-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GeLzNNGpc3VPehThTTUUWwGt4u6+ipdiVNqnyvWpZvrtARDPVkeLoFN2Jit7+gSS XC2RL7rBKjYzKIjvAE0Olw== 0000950152-97-004776.txt : 19970627 0000950152-97-004776.hdr.sgml : 19970627 ACCESSION NUMBER: 0000950152-97-004776 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970626 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER STANDARD ELECTRONICS INC CENTRAL INDEX KEY: 0000078749 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 340907152 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-05734 FILM NUMBER: 97630366 BUSINESS ADDRESS: STREET 1: 4800 E 131ST ST CITY: CLEVELAND STATE: OH ZIP: 44105 BUSINESS PHONE: 2165873600 10-K405 1 PIONEER-STANDARD ELECTRONICS, INC. FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File No. 0-5734 PIONEER-STANDARD ELECTRONICS, INC. (Exact name of registrant as specified in its charter) Ohio 34-0907152 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 4800 East 131st Street, Cleveland, Ohio 44105 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (216) 587-3600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Shares, without par value Common Share Purchase Rights Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K Annual Report or any amendment to this Form 10-K. [X] The aggregate market value of voting shares of the Registrant held by non-affiliates was $406,078,598 as of June 9, 1997, computed on the basis of the last reported sale price per share ($13.875) of such shares on The Nasdaq National Market. Common Shares held by each officer, Director and person who owns or may be deemed to own 10% or more of the outstanding Common Shares have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of June 9, 1997, the Registrant had the following number of Common Shares outstanding: 31,056,782. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement to be used in connection with its Annual Meeting of Shareholders to be held on July 29, 1997 are incorporated by reference into Part III of this Form 10-K. Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended March 31, 1997 are incorporated by reference into Parts II and IV of this Form 10-K. Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of March 31, 1997. PART I ITEM 1. BUSINESS (a) Pioneer-Standard Electronics, Inc. was organized as an Ohio corporation in 1963 and maintains its principal office at 4800 East 131st Street, Cleveland, Ohio 44105 (telephone number (216) 587-3600). On June 1, 1994, Pioneer-Standard Canada Inc., a newly-formed Canadian subsidiary of the Company, purchased from United Westburne Inc., a Canadian corporation, certain of the assets and assumed certain liabilities of Westburne's Zentronics Division, which the Company believes is one of the largest distributors of electronic components and computer products in Canada. On November 30, 1995, the Company acquired Pioneer/Technologies Group Inc., a Maryland corporation ("Technologies"). There have not been any material changes in the nature of the business done by the Company since April 1, 1996. Except as otherwise stated, the term "Company" as used herein shall mean Pioneer-Standard Electronics, Inc. and its wholly-owned subsidiaries. (b) The Company is engaged in the distribution of industrial and end-user electronics components and computer products manufactured by others, which business comprises only one basic industry segment. (c) The following is a description of various aspects of the Company's business: INDUSTRIAL AND END-USER DISTRIBUTION - The Company distributes a broad range of electronics components and computer products manufactured by others. These products are sold to original equipment manufacturers, value-added resellers, government agencies and commercial end-users. These products are classified into three broad categories: semiconductors; computer products; and interconnect, passive and electromechanical components. During fiscal 1997, semiconductor products accounted for 41% of the Company's sales compared with 38% in 1996 and 37% in 1995. These products include microprocessors, memory devices, programmable logic devices, analog and digital integrated circuits and other semiconductor devices. During fiscal 1997, computer products accounted for 39% of the Company's sales compared with 3 40% in 1996 and 38% in 1995. These products include mid-range and high-end computer systems, servers, storage subsystems, software, personal computers, display terminals and networking products. During fiscal 1997, interconnect, passive and electromechanical products accounted for 17% of the Company's sales, compared with 20% in 1996 and 22% in 1995. These products include capacitors, connectors, resistors, switches and power conditioning equipment. As a part of its distributor operations, the Company offers value-added services including point of use inventory management, systems integration, just-in-time kitting operations, turnkey assembly, memory and logic device programming, connector and cable assemblies to customer specifications, power products integration and networking expertise. Sales amounts for these services are included among the three broad categories discussed above. Miscellaneous products accounted for 3% of sales in 1997, 2% of sales in 1996 and 3% of sales in 1995. PRODUCTS DISTRIBUTED AND SOURCES OF SUPPLY - The Company is a leading distributor of a broad range of industrial and end-user components and computer products supplied by more than 100 manufacturers. A majority of the Company's revenues comes from products sourced by relatively few suppliers. During the 1997 fiscal year, products purchased from the Company's five largest suppliers accounted for 69% of total sales volume, with Digital Equipment Corporation (27%) and Intel Corporation (23%) being the largest two suppliers. The loss of any one of the top five suppliers and/or a combination of certain other suppliers could have a material adverse effect on the Company's sales and earnings unless alternative products manufactured by others are available to the Company. The majority of the products sold by the Company are purchased pursuant to distributor agreements which generally provide for inventory return privileges by the Company upon cancellation of a distributor agreement. The distributor agreements also often provide protection to the Company for product obsolescence and price erosion. The Company believes it has good relationships with its suppliers. CUSTOMERS - The Company serves over 24,000 customers in many major markets of North America. No single customer accounted for more than 5% of the Company's total sales for the fiscal year 1997. BACKLOG - The Company historically has not had a significant backlog of orders, although some shipments may be scheduled for delivery over an extended period of time. There was not a significant backlog during the last fiscal year. COMPETITION - The sale and distribution of industrial electronic components and computer products are highly competitive, primarily with respect to price and product availability, but also with respect to service, variety and availability of products carried, number of locations and promptness of service. Many of the distributors with which the Company competes are regional or local distributors. However, several of the Company's strongest competitors have national and international distribution businesses. The Company's customers also may be served by manufacturers, including some of the Company's suppliers, who may sell directly to the industrial and end-user account base. 2 4 EMPLOYEES - As of March 31, 1997, the Company had 2,066 employees. The Company is not a party to any collective bargaining agreement, has had no strikes or work stoppages and considers its employee relations to be excellent. (d) The Company distributes its products in the United States and Canada. Export sales are not a significant portion of the Company's sales. ITEM 2. PROPERTIES The Company's major distribution facilities used in its business are set forth below:
Owned or Expiration Date Location Sq. Ft. Leased of Lease (1) -------- ------- ------ ------------ Agoura Hills, California 10,000 Leased September 30, 2001 Austin, Texas 10,800 Leased August 31, 2000 Chicago, Illinois 11,300 Leased April 14, 1998 Cleveland, Ohio (2) 87,000 Owned Dallas, Texas 13,500 Leased October 31, 1999 Eden Prairie, Minnesota 12,800 Leased August 31, 1997 Fremont, California 12,000 Leased March 15, 1999 Gaithersburg, Maryland 102,600 Leased July 31, 1999 Horsham, Pennsylvania 12,800 Leased October 31, 2000 Irvine, California 14,700 Leased February 29, 2000 Lexington, Massachusetts 26,400 Owned Montreal, Canada 12,100 Leased February 28, 1999 San Jose, California 34,100 Leased June 30, 1999 Solon, Ohio 174,000 Leased March 31, 2005 Solon, Ohio 21,600 Leased December 20, 2000 Solon, Ohio 24,000 Leased February 28, 1999 Solon, Ohio 41,000 Leased March 31, 1998 Solon, Ohio 44,700 Leased May 31, 1999 Toronto, Canada 32,700 Leased May 31, 1999 Tustin, California 16,100 Leased November 20, 1998 Twinsburg, Ohio (3) 106,000 Owned - --------------- (1) The major leases contain renewal options for periods of up to ten years. (2) Corporate headquarters. (3) Corporate distribution center.
3 5 The Company also has entered into leases for numerous distribution facilities, each of 10,000 square feet or less. ITEM 3. LEGAL PROCEEDINGS As of March 31, 1997, the Company was not a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended March 31, 1997. Executive Officers of the Company (1) ------------------------------------- The name, age and positions of each executive officer of the Company as of June 1, 1997 are as follows:
Name Age Position ---- --- -------- James L. Bayman 60 Chairman of the Board of the Company since April 1, 1996 and Chief Executive Officer of the Company since April 3, 1995. President of the Company from June, 1984 to April 29, 1997. Chief Operating Officer of the Company from June, 1984 to April 3, 1995. Arthur Rhein 51 President and Chief Operating Officer of the Company since April 29, 1997; Senior Vice President of the Company from 1993 to April 29, 1997 and Vice President - Marketing of the Company from 1986 to 1993. Robert E. Danielson 52 Senior Vice President and Chief Information Officer of the Company since June, 1996. Prior thereto, Senior Vice President and Chief Information Officer of OfficeMax, Inc. from 1995 to 1996; Vice President and Chief Information Officer of KayBee Toys from 1992 to 1995. John V. Goodger 61 Vice President, Treasurer and Assistant Secretary of the Company since 1990. Prior thereto, Vice President, Treasurer and Assistant Secretary of
4 6
Ferro Corporation from 1987 to 1990 and Vice President and Treasurer of Ferro Corporation from 1984 to 1990. William A. Papenbrock 58 Secretary of the Company since 1986. Partner of the law firm of Calfee, Halter & Griswold LLP (2). -------------------------- (1) The description of Executive Officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K. (2) The law firm of Calfee, Halter & Griswold LLP serves as counsel to the Company.
There is no relationship by blood, marriage or adoption among the above-listed officers. Messrs. Bayman, Rhein, Danielson and Goodger hold office until terminated as set forth in their employment agreements. Mr. Papenbrock holds office until his successor is elected by the Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Shares, without par value, are traded on the Nasdaq National Market. Common Share prices are quoted daily under the symbol "PIOS." The high and low sales prices for the Common Shares, the cash dividends paid on the Common Shares and additional information for each quarter of the two most recent fiscal years required by this Item are set forth at page 33 of the Company's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. Cash dividends are payable quarterly upon authorization by the Board of Directors. Regular payment dates are the first day of August, November, February and May. The Company maintains a Dividend Reinvestment Plan whereby cash dividends and a maximum of an additional $5,000 per month may be invested in the Company's Common Shares at no commission cost. On April 25, 1989, the Company adopted a Common Share Purchase Rights Plan. For further information about the Common Share Purchase Rights Plan, see Note 6 (Shareholders' Equity) of Notes to Financial Statements of the Company. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth at page 34 of the Company's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. 5 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth at pages 19 through 22 of the Company's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is set forth at pages 23 through 32 of the Company's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this Item as to the Directors of the Company appearing under the caption "Election of Directors" in the Company's Proxy Statement to be used in connection with the Company's 1997 Annual Meeting of Shareholders to be held on July 29, 1997 (the "1997 Proxy Statement") is incorporated herein by reference. Information required by this Item as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K. 6 8 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth in the Company's 1997 Proxy Statement under the caption "Compensation of Executive Officers," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth in the Company's 1997 Proxy Statement under the caption "Share Ownership," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is set forth in the Company's 1997 Proxy Statement under the caption "Compensation of Executive Officers - Certain Transactions," which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) FINANCIAL STATEMENTS. The following consolidated financial statements of the Company and its subsidiaries and the report of independent auditors thereon, included in the Company's 1997 Annual Report to Shareholders on pages 23 through 32, are incorporated by reference in Item 8: Consolidated Balance Sheets as of March 31, 1997 and 1996 For the years ended March 31, 1997, 1996 and 1995: Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors Quarterly financial data, included in the Company's 1997 Annual Report to Shareholders at page 32, are incorporated by reference in Item 8. (2) FINANCIAL STATEMENT SCHEDULES. The following consolidated financial statement schedule of the Company and its subsidiaries and the report of independent auditors thereon are filed as part of this Annual Report on Form 10-K, and should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries included in the Company's 1997 Annual Report to Shareholders: 7 9 Report of Independent Auditors Schedule II -- Valuation and Qualifying Accounts for the years ended March 31, 1997, 1996 and 1995 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto. (3) Exhibits -------- See the Index to Exhibits at page E-1 of this Form 10-K. (b) Reports on Form 8-K ------------------- A Current Report on Form 8-K was filed on March 11, 1997 to report the Company's March 6, 1997 registered public offering of 3,000,000 Common Shares and up to an additional 450,000 Common Shares to satisfy underwriters' overallotment options. 8 10 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIONEER-STANDARD ELECTRONICS, INC. Date: June 26, 1997 By: /s/ James L. Bayman --------------------- James L. Bayman Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ James L. Bayman Chairman and Chief Executive Officer ) - --------------------------------------- (Principal Executive Officer) ) James L. Bayman ) ) /s/ John V. Goodger Vice President, Treasurer and Assistant ) - --------------------------------------- Secretary ) John V. Goodger (Principal Financial and Accounting Officer) ) ) ) /s/ Preston B. Heller, Jr. Director ) - --------------------------------------- ) Preston B. Heller, Jr. ) ) /s/ Frederick A. Downey Director ) - --------------------------------------- ) Frederick A. Downey ) ) /s/ Victor Gelb Director ) June 26, 1997 - --------------------------------------- ) Victor Gelb ) ) /s/ Gordon E. Heffern Director ) - --------------------------------------- ) Gordon E. Heffern ) ) /s/ Arthur Rhein President and Chief Operating Officer and ) - --------------------------------------- Director ) Arthur Rhein ) ) /s/ Edwin Z. Singer Director ) - --------------------------------------- ) Edwin Z. Singer ) )
11
Signature Title Date --------- ----- ---- /s/ Thomas C. Sullivan Director ) - --------------------------------------- ) Thomas C. Sullivan ) ) /s/ Karl E. Ware Director ) - --------------------------------------- ) Karl E. Ware )
12 PIONEER-STANDARD ELECTRONICS, INC. EXHIBIT INDEX Exhibit No. Description ----------- ----------- 3(a) Amended Articles of Incorporation of Pioneer-Standard Electronics, Inc. (b) Amended Code of Regulations, as amended, of Pioneer-Standard Electronics, Inc. 4(a) Credit Agreement, dated as of August 12, 1996, by and among the Company, the Banks identified on the signature page thereto and National City Bank as Agent, which is incorporated herein by reference to Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (File No. 0-5734). (b) Rights Agreement, dated as of April 25, 1989, by and between the Company and AmeriTrust Company National Association, which is incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Reg. No. 333-26697). (c) Note Purchase Agreement, dated as of October 31, 1990, by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 (Reg. No. 333-26697). (d) Amendment No. 1 to Note Purchase Agreement, dated as of November 1, 1991, by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the year ended March 31, 1993 (File No. 0-5734). (e) Amendment No. 2 to Note Purchase Agreement, dated as of November 30, 1995, by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-5734). E-1 13 Exhibit No. Description ----------- ----------- (f) Amendment No. 3 to Note Purchase Agreement, dated as of August 12, 1996 by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference to Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (File No. 0-5734). (g) Indenture, dated as of August 1, 1996, by and between the Company and Star Bank, N.A., as Trustee. (h) Share Subscription Agreement and Trust, effective July 2, 1996, by and between the Company and Wachovia Bank of North Carolina, N.A., which is incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-3 (Reg. No. 333-07665). *10(a) Retirement Agreement, effective March 31, 1996, by and between the Company and Preston B. Heller, Jr., which is incorporated herein by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-5734). *(b) Employment Agreement, effective as of April 1, 1996, by and between the Company and James L. Bayman, which is incorporated herein by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-5734). *(c) Employment Agreement, effective as of April 1, 1996, by and between the Company and Arthur Rhein, which is incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-5734). *(d) Employment Agreement, effective as of April 1, 1996, by and between the Company and John V. Goodger, which is incorporated herein by reference to Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 0-5734). E-2 14 Exhibit No. Description ----------- ----------- *(e) The Company's 1982 Incentive Stock Option Plan, as amended. *(f) The Company's Amended and Restated 1991 Stock Option Plan, which is incorporated herein by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement (Reg. No. 33-53329). *(g) Asset Purchase Agreement, dated April 22, 1994, by and between the Company and Westburne Industrial Enterprises Ltd., which is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 1, 1994 (File No. 0-5734). *(h) The Company's Amended 1995 Stock Option Plan for Outside Directors, which is incorporated herein by reference to Exhibit 99.1 to the Company's Form S-8 Registration Statement (Reg. No. 333-07143). 11 Statement regarding computation of per share earnings. 13 1997 Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP, Independent Auditors. 27 Financial Data Schedule. 99(a) Certificate of Insurance Policy, effective November 1, 1995, between Chubb Group of Insurance Companies and Pioneer-Standard Electronics, Inc. 99(b) Forms of Amended and Restated Indemnification Agreement entered into by and between the Company and each of its Directors and Executive Officers, which are incorporated herein by reference to Exhibit 99(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1994 (File No. 0-5734). - --------------------------------- *Denotes a management contract or compensatory plan or arrangement. E-3 EX-3.A 2 EXHIBIT 3A 1 Exhibit 3(a) CERTIFICATE OF ADOPTION OF AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Preston B. Heller, Jr., President, and William X. Haase, Secretary of Pioneer-Standard Electronics, Inc., an Ohio corporation, with its principal office located at Cuyahoga County, Ohio, do hereby certify that a special meeting of the holders of the shares of said corporation entitling them to vote on the proposal to adopt Amended Articles of Incorporation as contained in the following resolution, was duly called for such purpose and held on the 17th day of April, 1970, at which meeting a quorum of such shareholders was present in person or by proxy and that by the affirmative vote of the holders of shares entitled under the Articles of Incorporation to exercise two-thirds of the voting power of the corporation on such proposal, the following resolution was adopted: RESOLUTION RESOLVED, that the following Amended Articles of Incorporation be, and the same hereby are, adopted to supersede the existing Articles of Incorporation as heretofore amended: AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. FIRST. The name of the corporation is Pioneer-Standard Electronics, Inc. SECOND. The place in the State of Ohio where the principal office of the corporation is to be located is the City of Cleveland, Cuyahoga County. THIRD. The purposes of the corporation are as follows: 1. To manufacture, produce, process, purchase and sell as distributor, wholesaler, retailer, or otherwise, and to 2 act as agent or broker in the buying, selling, leasing and otherwise dealing in electric, electronic, radio and television equipment, including without limitation of the foregoing, electrical and mechanical instruments, motors, parts, appliances, components and other similar devices and to do and perform all other acts as shall be necessary, incidental or otherwise related to the exercise of the foregoing purposes. 2. To carry on any other lawful business as from time to time determined by the Board of Directors. 3. To purchase, acquire, hold, mortgage, pledge, loan money upon, exchange, rent, sell and otherwise deal in personal property and real estate of every kind, character and description whatsoever and wheresoever situated, and any interest therein; in particular without limiting the generality of the foregoing, to acquire, hold, sell and otherwise deal in any part or all of the shares of stock, notes, bonds, debentures, or any other kind of security of any other corporation which is conducting a business similar to the business of this corporation or otherwise. 4. To apply for, obtain, purchase, take licenses in respect of, or otherwise acquire, and to hold, own, use, grant licenses in respect of, manufacture under, sell, assign, mortgage, pledge, or otherwise dispose of, any and all inventions, devices, processes, and any improvements and modifications thereof, and all Letters Patent of the United States or of any other country, state, territory or locality, and all rights connected therewith or pertaining thereto; any and all copyrights granted by the United States, or any other country, state, territory or locality, and any and all trademarks, trade names, trade symbols and other indications of origin and ownership granted by or recognized under the laws of the United States or of any other country, state, territory or locality. 5. To acquire all or any part of the good will, rights, property and business of any corporation, association, partnership, firm, trustee, syndicate, combination, organization, or other entity or individual, domestic or foreign, heretofore or hereafter engaged in any business similar to the business of the corporation, and to pay for the same in cash, or in shares or in obligations of the corporation, or otherwise, and to hold, utilize, enjoy and in any manner dispose of the whole or any part of the rights and property so acquired, and to conduct in the State of Ohio, or in any other state, territory, locality or country, the whole or any part of the business thus acquired, provided such business is not prohibited by the laws of the State of Ohio. 3 6. To have one or more offices or plants. 7. To do any one or more of the acts or things expressed in this Article Third, either as principal or as agent, for or through the operation or control of any other persons, firm, association, corporation or body politic. 8. In addition to the acts and things herein set forth, to do such other acts and things as are or may be permitted by the General Corporation Law of Ohio and any amendments which may be made thereto and such other acts and things as may be necessary, convenient or expedient to carry out and accomplish any or all of the foregoing purposes. The foregoing paragraphs of this Article Third shall be construed as expressing independent purposes and powers, which shall not, except as otherwise expressly provided, be limited by reference to or inference from the provisions of any other paragraph; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of said corporation and are in furtherance of and in addition to and not in limitation of the general powers conferred upon the corporation by the said General Corporation Law of Ohio. FOURTH. The authorized number of shares of the corporation is One Million (1,000,000), all of which shall be common shares without par value. FIFTH. The corporation, when authorized to do so by its Board of Directors, may purchase any of its outstanding shares at such price and upon such terms as may be agreed upon between the corporation and the selling shareholder or shareholders. Any such purchase may be made either in the open market or at private or public sale. SIXTH. The holders of shares shall have no pre-emptive rights to purchase or to have offered to them for purchase any shares of the corporation. SEVENTH. The Code of Regulations previously set forth in the Agreement of Consolidation contained in the Certificate of Consolidation filed in the office of the Secretary of the State of Ohio on February 4, 1963, has from time to time thereafter been amended by the shareholders in accordance with Section 1701.11 of the Ohio Revised Code. Such Code of Regulations as so amended is contained in the minutes of the proceedings of the shareholders of the corporation, and such regulations as so amended shall (until hereafter amended by the shareholders, or until new regulations are adopted by the shareholders) be the regulations for the government of the corporation, the conduct of its affairs and the management of its property. 4 EIGHTH. These Amended Articles of Incorporation supersede the existing Articles of Incorporation as heretofore amended. IN WITNESS WHEREOF, the said Preston B. Heller, Jr., President, and William X. Haase, Secretary, of Pioneer-Standard Electronics, Inc. acting for and on behalf of said corporation, have hereunto subscribe their names this 24th day of April, 1970. /s/ Preston B. Heller, Jr. ---------------------------------- President /s/ William X. Haase ---------------------------------- Secretary 5 CERTIFICATE OF ADOPTION OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Preston B. Heller, Jr., President, and William X. Haase, Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, with its principal office located in the County of Cuyahoga of the State of Ohio do hereby certify that an annual meeting of the holders of the shares of said corporation entitling them to vote on the proposal to amend the Amended Articles of Incorporation thereof, as contained in the following resolution, was duly called and notice thereof was duly given, and that said meeting was held on the 28th day of June, 1973, at which meeting a quorum of such shareholders was present in person or by proxy and that by the affirmative vote of the holders of shares entitled under the Articles to exercise two-thirds of the voting power of the corporation on such proposal, the following resolution to amend the Amended Articles was adopted: RESOLUTION RESOLVED, that Article Fourth of the Amended Articles of Incorporation of this Corporation be and it hereby is amended so that it reads as follows: "FOURTH: The authorized number of shares of the Corporation is 2,000,000, all of which shall be common shares without par value." IN WITNESS WHEREOF, the said Preston B. Heller, Jr., President, and William X. Haase, Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this 17th day of May, 1974. /s/ Preston B. Heller, Jr. ----------------------------------- President /s/ William X. Haase ----------------------------------- Secretary 6 CERTIFICATE OF ADOPTION OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Preston B. Heller, Jr., President, and William X. Haase, Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, with its principal office located in the County of Cuyahoga of the State of Ohio do hereby certify that an annual meeting of the holders of the shares of said corporation entitling them to vote on the proposal to amend the Amended Articles of Incorporation thereof, as contained in the following resolution, was duly called and notice thereof was duly given, and that said meeting was held on the 28th day of June, 1979, at which meeting a quorum of such shareholders was present in person or by proxy and that by the affirmative vote of the holders of shares entitled under the Articles to exercise two-thirds of the voting power of the corporation on such proposal, the following resolution to amend the Amended Articles was adopted: RESOLUTION RESOLVED, that Article Fourth of the Amended Articles of Incorporation of this Corporation be and it hereby is amended so that it reads as follows: "FOURTH: The authorized number of shares of the Corporation is 5,000,000, all of which shall be common shares without par value." IN WITNESS WHEREOF, the said Preston B. Heller, Jr., President, and William X. Haase, Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this l0th day of August, 1979. /s/ Preston B. Heller, Jr. --------------------------------- President /s/ William X. Haase --------------------------------- Secretary 7 CERTIFICATE OF AMENDMENT OF AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Charter No. 317430 James L. Bayman, President, and John S. Zarka, Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, do hereby certify that a meeting of the Shareholders of Pioneer-Standard Electronics, Inc. was duly called and held on June 28, 1984, at which meeting a quorum of such Shareholders was present in person or by proxy at all times, and that by the affirmative vote of the holders of shares entitling them to exercise two-thirds of the voting power of said corporation, the following resolutions were adopted for the purpose of amending Article FOURTH of the Amended Articles of Incorporation of said corporation: "RESOLVED, that Article FOURTH of the Company's Amended Articles of Incorporation be amended to read in its entirety as follows: 'FOURTH: The authorized number of shares of the corporation is Twenty Million (20,000,000) shares, all of which shall be Common Shares, without par value.' BE IT FURTHER RESOLVED, That the President and the Secretary of the Company be and they are hereby authorized and directed to file promptly in the Office of the Secretary of State of Ohio an appropriate Certificate of Amendment, and to take such other action as may be appropriate, in order to render effective the foregoing amendment and carry out the purposes of these resolutions." IN WITNESS WHEREOF, said James L. Bayman, President, and John S. Zarka, Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this 28th day of June, 1984. /s/ James L. Bayman ----------------------------------- James L. Bayman, President /s/ John S. Zarka ----------------------------------- John S. Zarka, Secretary 8 CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Charter No. 317430 James L. Bayman, President, and John S. Zarka, Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, do hereby certify that a meeting of the Shareholders of Pioneer-Standard Electronics, Inc. was duly called and held on June 27, 1985, at which meeting a quorum of such Shareholders was present in person or by proxy at all times, and that by the affirmative vote of the holders of shares entitling them to exercise two-thirds of the voting power of said corporation, the following resolutions were adopted for the purpose of adding a new Article SEVENTH to the Amended Articles of Incorporation of said corporation: "RESOLVED, that a new Article SEVENTH be added to the Company's Amended Articles of Incorporation to read in its entirety as follows: 'SEVENTH. A. A Business Combination (as hereinafter defined) shall be authorized and approved by the affirmative vote of the holders of not less than eighty percent (80%) of the outstanding shares of the corporation entitled to vote generally in elections of Directors; provided, however, that the eighty percent (80%) voting requirement shall not be applicable if: 1. The Board of Directors of the corporation by affirmative vote, which shall include not less than a majority of the entire number of Continuing Directors (as hereinafter defined), (a) has approved in advance the acquisition of those outstanding shares of the corporation which caused the Interested Party (as hereinafter defined) to become an Interested Party or (b) has approved the Business Combination; or 2. The Business Combination is a merger or consolidation and the cash or Fair Market Value of other consideration to be received per share by holders of the common shares of the corporation in said merger or consolidation is not less than an amount equal to the sum of: 9 (a) the greatest of (i) the highest per share price, including commissions, paid by the Interested Party for any shares of the same class or series during the two-year period ending on the date of the most recent purchase by the Interested Party of any such shares, or (ii) the highest sales price reported for shares of the same class or series traded on a national securities exchange or in the over-the-counter market during the two-year period preceding the first public announcement of the proposed business transaction; plus (b) interest on the per share price calculated at the rate of ten percent (10%) per annum, compounded annually from the date the Interested Party first became an Interested Party until the business combination is consummated, less the per share amount of cash dividends payable to holders of record on record dates in the interim up to the amount of such interest. For purposes of this clause (2), per share amounts will be adjusted for any stock dividend, stock split or similar transaction. B. For purposes of this Article Seventh: 1. The term "Business Combination" shall mean (a) any merger or consolidation of the corporation or a subsidiary of the corporation with or into an Interested Party, (b) any merger or consolidation of an Interested Party with or into the corporation or a subsidiary, (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) in which an Interested Party is involved, of any of the assets either of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary having a Fair Market Value in excess of $2,000,000, (d) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposition or on behalf of any Interested Party, (e) the issuance or transfer (in one transaction or a series of transactions) by the corporation or a subsidiary of the corporation to an Interested Party of any securities of the corporation or such subsidiary, which securities have a Fair Market Value of $2,000,000 or more, or (f) any recapitalization, reclassification, merger or consolidation involving the corporation or a subsidiary of the corporation that would have the effect of increasing, directly or indirectly, the Interested Party's voting power in the corporation or such subsidiary. 