankers Trust Plaza
14th Floor
130 Liberty Street
New York, New York 10006
Attn: Mary Jo Jolly

With a copy to:

BT Alex. Brown Incorporated
300 South Grand Avenue
41st Floor
Los Angeles, California 90071
Attn: Tony Hass

S-2

<PAGE>

BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION,
individually and as Co-Agent

By:
----------------------------------
Title:
----------------------------------

Notice Address:

BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
231 South LaSalle St.
9th Floor
Chicago, Illinois 60697
Attn: Mr. James Higgins

S-3

<PAGE>

THE BANK OF NOVA SCOTIA,
individually and as Co-Agent

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE BANK OF NOVA SCOTIA
600 Peachtree Street NE
Suite 2700
Atlanta, Georgia 30308
Attn: Shannon Dancila

S-4

<PAGE>

THE CHASE MANHATTAN BANK

By:
----------------------------------
Title:
----------------------------------

Notice Address:

CHASE MANHATTAN BANK
270 Park Avenue
New York, NY 10117
Attn: Tim Storms

With a copy to:

CHASE SECURITIES INC.
10 South LaSalle Street
Suite 2300
Chicago, IL 60603
Attn: Lonnie Essex
Mark Gibbs

S-5

<PAGE>

CREDIT LYONNAIS CHICAGO BRANCH

By:
----------------------------------
Title:
----------------------------------

Notice Address:

CREDIT LYONNAIS CHICAGO BRANCH
227 West Monroe Street
Suite 3800
Chicago, IL 60606
Attn: Nigel R. Carter

S-6

<PAGE>

DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES

By:
----------------------------------
Title:
----------------------------------

Notice Address:

DRESDNER BANK
190 South LaSalle Street
Suite 2700
Chicago, Illinois 60603
Attn: Jeffrey Mumm

S-7

<PAGE>

THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Co-Agent

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza,
14th Floor
Mail Suite 0088
Chicago, Illinois 60670
Attn: Karen F. Kizer

S-8

<PAGE>

LLOYDS BANK PLC

By:
----------------------------------
Title:
----------------------------------

Notice Address:

LLOYDS BANK PLC
575 Fifth Avenue
18th Floor
New York, NY 10017
Attn: Windsor R. Davies

S-9

<PAGE>

THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
individually and as Co-Agent

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
190 South LaSalle Street
Suite 800
Chicago, Illinois 60603
Attn: Tetsuya Fujii
Scott Place

S-10

<PAGE>

ABN AMRO BANK N.V.

By:
----------------------------------
Title:
----------------------------------

Notice Address:

ABN AMRO BANK N.V.
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Douglas Elliot

S-11

<PAGE>

THE BANK OF NEW YORK

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE BANK OF NEW YORK
One Wall Street
19th Floor
New York, NY 10286
Attn: John Ciulla

S-12

<PAGE>

THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE DAI-ICHI KANGYO BANK, LTD.
CHICAGO BRANCH
10 South Wacker Drive
Chicago, Illinois 60606
Attn: John S. Sneed

S-13

<PAGE>

DLJ CAPITAL FUNDING, INC.

By:
----------------------------------
Title:
----------------------------------

Notice Address:

DLJ CAPITAL FUNDING, INC.
DONALDSON, LUFKIN & JENRETTE
2121 Avenue of the Stars
32nd Floor
Los Angeles, CA 90067
Attn: Eric Swanson

S-14

<PAGE>

FIRST UNION NATIONAL BANK

By:
----------------------------------
Title:
----------------------------------

Notice Address:

FIRST UNION NATIONAL BANK
One First Union Center
301 S. College Street
Floor TW-19
Charlotte, NC 28288-0745
Attn: Jeff Seaton

S-15

<PAGE>

HARRIS TRUST & SAVINGS BANK

By:
----------------------------------
Title:
----------------------------------

Notice Address:

HARRIS TRUST & SAVINGS BANK
111 West Monroe Street
2nd Floor West
Chicago, Illinois 60690
Attn: Patrick J. McDonnell

S-16

<PAGE>

THE MITSUBISHI TRUST AND BANKING
CORPORATION

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE MITSUBISHI TRUST AND BANKING
CORPORATION
311 South Wacker Drive
Suite #6300
Chicago, Illinois 60606
Attn: John H. Page, Jr.

S-17

<PAGE>

THE SANWA BANK, LIMITED, CHICAGO BRANCH

By:
----------------------------------
Title:
----------------------------------

Notice Address:

THE SANWA BANK, LIMITED,
CHICAGO BRANCH
10 South Wacker Drive
31st Floor
Chicago, Illinois 60606
Attn: Richard H. Ault

S-18

<PAGE>

UNION BANK OF CALIFORNIA, N.A.

By:
----------------------------------
Title:
----------------------------------

Notice Address:

UNION BANK OF CALIFORNIA, N.A.
350 California Street
6th Floor
San Francisco, CA 94104
Attn: Gail Fletcher

S-19

<PAGE>

U.S. BANK NATIONAL ASSOCIATION D/B/A AND
F/K/A FIRST BANK NATIONAL ASSOCIATION

By:
----------------------------------
Title:
----------------------------------

Notice Address:

U.S. BANK NATIONAL ASSOCIATION
D/B/A AND F/K/A FIRST BANK
NATIONAL ASSOCIATION
First Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4302
Attn: Robert W. Miller MPFP0905

S-20

<PAGE>

EXHIBIT 23.2

The Board of Directors
Bell & Howell Operating Company:

We consent to the use of our reports included in this registration statement
on Form S-4 of Bell & Howell Operating Company and to the reference to our
firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Chicago, Illinois
October 6, 1997

<PAGE>

DETACH HERE

/X/ Please mark vote as in this example.

BELL & HOWELL COMPANY

CONSENT CARD
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby votes all the shares of common stock of BELL & HOWELL
COMPANY, which the undersigned is entitled to vote:

FOR AGAINST ABSTAIN
/ / / / / /

approval of the Plan of Liquidation and Dissolution of the Company, as set forth
in the accompanying Consent Statement/Prospectus.

The Board of Directors recommends a vote FOR approval of the Plan.

A vote for the Plan shall be deemed the stockholder's consent and approval
of the Plan.

This consent card must be received no later than October 30, 1997. Once a
majority has voted in favor of the Plan, such majority vote shall become
irrevocable and the Plan shall then be approved.

You are encouraged to specify your choice by marking the appropriate box.
However, if no box is marked, your signature below will evidence your consent to
the Plan as recommended by the Board of Directors.

Sign, Date and Return the Consent Card
Promptly Using the Enclosed Envelope.

Please sign exactly as name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.

Signature: Date: Signature: Date:
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