10 2 The term "Interested Party" shall mean and include (a) any individual, corporation, partnership, trust or other person or entity which, together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on May 22, 1985) is or, with respect to a Business Combination, was within two years prior thereto a beneficial owner of shares aggregating ten percent (10%) or more of the aggregate voting power of any class of capital stock of the corporation entitled to vote generally in the election of Directors, and (b) any affiliate or associate of any such individual, corporation, partnership, trust or other person or entity. For the purposes of determining whether a person is an Interested Party, the number of shares deemed to be outstanding shall include shares which the Interested Party or any of its affiliates or associates has the right to acquire (whether immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants, or options , or otherwise, but shall not include any other shares which may be issuable to any other Person. 3. The term "Continuing Director" shall mean a director who is not an affiliate of an Interested Party and who was a member of the Board of Directors of the corporation immediately prior to the time that the Interested Party involved in a Business Combination became an Interested Party, and any successor to a Continuing Director who is not such an affiliate and who is nominated to succeed a Continuing Director by a majority of the Continuing Directors in office at the time of such nomination. 4. "Fair Market Value" shall mean the fair market value of the property in question as determined by a majority of the Continuing Directors in good faith. C. The provisions of this Article Seventh shall be construed liberally to the end that the consideration paid to holders whose shares are acquired by an Interested Party in connection with a merger or consolidation shall not be less favorable than that paid to holders of such shares prior to such merger or consolidation. Nothing contained in this Article Seventh shall be construed to relieve any Interested Party from any fiduciary duties or obligations imposed by law. D. Notwithstanding any other provision of the Amended Articles of Incorporation or the Amended Code of Regulations of the corporation and notwithstanding the fact that a lesser percentage may be specified by law, these Amended Articles of Incorporation or the Amended Code of Regulations of the corporation, the affirmative 11 vote of the holders of not less than eighty percent (80%) of the then outstanding shares shall be required to amend, alter, change or repeal, or adopt any provisions inconsistent with, this Article Seventh; provided, however, that this paragraph D shall not apply to, and the eighty percent (80%) vote shall not be required for, any amendment, alteration, change or repeal recommended to the shareholders by the Board of Directors of the corporation if the recommendation has been approved by at least two-thirds of the Continuing Directors.' BE IT FURTHER RESOLVED, that current Article SEVENTH of the Company's Amended Articles of Incorporation be redesignated as Article EIGHTH. BE IT FURTHER RESOLVED, that the President and the Secretary of the Company be and they are hereby authorized and directed to file promptly in the Office of the Secretary of State of Ohio an appropriate Certificate of Amendment, and to take such other action as may be appropriate, in order to render effective the foregoing amendment and carry out the purposes of these resolutions." IN WITNESS WHEREOF, said James L. Bayman, President, and John S. Zarka, Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this 27th day of June, 1985. /s/ James L. Bayman ------------------------------ James L. Bayman, President /s/ John S. Zarka ------------------------------ John S. Zarka, Secretary 12 CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Charter No. 317430 James L. Bayman, President, and John V. Goodger, Assistant Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, do hereby certify that a meeting of the Shareholders of Pioneer-Standard Electronics, Inc. was duly called and held on July 26, 1994, at which meeting a quorum of such Shareholders was present in person or by proxy at all times, and that by the affirmative vote of the holders of shares entitling them to exercise at least two-thirds of the voting power of said corporation, the following resolutions were adopted for the purpose of amending Article FOURTH of the Amended Articles of Incorporation of said corporation: RESOLVED, that Article FOURTH of the Amended Articles of Incorporation shall be deleted and replaced by the following: "FOURTH: The authorized number of shares of the corporation is Forty Million (40,000,000) shares, all of which shall be Common Shares, without par value." IN WITNESS WHEREOF, said James L. Bayman, President, and John V. Goodger, Assistant Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this 28th day of July, 1994. /s/ James L. Bayman ------------------------------ James L. Bayman, President /s/ John V. Goodger ---------------------------------------- John V. Goodger, Assistant Secretary 13 CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF PIONEER-STANDARD ELECTRONICS, INC. Charter No. 317430 James L. Bayman, President, and John V. Goodger, Assistant Secretary, of Pioneer-Standard Electronics, Inc., an Ohio corporation, do hereby certify that a meeting of the Shareholders of Pioneer-Standard Electronics, Inc. was duly called and held on July 23, 1996, at which meeting a quorum of such Shareholders was present in person or by proxy at all times, and that by the affirmative vote of the holders of shares entitling them to exercise at least two-thirds of the voting power of said corporation, the following resolutions were adopted for the purpose of amending Article FOURTH of the Amended Articles of Incorporation of said corporation: RESOLVED, that Article FOURTH of the Amended Articles of Incorporation shall be deleted and replaced by the following: "FOURTH: The authorized number of shares of the corporation is Eighty Million (80,000,000) shares, all of which shall be Common Shares, without par value." IN WITNESS WHEREOF, said James L. Bayman, President, and John V. Goodger, Assistant Secretary, of Pioneer-Standard Electronics, Inc., acting for and on behalf of said corporation, have hereunto subscribed their names this 29th day of July, 1996. /s/ James L. Bayman --------------------------------------- James L. Bayman, President /s/ John V. Goodger ---------------------------------------- John V. Goodger, Assistant Secretary EX-3.B 3 EXHIBIT 3B 1 Exhibit 3(b) PIONEER-STANDARD ELECTRONICS, INC. AMENDED CODE OF REGULATIONS ARTICLE I - MEETINGS OF SHAREHOLDERS ------------------------------------ Annual Meetings --------------- SECTION 1. The annual meeting of the shareholders of the Corporation shall be held in the principal office of the Corporation or at such other place within or without the State of Ohio as the Directors shall determine, at such date and time during the month of June or July of each year as shall be designated by the Board of Directors. If no other date is designated by the Board of Directors, the annual meeting shall be held at 2:00 p.m. on the last Thursday in June of each year, or if such date shall fall upon a legal holiday, the annual meeting shall be held upon the next succeeding day which is not a legal holiday, at the same hour. Upon due notice, there may also be considered and acted upon at an annual meeting any matter which could properly be considered and acted upon at a special meeting. Special Meetings ---------------- SECTION 2. Special meetings of the shareholders shall be called by the Chairman of the Board; the President; the Secretary; pursuant to a resolution of the Board of Directors; or upon the written request of two (2) Directors, and shall be held at such times and places, within or outside of the State of Ohio, as shall be specified in the call thereof. Notice of Meetings ------------------ SECTION 3. A written notice of each annual and special meeting, stating the time, place and purposes thereof, shall be given to each shareholder of record entitled to notice of the meeting in writing by personal delivery or by mail not less than seven (7) days, and not more than sixty (60) days before any such meeting, by or at the direction of the President, Chairman of the Board or Secretary, directed to the last known address of each such shareholder aforesaid as it appears on the records of the Corporation. All notices with respect to any shares to which persons are jointly entitled may be given to that one of such persons who is named first upon the books of the Corporation, and notice so given shall be sufficient notice to all other persons jointly entitled to said shares. Notice may be waived in 2 writing by any shareholder either before or after such meeting, and shall be waived by the attendance of any shareholder at any such meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice. Quorum ------ SECTION 4. Except as otherwise provided by law, the Articles of Incorporation, or these Regulations, a quorum at all meetings of shareholders shall consist of the holders of record of a majority of shares entitled to vote thereat, present in person or by proxy. Adjournment ----------- SECTION 5. If less than a quorum shall be in attendance at the time for which any meeting of the shareholders shall have been called, the meeting may be adjourned from time to time by a majority of the voting shares present in person or by proxy and entitled to vote, without any notice other than by announcement at the meeting of the time and place to which it adjourned, until a quorum shall attend. At any adjourned meeting at which a quorum shall attend, any business may be transacted which might have been transacted if the meeting had been held as originally called. Proxies ------- SECTION 6. Any person entitled to attend a shareholders' meeting, to vote thereat, or to execute consents, waivers, or releases, may be represented at such meeting or an adjourned meeting thereof and vote thereat, and execute consents, waivers and releases, and exercise any of his other rights by proxy or proxies appointed by a writing signed by such person, providing the writing has been filed with the Secretary prior to the action to be taken. ARTICLE II - DIRECTORS ---------------------- Number, Classification, Term of Office -------------------------------------- SECTION 1. The Board of Directors shall be divided into three classes to be known as Class A, Class B and Class C. The number of Directors in each class may be fixed or changed at any meeting of shareholders called to elect Directors, at which a quorum is present, by the vote of the holders of a majority of the shares represented at the meeting and entitled to vote on the proposal, but no class shall consist of less than three Directors. Unless and until otherwise so fixed or changed, there shall be three (3) Class A Directors, four (4) Class B 2 3 Directors and three (3) Class C Directors. One class of Directors shall be elected each year and the Directors in each class shall hold office for a term of three years and until their respective successors are elected and qualified. In case of any increase in the authorized number of Directors of any class, any additional Directors provided for and elected to such class shall hold office for a term which shall coincide with the full term or the remainder of the term, as the case may be, of such class. Annual Meetings --------------- SECTION 2. The Board of Directors shall meet immediately following the adjournment of the annual meeting of shareholders at the place of the annual shareholders' meeting or at such time and place as may be designated in writing by a majority of all the Directors, for the purpose of electing officers or otherwise, and no notice of such meeting need be given to the Directors in order legally to constitute the meeting; provided, that a majority of the whole Board shall be present. Meetings -------- SECTION 3. Meetings of the Board of Directors may be called by the Chairman of the Board, the President (or in his absence by a Vice President) or any two (2) Directors on written notice to each Director, given by personal delivery or by mail, cablegram or telegram, at least two (2) days before the time of such meeting. Notice of any such meeting may be waived by any Director, however, before or after the meeting by writing and shall be deemed to be waived by any Director who shall attend such meeting in person without protesting, prior to or at the commencement of the meeting, the lack of proper notice. Any meeting of the Board of Directors shall be a legal meeting without notice having been given, if attended by all the members of the Board. Quorum ------ SECTION 4. At all meetings of the Board of Directors, a majority of the whole authorized number of Directors shall constitute a quorum for the transaction of business, except that a majority of the Directors then in office shall constitute a quorum for purposes of filling a vacancy in the Board. Telephone Conferences --------------------- SECTION 5. Meetings of the Board of Directors or any committee thereof may be held through any communications equipment if 3 4 all persons participating can hear each other, and participation in such a meeting shall constitute presence at such meeting. Resignation ----------- SECTION 6. Any Director may resign at any time by delivering a signed written notice thereof to the Secretary of the Corporation, which resignation shall take effect at the time of said delivery or at such other time as may be specified in said notice. Removal ------- SECTION 7. All the Directors or all the Directors of a particular class or any individual Director may be removed from office, with or without cause, by the vote of the holders of two-thirds of the voting power entitled to elect Directors in place of those to be removed; provided, that unless all the Directors or all the Directors of a particular class are to be removed, no Director shall be removed without cause if the number of shares voted against his removal would be sufficient to elect at least one Director if cumulatively voted at an election of all the Directors, or all the Directors of a particular class, as the case may be. Vacancies --------- SECTION 8. Vacancies in the Board of Directors, whether caused by the death or resignation or removal of a Director, or by an increase in the authorized number of Directors, or otherwise, may be filled for the unexpired term by a vote of a majority of the remaining Directors, though less than a majority of the whole authorized number of Directors. Board Committees ---------------- SECTION 9. (a) The Board of Directors may from time to time appoint certain of its members (but not less than three (3)) to act as a Committee or Committees of Directors, and, subject to the provisions of this Section, may delegate to any such Committee any of the authority of the Board, however conferred, other than that of filling vacancies among the Directors or in any Committee of Directors. The Board of Directors may likewise appoint one or more Directors as alternate members of any such Committee, who may take the place of any absent member or members at any meeting of such Committee. Each such member and each such alternate shall serve in such capacity at the pleasure of the Board of Directors. 4 5 (b) In particular, the Board of Directors may create an Executive Committee in accordance with the provisions of this Section. If created, the Executive Committee shall possess and may exercise all of the powers of the Board in the management and control of the business of the Corporation during the intervals between meetings of the Board subject to provisions of this Section. The chairman of the Executive Committee shall be determined by the Board of Directors from time to time. All action taken by the Executive Committee shall be reported in writing to the Board of Directors at its first meeting thereafter. (c) Each such Committee shall serve at the pleasure of the Board of Directors, shall act only in the intervals between meetings of the Board and shall be subject to the control and direction of the Board. Each Committee shall keep regular minutes of its proceedings and shall report the same to the Board when required. (d) An act or authorization of any act by any such Committee within the authority delegated to it shall be effective for all purposes as the act or authorization of the Board of Directors. In every case the affirmative vote of a majority of its members at a meeting, or the written consent of all of the members of any such Committee without a meeting, shall be necessary for the taking or approval of any action. (e) Each such Committee may prescribe such rules as it shall determine for calling and holding meetings and its method of procedure, subject to the provisions of this Section and any rules prescribed by the Board of Directors. Compensation ------------ SECTION 10. The compensation of the Directors shall be such as the Board of Directors may from time to time determine. On resolution of the Board of Directors, a fixed sum for expenses of attendance may be allowed for attendance at each meeting. Members of the Executive Committee or other Committee of the Board may be allowed such compensation and such expenses for attending committee meetings as the Board of Directors may determine. ARTICLE III - OFFICERS ---------------------- Composition ----------- SECTION 1. The officers of the Corporation shall include a Chairman of the Board (who shall be a Director), a President, one or more Vice Presidents (including a Financial Vice President), a Secretary, a Treasurer, and such other officers as the Board of Directors may determine to be necessary or appropriate, including, but not limited to, a Vice Chairman of the Board, a Controller, one or more 5 6 Executive Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. The Board of Directors may also appoint such other subordinate officers, employees and agents as it shall deem necessary, who shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. Election and Term of Office --------------------------- SECTION 2. The said officers shall be elected by the Board of Directors by a majority ballot and shall hold office for one (1) year and until their respective successors are elected and qualified, but shall be subject to the power of removal hereinafter provided. Removal ------- SECTION 3. Any officer elected or appointed by the Board of Directors may be removed at any time either with or without cause by the affirmative vote of two-thirds of the Board of Directors. Any other officer or employee of the Corporation may be removed at any time by vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the Board of Directors. Compensation ------------ SECTION 4. The compensation of the officers of the Corporation shall be fixed from time to time by the Board of Directors. Bond ---- SECTION 5. All or any of said officers shall, if the Board of Directors so determines, furnish bonds for the faithful performance of their duties in such amount or amounts as the Board of Directors may require, upon terms, provisions and conditions and with surety or sureties to the satisfaction of the said Board. ARTICLE IV - DUTIES OF OFFICERS ------------------------------- The Chairman of the Board ------------------------- SECTION 1. The Chairman of the Board shall preside at all meetings of the Board of Directors. The Chairman of the Board or the President shall sign the minutes of the shareholders' and Directors' meetings. The Chairman of the Board shall perform the duties and exercise the powers of the President in case of the President's 6 7 disability or absence from the office of the Corporation. The Chairman of the Board shall have such other powers and duties as may be prescribed by the Board of Directors. The President ------------- SECTION 2. The President shall exercise, subject to the control of the Board of Directors, general supervision over the affairs of the Corporation and shall perform generally, subject to the control of the Board, all duties customarily incident to the office and such other duties as may be assigned to him from time to time by the Board of Directors. He shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the Board to delegate to any officer or officers of the Corporation specific powers, other than those that may be by law conferred upon the President. He shall sign all the certificates of stock, bonds, contracts, notes, mortgages and other documents authorized by the Board of Directors and execute for or in the name of the Corporation all endorsements, assignments, transfers, share powers or other instruments of transfer of securities except in cases where the execution thereof shall be expressly delegated by the Board or these Regulations or by law to some other officer or agent of the Corporation. In case of the disability or absence from office of the Chairman of the Board, the President shall also perform the duties and exercise the powers of that office. The President or Chairman of the Board shall sign the records of the shareholders' and Directors' meetings. Chief Executive and Chief Operating Officers -------------------------------------------- SECTION 3. The Board of Directors may designate one or more persons as either Chief Executive Officer or Chief Operating Officer or both and may specify the duties, authority and responsibilities of each of said officers. Vice Presidents --------------- SECTION 4. The Vice President (or if there be more than one, the Vice President designated by the Board of Directors) shall perform the duties and exercise the powers of the President in case of his disability or absence from the office of the Corporation and in case of the disability or absence from the office of the Corporation of the Chairman of the Board. The signature of the Corporation by any Vice President to any deed, contract or other instrument in writing, purporting to be the act of the Corporation, shall be taken, received and accepted as the authorized and binding act of the Corporation and with like effect as if made by the President. The Financial Vice President shall be the Chief Financial Officer of the Corporation. Any 7 8 Vice President shall have such further powers, and perform such further duties, as may be from time to time granted or imposed by the Board of Directors. Secretary --------- SECTION 5. The Secretary shall attend all meetings of the Board and all meetings of the shareholders held at the office of the Corporation, shall keep minutes of all of the proceedings thereof, and shall record all votes and the minutes of all of the proceedings in a book to be kept for that purpose. He shall perform like duties for committees of the Corporation when so required. He shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors, and shall attest the seal of the Corporation when required. The Secretary shall have custody of the seal of the Corporation, and either he or the Treasurer shall attest the seal and see that it is affixed to all authorized documents requiring a seal. The Secretary or the Treasurer shall sign all certificates of shares in the Corporation and execute for or in the name of the Corporation all endorsements, assignments, transfers, share powers or other instruments of transfer of securities. The Secretary shall perform such other duties usually incident to the office of Secretary, and such further duties as shall from time to time be prescribed by the Board of Directors, Chairman of the Board or President. At any meeting of the shareholders or Board of Directors at which the Secretary is not present, a secretary pro tempore may be appointed. Assistant Secretary ------------------- SECTION 6. In case of the Secretary's sickness, disability or temporary absence from the office of the Corporation, one or more Assistant Secretaries, if any, shall perform his duties. The Assistant Secretary or Secretaries, if any, shall perform such further duties as from time to time may be prescribed by the Board of Directors, Chairman of the Board, President or Secretary. Treasurer --------- SECTION 7. The Treasurer shall, subject to the direction of the Board of Directors, have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. He shall deposit all moneys and other valuable effects in the name of and to the credit of the Corporation, in such depositaries as may be designated by the Board of Directors. The Treasurer or the Secretary shall attest the seal of the Corporation and see that it is affixed to all authorized documents requiring a seal. The Treasurer or Secretary shall sign all 8 9 certificates for shares in the Corporation and execute for or in the name of the Corporation all endorsements, assignments, transfers, share powers or other instruments of transfer of securities. The Treasurer shall perform such other duties usually incident to the office of Treasurer and such other duties as may be prescribed by the Board of Directors, Chairman of the Board or President. Assistant Treasurer ------------------- SECTION 8. In case of the Treasurer's sickness, disability or temporary absence from the office of the Corporation, one or more Assistant Treasurers, if any, shall perform his duties. The Assistant Treasurer or Treasurers, if any, shall perform such further duties as from time to time shall be prescribed by the Board of Directors, Chairman of the Board, President or Treasurer. Controller ---------- SECTION 9. The Controller, if one is elected, shall be the Chief Accounting Officer of the Corporation, and shall have such duties and responsibilities as are normally incident to that office. ARTICLE V - SEAL ---------------- SECTION 1. The Seal of the Corporation shall be circular, with the words and figures "SEAL, PIONEER-STANDARD ELECTRONICS, INC., OHIO," or words and figures of similar import inscribed thereon. ARTICLE VI - SHARES ------------------- Certificates ------------ SECTION 1. Certificates evidencing the ownership of shares of the Corporation shall be issued to those entitled to them by transfer or otherwise. Each certificate for shares shall bear a distinguishing number, the signature of the President and of the Secretary or the Treasurer, and such recitals as may be required by law. The certificates for shares shall be of such tenor and design as the Board of Directors from time to time may adopt. Transfers --------- SECTION 2. The shares may be transferred on the books of the Corporation by the registered holders thereof, or by their attorneys 9 10 legally constituted in writing or their legal representatives, by surrender of the certificate or certificates therefor for cancellation and a written assignment of the shares evidenced thereby. The Board of Directors may, from time to time, appoint such Transfer Agents or Registrars of shares as it may deem advisable, and may define their powers and duties. The Board of Directors shall have authority to make such other rules and regulations as it deems expedient concerning the issuance, registration and transfer of certificates for shares. Substituted Certificates ------------------------ SECTION 3. The Board of Directors may order a new certificate or certificates for shares to be issued in place of any certificate or certificates alleged to have been lost, stolen or destroyed, but in every such case the owner of the lost, stolen or destroyed certificate or certificates shall first make an affirmation of that fact and cause to be given to the Corporation, if so requested, a bond, with surety or sureties satisfactory to the Corporation in such sum as said Board of Directors may in its discretion deem sufficient, as indemnity against any loss or liability that the Corporation may incur by reason of the issuance of such new certificates; provided, the Board of Directors may, in its discretion, refuse to issue such new certificate save upon the order of some court having jurisdiction in such matters. Closing of Transfer Books ------------------------- SECTION 4. The share transfer books of the Corporation may be closed by order of the Board of Directors for a period not exceeding sixty (60) days prior to any meeting of the shareholders, and for a period not exceeding sixty (60) days prior to the payment of any dividend. The times during which the books may be closed shall, from time to time, be fixed by the Board of Directors. ARTICLE VII - NOTICES --------------------- Notice by Mail -------------- SECTION 1. Whenever, under the provisions of these Regulations, notice is permitted to be given to any shareholder or Director by mail, it may be given by depositing the same in the post office or letter box, in a postpaid sealed wrapper, addressed to the shareholder or Director, at such address as appears on the books of the Corporation; and such notice shall be deemed to be given at the time when the same shall be thus deposited in the mail. 10 11 Notice by Telegraph ------------------- SECTION 2. Whenever, under the provisions of these Regulations, notice is permitted to be given to any Director by telegraph, it may be given by a prepaid telegram addressed to such Director at such address as appears on the books of the Corporation, or in default of other address, at his place of residence or usual place of business, last known to the Corporation, and such notice shall be deemed to be given at the time such telegram shall be delivered to the telegraph company for transmittal. ARTICLE VIII - INDEMNIFICATION ------------------------------ SECTION 1. Each person who is or was a Director, Officer, Employee or Agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Officer, Employee, Trustee or Agent of another corporation, domestic or foreign, non-profit or for profit, partnership, joint venture, trust or other enterprise, shall be indemnified by the Corporation as follows: (a) If such person was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of his being or having been such Director, Officer, Trustee, Agent or Employee, such person shall be indemnified against expenses, including attorney's 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, he had no reasonable cause to believe his conduct was unlawful; provided the termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act 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 shall also not create a presumption that the person had reasonable cause to believe that his conduct was unlawful; or (b) If such person was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of his having been such Director, Officer, Trustee, Agent or Employee, such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably 11 12 incurred by him in connection with the defense or settlement of such action or suit 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, except that no indemnification shall be made in respect of either (i) any claim, issue or matter to which such person is adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless, and only to the extent that, the Court of Common Pleas or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Common Pleas or such other court shall deem proper or (ii) any action or suit involving a Director in which the only liability asserted against such director is pursuant to Section 1701.95 of the Ohio Revised Code. SECTION 2. To the extent that such a Director, Officer, Trustee, Agent or Employee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Paragraph (a) or (b) of Section 1 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the action, suit or proceeding. SECTION 3. In all cases in which the Director, Officer, Trustee, Agent or Employee may be entitled to indemnification under Paragraphs (a) or (b) of Section 1 of this Article, any indemnification, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, Officer, Trustee, Employee or Agent is proper in the circumstances because he has met the standards of conduct set forth in Paragraph (a) or (b) of Section 1 of this Article, whichever is applicable. Such determination shall be made as follows: (a) By a majority vote of a quorum of the Corporation's Directors who were not and are not parties to or threatened with any such action, suit or proceeding; or (b) If such a quorum is not obtainable or if a majority of a quorum of disinterested Directors so directs, in a written opinion by independent legal counsel other than an attorney or a firm having associated with it an attorney who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five (5) years; or (c) By the shareholders; or (d) By the Court of Common Pleas or the court in which such action, suit or proceeding was brought. 12 13 Any determination made by the disinterested Directors under Paragraph (a) or by independent legal counsel under Paragraph (b) of Section 3 of this Article shall be promptly communicated to the person who threatened or brought the action or suit by or in the right of the Corporation, if the expenses for which indemnification has been sought were incurred in an action or suit by or in the right of the Corporation. SECTION 4. In the case of an action, suit or proceeding involving a Director, unless the only liability asserted against such Director in a proceeding referred to in paragraphs (a) or (b) of Section 1 of this Article is pursuant to Section 1701.95 of the Ohio Revised Code, the Corporation shall pay expenses, including attorney's fees, incurred by a Director in defending such an action, suit or proceeding as they are incurred in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of the Director in which such Director agrees to both (i) repay such amount if it is proven by clear and convincing evidence in a court of competent jurisdiction that his action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard to the best interests of the Corporation, and (ii) reasonably cooperate with the Corporation concerning the action, suit or proceeding. SECTION 5. The Corporation may pay expenses, including attorney's fees incurred in defending any action, suit or proceeding referred to in Paragraph (a) or (b) of Section 1 of this Article as they are incurred in advance of the final disposition of such action, suit or proceeding, as authorized by the Directors in the specific case upon receipt of an undertaking by or on behalf of the Trustee, Director, Officer, Employee or Agent to repay such amount if it ultimately is determined that he is not entitled to be indemnified by the Corporation as authorized in this Article. SECTION 6. The rights of indemnification herein authorized shall be severable, shall not be deemed exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under the Articles of Incorporation or any agreement, vote of shareholders or disinterested Directors, or otherwise, both as to actions in the official capacity of the person seeking indemnity, and as to actions in another capacity while holding such office and shall continue as to a person who has ceased to be a Director, Officer, Trustee, Agent or Employee and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to, trust funds, letters of credit or self-insurance, on behalf of or for any person who is or was a Director, Officer, Employee or Agent of the Corporation, or is or was serving at the request of the Corporation as a 13 14 Director, Officer, Trustee, Employee or Agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. SECTION 8. The Corporation's authority to indemnify persons pursuant to paragraphs (a) and (b) of Section 1 of this Article does not limit the payment of expenses as they are incurred, indemnification, insurance or other protection that may be provided pursuant to Sections 5, 6, and 7 of this Article; paragraphs (a) and (b) of Section 1 of this Article do not create any obligation to repay or return payments made by the Corporation pursuant to Sections 5, 6, or 7 or this Article. SECTION 9. As used in this Article, references to "Corporation" include all constituent corporations in a consolidation or merger and the new or surviving corporation, so that any person who is or was a Director, Officer, Employee or Agent of such a constituent corporation, or is or was serving at the request of such constituent corporation as a Director, Officer, Trustee, Employee or Agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise shall stand in the same position under this Article with respect to the new or surviving corporation as he would if he had served the new or surviving corporation in the same capacity. SECTION 10. The provisions of this Article shall apply to actions, suits and proceedings, whether civil (including, but not limited to, actions by or in the right of the Corporation), criminal, administrative or investigative, commenced or threatened after the adoption of this Article, whether arising from acts or omissions to act occurring before or after its adoption. SECTION 11. Notwithstanding the foregoing, the Corporation shall, to the extent permitted by the Ohio Revised Code, as amended from time to time, indemnify and reimburse all persons whom it may indemnify and reimburse pursuant thereto. The indemnification provided for in this Article shall not be deemed exclusive of any other rights to which those entitled to receive indemnification or reimbursement hereunder may be entitled under the Articles of the Corporation, agreement, vote of shareholders or disinterested directors or otherwise. ARTICLE IX - FISCAL YEAR ------------------------ The fiscal year of the Corporation shall be determined by the Directors of the Corporation. 14 15 ARTICLE X - AMENDMENTS ---------------------- These Regulations may be amended or repealed or new Regulations adopted at any meeting of shareholders by the affirmative vote of the holders of record of shares entitling them to exercise two-thirds of the voting power of the Corporation on such proposal, or may be adopted without a meeting by the written consent of the holders of shares entitling them to exercise two-thirds of the voting power on such proposal; provided, however, that if the Regulations are amended or new Regulations are adopted at any meeting of shareholders, notice of the proposed new Regulations, or the proposed amendment or repeal, shall be included in the notice of such meeting, or if the Regulations are amended or new Regulations are adopted without a meeting of the shareholders, the Secretary of the Corporation shall mail a copy of the amendment or the new Regulations to each shareholder who would have been entitled to vote thereon and did not participate in the adoption thereof. 15 EX-4.6 4 EXHIBIT 4.6 1 EXHIBIT 4(g) - ------------------------------------------------------------------------------- PIONEER-STANDARD ELECTRONICS, INC., AS ISSUER TO STAR BANK, N.A., AS TRUSTEE ----------------------- INDENTURE SENIOR DEBT SECURITIES DATED AS OF AUGUST 1, 1996 ----------------------- - ------------------------------------------------------------------------------- 2 PIONEER-STANDARD ELECTRONICS, INC. RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF AUGUST 1, 1996 TRUST INDENTURE INDENTURE SECTION ACT SECTION SECTION 310(a)(1)............................................... 609 (a)(2)............................................... 609 (a)(3)............................................... Not Applicable (a)(4)............................................... Not Applicable (b) ................................................. 608, 610 Section 311(a) ................................................. 613 (b) ................................................. 613 (b)(2) .............................................. 703(a), 703(b) Section 312(a) ................................................. 701, 702(a) (b) ................................................. 702(b) (c) ................................................. 702(c) Section 313(a) ................................................. 703(a) (b) ................................................. 703(b) (c) ................................................. 703(a), 703 (b) (d) ................................................. 703 (b) Section 314(a) ................................................. 704, 1006, 1007 (b) ................................................. Not Applicable (c)(1) .............................................. 102 (c)(2) .............................................. 102 (c)(3) .............................................. Not Applicable (d) ................................................. Not Applicable (e) ................................................. 102 Section 315(a) ................................................. 601(a) (b) ................................................. 602, 703(a) (c) ................................................. 601(b) (d) ................................................. 601(c) (d)(1)............................................... 601(a), 601(c) (d)(2)............................................... 601(c) (d)(3)............................................... 601(c) (e).................................................. 514 Section 316(a).................................................. 101 (a)(1)(A)............................................ 512 (a)(1)(B)............................................ 502, 513 (a)(2)............................................... Not Applicable (b).................................................. 508 Section 317(a)(1)............................................... 503 (a)(2)............................................... 504 (b).................................................. 1009 (c).................................................. 104(c) Section 318(a).................................................. 107 - --------------------------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture. 3 INDENTURE, dated as of August 1, 1996, between PIONEER-STANDARD ELECTRONICS, INC., an Ohio corporation (herein called the "Company"), having its principal office at 4800 East 131st Street, Cleveland, Ohio 44105, and STAR BANK, N.A., a national banking association, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, or defined by Commission rule and not otherwise defined herein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (4) the word "INCLUDING" (and with correlative meaning "INCLUDE") means including, without limiting the generality of, any description preceding such term; and (5) the words "HEREIN," "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 4 "ACQUIRING PERSON" means any Person or group (as defined in Section 13(d) (3) of the Exchange Act) who or which, together with all affiliates and associates (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner of common shares of the Company having more than 50% of the total number of votes that may be cast for the election of directors of the Company; provided, however, that an Acquiring Person shall not include (a) the Company, (b) any Subsidiary of the Company, or (c) any employee benefit plan of the Company or any Subsidiary of the Company or any entity holding common shares of the Company for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of common shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to more than 50% or more of the common shares of the Company then outstanding; provided, however, that if a Person shall become the beneficial owner of more than 50% or more of the common shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the beneficial owner of any additional common shares of the Company, then such Person shall be deemed to be an "Acquiring Person." "ACT," when used with respect to any Holder, has the meaning specified in Section 104. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ATTRIBUTABLE DEBT" in respect of a Sale and Leaseback Transaction means, as of any particular time, the present value (discounted at the rate of interest implicit in the terms of the lease involved in such Sale and Leaseback Transaction, as determined in good faith by the Company) of the obligation of the lessee thereunder for rental payments (excluding, however, any amounts required to be paid by such lessee, whether or not designated as rent or additional rent, on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges or any amounts required to be paid by such lessee thereunder contingent upon the amount of sales, maintenance and repairs, insurance, taxes, assessments water rates or similar charges) during the remaining term of such lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended). -2- 5 "AUTHENTICATING AGENT" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities. "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "BOARD OF DIRECTORS" means the board of directors of the Company; provided, however, that when the context refers to actions or resolutions of the Board of Directors, then the term "Board of Directors" shall also mean any duly authorized committee of the Board of Directors of the Company or Officer authorized to act with respect to any particular matter to exercise the power of the Board of Directors of the Company. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY," when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or regulation to close. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations, warrants, rights, options or other equivalents (however designated) of capital stock or any other equity interest of such Person, including each class of common stock and preferred stock. "CHANGE OF CONTROL" means any event by which (a) an Acquiring Person has become such, (b) Continuing Directors cease to comprise a majority of the members of the Board of Directors of the Company or (c) all or substantially all the properties and assets of the Company as an entirety or substantially as an entirety are sold, assigned, transferred or leased. "CHANGE OF CONTROL DATE", "CHANGE OF CONTROL OFFER" and "CHANGE OF CONTROL PAYMENT DATE" shall have the respective meanings provided in Section 1013. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON DEPOSITARY" has the meaning specified in Section 304. -3- 6 "COMPANY" means the Person named as the "Company" in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller, an Assistant Controller, its Secretary or an Assistant Secretary, and delivered to the Trustee. "CONSOLIDATED NET TANGIBLE ASSETS" means, as of any particular time, the total amount of assets (less applicable reserves) after deducting therefrom (a) all current liabilities (excluding any thereof which are by their terms extendible or renewable at the option of the obligor thereon to a time more than 12 months after the time as of which the amount thereof is being computed and excluding current maturities of long-term indebtedness), and (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangible assets, all as shown in the audited consolidated balance sheet of the Company and Subsidiaries contained in the Company's then most recent annual report to shareholders, except that assets shall include an amount equal to the Attributable Debt in respect of any Sale and Leaseback Transaction not capitalized on such balance sheet. "CONTINUING DIRECTOR" means any member of the Board of Directors, while such person is a member of such Board of Directors, who is not an Acquiring Person, or an affiliate or associate of an Acquiring Person or a representative of an Acquiring Person or of any such affiliate or associate and who (a) was a member of the Board of Directors prior to the date of this Indenture, or (b) subsequently becomes a member of such Board of Directors and whose nomination for election or election to such Board of Directors is recommended or approved by resolution of a majority of the Continuing Directors or who is included as a nominee in a proxy statement of the Company distributed when a majority of such Board of Directors consists of Continuing Directors. "CORPORATE TRUST OFFICE" means the office of the Trustee in Cincinnati, Ohio at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 425 Walnut Street, Cincinnati, Ohio 45201-1118. "COVENANT DEFEASANCE" has the meaning specified in Section 1303. -4- 7 "CUSTODIAN" means any receiver, custodian, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DEFAULTED INTEREST" has the meaning specified in Section 307. "DEFEASANCE" has the meaning specified in Section 1302. "DOLLARS" and "$" means lawful money of the United States of America. "EVENT OF DEFAULT" has the meaning specified in Section 501. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder . "GAAP" means such accounting principles as are generally accepted in the United States of America as of the date or time of any computation required hereunder. "HOLDER" or "SECURITYHOLDER" means a Person in whose name a Security is registered in the Security Register. "INDEBTEDNESS" has the meaning specified in Section 1010. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 301. "INTEREST," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "INTEREST PAYMENT DATE," when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "JUDGMENT CURRENCY" has the meaning specified in Section 115. "MATURITY," when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or -5- 8 herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "MORTGAGE" has the meaning specified in Section 1010. "NEW YORK BANKING DAY" has the meaning specified in Section 115. "OFFICER" means the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company . "OFFICER'S CERTIFICATE" means a certificate signed by an Officer and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of or counsel for the Company, and who shall be reasonably acceptable to the Trustee. "ORIGINAL ISSUE DISCOUNT SECURITY" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a DECLARATION of acceleration of the Maturity thereof pursuant to Section 502. "OUTSTANDING," when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (1) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and -6- 9 (4) Securities which have been defeased pursuant to Section 1302; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding for such purposes shall be that portion of the principal amount thereof that could be declared to be due and payable upon the occurrence of an Event of Default and the continuation thereof pursuant to the terms of such Original Issue Discount Security as of the date of such determination and (b) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "PAYING AGENT" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company may act as Paying Agent with respect to any Securities issued hereunder. "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PLACE OF PAYMENT," when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 301. "PRINCIPAL PROPERTY" means any manufacturing or assembly plant or warehouse owned at the date hereof or hereafter acquired by the Company or any Restricted Subsidiary of the Company which is located within the United States or Canada and the gross book value (including related land and improvements thereon and all machinery and equipment included therein without deduction of any depreciation reserves) of which on the date as of which the determination is being made exceeds 2% of Consolidated Net Tangible Assets other than (a) any such manufacturing or assembly plant or warehouse or any other real property or any portion thereof (together with the land on which -7 - 10 it is erected and fixtures comprising a part thereof) which is financed by industrial development bonds which are tax exempt pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (or which receive similar tax treatment under any subsequent amendments thereof or any successor laws thereof or under any other similar statute of the United States), (b) any property which in the opinion of the Board of Directors is not of material importance to the total business conducted by the Company and its Restricted Subsidiaries taken as a whole, or (c) any portion of a particular property which is similarly found not to be of material importance to the use or operation of such property. "REDEMPTION DATE," when used with respect to any Security of any series to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE," when used with respect to any Security of any series to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "REGISTERED SECURITY" means any Security issued hereunder and registered in the Security Register. "REGULAR RECORD DATE" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "REQUIRED CURRENCY" has the meaning specified in Section 115. "RESPONSIBLE OFFICER," when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED SUBSIDIARIES" means any Subsidiary (a) substantially all of the property of which is located, or substantially all of the business of which is carried on, within the United States of America (other than its territories or possessions and other than Puerto Rico) or Canada and (b) which owns a Principal Property; provided, however, that any Subsidiary which is principally engaged in financing operations outside the United States of America or which is principally engaged in -8- 11 leasing or in financing installment receivables shall not be deemed a Restricted Subsidiary for purposes of this Indenture. "SALE AND LEASEBACK TRANSACTION" has the meaning specified in Section 1011. "SECURITIES" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "SECURITY REGISTER" and "Security Registrar" have the respective meanings specified in Section 305. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "STATED MATURITY," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "SUBSIDIARY" means, with respect to any Person, (a) any corporation of which at least a majority in interest of the outstanding Capital Stock having by the terms thereof voting power under ordinary circumstances to elect directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency, is at the time, directly or indirectly, owned or controlled by such Person, or by one or more other corporations a majority in interest of such stock of which is similarly owned or controlled or by such Person and one or more other corporations a majority in interest of such stock of which is similarly owned or controlled, or (b) any other Person (other than a corporation) in which such Person, directly or indirectly, at the date of determination thereof, has at least a majority equity ownership interest. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this Indenture was executed; provided, however, that in the event that such Act is amended after such date, "Trust Indenture Act" means, -9- 12 to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. DEPOSITARY" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more permanent global Securities, the Person designated as U.S. Depositary by the Company pursuant to Section 301, which must be a clearing agency registered under the Exchange Act, until a successor U.S. Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "U.S. Depositary" shall mean or include each Person who is then a U.S. Depositary hereunder, and if at any time there is more than one such Person, "U.S. Depositary" shall mean the U.S. Depositary with respect to the Securities of that series. "U.S. GOVERNMENT OBLIGATIONS" means securities which are (a) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed by the full faith and credit of the United States of America which, in either case, are not callable or redeemable at the option of the issuer thereof or otherwise subject to prepayment, and shall also include a depository receipt issued by a New York Clearing House bank or trust company as custodian with respect to any such U.S. Government Obligation, or a specific payment or interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt or from any amount held by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "VICE PRESIDENT," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating -10- 13 to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. --------------------------------------- In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an Officer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such Officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an Officer or Officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. -11- 14 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. --------------- A. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. B. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. C. The ownership of Registered Securities shall be proved by the Security Register. D. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. E. If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, - 12 - 15 demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 105. Notices, Etc., to Trustee and Company. ------------------------------------- Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first- class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, attention: Vice President, Treasurer and Assistant Secretary, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. ------------------------- Where this Indenture or any Security provides for notice to Holders of any event, such notice shall be deemed sufficiently given (unless otherwise herein or in such Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders or the validity of the proceedings to which such notice -13- 16 relates. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 107. Conflict with Trust Indenture Act. --------------------------------- If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included or deemed included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, such provision of the Trust Indenture Act shall be deemed to apply to this Indenture as so modified or shall be excluded, as the case may be. SECTION 108. Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. Separability Clause. ------------------- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. - 14 - 17 SECTION 111. Benefits of Indenture. ---------------------- Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. -------------- This Indenture and the Securities shall be governed by and construed in accordance with the laws (other than the choice of law provisions) of the State of New York. SECTION 113. Legal Holidays. --------------- In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day or on such other day as may be set out in the Officer's Certificate pursuant to Section 301 at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, if payment is made on such next succeeding Business Day or other day set out in such Officer' s Certificate. SECTION 114. No Recourse Against Others. --------------------------- A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder, by accepting a Security, waives and releases all such liability. Such waivers and releases are part of the consideration for the issuance of the Securities. SECTION 115. Judgment Currency. ------------------ The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, on the Securities of any series (the "REQUIRED CURRENCY") into a currency in which a judgment will be rendered (the "JUDGMENT CURRENCY") , the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in the City of New York the Required -15- 18 Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)) , in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "NEW YORK BANKING DAY" means any day except a Saturday, Sunday or a legal holiday in the City of New York_or a day on which banking institutions in the City of New York are authorized or required by law or executive order to close. ARTICLE TWO Security Forms SECTION 201. Forms Generally. ---------------- The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The Trustee's certificates of authentication shall be in substantially the form set forth in this Article. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers -16- 19 executing such Securities, as evidenced by their execution of such Securities. SECTION 202. Form of Face of Security. ------------------------- [If the Security is an Original Issue Discount Security, insert -- FOR PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), THE AMOUNT OF ORIGINAL ISSUE DISCOUNT (AS DEFINED IN SECTION 1273 (a) (1) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-1(a)) WITH RESPECT TO THIS SECURITY IS ________, THE ISSUE DATE (AS DEFINED IN SECTION 1275 (a) (2) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-2(a) (2)) OF THIS SECURITY IS ______, THE ISSUE PRICE (AS DEFINED IN SECTION 1273(b) OF THE CODE AND TREASURY REGULATION 1.1273-2(a)) OF THIS SECURITY IS ________, AND THE YIELD TO MATURITY (AS DEFINED IN TREASURY REGULATION SECTION 1.1272-1(b)) OF THIS SECURITY IS ________.] PIONEER-STANDARD ELECTRONICS, INC. ................................. No. $ ----------------------------- ----- PIONEER-STANDARD ELECTRONICS, INC., a corporation duly organized and existing under the laws of Ohio (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ________________________, or registered assigns, the principal sum of _____________________ Dollars on ________________________ [IF THE SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT--, and to pay interest thereon from __________________________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ________ and _________ in each year, commencing __________________________, at the rate of _____% per annum, until the principal hereof is paid or made available for payment [IF APPLICABLE INSERT--, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of _____% per annum on any overdue principal and premium and on any overdue installment of interest]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ____ of _____ (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either -17- 20 be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY. INSERT--The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ___% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of ____% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] Payment of the principal of (and premium, if any) and [IF APPLICABLE, INSERT--any such] interest on this Security will be made at the office or agency of the Company maintained for that purpose in _________, in dollars [IF APPLICABLE, INSERT--; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register]. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -18- 21 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. PIONEER-STANDARD ELECTRONICS, INC. By --------------------------------- Attest: - ----------------------------------------- [SEAL] SECTION 203. Form of Reverse of Security. --------------------------- This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of August 1, 1996 (herein called the "Indenture"), between the Company and Star Bank, N.A., as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof [, limited in - aggregate principal amount to $_______]. [IF APPLICABLE, INSERT -- The Securities of this series are subject to redemption upon not less than 30 nor more than 45 days' notice by first class mail, [IF APPLICABLE, INSERT--(a) on ________ in any year commencing with the year ________ and ending with the year _____ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (b)] at any time [on or after _________, _________], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): -19- 22 If redeemed [on or before ________________, ____%, and if redeemed] during the 12-month period beginning ______ of the years indicated, Redemption Redemption Year Price Year Price ---- ----- ---- ----- and thereafter at a Redemption Price equal to _____% of the principal amount, together in the case of any such redemption [IF APPLICABLE, INSERT -- (whether through operation of the sinking fund or otherwise)] with accrued and unpaid interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [IF APPLICABLE, INSERT -- The Securities of this series are subject to redemption upon not less than 30 nor more than 45 days' notice by first class mail, (a) on ____________ in any year commencing with the year ___________ and ending with the year _____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (b) at any time [on or after _______], as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during a 12-month period beginning ________________ of the years indicated, Redemption Price For Redemption Redemption Price for Through Operation Redemption Otherwise of the Than Through Operation Year Sinking Fund of the Sinking Fund - ---- ------------ ---------------------- -20- 23 and thereafter at a Redemption Price equal to __% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued and unpaid interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [Notwithstanding the foregoing, the Company may not, prior to ________, redeem any Securities of this series as contemplated by [clause (b) of] the preceding paragraph as a part of, or in anticipation of, any refunding operation by the application, directly or indirectly, of moneys borrowed having an interest cost to the Company (calculated in accordance with generally accepted financial practice) of less than __% per annum.] [The sinking fund for this series provides for the redemption on ________ in each year beginning with the year ______ and ending with the year _______ of [not less than] $____________ [("mandatory sinking fund") and not more than $___________] aggregate principal amount of Securities of this series.] [Securities of this series acquired or redeemed by the Company otherwise than through [mandatory] sinking fund payments may be credited against subsequent [mandatory] sinking fund payments otherwise required to be made--in the inverse order in which they become due.] [In the event of redemption of this Security in part only, a new Security or Securities of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If any Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal--INSERT FORMULA FOR DETERMINING THE AMOUNT. Upon payment (a) of the amount of principal so declared due and payable and (b) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect -21- 24 of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] The Indenture also provides that upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to purchase such Holder's Securities at a price equal to 100% of the aggregate principal amount of such Securities plus accrued and unpaid interest, if any, to the date of such purchase. [This Security is subject to defeasance as described in the Indenture.] The Indenture may be modified by the Company and the Trustee without consent of any Holder with respect to certain matters as described in the Indenture. In addition, the Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall bind such Holder and all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same Stated Maturity and aggregate principal amount, will be issued to the designated transferee or transferees. -22- 25 The Securities of this series are issuable only in registered form without coupons in denominations of $1, 000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture imposes certain limitations on the ability of the Company to, among other things, merge or consolidate with any other Person or sell, assign, transfer or lease all or substantially all of its properties or assets. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under this Security or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder, by accepting a Security, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Security. [IF APPLICABLE, INSERT -- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures ("CUSIP"), the Company has caused CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. No representation is made as to the correctness or accuracy of such numbers as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon.] All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -23- 26 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to ________________________________________________________________________________ (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint _________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: _______________ Your Signature: ___________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranty:_________________________________________ [Signatures must be guaranteed by an "eligible guarantor institution" meeting the reguirements of the Transfer Agent, which reguirements will include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.] Social Security Number or Taxpayer Identification Number: ______________________________________________ OPTION TO HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Security purchased by the Company pursuant to Section 1013 ("Change of Control Offer") of the Indenture, check the applicable box: [ ] in whole [ ] in part -24- 27 amount to be purchased: $_______________________ Dated: ________________ Your Signature: ________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guaranty: _________________________________________________________ [Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Transfer Agent, which requirements will include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.] Social Security Number or Taxpayer Identification Number: ___________________________________________ SECTION 204. Form of Trustee's Certificate of Authentication. ----------------------------------------------- Dated: _______________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STAR BANK, N.A. As Trustee By ______________________________ Authorized Signatory SECTION 205. Securities in Global Form. ------------------------- If Securities of a series are issuable in global form, as contemplated by Section 301, then, notwithstanding the provisions of Section 302, any such Security shall represent such of the Outstanding Securities of such series as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be changed to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made in such manner and upon instructions given by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or Section -25- 28 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel. The provisions of Section 309 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby. Notwithstanding the provisions of Sections 201 and 307, unless otherwise specified as contemplated by Section 301, payment of principal or any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat a Person as the Holder of such principal amount of Outstanding Securities represented by a permanent global Security as shall be specified in a written statement of the Holder of such permanent global Security. SECTION 206. CUSIP Number ------------ The Company in issuing Securities of any series may use a "CUSIP" number, and if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Holders of such series; provided, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed on the notice or on the Securities of such series, and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP number of any series of Securities. SECTION 207. Form of Legend for the Securities in Global Form. ------------------------------------------------ Any Security in global form authenticated and delivered hereunder shall bear a legend in substantially the following form: -26- 29 "This Security is in global form within the meaning of the Indenture hereinafter referred to and is registered in the name of a Common Depositary or a U.S. Depositary. Unless and until it is exchanged in whole or in part for Securities in certificated form, this Security may not be transferred except as a whole by the Common Depositary or a U.S. Depositary or by a nominee of the Common Depositary or a nominee of the U.S. Depositary as the case may be." ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. ------------------------------------ The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued from time to time in one or more series. Prior to the issuance of Securities of any series, there shall be established in or pursuant to (a) a Board Resolution, and set forth in an Officer's Certificate, or (b) one or more indentures supplemental hereto: (1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 304, 305, 306, 906 or 1107); (3) whether any Securities of the series are to be issuable in permanent global form with or without coupons and, if so, (a) whether beneficial owners of interests in any such permanent global Security may exchange such interests for Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in Section 305, and (b) the name of the Common Depositary (as defined in Section 304) or the U.S. Depositary, as the case may be, with respect to any global Security; (4) the date or dates on which the principal of the Securities of the series is payable; (5) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates -27- 30 on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date; (6) the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable; (7) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, pursuant to any sinking fund or mandatory redemption or otherwise; (8) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and, where applicable, the obligation of the Company to select the Securities to be redeemed; (9) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (10) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; (11) additional Events of Default with respect to Securities of the series, if any, other than those set forth herein; (12) if either or both of Section 1302 and Section 1303 shall be inapplicable to the Securities of the series (provided that if no such inapplicability shall be specified, then both Section 1302 and Section 1303 shall be applicable to the Securities of the series); (13) if other than U.S. dollars, the currency or currencies or units based on or related to currencies in which the Securities of such series shall be denominated and in which payments or principal of, and any premium and interest on, such Securities shall or may by payable; (14) additional covenants with respect to Securities of the series, if any, other than those set forth herein; (15) if other than the Trustee, the identity of the Registrar and any Paying Agent; and -28- 31 (16) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officer's Certificate or in any such Indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officer's Certificate setting forth, or providing the manner for determining, the terms of the Securities of such series. SECTION 302. Denominations. ------------- The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 301. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Typographical and other minor errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security that has been duly authenticated and delivered by the Trustee. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and make -29- 32 such Securities available for delivery. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Sections 315(a) through (d) of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating, (1) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; (2) if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; (3) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law); and (4) that no consent, approval, authorization, order, registration or qualification of or with any court or any governmental agency or body having jurisdiction over the Company is required for the execution and delivery of such Securities by the Company, except such as have been obtained (except that no opinion need be expressed as to state securities or Blue Sky laws) . If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee, or in the written opinion of counsel to the Trustee (which counsel may be an employee of the Trustee) such authentication may not lawfully be made or would involve the Trustee in personal liability. Notwithstanding the provisions of Section 301 and of the immediately preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not -30- 33 be necessary to deliver the Board Resolution and the Officer's Certificate otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to the immediately preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. If the Company shall establish pursuant to Section 301 that the Securities of a series are to be issued in the form of one or more global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to the authentication and delivery of such series, authenticate and deliver one or more global Securities that (a) shall be in an aggregate amount equal to the aggregate principal amount specified in such Company Order, (b) shall be registered in the name of the Common Depositary or U.S. Depositary, as the case may be, therefor or its nominee, and (c) shall be made available for delivery by the Trustee to such depositary or pursuant to such depositary's instruction. Each depositary designated pursuant to Section 301 must, at the time of its designation and at all times while it serves as depositary, be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. Unless otherwise provided for in the form of Security, each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. Temporary Securities. -------------------- Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Securities of any series, such temporary Securities may be in global form, representing all or a portion of the Outstanding Securities of such series. -31- 34 Except in the case of temporary Securities in global form (which shall be exchanged in accordance with the provisions of Section 305), if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations and of like tenor. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. If temporary Securities of any series are issued in global form, any such temporary global Security shall, unless otherwise provided therein, be delivered to the office of a depositary or common depositary (the "Common Depositary") for credit to the respective accounts of the beneficial owners of such Securities (or to such other accounts as they may direct). SECTION 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of registration of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency of the Company in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and Stated Maturity, upon surrender of the Securities to be -32- 35 exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise specified or contemplated by Section 301, any permanent global Security shall be exchangeable only as provided in this paragraph. If the beneficial owners of interests in a permanent global Security are entitled to exchange such interests for Securities of such series and of like tenor and principal amount of another authorized form and denomination, as specified in and subject to the conditions contemplated by Section 301, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities of that series in aggregate principal amount equal to the principal amount of such permanent global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such permanent global Securities shall be surrendered from time to time by the Common Depositary or the U.S. Depositary, as the case may be, for exchange in whole or in part for definitive Securities of the same series without charge, and in accordance with instructions given to the Trustee and the Common Depositary or the U.S. Depositary, as the case may be, (which instructions shall be in writing but need not comply with Section 102 or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered permanent global Security, a like aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such permanent global Security to be exchanged which shall be in the form of the Securities of such series; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing. Promptly following any such exchange in part, such permanent global Security shall be returned by the Trustee to the Common Depositary or the U.S. Depositary, as the case may be, or such other Common Depositary or U.S. Depositary referred to above in accordance with the written instructions of the Company referred to above. If a Security in the form specified for such series is issued in exchange for any portion of a permanent global Security after the close of business at the office or agency where such exchange occurs on (a) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (b) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of interest or Defaulted Interest, as -33- 36 the case may be, such interest or Defaulted Interest will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Security in the form specified for such series, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such permanent global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. Unless otherwise provided in the Securities to be transferred or exchanged, no service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------ If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (a) evidence to their satisfaction of the destruction, loss or theft of any Security and (b) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the -34- 37 Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more predecessor securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The -35- 38 Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Persons Deemed Owners. --------------------- Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and -36- 39 for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. None of the Company, the Trustee or any agent of the Company or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interest of a Security in global form, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. Notwithstanding the foregoing, with respect to any Security in global form, nothing herein shall prevent the Company or the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by any Common Depositary (or its nominee), as a Holder, with respect to such Security in global form or impair, as between such Common Depositary and owners of beneficial interests in such Security in global form, the operation of customary practices governing the exercise of the right of such Common Depositary (or its nominee) as holder of such Security in global form. SECTION 309. Cancellation. ------------ All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities shall be held by the Trustee and may be destroyed (and, if so destroyed, certification of their destruction shall be delivered to the Company, unless, by a Company Order, the Company shall direct that canceled Securities be returned to it). SECTION 310. Computation of Interest. ----------------------- Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. -37- 40 Section 607, the obligations of the Company to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1009 shall survive. SECTION 402. Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 1009, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with or received by the Trustee. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. ----------------- "EVENT OF DEFAULT," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or to be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) the Company defaults in the payment of interest on any Security of that series when such interest becomes due and payable and the default continues for a period of two days; or (2) the Company defaults in the payment of the principal of (or premium, if any, on) any Security of that series when the same becomes due and payable at Maturity, upon redemption (including redemptions under Article Eleven), or otherwise; or (3) the Company defaults in the deposit of any sinking fund payment, when and as due by the terms of the Security of that series; or (4) the Company fails to observe or perform any of its other covenants, warranties or agreements in the Securities of that series or this Indenture (other than a covenant, agreement or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt -39- 41 with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than that series), and the failure to observe or perform continues for the period and after the notice specified in the last paragraph of this Section; or (5) an event of default, as defined in any mortgage, indenture, or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company (including Securities of another series) or a Subsidiary (whether such Indebtedness now exists or shall hereafter be created or incurred) shall occur and shall consist of default in the payment of such Indebtedness at the maturity thereof (after giving effect to any applicable grace period) or shall result in Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such default in payment is not cured or such acceleration shall not be rescinded or annulled within 15 days after written notice to the Company from the Trustee or to the Company and to the Trustee from the Holders of at least 10% in aggregate principal amount of the Securities of that series at the time outstanding; provided that it shall not be an Event of Default if the principal amount of Indebtedness which is not paid at maturity or the maturity of which is accelerated is less than $15,000,000; provided further that if, prior to a declaration of acceleration of the maturity of the Securities of that series or the entry of judgment in favor of the Trustee in a suit pursuant to Section 503, such default shall be remedied or cured by the Company or such Subsidiary or waived by the holders of such Indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Holders of the Securities of that series, and provided further, that, subject to Sections 601 and 602, the Trustee shall not be charged with knowledge of any such default unless written notice of such default shall have been given to the Trustee by the Company, by a holder or an agent of a holder of any such Indebtedness, by the trustee then acting under any indenture or other instrument under which such default shall have occurred, or by the Holders of at least five percent in aggregate principal amount of the Securities of that series at the time outstanding; or (6) the Company pursuant to or within the meaning of any Bankruptcy Law (a) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (b) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (c) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (d) applies for, consents to or acquiesces in the -40- 42 appointment of or taking possession by a Custodian of the Company or for any material part of its property, (e) makes a general assignment for the benefit of its creditors or (f) takes any corporate action in furtherance of or to facilitate, conditionally or otherwise, any of the foregoing; or (7) (a) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company in an involuntary case or proceeding under any Bankruptcy Law which shall (i) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company, (ii) appoint a Custodian of the Company or for any material part of its property or (iii) order the winding-up or liquidation of its affairs, and such judgment, decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or (b) any bankruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced against the Company and such petition, application or proceeding is not dismissed within 90 days; or (c) a warrant of attachment is issued against any material portion of the property of the Company which is not released within 90 days of service; or (8) any other Event of Default provided with respect to Securities of that series. A Default under clause (3) above is not an Event of Default until the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series notify the Company of the Default and the Company does not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default under clause (3) above is cured within such 60-day period, it ceases to be a Default. SECTION 502. Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default with respect to Securities of any series (other than an Event of Default specified in clause (6) or (7) of Section 501) occurs and is continuing, the Trustee by notice in writing to the Company, or the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series by notice in writing to the Company and the Trustee, may declare the unpaid principal of and accrued interest to the date of acceleration (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) on all the Outstanding Securities of that series to be due and payable immediately and, upon any such declaration, the -41- 43 Outstanding Securities of that series (or specified principal amount) shall become and be immediately due and payable. If an Event of Default specified in clause (6) or (7) of Section 501 occurs, all unpaid principal of and accrued interest on the Outstanding Securities of that series (or specified principal amount) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series. Upon payment of all such principal and interest, all of the Company's obligations under the Securities of that series and (upon payment of the Securities of all series) this Indenture shall terminate, except obligations under Section 607. The Holders of a majority in principal amount of the Outstanding Securities of that series by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal and interest of the Securities of that series that has become due solely by such declaration of acceleration, have been cured or waived, (b) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal that has become due otherwise than by such declaration of acceleration have been paid, (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (d) all payments due to the Trustee and any predecessor Trustee under Section 607 have been made. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. --------------------------------------------------------------- The Company covenants that if: (1) default is made in the payment of any interest on any Security of any series when such interest becomes due and payable and such default continues for a period of two days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security of any series at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the -42 - 44 reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to secure any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceedings, and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any -43 - 45 amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Securities. ----------------------------------------------------------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities in respect of which moneys have been collected and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (1) to the payment of all amounts due the Trustee under Section 607 applicable to such series; (2) to the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities of such series for principal (and premium, if any) and interest, respectively; and (3) to the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 506. At least -44- 46 ten (10) days before such record date, the Trustee shall mail to each Holder and the Company a notice that states the record date, the payment date and the amount to be paid. SECTION 507. Limitation on Suits. ------------------- No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of Holders of Securities of any series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the affected series. SECTION 508. Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium and Interest. -------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such -45- 47 payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted. SECTION 510. Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. ------------------ The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture; -46- 48 (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (3) subject to Section 601, the Trustee need not take any action which might involve the Trustee in personal liability or be unduly prejudicial to the Holders not joining therein. SECTION 513. Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may by written notice to the Trustee on behalf of the Holders of all the Securities of such series waive any Default or Event of Default with respect to such series and its consequences, except a Default or Event of Default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Security of such series, or (2) in respect of a covenant or other provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such Default or Event of Default shall cease to exist and shall be deemed to have been cured, for every purpose of this Indenture and the Securities of such series; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 514. Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after -47 - 49 the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date). ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities of the Trustee. -------------------------------------------------- A. Except during the continuance of an Event of Default, the Trustee's duties and responsibilities under this Indenture shall be governed by Section 315(a) of the Trust Indenture Act. B. In case an Event of Default has occurred and is continuing, and is known to the Trustee, the Trustee shall exercise the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. C. None of the provisions of Section 315(d) of the Trust Indenture Act shall be excluded from this Indenture. SECTION 602. Notice of Defaults. ------------------ Within 90 days after the occurrence of any Default or Event of Default with respect to the Securities of any series, the Trustee shall give to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such Default or Event of Default known to the Trustee, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or Event of Default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series. SECTION 603. Certain Rights of Trustee. ------------------------- Subject to the provisions of the Trust Indenture Act: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document -48 - 50 believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) prior to the occurrence of an Event of Default with respect to the Securities of any series and after the curing or waiving of all such Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval or other paper or document, or the books and records of the Company, unless requested in writing to do so by the Holders of a majority in principal amount of the Outstanding Securities of any series; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is not, in the opinion of the Trustee, reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding; the reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either -49- 51 directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (8) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 604. Not Responsible for Recitals or Issuance of Securities. ------------------------------------------------------ The recitals herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. ------------------- The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder (including amounts held by the Trustee as Paying Agent) need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed upon in writing with the Company. SECTION 607. Compensation and Reimbursement. ------------------------------ The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); -50- 52 (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability, damage, claim or expense, including taxes (other than taxes based upon or determined or measured by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(6) or Section 501 (7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Bankruptcy Law. The provisions of this Section 607 shall survive this Indenture. SECTION 608. Disqualification; Conflicting Interests. --------------------------------------- The Trustee shall be disqualified only where such disqualification is required by Section 310(b) of the Trust Indenture Act. Nothing shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act. SECTION 609. Corporate Trustee Required; Eligibility. --------------------------------------- There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company may serve as Trustee. If at any time the Trustee shall cease to be eligible in accordance with the -51- 53 provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. Resignation and Removal; Appointment of Successor. ------------------------------------------------- A. No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. B. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. C. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. D. If at any time: (1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months; or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder of a Security who has been a bona fide Holder of a Security for at least six months; or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (a) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (b) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. -52- 54 E. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company with respect to such Securities. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. F. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. -------------------------------------- A. In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument -53- 55 transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. B. In case of the appointment hereunder of a successor Trustee with respect to the Securities of such (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. C. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (A) or (B) of this Section, as the case may be. D. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article and the Trust Indenture Act. -54- 56 SECTION 612. Merger, Conversion, Consolidation or Succession to Business. ----------------------------------------------------------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor (by merger, conversion, consolidation or otherwise as permitted hereunder) to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. SECTION 614. Appointment of Authenticating Agent. ----------------------------------- At any time when any of the Securities remain Outstanding the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of, and subject to the direction of, the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by federal or State authority. If such Authenticating Agent publishes reports of condition at least -55- 57 annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: -56- 58 Form of Authenticating Agent's Certificate of Authentication ----------------------------- Dated:________________ This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STAR BANK, N.A. As Trustee By___________________________ As Authenticating Agent By___________________________ Authorized Signatory ARTICLE SEVEN Holders' Lists And Reports By Trustee And Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. --------------------------------------------------------- The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not later than January 1 and July 1 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the preceding December 15 or June 15, as the case may be; and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. -57- 59 SECTION 702. Preservation of Information; Communications to Holders. ------------------------------------------------------ A. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. B. If three or more Holders (herein referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 702(A); or (2) inform such applicants as to the approximate number of Holders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 702(A), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder whose name and address appears in the information preserved at the time by the Trustee in accordance with Section 702(A) a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall -58- 60 find, after notice and opportunity for hearing, that all objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Holders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. C. Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 702(B), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 702(B). SECTION 703. Reports by Trustee. ------------------ A. Within 60 days after May 15 of each year commencing with the year 1996, the Trustee shall transmit by mail to all Holders of Securities as provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of May 15, if required by and in compliance with Section 313(a) of the Trust Indenture Act. B. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. C. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act on the terms and in the manner provided pursuant thereto. SECTION 704. Reports by Company. ------------------ The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, -59- 61 such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this indenture as may be required from time to time by such rules and regulations; (3) transmit by mail to all Holders, as their names and addresses appear in the Security Register, (a) concurrently with furnishing the same to its shareholders, the Company's annual report to shareholders, containing certified financial statements, and any other financial reports which the Company generally furnishes to its shareholders, and (b) within 30 days after the filing thereof with the Trustee, such summaries of any other information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission; and (4) furnish to the Trustee, on or before May 1 of each year, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this paragraph, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. Such certificate need not comply with Section 102. ARTICLE EIGHT Consolidation, Merger, Lease, Sale or Transfer SECTION 801. When Company May Merge. Etc. --------------------------- The Company shall not consolidate with, or merge with or into any other Person (whether or not the Company shall be the surviving corporation), or sell, assign, transfer or lease all or substantially all of its properties and assets as an entirety or substantially as an entirety to any Person or group of affiliated Persons, in one transaction or a series of related transactions, unless: -60- 62 (1) either the Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or with which or into which the Company is merged or the Person (or group of affiliated Persons) to which all or substantially all the properties and assets of the Company as an entirety or substantially as an entirety are sold, assigned, transferred or leased shall be a corporation (or constitute corporations) organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; and (2) immediately before and after giving effect to such transaction or series of related transactions, no Event of Default, and no Default, shall have occurred and be continuing. SECTION 802. Opinion of Counsel. ------------------ The Company shall deliver to the Trustee prior to the proposed transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of Counsel stating that the transaction(s) and such supplemental indenture comply with this Indenture and that all conditions precedent to the consummation of the transaction(s) under this Indenture have been met. SECTION 803. Successor Corporation Substituted. --------------------------------- Upon any consolidation by the Company with or merger by the Company into any other corporation or any lease, sale, assignment, or transfer of all or substantially all of the property and assets of the Company in accordance with Section 801, the successor corporation formed by such consolidation or into which the Company is merged or the successor corporation or affiliated group of corporations to which such lease, sale, assignment, or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation or corporations had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor corporation or corporations shall be relieved of all obligations and covenants under this Indenture and the Securities and in the event of such conveyance or transfer, except in the case of a lease, any such predecessor corporation may be dissolved and liquidated. -61- 63 ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders. -------------------------------------------------- Without notice to or the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default with respect to all or any series of Securities; or (4) to add or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons; or (5) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Security Outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (6) to secure the Securities; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be -62- 64 necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611(B); or (9) to cure any ambiguity, defect or inconsistency or to correct or supplement any provision herein which may be inconsistent with any other provision herein; or (10) to make any change that does not materially adversely affect the interests of the Holders of Securities of any series. Upon request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon receipt by the Trustee of the documents described in (and subject to the last sentence of) Section 903, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture. SECTION 902. Supplemental Indentures with Consent of Holders. ----------------------------------------------- With the written consent of the Holders of a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee shall, subject to Section 903, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof or extend the time for payment thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); -63- 65 (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or Defaults or Events of Default hereunder and their consequences provided for in this Indenture; or (3) change the redemption provisions (including Article Eleven) hereof in a manner adverse to such Holder; or (4) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 611(B) and 901(8). A supplemental indenture which changes or eliminates any covenant or other provisions of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. ------------------------------------ The Trustee shall sign any supplemental indenture authorized pursuant to this Article, subject to the last sentence of this Section 903. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. -64- 66 SECTION 904. Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. ----------------------------------- Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN Covenants SECTION 1001. Payments of Securities. ---------------------- With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series. SECTION 1002. Maintenance of Office or Agency. ------------------------------- The Company will maintain an office or agency in each Place of Payment where Securities may be surrendered for registration of transfer or exchange or for presentation for payment, where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the -65- 67 location, and any change in location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 105 hereof. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. Corporate Existence. ------------------- Subject to Article 8 hereof, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each of its Subsidiaries and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that (a) the Company shall not be required to preserve any such right, license or franchise or the corporate existence of any of its Subsidiaries if the Board of Directors, or the board of directors of the Subsidiary concerned, as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any of its Subsidiaries and that the loss thereof is not materially disadvantageous to the Holders, and (b) nothing herein contained shall prevent any Subsidiary of the Company from liquidating or dissolving, or merging into, or consolidating with the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more other Subsidiaries if the Board of Directors or the board of directors of the Subsidiary concerned, as the case may be, shall so determine. SECTION 1004. Payment of Taxes and Other Claims. --------------------------------- The Company will pay or discharge, or cause to be paid or discharged, before the same shall become delinquent, (a) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a material lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good -66- 68 faith by appropriate proceedings and for which adequate provision has been made. SECTION 1005. Maintenance of Properties. ------------------------- The Company will cause all material properties used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (normal wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or of the board of directors of the Subsidiary concerned, as the case may be, desirable in the conduct of the business of the Company or any Subsidiary of the Company and not materially disadvantageous to the Holders. SECTION 1006. Compliance Certificates. ----------------------- A. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company (which fiscal year currently ends on March 31), an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default by the Company that occurred prior to the end of the fiscal year and is then continuing. If the signer does know of such a Default or Event of Default, the certificate shall describe each such Default or Event of Default and its status and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. The Company shall also promptly notify the Trustee in writing should the Company's fiscal year be changed so that the end thereof is on any date other than the date on which the Company's fiscal year currently ends. The certificate need not comply with Section 102 hereof, but shall comply with Section 314(a)(4) of the Trust Indenture Act. B. The Company shall deliver to the Trustee, within 20 days after the occurrence thereof, notice of any acceleration which with the giving of notice and the lapse of time would be an Event of Default within the meaning of Section 501(4) hereof. C. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified public accountants stating (a) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to -67- 69 accounting matters and (b) whether, in connection with their audit examination, any Default has come to their attention and if such a Default has come to their attention, specifying the nature and period of existence thereof and the specific section or sections of this Indenture in connection with which such Default has occurred; provided that, without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of the failure to obtain knowledge of such Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. D. The Company shall deliver to the Trustee forthwith upon becoming aware of a Default or Event of Default (but in no event later than 20 days after the occurrence of each Default or Event of Default that is continuing), an Officer's Certificate setting forth the details of such Default or Event of Default and the action that the Company proposes to take with respect thereto and the specific section or sections of this Indenture in connection with which such Default or Event of Default has occurred. SECTION 1007. Commission Reports. ------------------ A. The Company shall file with the Trustee, within 30 days after it files them with the Commission, copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirement of such Section 13 or 15(d) of the Exchange Act, the Company shall file with the Trustee, within 30 days after it would have been required to file such information with the Commission, financial statements, including any notes thereto and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," both comparable to that which the Company would have been required to include in such annual reports, information, documents or other reports if the Company had been subject to the requirements of such Sections 13 or 15(d) of the Exchange Act. The Company also shall comply with the other provisions of Section 314(a) of the Trust Indenture Act. B. So long as the Securities remain outstanding, the Company shall cause its annual report to shareholders and any other financial reports furnished by it to shareholders generally, to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Security Registrar in each case at the time of such mailing or -68- 70 furnishing to shareholders. If the Company is not required to furnish annual or quarterly reports to its shareholders pursuant to the Exchange Act, the Company shall cause its financial statements, including any notes thereto and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," to be so filed with the Trustee and mailed to the Holders within 90 days after the end of each of the Company's fiscal years and within 45 days after the end of each of the first three quarters of each fiscal year. C. The Company shall provide the Trustee with a sufficient number of copies of all reports and other documents and information that the Company may be required to deliver to the Holders under this Section 1007. SECTION 1008. Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will actively resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law, which would prohibit or forgive the Company from paying all or any portion of the principal of and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 1009. Money for Securities Payments to Be Held in Trust. ------------------------------------------------- If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest -69- 71 so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure to so act. The Company will cause each Paying Agent for any series of Securities (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for one year after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee of such Paying Agent, before being required to make any such repayment, may at the expense of the -70- 72 Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1010. Restrictions on Secured Debt. ---------------------------- A. The Company will not, nor will it permit any Restricted Subsidiary to, create, incur, issue, assume or guarantee any indebtedness for borrowed money (hereinafter called "indebtedness") secured by a mortgage, security interest, pledge or lien (hereinafter called "mortgage") of or upon any Principal Property or on any shares of stock or indebtedness of any Restricted Subsidiary (whether such Principal Property, shares of stock or indebtedness is now owned or hereafter acquired) without in any such case making or causing to be made effective provision (and the Company covenants that in any such case it shall make or cause to be made effective provision) whereby the Securities of each series (together with, if the Company shall so determine, any other indebtedness created, incurred, issued, assumed or guaranteed by the Company or any Restricted Subsidiary and then existing or thereafter created) shall be secured equally and ratably with (or, at the option of the Company, prior to) such indebtedness, so long as such indebtedness shall be so secured. B. The provisions of paragraph (A) of this Section shall not, however, apply to any indebtedness secured by any one or more of the following: (1) mortgages of or upon any property acquired, constructed or improved by, or of or upon any shares of capital stock or indebtedness acquired by, the Company or any Restricted Subsidiary after the date of this Indenture (a) to secure the payment of all or any part of the purchase price of such property, shares of capital stock or indebtedness upon the acquisition thereof by the Company or any Restricted Subsidiary, or (b) to secure any indebtedness issued, assumed or guaranteed by the Company or any Restricted Subsidiary prior to, at the time of, or within 270 days after (i) in the case of property, the later of the acquisition, completion of construction (including any improvements on existing property) or commencement of commercial operation of such property or (ii) in the case of shares of capital stock or indebtedness, the acquisition of such shares of capital stock or indebtedness, which indebtedness is issued, assumed or guaranteed for the purpose of financing or refinancing all or any part of the purchase price of such property, shares of capital stock or indebtedness and, in the case of property, the cost of -71- 73 construction thereof or improvements thereon, provided that in the case of any such acquisition, construction or improvement the mortgage shall not apply to any property, shares of capital stock or indebtedness theretofore owned by the Company or any Restricted Subsidiary, other than, in the case of any such construction or improvement, any theretofore unimproved or substantially unimproved real property on which the property so constructed or the improvement is located. (2) mortgages of or upon any property, shares of capital stock or indebtedness existing at the time of acquisition thereof by the Company or any Restricted Subsidiary; (3) mortgages of or upon any property of a corporation existing at the time such corporation is merged with or into or consolidated with the Company or any Restricted Subsidiary or existing at the time of a sale or transfer of the properties of a corporation as an entirety or substantially as an entirety to the Company or any Restricted Subsidiary; (4) mortgages of or upon any property of, or shares of capital stock or indebtedness of, a corporation existing at the time such corporation becomes a Restricted Subsidiary; (5) mortgages to secure indebtedness in favor of the Company or any Restricted Subsidiary; (6) mortgages in favor of the United States of America or any State thereof, or any department, agency or instrumentality or political subdivision of the United States of America or any State thereof, or in favor of any other country or political subdivision, to secure partial, progress, advance or other payments pursuant to any contract or statute or to secure any indebtedness incurred or guaranteed for the purpose of financing or refinancing all or any part of the purchase price of the property, shares of capital stock or indebtedness subject to such mortgages, or the cost of constructing or improving the property subject to such mortgages (including, without limitation, mortgages incurred in connection with pollution control, industrial revenue or similar financing); (7) mortgages to secure payment of taxes or assessments or other governmental charges or levies being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which such reserve or other appropriate provision, if any, as shall be required in accordance with generally accepted accounting principles shall have been made; -72- 74 (8) mortgages to secure obligations under workers' compensation or similar legislation; (9) mortgages to secure performance of statutory obligations, surety bonds or appeal bonds, performance or return-of-money bonds or other obligations of a like nature incurred in the ordinary course of business; (10) attachment and judgment mortgages for which an insurance carrier shall have acknowledged in writing liability in respect of the full amount thereof or shall have been ordered by a court of competent jurisdiction to pay; and (11) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any mortgage existing at the date of this Indenture or any mortgage referred to in the foregoing Clauses (1) through (10), inclusive provided, however, that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement shall be limited to all or a part of the property (plus improvements and construction on such property), shares of capital stock or indebtedness which was subject to the mortgage so extended, renewed or replaced. C. Notwithstanding the provisions of paragraph (A) of this Section, the Company or any Restricted Subsidiary may, without equally and ratably securing the Securities, issue, assume or guarantee indebtedness secured by a mortgage not excepted by Clauses (1) through (11) of paragraph (B) of this Section, if the aggregate amount of such indebtedness, together with all other indebtedness of, or indebtedness guaranteed by, the Company and its Restricted Subsidiaries existing at such time and secured by mortgages not so excepted and the Attributable Debt in respect of Sale and Leaseback Transactions existing at such time (other than Sale and Leaseback Transactions permitted by Clause (a) of Section 1011 and other than Sale and Leaseback Transactions the proceeds of which have been applied in accordance with Clause (c) of Section 1011), does not at the time exceed 10% of Consolidated Net Tangible Assets. SECTION 1011. Restrictions on Sale and Leaseback Transactions. ----------------------------------------------- The Company will not, and will not permit any Restricted Subsidiary to, enter into any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of any Principal Property, whether now owned or hereafter acquired (except for temporary leases for a term, including any renewal thereof, of not more than three years, and -73 - 75 except for leases between the Company and any Restricted Subsidiary, between any Restricted Subsidiary and the Company or between Restricted Subsidiaries), which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person with the intention of taking back a lease of such property (herein referred to as a "SALE AND LEASEBACK TRANSACTION") unless (a) the Company or such Restricted Subsidiary would (at the time of entering into such arrangement) be entitled pursuant to clause (1) or (6) of Section 1010(B), without equally and ratably securing the Securities, to issue, assume or guarantee indebtedness secured by a mortgage on such property, or (b) the Company or such Restricted Subsidiary would (at the time of entering into such arrangement) be entitled pursuant to Section 1010(C), without equally and ratably securing the Securities, to issue, assume or guarantee indebtedness secured by a mortgage on such property in an amount at least equal to the Attributable Debt in respect of such Sale and Leaseback Transaction or (c) the Company shall apply, within 270 days of the effective date of any such arrangement, an amount equal to the Attributable Debt in respect of such Sale and Leaseback Transaction to the prepayment or retirement (other than any mandatory prepayment or retirement) of indebtedness incurred or assumed by the Company or any Restricted Subsidiary (other than indebtedness owned by the Company or any Restricted Subsidiary) which by its terms matures at or is extendible or renewable at the option of the obligor to a date more than twelve months after the date of the creation of such indebtedness. SECTION 1012. Restrictions on Indebtedness of Restricted Subsidiaries. ------------------------------------------------------- A. The Company will not permit any Restricted Subsidiary to create, incur, issue, assume or guarantee any indebtedness (as defined in Section 1010 (A)), provided, however, that this restriction will not apply if: (1) such indebtedness is owed to the Company; (2) such indebtedness existed at the time the corporation that issued such indebtedness became a Restricted Subsidiary of the Company, or was merged with or into or consolidated with such Restricted Subsidiary, or at the time of a sale, lease or other disposition of the properties of such corporation as an entirety to such Restricted Subsidiary; (3) such indebtedness is guaranteed by a governmental agency; (4) such indebtedness is issued, assumed or guaranteed in connection with, or with a view to, compliance by such Restricted Subsidiary with the requirements of any program -74- 76 adopted by any federal, state or local governmental authority and applicable to such Restricted Subsidiary and providing financial or tax benefits to such Restricted Subsidiary which are not available directly to the Company; (5) such indebtedness is nonrecourse to the Restricted Subsidiary; or (6) such indebtedness is incurred for the purpose of extending, renewing, substituting, replacing or refunding indebtedness permitted by the foregoing, provided that the principal amount of such indebtedness shall not exceed the principal amount of indebtedness being extended, renewed, replaced or refunded. B. Notwithstanding the provisions of paragraph (A) of this Section, the Company's Restricted Subsidiaries may create, incur, issue, assume or guarantee indebtedness which would otherwise be subject to the foregoing restrictions in an aggregate principal amount which, together with the aggregate outstanding principal amount of all other indebtedness of the Company and its Restricted Subsidiaries which would otherwise be subject to the foregoing restrictions (not including indebtedness permitted to be incurred pursuant to clauses (1) through (6) above or clauses (1) through (11) of paragraph (B) of Section 1010, but including any indebtedness issued, assumed or guaranteed pursuant to paragraph (C) of Section 1010), does not at the time such indebtedness is incurred exceed an amount equal to 10% of Consolidated Net Tangible Assets. SECTION 1013. Change of Control. ----------------- A. Upon the occurrence of a Change of Control (the "Change of Control Date"), each Holder shall have the right, at the Holder's option, to require that the Company purchase all or any part (provided that the principal amount must be $1,000 or an integral multiple thereof) of such Holder's Securities pursuant to the offer described in paragraph (B) below (the "Change of Control Offer") at a purchase price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase. B. Within ten days following a Change of Control Date, the Company shall mail a notice (which notice shall contain all instructions and materials necessary to enable Holders to tender Securities) to each Holder of Securities at the address of such Holder in the Security Register of each applicable series stating: (1) that the Change of Control Offer is being made pursuant to this Section 1013 and that all Securities of such series tendered will be accepted for payment; -75- 77 (2) the purchase price and the purchase date (which shall be no earlier than 30 days nor later than 40 days from the date such notice is mailed) (the "Change of Control Payment Date"); (3) that any Security not tendered will continue to accrue interest; (4) that any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have Securities purchased pursuant to a Change of Control Offer will be required to surrender the Securities, with the form entitled "Option of Holder to Elect Purchase" on the reverse of each Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; and (6) that Holders whose Securities are purchased only in part will be issued new Securities of the same series as, and equal in principal amount to, the unpurchased portion of the Securities surrendered. Election by a Holder shall (unless otherwise provided by law) be irrevocable. In the event that the aggregate principal amount of the Securities that are surrendered pursuant to a Change of Control Offer on a Change of Control Payment Date is at least 80% of the aggregate principal amount of the Securities outstanding, the remaining Securities shall be subject to the Company's purchase as a whole, at the Company's option, upon not less than 30 days notice mailed to each Holder thereof at the address of such Holder appearing in the Security Register, on a date selected by the Company that is within 30 days after such Change of Control Payment Date, at a price equal to 100% of the principal amount, plus accrued interest to such date of purchase. On the Change of Control Payment Date, the Company shall (a) accept for payment Securities of each applicable series or portions thereof tendered pursuant to the Change of Control Offer, (b) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities of each applicable series or portions thereof so accepted and (c) deliver, or cause to be delivered to the Trustee, Securities so accepted, together with an Officer's Certificate stating the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail to the Holder of Securities of each applicable series so -76- 78 accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to or make available for delivery to such Holder a new Security of the same series as, and equal in principal amount to, any unpurchased portion of the Security surrendered. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 1013, the Trustee or its agent shall act as the Paying Agent. Notwithstanding the foregoing, if the Company effects defeasance or covenant defeasance of the Securities under the Indenture prior to the date notice of a Change of Control is required, the Holders of Securities shall not have any right to require the Company to purchase all or any part of such Holder's Securities pursuant to the Change of Control Offer as a result of such Change of Control. SECTION 1014. Statement by Officers as to Default. ----------------------------------- The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of Sections 1006 and 1007, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 1015. Waiver of Certain Covenants. --------------------------- The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1010, 1011 and 1012, with respect to the Securities of any series if before tile time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. -77- 79 ARTICLE ELEVEN Redemption of Securities SECTION 1101. Applicability of Article. ------------------------ Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. SECTION 1102. Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officer's Certificate evidencing compliance with such restriction. SECTION 1103. Selection by Trustee of Securities to Be Redeemed. ------------------------------------------------- If less than all the Securities of any series are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, substantially pro rata, by lot or by any other method as the Trustee considers fair and appropriate and that complies with the requirements of the principal national securities exchange, if any, on which such Securities are listed, and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series; provided that in case the Securities of such series have different terms and maturities, the Securities to be redeemed shall be selected by the Company and the Company shall give notice thereof to the Trustee. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the -78- 80 case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of the Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1104. Notice of Redemption. -------------------- Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price; (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed; (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price; (6) that the redemption is for a sinking fund, if such is the case; and (7) the CUSIP number, if any, of the Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1105. Deposit of Redemption Price. --------------------------- Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is -79- 81 acting as its own Paying Agent, segregate and hold in trust as provided in Section 1009) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. ------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest Whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular or Special Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 1107. Securities Redeemed in Part. --------------------------- Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. -80- 82 ARTICLE TWELVE Sinking Funds SECTION 1201. Applicability of Article. ------------------------- The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "MANDATORY SINKING FUND PAYMENT," and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "OPTIONAL SINKING FUND PAYMENT." If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. ----------------------------------------------------- The Company (a) may deliver Securities of a series (other than any Securities previously called for redemption) and (b) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 1203. Redemption of Securities for Sinking Fund. ----------------------------------------- Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and -81- 83 crediting Securities of that series pursuant to Section 1202 and will also deliver to the Trustee any Securities to be so delivered (which have not been previously delivered). Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN Defeasance and Covenant Defeasance SECTION 1301. Applicability of Article; Company's Option to Effect ---------------------------------------------------- Defeasance or Covenant Defeasance. --------------------------------- Unless pursuant to Section 301 provision is made for the inapplicability of either or both of (a) defeasance of the Securities of a series under Section 1302 or (b) covenant defeasance of the Securities of a series under Section 1303, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 1302 (unless inapplicable) or Section 1303 (unless inapplicable) be applied to the Outstanding Securities of such series upon compliance with the applicable conditions set forth below in this Article. SECTION 1302. Defeasance and Discharge. ------------------------ Upon the Company's exercise of the option provided in Section 1301 to defease the Outstanding Securities of a particular series, the Company shall be discharged from its obligations with respect to the Outstanding Securities of such series on the date the applicable conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance") . Defeasance shall mean that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same); provided, however, that the following rights, obligations, powers, trusts, duties and immunities shall survive untiL otherwise terminated or discharged hereunder: (a) the rights of Holders of Outstanding Securities of such series to receive, -82- 84 solely from the trust fund provided for in Section 1304, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (b) the Company's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1009, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (d) this Article. Subject to compliance with this Article, the Company may exercise its option with respect to defeasance under this Section 1302 notwithstanding the prior exercise of its option with respect to covenant defeasance under Section 1303 in regard to the Securities of such series. SECTION 1303. Covenant Defeasance. ------------------- Upon the Company's exercise of the option provided in Section 1301 to obtain a covenant defeasance with respect to the Outstanding Securities of a particular series, the Company shall be released from its obligations under this Indenture (except its obligations under Sections 304, 305, 306, 506, 509, 610, 1001, 1002, 1006, 1008 and 1009) with respect to the Outstanding Securities of such series on and after the date the applicable conditions set forth in Section 1304 are satisfied (hereinafter, "covenant defeasance"). Covenant defeasance shall mean that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in this Indenture (except its obligations under Sections 304, 305, 306, 506, 509, 610, 1001, 1002, 1006, 1008 and 1009), whether directly or indirectly by reason of any reference elsewhere herein or by reason of any reference to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 501(4) with respect to Outstanding Securities of such series, and the remainder of this Indenture and of the Securities of such series shall be unaffected thereby. SECTION 1304. Conditions to Defeasance or Covenant Defeasance. ----------------------------------------------- The following shall be the conditions to defeasance under Section 1302 and covenant defeasance under Section 1303 with respect to the Outstanding Securities of a particular series: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article applicable to it), under the terms of an irrevocable trust agreement in form and substance reasonably satisfactory to such Trustee, as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such -83- 85 Securities, (a) dollars in an amount, or (b) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (c) a combination thereof, in each case sufficient, after payment of all federal, state and local taxes or other charges or assessments in respect thereof payable by the Trustee, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any, on) and each installment of principal of (and premium, if any) and interest on the Outstanding Securities of such series on the Stated Maturity of such principal or installment of principal or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities. (2) No Default or Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit, and no Default or Event of Default under clause (5) or (6) of Section 501 hereof shall occur and be continuing, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (3) Such deposit, defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (4) Such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any national securities exchange registered under the Exchange Act to be delisted. (5) In the case of an election with respect to Section 1302, the Company shall have delivered to the Trustee either (a) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred or (b) an Opinion of Counsel, - 84 - 86 based on such ruling or on a change in the applicable federal income tax law since the date of this Indenture, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (6) In the case of an election with respect to Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel or a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. (8) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. Deposited Money and Government Obligations To Be Held In Trust. -------------------------------------------------------------- Subject to the provisions of the last paragraph of Section 1009, all money and Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Securities of a particular series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. -85- 87 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities of such series. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited for the purpose for which such money or Government Obligations were deposited. ARTICLE FOURTEEN Miscellaneous SECTION 1401. Miscellaneous. ------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -86- 88 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. PIONEER-STANDARD ELECTRONICS, INC. By: /s/ James L. Bayman -------------------------------- Names: James L. Bayman Title: Chairman, President & CEO [SEAL] Attest: /s/ John V. Goodger - ---------------------- Name: John V. Goodger Title: Vice President, Treasurer & Assistant Secretary STAR BANK, N.A., as Trustee By ------------------------ Name: Title: [SEAL] Attest: - ---------------------- Name: Title: -87- 89 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested all as of the day and year first above written. PIONEER-STANDARD ELECTRONICS, INC. By ----------------------------- Name: Title : [SEAL] Attest: - ------------------------ Name: Title: STAR BANK, N.A., as Trustee By /s/ Keith A. Maurmeier ---------------------- Name: Keith A. Maurmeier Title: Senior Trust Officer [SEAL] Attest: /s/ [illegible] Blackstone - -------------------------- Name: [illegible] Blackstone Title: Trust Officer -87- 90 STATE OF OHIO ) ) SS.: COUNTY OF CUYAHOGA ) On the 30th day of July, 1996, before me personally came James L. Bayman, to me known, who, being by me duly sworn, did depose and say that he is Chairman/President & CEO of Pioneer-Standard Electronics, Inc., one of the parties described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Beverly McFisher -------------------- My commission expires: March 6, 1998 -88- 91 STATE OF OHIO ) ) SS. : COUNTY OF HAMILTON ) On the 30 day of July, 1996, before me personally came Keith A. Maurmeier, to me known, who, being by me duly sworn, did depose and say that he is a Senior Trust Officer of Star Bank, N.A., one of the parties described in and which executed the foregoing instrument; that he knows the seal of said bank; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said bank, and that he signed his name thereto by like authority. /s/ Cheri Scott Geraci ---------------------- My commission expires: Nov. 1, 1998 -89- EX-10.E 5 EXHIBIT 10E 1 Exhibit 10(e) PIONEER-STANDARD ELECTRONICS, INC. 1982 INCENTIVE STOCK OPTION PLAN (as amended and restated effective July 30, 1987) (1) DEFINITIONS. For all purposes of this Plan: (a) "Company" means Pioneer-Standard Electronics, Inc. (b) "Board" means the Board of Directors of the Company. (c) "Committee" means the "Option Committee" as appointed by the Board. (d) The "fair market value" of the Company's common stock on a certain date shall be the mean of the bid and ask quotations on the over-the-counter market on the date specified, or if the common stock is listed on a national stock exchange, then the "fair market value" shall be the mean of the high and low prices of the common stock as traded on such national stock exchange or such date, or if no sale of the common stock shall have been made on that day, then the fair market value shall be the mean of the bid and asked quotations of the common stock on such date. (e) "Internal Revenue Code" means the Internal Revenue Code of 1954 as amended. (f) "Option" means an incentive stock option or non-qualified stock option, to purchase shares of the Company's common stock, without par value, granted pursuant to this Plan. (g) "Option Agreement" means a written agreement between the Company and an Optionee under which an Option is granted. (h) The "Option Price" means the price per share of common stock which the Optionee will pay upon the exercise of the Option. (i) "Optionee" means a person to whom an Option is granted under this Plan. (j) "Retirement" means retirement on a pension under any retirement plan of the Company or, if the optionee is not a participant in any such plan, termination of employment which is (i) Either for age or disability, and (ii) Characterized in writing by the Company to the Optionee as the retirement of the Optionee. (2) PURPOSE. The purpose of this 1982 Incentive Stock Option Plan is to stimulate the efforts of officers and other key employees of the Company by encouraging the ownership by them of stock in the Company and by providing an opportunity for such ownership by the issuance to 2 them of options which will qualify as nonqualified stock options or as "incentive stock options" under election 422A of the Internal Revenue Code. The underlying objectives which the Plan seeks to accomplish are to retain the services of valued key management personnel and to grant to such persons an attractive opportunity to acquire proprietary interests in the business and thereby provide an added incentive to increase the Company's earnings. (3) STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in paragraph 12 hereof) the aggregate number of shares of the Company's common stock, without par value, which may be issued under this Plan shall not exceed 300,000 shares, which shares shall be authorized but unissued shares of the common stock. No option may be granted under this plan which could cause such maximum limit to be exceeded. Shares for which options are no longer exercisable as a result of expiration, termination or cancellation shall be available for subsequent grants. (4) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee consisting of four (4) persons. Said Committee shall be appointed by and serve at the pleasure of the Board. Members of the Committee shall not be eligible to participate in this Plan, or to receive options under it, while serving on the Committee. Subject to the express provisions of the Plan, the Committee, at its sole discretion, from time to time, shall determine the individuals from among those eligible under the Plan to whom options shall be granted, the time or times at which Options shall be granted, the number of shares to be the subject of each Option, and whether an Option shall be a nonqualified stock option or an incentive stock option. More than one option may be granted to an Optionee, provided, however, that the aggregate fair market value (determined as of the time the option is granted) of the shares with respect to which options are exercisable for the first time by any individual during any calendar year (under this Plan and all such plans of the Company and any parent or subsidiary corporation) shall not exceed $100,000. In making such determinations, the Committee may take into account the nature and length of service rendered by the respective eligible employees, their level of compensation, their past, present and potential contributions to the success of the Company and such other facts as the Committee shall, in its discretion, deem relevant. Subject to the express provisions of this Plan, the Committee shall also have authority to interpret and construe the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical) and to make all other determinations necessary or advisable for the administration of the Plan. The determination of the Committee on the matters referred to in this paragraph shall be conclusive. (5) ELIGIBILITY. Any employee of the company who is an officer of or who is in a managerial, professional or other key position with the Company shall be eligible to receive Options granted under the Plan. A director of the Company who is not an officer or other salaried -2- 3 key employee of the Company shall not be eligible to receive an Option under the Plan. (6) OPTION PRICES. The Option Price of the shares of the common stock which shall be covered by each Option shall be 100% of the fair market value of the common stock on the date of the grant of the Option. (7) OPTION AGREEMENT. Each Option shall be embodied in an option agreement signed by the Optionee and the Company providing that the Option shall be subject to the provisions of this Plan and containing such other provisions as the Committee may prescribe not inconsistent with the Plan. (8) EXERCISE OF OPTIONS AND SALE OF SHARES. (a) Each Option shall be exercisable: (i) only by the Optionee during his lifetime; (ii) no later than ten (10) years from the date of grant; and (iii) only while the Optionee is and has continuously been since the date of grant of the option an employee of the Company; provided, however, that subject to the limitations contained in paragraph 11 hereof, and provided that the Option has not previously terminated: 1. An option may be exercised by a retired Optionee; and 2. An Option may be exercised by (and only by) (i) the executor, administrator or other duly qualified personal representative of a deceased Optionee, or (ii) the person or persons who acquired such Option by bequest or inheritance or by reason of the death of such individual. (b) A person electing to exercise an Option shall give written notice to the Company of such election and the number of shares such person has elected to purchase and shall, at the time of exercise, tender the full purchase price of the shares such person has elected to purchase. With respect to options granted prior to March 29, 1984, the purchase price must be paid in cash. With respect to options granted on or after March 29, 1984, the purchase price may be paid either in cash or in shares of the Company's common stock (excluding fractional shares), or a combination thereof; provided, however, that the practice known as "pyramiding", which involves successive stock option exercises using shares received from a preceding exercise to immediately exercise another option and so on, shall not be permitted. Shares delivered in payment of the purchase price shall be valued at the fair market value of such shares on the date of exercise of the -3- 4 Option. During the option period, no person entitled to exercise any Option granted under this Plan shall have any of the rights or privileges of a shareholder with respect to any shares of stock issuable upon exercise of such Option until certificates representing such shares have been issued and delivered. (c) Each Option shall be subject to the requirement that, if at any time that the Committee determines, in its discretion, that the listing, registration or qualification of the shares subject thereto upon any securities exchange or under any Federal or state law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. (d) No share of Common Stock acquired by exercise of an Option shall be sold or otherwise disposed of in violation of any Federal or state securities law or regulation. The Company presently intends to register the shares to be issued upon exercise of options under the Securities Act of 1933. However, the Company shall not be obligated to make or continue any such registration. If the Company decides not to register or continue the registration of such shares but instead to rely upon an exemption from registration under such Act, then by accepting or retaining an Option under this Plan, an Optionee shall be deemed to agree for himself and his survivors entitled hereunder that any share or shares of common stock purchased upon the exercise of such Option shall be acquired for investment purposes and not for public distribution and that each notice of exercise of any portion of his Option shall be accompanied by a representation in writing signed by him or his survivors entitled hereunder, as the case may be, that the shares of common stock are being acquired in good faith for investment purposes and not for public distribution. Each share certificate representing a share or shares of stock issued pursuant to this Option (in the absence of a then effective registration) shall bear the following legend: The shares registered by this Certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred or sold (nor may the beneficial interest in such shares be transferred or sold) unless (1) there is in effect with respect to said shares a registration statement pursuant to such Securities Act, or (2) the Corporation has received communications from the staff of the Securities and Exchange Commission to the effect that they would not recommend any action to the Commission in the event of such transfer or sale, or (3) the Corporation has received a written opinion of counsel satisfactory to it that registration is not required for such transfer or sale. -4- 5 (9) NON-TRANSFERABILITY OF OPTIONS. No Option shall be transferable otherwise than by Will or the laws of descent and distribution. (10) TIME OF GRANTING OF OPTIONS. Nothing contained in the Plan or in any resolution adopted or to be adopted by the Board of Directors of the Company or by the holders of shares of common stock shall constitute the grant of any Option hereunder. The grant of an Option pursuant to the Plan shall take place only when the Committee shall determine in writing that any Option shall be granted hereunder, to whom such Option shall be granted, and the number of shares subject to such Option. If any Option is exercised for only a part of the shares granted hereunder, the Option Agreement shall be surrendered to the Company for endorsement thereon of the number of shares for which the Option is then being exercised. No options shall be granted under this Plan prior to the date it is approved by the Company's shareholders as provided in paragraph 20. (11) TERMINATION OF OPTIONS. Each Option shall, to the extent not theretofore validly exercised, terminate and become null and void upon the happening of the earliest of the following events: (a) With respect to options granted prior to March 28, 1985, an Optionee ceases to be an employee for any cause other than death or retirement, or, with respect to options granted subsequent to March 28, 1985, the expiration of three months after the date an Optionee ceases to be an employee for any cause other than death or retirement; (b) In the case of a retired Optionee the expiration of three months after the date of Optionee's retirement; (c) In the case of a deceased Optionee the expiration of a period of one year after the date of his death, or (d) The expiration of the term of the Option. (12) SHARE ADJUSTMENTS. In the event there is any change in the Company's shares of common stock resulting from stock splits, stock dividends, combinations or exchanges of shares, or other similar capital adjustments equitable proportionate adjustments shall be made by the Committee in (1) the number of shares available for option under this Plan, (2) the number of shares subject to Options granted under this Plan, and (3) the Option Price of optioned shares. (13) OPTION PERIOD. Each Option will expire ten (10) years from the date it is granted unless the Committee in its discretion fixes a shorter period with respect to any one or more Options. Each such Option shall be subject to earlier termination as provided in this Plan. The Committee may, in its discretion, determine as a condition of any Option granted that such Options shall be exercisable only after a stated period of continuous employment with the Company of the Optionee and/or that a stated percentage of the shares covered by such Option -5- 6 shall be exercisable in any one year or other stated period of time. The right to exercise such stated percentages may be cumulative or non-cumulative. (14) USE OF PROCEEDS. Proceeds from the sale of stock pursuant to Options granted under the Plan shall constitute general funds of the Company. Any shares of the Company's common stock surrendered to the Company in payment upon the exercise of Options granted under the Plan shall be retired and restored to the status of authorized but unissued shares of the Company. (15) RIGHT OF COMPANY TO TERMINATE EMPLOYMENT. Nothing contained in the Plan or in any Option Agreement shall be construed to confer on any officer or employee any right to be continued in the employ of the Company nor interfere in any way with the right of the Company to terminate the employment of such employee at any time. (16) AMENDMENT OR TERMINATION OF PLAN OR OPTIONS. (a) The Board may amend the Plan or amend any Option Agreement or may at any time terminate the Plan in each instance without the approval of the Company's shareholders; provided, however, that no such amendment shall, without shareholder approval: (i) Increase (except as provided in paragraph 13) the maximum number of shares for which Options may be granted under this Plan. (ii) Reduce the Option Price of any Option below the fair market value of the common stock on the date of the grant of the Option. (iii) Change the class of employees eligible to receive Options as set forth in paragraph 5, or (iv) Extend the period during which Options may be granted or exercised. (b) Except as provided in paragraph 13, no amendment or termination of the Plan shall adversely affect the rights or benefits under any Option of an Optionee or of any person who, pursuant to the Plan, has succeeded to any rights or privileges of such Optionee without such Optionee's or other person's written consent. (17) DURATION OF THE PLAN. Unless sooner terminated by the Board of Directors, the Plan shall terminate and no Options shall be granted hereunder after March 24, 1992, but Options theretofore granted may extend beyond that date. (18) TAX STATUS. Options granted under the Plan are intended to be incentive stock options under the Internal Revenue Code and the -6- 7 provisions of this Plan and of any Options granted hereunder shall be interpreted in a manner consistent with this objective. (19) OTHER ACTIONS. This Plan shall not restrict the authority of the Board of Directors of the Company for proper corporate purposes to grant or assume stock options other than under the Plan to or with respect to any employee or other person. (20) EFFECTIVE DATE, APPROVAL BY STOCKHOLDERS. This Plan has been adopted effective March 25, 1982, the date of its approval by the Board, and was approved by a vote of the holders of a majority of the outstanding shares of the Company's common stock at the Annual Meeting held on June 24, 1982. -7- EX-11 6 EXHIBIT 11 1 Exhibit 11 CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE Years Ended March 31, 1997, 1996 and 1995
Weighted average common shares and common share 23,235,870 23,127,486 22,886,877 equivalents outstanding ========== ========== ========== Net income $23,254,000 $25,252,000 $25,009,000 =========== =========== =========== Earnings per share $1.00 $1.09 $1.09 ===== ===== =====
EX-13 7 EXHIBIT 13 1 Exhibit 13 Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations FISCAL 1997 COMPARED WITH FISCAL 1996 Sales Fiscal 1997 was the 11th consecutive year of record sales and the 25th year in the 26 years the Company has been public that sales increased. Net sales for the year ended March 31, 1997, of $1,508.7 million increased 37 percent over sales of the prior year of $1,105.3 million. Fiscal 1997 sales include the sales of Pioneer-Standard of Maryland, Inc., the Company's former 50 percent-owned affiliate, which Pioneer acquired on November 30, 1995. Including the former affiliate's sales on a pro forma basis for the entire 1996 fiscal year, net sales increased to $1,508.7 million from $1,325.0 million a year ago, or a 14 percent increase. Product Line Sales The Company's products are classified into three broad categories: semiconductors, computer products, and interconnect, passive and electromechanical products. Semiconductors include microprocessors, memory devices, programmable logic devices, and analog and digital integrated circuits. Computer products include mid-range computer systems and high-end platforms, storage subsystems, software, servers, personal computers, display terminals and networking products. Interconnect, passive and electromechanical products are devices that move or use an electrical signal and include capacitors, connectors, resistors, potentiometers, switches and power conditioning equipment. All three of the Company's major product categories added to sales growth in fiscal 1997. Semiconductor products accounted for 41 percent of sales compared with 38 percent in 1996. Computer products comprised 39 percent of sales compared with 40 percent in 1996. Interconnect, passive and electromechanical products were 17 percent of sales versus 20 percent in 1996. Miscellaneous products accounted for 3 percent of sales in 1997 and 2 percent in 1996. Gross Margins Fiscal 1997 gross margin was 17.2 percent compared with 18.3 percent in the prior year. The reduced gross margin in 1997 is primarily attributable to the effects of the inclusion of operations of the newly acquired affiliate and a weak pricing environment. As to the relative gross margin profitability of the Company's major product categories, the interconnect, passive and electromechanical group earned the highest gross margin percent in fiscal 1997, followed by the computer products group. The inclusion of certain high-volume, low-margin products in the semiconductor product line ranked semiconductors below the computer products group relative to the gross margin percent in 1997. Operating Efficiencies Warehouse, selling and administrative expenses were 13.4 percent of sales in fiscal 1997 compared with 13.6 percent of sales in fiscal 1996. The current- year improvement reflects to some extent the leveraging of expenses on higher sales volume, as well as the effect of cost-cutting programs. Efficiencies were also realized with improved employee productivity, as well as through asset control. Sales per employee were $739,000 in fiscal 1997 compared with $671,000 the prior year. Sales per employee have reflected an average annual efficiency gain of approximately 14 percent over the past five years. Receivable collections (47 days in 1997) and inventory turnover (5.2 times in 1997) place Pioneer among the top of industry averages relative to asset turnover. Although the resulting operating profit in dollars was higher than in 1996, it was 3.8 percent of sales in fiscal 1997 compared with 4.7 percent of sales in fiscal 1996. The decline in the gross profit margin in 1997 more than offset the efficiencies gained with respect to operating expenses. Management expects margin pressures to continue in the next fiscal year. Interest Expense Interest expense was $17.1 million in fiscal 1997 compared with $8.1 million for fiscal 1996. The increased interest expense is due to debt incurred to purchase the Company's former 50 percent-owned affiliate and to fund working capital and capital expenditures to support ongoing growth needs of the business. Equity Interest The consolidated statements of income for fiscal years 1997 and 1996 include the operating results of Pioneer-Standard of Maryland from the date of acquisition, November 30, 1995. Prior to the acquisition, the Company accounted for its investment in the affiliate under the equity method of accounting. The equity interest in the net income of the former affiliate resulted in a net loss of $173,000 in fiscal 1996. This loss included Pioneer's 50 percent share ($1.2 million after tax, or 5 cents per share) of non-recurring discontinuance costs. 19 2 Taxes The effective tax rate, although trending downward during fiscal 1997, was 42.3 percent for the entire fiscal year 1997. The effective tax rate was 42.1 percent in fiscal 1996. Net Income Primarily as a result of the factors noted above, the Company's net income for fiscal 1997 of $23.3 million was $2.0 million lower than the $25.3 million earned a year ago. The related earnings per share of $1.00 in fiscal 1997 compared with $1.09 in fiscal 1996. Risk Control Systems are in place for continuous measurement and evaluation of foreign exchange exposures so that timely action can be taken when considered desirable. Reducing exposure to foreign currency fluctuations is an integral part of the Company's risk management program. Financial instruments in the form of forward exchange contracts are employed as one of the methods to reduce such risk. On June 1, 1995, the Company entered into a five-year interest rate swap agreement for a notional amount of $20 million to reduce the impact of increases in interest rates on its outstanding floating rate debt. Under the agreement, the Company will pay interest at a fixed rate of 6.05 percent and will receive interest payments on the same notional amount at a floating rate based on three- month LIBOR (London Interbank Offered Rate). This swap agreement has the effect of converting the floating rate of interest into a fixed rate of 6.05 percent on $20 million of floating rate bank credit borrowings outstanding. The Company does not enter into financial instruments for trading or speculative purposes. The Company extends credit based on customers' financial conditions, and generally collateral is not required. Credit losses are provided for in the financial statements when collections are in doubt. Inflation has had little effect on the Company's operations. Other In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact would result in an increase in primary earnings per share for the years ended March 31, 1997, 1996 and 1995 of $.02, $.04 and $.03 per share, respectively. The impact of Statement No. 128 on the calculation of fully diluted earnings per share for these years was not material. FISCAL 1996 COMPARED WITH FISCAL 1995 Sales Net sales for the year ended March 31, 1996, were $1,105.3 million, up 33 percent from $832.2 million in 1995. The Company's sales excluding the newly acquired affiliate increased 17 percent. Pro Forma Effects of Acquisition On November 30, 1995, the Company acquired the remaining interest in the 50 percent-owned affiliate for $50 million in cash. The following unaudited pro forma information presents a summary of consolidated results of operations for the Company and Pioneer-Standard of Maryland as if the acquisition had occurred at the beginning of fiscal 1995 and fiscal 1996, with pro forma adjustments to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects. Included in the 1996 results is an after-tax non-recurring discontinuance charge of $2.45 million ($.11 per share) recorded by Pioneer-Standard of Maryland to conform to the Company's methods of accounting.
1996 1995 - -------------------------------------------------------------------------------- Net sales $1,325,047,000 $1,200,252,000 Net income $ 24,704,000 $ 27,741,000 Earnings per share $ 1.07 $ 1.21
Product Line Sales All three of the Company's major product categories added to sales growth in fiscal 1996. Semiconductor products accounted for 38 percent of sales compared with 37 percent in 1995. Computer products comprised 40 percent of sales compared with 38 percent in 1995. Interconnect, passive and electromechanical products were 20 percent of sales versus 22 percent in 1995. Miscellaneous products accounted for 2 percent of sales in 1996 and 3 percent in 1995. 20 3 Gross Margins The 1996 gross margin was 18.3 percent compared with 18.6 percent in 1995. Product line shifts were a factor in the change between gross margin percents of the two years. Inclusion of microprocessor sales, which earn a relatively low gross profit margin and are marketed through an efficient low-cost channel in the semiconductor category, resulted in the semiconductor gross margin percent ranking lower than the interconnect, passive and electromechanical group. Computer products had the lowest gross margin percent. The gross margin percent of the semiconductor products was below that of the other two categories in 1995 primarily due to the effect of the increased volume of the low-margin microprocessor sales in 1995. Operating Efficiencies Warehouse, selling and administrative expenses in 1996 were 13.6 percent of sales compared with 13.4 percent in 1995. The slightly increased rate of operating expenses as a percent of sales in 1996 is in part a reflection of the Company's investment in various programs to foster growth and improve value-added offerings and customer service and satisfaction. The resulting operating profit amounted to $51.9 million, up 19 percent from the $43.7 million in 1995. Operating profit amounted to 4.7 percent of net sales in 1996 compared with 5.2 percent in 1995. On a weighted basis after giving effect to the acquisition of the affiliate, sales per employee were $671,000 in fiscal 1996. Interest Expense Interest expense totaled $8.1 million in 1996 and $4.0 million in 1995. Total interest-bearing debt increased by $122.0 million during 1996 due principally to the additional indebtedness associated with funding the $50 million cash acquisition of the affiliate and assumption of its debt, which was refinanced. In addition, the increased interest expense in 1996 reflects additional debt incurred to fund working capital needs arising from increased sales volume and increased capital expenditures. Equity Interest The equity interest in the net income of the former 50 percent-owned affiliate resulted in a loss of $173,000 during 1996 versus net income of $2.5 million in 1995. The amounts above include Pioneer's 50 percent share of the affiliate's net income, and in 1996 include the 50 percent share for only the first eight months prior to the acquisition on November 30, 1995. The $173,000 loss includes Pioneer's 50 percent share ($1.2 million after tax, or 5 cents per share) of non-recurring discontinuance costs. Pioneer-Standard of Maryland's sales for fiscal 1996 were $350.6 million compared with $368.1 million in 1995. Lower 1996 net sales reflected reduced microprocessor sales which earn a relatively low gross profit margin. However, the affiliate's traditional business sales volume without including microprocessors actually increased over the prior year. In both 1996 and 1995, microprocessor sales were reduced from a substantial buildup which had occurred in 1993 and 1994. Taxes The effective tax rate was 42.1 percent in 1996 compared with 40.8 percent in 1995. The 1996 tax rate increase was due primarily to a decrease in the equity income amount of Pioneer-Standard of Maryland relative to the Company's total net income. Net Income Despite the impact of non-recurring acquisition discontinuance costs and other factors outlined above, fiscal 1996 net income moved up one percent to a new record high of $25.3 million compared with $25.0 million in 1995. Earnings per share of $1.09 in 1996 matched the year-ago record of $1.09. Liquidity and Capital Resources During fiscal 1997, the Company strengthened its capital structure. A Share Subscription Agreement and Trust was established to supplement the Company's annual cash flows; proceeds of a public offering of $150 million Senior Notes were applied to reduce bank borrowings; the Company's revolving credit facility was renegotiated; and net proceeds of $42.4 million from a 3.45 million common share issue were applied to reduce bank borrowings. As background, on November 30, 1995, the Company's debt increased by $80 million as a result of acquiring the remaining interest in its 50 percent-owned affiliate. Debt had also increased as a result of funding the ongoing working capital and capital spending needs of the business to the point where the Company entered the 1997 fiscal year with a debt-to-capital ratio of 56 percent. As a result of the Company's operations and various capital structure enhancements noted above, the Company ended fiscal 1997 with a reduced debt-to-capital ratio of 48 percent. 21 4 Effective July 2, 1996, the Company entered into a Share Subscription Agreement and Trust (the "Trust") with Wachovia Bank of North Carolina, N.A., as Trustee, pursuant to which the Trustee subscribed for five million common shares of the Company, which will be paid for over the 15-year term of the Trust. The proceeds from the sale of the common shares will be used to fund Company obligations under various employee benefit plans and to pay cash bonuses and other similar employee-related Company obligations. Pursuant to Ohio law, the subscribed-for common shares are deemed to be issued and outstanding for voting and dividend purposes, but will not be fully paid and nonassessable until payment for such common shares is received as provided in the Trust. Due to the application of the treasury stock method, the five million common shares subscribed for by the Trust had no effect on earnings per share. As of March 31, 1997, none of the common shares had been released from the Trust to fund benefit plans. On August 12, 1996, the Company completed public offering of $150 million principal amount of 8 1/2 percent Senior Notes due 2006. The indebtedness evidenced by the Notes ranks pari passu in right of payment with all other unsubordinated indebtedness of the Company. Net proceeds from the sale of the 81/2 percent Notes were applied to the repayment of a portion of the borrowings under the Company's revolving credit facility. The remainder of the revolving credit facility was repaid with the proceeds of borrowings under a new revolving credit facility with four banks, effective August 12, 1996. The new revolving credit facility of $125 million has an initial term of three years and replaces the former $200 million facility, which was due to expire in 1997. As of March 31, 1997, borrowings under the new facility totaled $15 million. In addition to the revolving credit line, unsecured short-term lines of credit are available to the Company, whereby a maximum of $40 million may be borrowed to meet short-term fluctuations in cash needs. At March 31, 1997, the Company had $20.5 million outstanding borrowings under these short-term lines, leaving $19.5 million available for use. On March 12, 1997, the Company completed an underwritten public offering of 3.45 million common shares at a price of $13.00 per share. The net proceeds of $42.4 million were used to reduce amounts outstanding under the $125 million revolving credit facility. The Company continued investing in programs to stimulate and support future growth during fiscal 1997. Capital expenditures were $20.2 million in 1997 compared with $21.0 million in 1996. The spending in 1997 and 1996 is related largely to ongoing initiatives designed to improve efficiencies through computer enhancement of operating processes, as well as investments in value-added and warehousing operations. Management estimates that capital expenditures for the 1998 fiscal year will approximate $28.0 million. The planned increase reflects primarily initiatives designed to improve efficiencies through computer enhancement of operating processes. During fiscal 1997, total interest-bearing debt increased a net $8.6 million. This net increase in debt after applying proceeds of the equity offering is attributable to funding working capital requirements and capital expenditures. The ratio of interest-bearing debt to capitalization was 48 percent at March 31, 1997, compared with 56 percent a year ago. The Company maintains a strong financial position and excellent liquidity. Current assets increased by $31.6 million and current liabilities decreased by $42.1 million during the fiscal year ended March 31, 1997, resulting in an increase of $73.7 million in working capital. The decrease in liabilities is primarily attributable to a $40.7 million reduction in accounts payable levels reflecting payment timing differences. The current ratio was 2.5:1 at March 31, 1997, compared with 1.9:1 at March 31, 1996. The Company believes that cash generated from operations and amounts available under its lines of credit are presently sufficient to fund its working capital and capital expenditure requirements. Portions of this report contain current management expectations which may constitute forward- looking information. The Company's performance may differ materially from that contemplated by such statements for a variety of reasons, including, but not limited to: competition, dependence on the computer market and platform market, cyclical nature of the semiconductor market, inventory obsolescence and technology changes, and dependence on key suppliers. 22 5
Consolidated Balance Sheets March 31, 1997, and 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 28,116,000 $ 24,440,000 Accounts receivable, less allowance for doubtful accounts (1997-$7,541,000, 1996-$6,982,000) 209,086,000 189,296,000 Merchandise inventory 243,940,000 238,370,000 Prepaid expenses 6,633,000 2,922,000 Deferred income taxes 10,282,000 11,454,000 - --------------------------------------------------------------------------------------------------------------- Total current assets 498,057,000 466,482,000 INTANGIBLE AND OTHER ASSETS: Intangible assets 39,260,000 42,446,000 Other assets 2,602,000 1,503,000 PROPERTY AND EQUIPMENT, AT COST: Land 828,000 1,070,000 Buildings 9,561,000 13,768,000 Furniture and equipment 73,708,000 62,276,000 Leasehold improvements 7,584,000 6,910,000 - --------------------------------------------------------------------------------------------------------------- 91,681,000 84,024,000 Less accumulated depreciation and amortization 39,087,000 35,345,000 - --------------------------------------------------------------------------------------------------------------- Net property and equipment 52,594,000 48,679,000 - --------------------------------------------------------------------------------------------------------------- $ 592,513,000 $559,110,000 - -------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to banks $ 20,500,000 $ 21,000,000 Accounts payable 144,277,000 184,946,000 Income taxes 1,681,000 1,654,000 Accrued salaries, wages and commissions 11,489,000 13,017,000 Other accrued liabilities 18,697,000 18,154,000 Long-term debt due within one year 2,878,000 2,871,000 - --------------------------------------------------------------------------------------------------------------- Total current liabilities 199,522,000 241,642,000 LONG-TERM DEBT 173,587,000 164,447,000 DEFERRED INCOME TAXES 5,425,000 2,328,000 SHAREHOLDERS' EQUITY: Common shares, without par value, $.30 stated value: authorized 80,000,000 shares in 1997 and 40,000,000 in 1996; outstanding 31,034,545 shares (including 5,000,000 subscribed-for shares) in 1997 and 22,498,510 shares in 1996 9,228,000 6,667,000 Capital in excess of stated value 121,489,000 17,221,000 Retained earnings 147,055,000 126,506,000 Unearned compensation (63,750,000) -- Foreign currency translation adjustment (43,000) 299,000 - --------------------------------------------------------------------------------------------------------------- Total shareholders' equity 213,979,000 150,693,000 - --------------------------------------------------------------------------------------------------------------- $592,513,000 $559,110,000 - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 23 6
Consolidated Statements of Income Years ended March 31, 1997, 1996 and 1995 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------- Net sales $1,508,709,000 $1,105,281,000 $832,152,000 Operating costs and expenses: Cost of goods sold 1,249,873,000 902,629,000 677,171,000 Warehouse, selling and administrative expenses 201,449,000 150,704,000 111,302,000 - -------------------------------------------------------------------------------------------------------------- 1,451,322,000 1,053,333,000 788,473,000 - -------------------------------------------------------------------------------------------------------------- Operating profit 57,387,000 51,948,000 43,679,000 Equity in earnings (loss) of 50%-owned company -- (173,000) 2,500,000 Interest expense (17,066,000) (8,136,000) (3,966,000) - -------------------------------------------------------------------------------------------------------------- Income from operations before income taxes 40,321,000 43,639,000 42,213,000 Provision for income taxes: Federal Current 9,598,000 16,779,000 14,517,000 Deferred 4,269,000 (2,304,000) (1,107,000) - -------------------------------------------------------------------------------------------------------------- 13,867,000 14,475,000 13,410,000 State 3,200,000 3,912,000 3,794,000 - -------------------------------------------------------------------------------------------------------------- 17,067,000 18,387,000 17,204,000 - -------------------------------------------------------------------------------------------------------------- Net income $ 23,254,000 $ 25,252,000 $ 25,009,000 - -------------------------------------------------------------------------------------------------------------- Income per common share: Primary and fully diluted $1.00 $1.09 $1.09 - --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 24 7 Consolidated Statements of Shareholders' Equity
Years ended March 31, 1997, 1996 and 1995 - --------------------------------------------------------------------------------------------------------------------------- Foreign Stated value Capital in currency Common of common excess of Retained Unearned translation shares shares stated value earnings compensation adjustment Total - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT MARCH 31, 1994 22,303,887 $6,609,000 $ 15,806,000 $ 80,325,000 $102,740,000 Net income 25,009,000 25,009,000 Cash dividends ($.075 per share) (1,688,000) (1,688,000) Shares issued upon exercise of stock options 70,332 21,000 388,000 409,000 Tax benefit related to exercise of stock options 124,000 124,000 Foreign currency translation adjustment $(179,000) (179,000) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT MARCH 31, 1995 22,374,219 6,630,000 16,318,000 103,646,000 (179,000) 126,415,000 Net income 25,252,000 25,252,000 Cash dividends ($.106 per share) (2,392,000) (2,392,000) Shares issued upon exercise of stock options 124,442 37,000 693,000 730,000 Tax benefit related to exercise of stock options 214,000 214,000 Cash in lieu of fractional shares for stock split (151) (4,000) (4,000) Foreign currency translation adjustment 478,000 478,000 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1996 22,498,510 6,667,000 17,221,000 126,506,000 299,000 150,693,000 Net income 23,254,000 23,254,000 Issuance of 3,450,000 common shares 3,450,000 1,035,000 41,331,000 42,366,000 Subscription of 5,000,000 common shares 5,000,000 1,500,000 62,250,000 $(63,750,000) -- Cash dividends ($.12 per share) (2,705,000) (2,705,000) Shares issued upon exercise of stock options 86,035 26,000 468,000 494,000 Tax benefit related to exercise of stock options 219,000 219,000 Foreign currency translation adjustment (342,000) (342,000) - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT MARCH 31, 1997 31,034,545 $9,228,000 $121,489,000 $147,055,000 $(63,750,000) $ (43,000) $213,979,000 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 25 8
Consolidated Statements of Cash Flows Years ended March 31, 1997, 1996 and 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,254,000 $ 25,252,000 $ 25,009,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 9,914,000 7,543,000 5,281,000 Amortization 4,659,000 1,455,000 949,000 Gain on sale of property and equipment (221,000) -- -- Undistributed (earnings) loss of affiliate -- 173,000 (2,500,000) Increase in operating working capital (68,421,000) (31,898,000) (38,566,000) Increase in intangible assets -- (5,155,000) (1,488,000) (Increase) decrease in other assets (1,099,000) 67,000 (225,000) Deferred taxes 4,269,000 (2,304,000) (1,115,000) - ------------------------------------------------------------------------------------------------------- Total adjustments (50,899,000) (30,119,000) (37,664,000) - ------------------------------------------------------------------------------------------------------- Net cash used in operating activities (27,645,000) (4,867,000) (12,655,000) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (20,179,000) (21,004,000) (11,326,000) Acquisition of businesses, net of cash acquired -- (49,883,000) (10,068,000) Proceeds from sale of property and equipment 1,468,000 -- -- - ------------------------------------------------------------------------------------------------------- Net cash used in investing activities (18,711,000) (70,887,000) (21,394,000) CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term financing (500,000) 14,000,000 5,000,000 Increase (decrease) in revolving credit borrowings (137,000,000) 81,000,000 37,000,000 Principal payments under long-term debt obligations (2,860,000) (2,956,000) (3,056,000) Proceeds from issuance of Senior Notes 150,000,000 -- -- Proceeds from issuance of common shares 42,366,000 -- -- Issuance of common shares under stock option plans 494,000 730,000 409,000 Tax benefit related to exercise of stock options 219,000 214,000 124,000 Dividends paid (2,705,000) (2,392,000) (1,688,000) Cash in lieu of fractional shares for stock split -- (4,000) -- - ------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 50,014,000 90,592,000 37,789,000 EFFECT OF EXCHANGE RATE CHANGES ON CASH 18,000 4,000 (96,000) - ------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH 3,676,000 14,842,000 3,644,000 - ------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,440,000 9,598,000 5,954,000 - ------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,116,000 $ 24,440,000 $ 9,598,000
See accompanying notes to consolidated financial statements. 26 9 Notes to Consolidated Financial Statements NOTE 1 - Operations and Significant Accounting Policies The Company distributes a broad range of electronic components and computer products manufactured by others. These products are sold to original equipment manufacturers, value-added resellers, research laboratories, government agencies, and end users, including manufacturing companies, and service and other non-manufacturing organizations. The Company has operations in the United States and Canada. The Company maintains the following significant accounting policies: PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. As discussed in Note 2, the Company acquired the remaining 50 percent of the common stock of Pioneer-Standard of Maryland, Inc. ("Maryland") on November 30, 1995. The consolidated statements include the operating results of Maryland from the date of acquisition. Prior to the acquisition, the Company accounted for its investment in Maryland under the equity method of accounting. CASH EQUIVALENTS - The Company considers highly liquid instruments with a maturity of 90 days or less at date of purchase to be cash equivalents. MERCHANDISE INVENTORY - Inventory is stated at the lower of cost (first-in, first-out basis) or market. The Company's inventory is constantly monitored for obsolescence. This review considers such factors as turnover, technical obsolescence, right-of-return status to suppliers and price protection offered by suppliers. Reserves for slow-moving and obsolete inventory at March 31 were $6,659,000 in 1997 and $8,777,000 in 1996. LONG-LIVED ASSETS - Property and equipment are recorded at cost. The Company capitalizes costs associated with software developed for its own use. Depreciation and amortization is computed using the straight-line method based on the estimated useful lives of the assets as follows: buildings, 40 years; furniture, 10 years; equipment, five to 10 years; software, five to seven years; and leasehold improvements, the lease periods. Accelerated methods are used for tax reporting purposes. Intangible assets include the excess of cost over value assigned to net assets of purchased businesses, which are being amortized on the straight-line method over 40 years. Accumulated amortization at March 31 was $2,656,000 in 1997 and $1,574,000 in 1996. Impairment of long-lived assets and related intangible assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. FOREIGN CURRENCY - The assets and liabilities of Canadian operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, whereas income statement accounts are translated at the weighted average exchange rates for the year. The gains or losses resulting from these translations are recorded in a separate component of shareholders' equity. Gains or losses resulting from realized foreign currency transactions are included in net income. ADVERTISING PROMOTION - All costs associated with advertising and promoting products are expensed in the year incurred. Advertising and promotion expense was $2,176,000 in 1997, $1,878,000 in 1996 and $1,580,000 in 1995. STOCK-BASED COMPENSATION - The Company accounts for stock-based employee compensation in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. COMMON SHARES AND NET INCOME PER COMMON SHARE - Net income per common share is computed using the weighted average number of common shares and common share equivalents outstanding during the year of 23,235,870 in 1997, 23,127,486 in 1996 and 22,886,877 in 1995. Common share equivalents consist of shares issuable upon exercise of stock options computed by using the treasury stock method. Due to the application of the treasury stock method, the five million shares subscribed for by the Trust (see Note 6) have no effect on earnings per share. In addition, the subscribed-for shares are excluded when determining shareholders' equity per share. USE OF ESTIMATES - The financial statements are prepared in conformity with generally accepted accounting principles and, accordingly, include management's best estimates and judgments where applicable. Actual results could differ from those estimates. PRESENTATION - Certain 1996 and 1995 amounts have been reclassified to conform with the 1997 presentation. ACCOUNTING CHANGE - In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options 27 10 will be excluded. The impact would result in an increase in primary earnings per share for the years ended March 31, 1997, 1996 and 1995 of $.02, $.04 and $.03 per share, respectively. The impact of Statement No. 128 on the calculation of fully diluted earnings per share for these years was not material. NOTE 2 - Acquisitions On November 30, 1995, the Company acquired the remaining 50 percent of the common stock of Pioneer-Standard of Maryland, Inc. for $50 million in cash. The acquisition was accounted for by using the purchase method of accounting. Prior to the acquisition, the Company accounted for its investment in Maryland under the equity method of accounting. The following unaudited pro forma information presents a summary of consolidated results of operations for the Company and Maryland as if the acquisition had occurred at the beginning of fiscal 1995 and fiscal 1996, with pro forma adjustments to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects. Included in the 1996 results is an after-tax non-recurring discontinuance charge of $2.45 million ($.11 per share) recorded by Maryland to conform to the Company's methods of accounting.
1996 1995 - -------------------------------------------------------- Net sales $1,325,047,000 $1,200,252,000 Net income $ 24,704,000 $ 27,741,000 Earnings per share $ 1.07 $ 1.21
On June 1, 1994, the Company acquired certain assets of the Zentronics Division of Westburne Industrial Enterprises Ltd. ("Westburne"), a Canadian corporation, and assumed certain of Westburne's liabilities for a purchase price of approximately $10,068,000. The transaction has been accounted for by the purchase method of accounting and the pro forma effects are not material. Operating results are included in the consolidated financial statements from the date of acquisition. NOTE 3 - Notes Payable and Long-Term Debt Notes Payable: The Company has unsecured short-term lines of credit aggregating $40 million available for use. The unsecured lines, which may be withdrawn at the option of the lenders, permit the Company to borrow at varying interest rates. Borrowings against these lines at March 31, 1997, and 1996 and related weighted average interest rates are as follows:
1997 1996 - --------------------------------------------------------------------- Borrowings $20,500,000 $21,000,000 - --------------------------------------------------------------------- Weighted average 7.59% 6.08% interest rate
Long-Term Debt: Long-term debt at March 31, 1997, and 1996 consisted of the following:
1997 1996 - ----------------------------------------------------- Revolving credit $ 15,000,000 $152,000,000 8.5% Senior Notes 150,000,000 -- 9.79% Senior Notes 11,420,000 14,280,000 Other 45,000 1,038,000 - ----------------------------------------------------- 176,465,000 167,318,000 Less amounts due within one year 2,878,000 2,871,000 - ----------------------------------------------------- $173,587,000 $164,447,000
- ----------------------------------------------------- The Company entered into a new revolving credit facility dated August 12, 1996, with four banks providing for up to an aggregate amount of $125 million of unsecured borrowings on a revolving credit basis for an initial term of three years. In addition, on an annual basis, the facility may be extended for a three-year period with the consent of all members of the bank group. Interest rates on borrowings are based on various floating rate alternative pricing mechanisms. There is a commitment fee ranging from .25 percent to .375 percent on the unborrowed amount and there is no prepayment penalty. In August 1996, the Company completed a public offering of $150 million principal amount of its 8.5 percent Senior Notes due August 2006. Interest is payable semi-annually. The net proceeds from the sale of the Notes were applied to the repayment of a portion of the borrowings under the Company's revolving credit facility. The indenture under which the Notes were issued limits the creation of liens; sale and leaseback transactions; consolidations, mergers and transfers of all or substantially all of the Company's assets; and indebtedness of the Company's restricted subsidiaries. The Notes are subject to mandatory repurchase by the Company at the option of the holders in the event of a change in control of the Company. Annual principal payments of $2.86 million on the 9.79 percent Senior Notes are due each November 1 and continue through November 1, 2000, when the last payment of $2.84 million is due. Interest is payable semi-annually. The terms of the credit agreement and 9.79 percent Senior Note Purchase Agreement provide for, among other things, restrictions regarding the payment of cash dividends and purchase of the Company's common shares, limitations on other borrowings and capital expenditures, minimum working capital requirements and the maintenance of certain financial ratios. Unrestricted retained earnings available for dividends at March 31, 1997, under the most restrictive covenants are $24,336,000. 28 11 Aggregate maturities of long-term debt for the next five fiscal years are: 1998 - $2,878,000; 1999 - $2,882,000; 2000 - $17,860,000; 2001 - $2,840,000; and 2002 - $-0-. NOTE 4 - Lease Commitments The Company is committed under lease agreements ranging up to eight years, which contain renewal options for periods up to 10 years, for certain facilities and equipment. Future minimum lease payments for operating leases at March 31, 1997, are: 1998, $6,209,000; 1999, $5,615,000; 2000, $3,156,000; 2001, $1,908,000; 2002, $1,117,000; and $1,609,000 thereafter. Rental expense for operating leases was $6,416,000, $4,230,000 and $2,897,000 for 1997, 1996 and 1995, respectively. NOTE 5 - Income Taxes The following is a reconciliation of the Company's effective income tax rate to the Federal statutory rate:
1997 1996 1995 - -------------------------------------------------------------------------------- Statutory rate 35.0% 35.0% 35.0% Equity in undistributed (earnings) loss of 50%-owned company -- .1 (1.6) Provision for state taxes 5.2 5.8 5.8 Foreign losses with (recognized) unrecog- nized tax benefits (.3) .6 1.1 Non-deductible and other 2.4 .6 .5 - --------------------------------------------------------- Effective rate 42.3% 42.1% 40.8%
- -------------------------------------------------------------------------------- Deferred tax assets and liabilities as of March 31, 1997, and 1996 are presented below:
1997 1996 - -------------------------------------------------------------------------------- Deferred tax assets: Capitalized inventory costs $ 2,426,000 $ 1,842,000 Accrued expenses 2,894,000 3,322,000 Allowance for doubtful accounts 2,665,000 2,433,000 Inventory valuation reserve 1,646,000 2,807,000 Foreign losses 572,000 691,000 Other 651,000 1,050,000 - ----------------------------------------------------------------- 10,854,000 12,145,000 Less valuation allowance (572,000) (691,000) - ----------------------------------------------------------------- Total deferred tax assets 10,282,000 11,454,000 Deferred tax liabilities: Depreciation expense 1,688,000 1,325,000 Software amortization 3,677,000 -- Other 60,000 1,003,000 - ----------------------------------------------------------------- Total deferred tax liabilities 5,425,000 2,328,000 - ----------------------------------------------------------------- Net deferred tax assets $ 4,857,000 $ 9,126,000 - --------------------------------------------------------------------------------
NOTE 6 - Shareholders' Equity On July 2, 1996, the Company entered into a Share Subscription Agreement and Trust (the "Trust") with Wachovia Bank of North Carolina, N.A., as Trustee whereby the Trustee subscribed for five million common shares of the Company, which will be paid for over the 15-year term of the Trust. The proceeds from the sale or direct use of the common shares over the life of the Trust will be used to fund Company obligations under various benefit plans. As of March 31, 1997, no shares have been released from the Trust. The following details the fair market value of the five million common shares subscribed for by the Trust reflected in shareholders' equity at March 31, 1997: - ----------------------------------------------------- Common shares at stated value (5,000,000 @ $.30) $ 1,500,000 Capital in excess of stated value (5,000,000 shares) 62,250,000 Unearned compensation (5,000,000 shares @ $12.75 fair market value) (63,750,000) - ----------------------------------------------------- Net effect on shareholders' equity $-- - -----------------------------------------------------
On March 12, 1997, the Company completed an underwritten public offering of 3.45 million common shares at a price of $13.00 per share. The net proceeds from the offering of approximately $42,366,000 were used to repay a portion of the indebtedness outstanding under the Company's revolving credit facility. The Company maintains a Common Share Purchase Rights Plan whereby, until the occurrences of certain events, each share of the Company's outstanding common shares represents ownership of one right (Right). The Rights may be exercised only if a person or group acquires 20 percent or more of the Company's common shares, or announces a tender offer for at least 20 percent of the Company's common shares. The exercise price of each Right is $11.85 per common share, subject to adjustment in certain events. The Rights trade with the Company's common shares until the Rights become exercisable. If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the Right's then-exercise price, a number of the acquiring Company's common shares (or other securities) having a market value at the time of twice the Right's then-current exercise price. In addition, if a person or group acquires 20 percent or more of the Company's common shares or certain specified transactions occur while a person or group beneficially owns 20 percent or more of such common shares, 29 12 each Right will entitle its holder (other than such person or members of such group) to purchase, at the Right's then-current exercise price, a number of the Company's common shares having a market value of twice the Right's then-exercise price. Prior to the acquisition by a person or group of beneficial ownership of 20 percent or more of the Company's common shares, the Rights are redeemable for $.003 per Right at the option of the Board of Directors. The Rights will expire May 10, 1999. NOTE 7 - Stock Options The Company has stock option plans which provide for the granting of options to employees and directors to purchase its common shares. These plans provide for nonqualified or incentive stock options. Options are granted at the fair market value of the Company's common shares on the date of grant and expire 10 years from date of grant. The Company makes no recognition of the options in the financial statements until they are exercised. Pro forma disclosures are provided for 1997 and 1996 as if the Company adopted the cost recognition requirements under Financial Accounting Standard No. 123 (SFAS 123) - "Accounting for Stock-Based Compensation." Transactions involving the stock option plans are summarized as follows:
Average Number Option Price of Shares per Share - -------------------------------------------------------------------------------- Outstanding at March 31, 1994 1,009,407 $ 5.17 Exercised (70,332) $ 5.82 Granted 646,950 $ 12.06 Forfeited (4,275) $ 11.33 - -------------------------------------------------------------------------------- Outstanding at March 31, 1995 1,581,750 $ 7.95 Exercised (124,442) $ 5.87 Granted 274,000 $ 14.99 Forfeited (110,734) $ 10.53 - -------------------------------------------------------------------------------- Outstanding at March 31, 1996 1,620,574 $ 9.12 Exercised (86,035) $ 5.74 Granted 7,500 $ 15.25 Forfeited (59,053) $ 11.68 - -------------------------------------------------------------------------------- Outstanding at March 31, 1997 1,482,986 $ 9.24 Exercisable at March 31, 1997 863,435 $ 8.86 Available for grant at March 31, 1997 616,660 - --------------------------------------------------------------------------------
The fair market value of each option granted during 1997 and 1996 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) dividend yield of 1.0 percent, (2) expected volatility of 34.0 percent, (3) risk-free interest rate of 6.39 percent and (4) expected life of eight years. The weighted average fair value of options granted during 1997 and 1996 was $7.27 and $7.14, respectively. If compensation expense had been recognized for the 1997 and 1996 grants for stock-based compensation plans in accordance with provisions of SFAS 123, the Company would have recorded net income and earnings per share of $22,603,000 and $.97, respectively, in 1997. The pro forma effect for 1996 would have been immaterial. The impact of applying SFAS 123 in this pro forma disclosure is not indicative of future amounts. SFAS 123 does not apply to grants prior to March 31, 1995, and additional grants in future years are anticipated. NOTE 8 - Financial Instruments and Estimated Fair Values The Company uses forward exchange contracts to reduce exposure to foreign currency fluctuations. Gains or losses on forward contracts which hedge its net investment in its Canadian subsidiary are accrued in shareholders' equity. Gains or losses resulting from contracts which hedge specific transactions are included in net income offsetting the net income effect of the transaction creating the risk. As of March 31, 1997, there is one contract outstanding for the forward sale of U.S. dollars against Canadian dollars in a notional amount of $2.4 million, which also approximates fair value at March 31, 1997. The contract matured on April 30, 1997, and was utilized to hedge U.S. dollar transactions of the Canadian subsidiary. On June 1, 1995, the Company entered into a five-year interest rate swap agreement for a notional amount of $20 million to reduce the impact of increases in interest rates on its outstanding floating rate debt. Under the agreement, the Company will pay interest at a fixed rate of 6.05 percent and will receive interest payments on the same notional amount at a floating rate based on three-month LIBOR (London Interbank Offered Rate). This swap agreement has the effect of converting the floating rate of interest into a fixed rate of 6.05 percent on $20 million of floating rate bank credit borrowings outstanding. 30 13
1997 1996 - --------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - --------------------------------------------------------------------------------------------------- Cash $ 28,116,000 $ 28,116,000 $ 24,440,000 $ 24,440,000 Notes payable to banks 20,500,000 20,500,000 21,000,000 21,000,000 Long-term debt: 8.5% Senior Notes 150,000,000 151,084,000 -- -- 9.79% Senior Notes 11,420,000 11,887,000 14,280,000 15,107,000 Revolving credit borrowings 15,000,000 15,000,000 152,000,000 152,000,000 Interest rate swap -- 363,000 -- 75,000 - ---------------------------------------------------------------------------------------------------
The fair value of the Senior Notes is estimated using rates currently available for securities with similar terms and remaining maturities. The fair value of the interest rate swap is the amount at which it could be settled, based on market estimates. NOTE 9 - Operating Working Capital Changes and Supplemental Information for the Statements of Cash Flows The components of the changes in operating working capital were:
1997 1996 1995 - --------------------------------------------------------------------------------------------- Accounts receivable $(20,002,000) $(18,456,000) $(47,595,000) Merchandise inventory (5,712,000) (57,702,000) (32,049,000) Prepaid expenses (3,712,000) (894,000) (682,000) Accounts payable (40,675,000) 41,911,000 35,879,000 Income taxes 232,000 (3,107,000) 858,000 Accrued salaries, wages and commissions (1,520,000) 2,156,000 1,480,000 Other accrued liabilities 2,968,000 4,194,000 3,543,000 - --------------------------------------------------------------------------------------------- Increase in operating working capital $(68,421,000) $(31,898,000) $(38,566,000) - ---------------------------------------------------------------------------------------------
Supplemental cash flow information:
1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Cash paid during the year for: Interest $15,260,000 $ 7,824,000 $ 4,255,000 Income taxes 16,471,000 21,195,000 17,064,000 - ----------------------------------------------------------------------------------------------------------- Non-cash assets and liabilities of business acquired: Working capital -- $ 57,817,000 $ 7,684,000 Intangible assets -- 33,208,000 2,174,000 Other assets -- 5,648,000 210,000 Long-term debt assumed -- (30,000,000) -- Investment in 50%-owned company at date of acquisition -- (16,790,000) -- - -----------------------------------------------------------------------------------------------------------
NOTE 10 - Employee Retirement Plans The Company maintains various profit-sharing and thrift plans for all employees meeting certain service requirements. Generally, the plans allow eligible employees to contribute a portion of their compensation, with the Company matching a percentage thereof. The Company may also make contributions each year for the benefit of all eligible employees under the plans. Total profit sharing and Company matching contributions were $3,034,000, $2,622,000 and $2,129,000 for 1997, 1996 and 1995, respectively. 31 14 Report of Independent Auditors Shareholders and the Board of Directors PIONEER-STANDARD ELECTRONICS, INC. We have audited the accompanying consolidated balance sheets of Pioneer-Standard Electronics, Inc. as of March 31, 1997, and 1996 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pioneer-Standard Electronics, Inc. at March 31, 1997, and 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cleveland, Ohio May 1, 1997 Quarterly Financial Data
(unaudited) - ------------------------------------------------------------------------------------------------------------ Fiscal Year First Second Third Fourth Ending March 31 Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------ 1997 Net sales $375,156,000 $357,683,000 $384,385,000 $391,485,000 $1,508,709,000 Gross profit 66,166,000 61,286,000 64,924,000 66,460,000 258,836,000 Net income 6,151,000 4,533,000 5,625,000 6,945,000 23,254,000 Net income per share .27 .20 .24 .29 1.00 - ------------------------------------------------------------------------------------------------------------ 1996 Net sales $224,724,000 $234,913,000 $263,940,000 $381,704,000 $1,105,281,000 Gross profit 43,610,000 45,356,000 47,550,000 66,136,000 202,652,000 Net income 6,816,000 6,705,000 4,089,000 7,642,000 25,252,000 Net income per share .29 .29 .18 .33 1.09 - ------------------------------------------------------------------------------------------------------------
The Company acquired the remaining 50 percent of the common stock of Pioneer-Standard of Maryland, Inc. on November 30, 1995. The consolidated statements include the operating results of Maryland from the date of acquisition. Prior to the acquisition, the Company accounted for its investment in Maryland under the equity method of accounting. 32 15 Dividend Information and Price Range of Common Shares
Fiscal Year First Second Third Fourth Ending March 31 Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------ 1997 High $16.50 $14.25 $13.75 $15.63 $16.50 Low 12.50 11.00 10.25 12.50 10.25 Close 13.25 11.25 13.13 12.75 12.75 Dividends paid .03 .03 .03 .03 .12 - ------------------------------------------------------------------------------------------------------ 1996 High $17.83 $19.25 $17.75 $15.75 $19.25 Low 11.67 14.67 12.75 10.75 10.75 Close 16.33 17.50 13.25 15.38 15.38 Dividends paid .023 .023 .03 .03 .106 - ------------------------------------------------------------------------------------------------------
As of May 1, 1997, there were 31,056,782 common shares (including 5,000,000 subscribed-for common shares - see Note 6) of Pioneer-Standard Electronics, Inc. outstanding, and there were 2,895 shareholders of record. The market price of Pioneer-Standard Electronics, Inc. common shares at the close of business May 1, 1997, was $12.25. See Note 3 for information regarding dividend restrictions. 33 16
Financial Review Five-Year Summary of Operations (Dollars in thousands except per share amounts) For the Year Ended March 31 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- Combined Sales (Pioneer-Standard Electronics, Inc. and Pioneer-Standard of Maryland, Inc.) $ 1,508,709 $ 1,325,047 $ 1,200,252 $ 1,002,758 $ 714,021 Pioneer-Standard Electronics, Inc. Net Sales 1,508,709 1,105,281 832,152 580,757 430,013 Interest Expense 17,066 8,136 3,966 2,687 3,581 Income Before Income Taxes and Equity in Earnings of Pioneer-Standard of Maryland, Inc. 40,321 43,812 39,713 28,702 17,480 Equity in Earnings (Loss) of Pioneer-Standard of Maryland, Inc. -- (173) 2,500 3,001 2,505 Income Taxes 17,067 18,387 17,204 12,027 7,072 Net Income 23,254 25,252 25,009 19,676 12,913 - --------------------------------------------------------------------------------------------------------------------------- Year-End Position Accounts Receivable 209,086 189,296 133,987 81,155 62,347 Inventory 243,940 238,370 123,008 85,754 67,101 Working Capital 298,535 224,840 131,438 85,132 70,781 Net Property and Equipment 52,594 48,679 30,929 25,572 23,159 Total Assets 592,513 559,110 327,415 220,039 171,860 Long-Term Debt 173,587 164,447 56,318 22,272 21,328 Shareholders' Equity 213,979 150,693 126,415 102,740 84,117 Weighted Average Shares Outstanding 23,235,870 23,127,486 22,886,877 22,677,034 20,674,152 Average Number of Employees 2,042 1,647 1,213 1,003 940 - --------------------------------------------------------------------------------------------------------------------------- Per Share Data Net Income per Share 1.00 1.09 1.09 .87 .63 Cash Dividends Paid per Share .12 .106 .075 .058 .049 Shareholders' Equity per Share 8.22 6.70 5.65 4.61 3.82 Price Range of Common Shares High 16.50 19.25 13.17 12.55 8.89 Low 10.25 10.75 9.17 5.33 3.11 - --------------------------------------------------------------------------------------------------------------------------- Measurement Data Gross Margin Percent of Sales 17.2 18.3 18.6 19.8 21.7 Net Income Percent of Sales 1.5 2.3 3.0 3.4 3.0 Net Income Percent of Average Shareholders' Equity 14.2 18.2 21.8 21.1 18.2 Sales Per Employee 739 671 686 579 457 Accounts Receivable Days Outstanding at Year-End 47 45 47 43 45 Turns on Annual Average Inventory 5.2 5.4 6.5 6.1 5.3 Interest-Bearing Debt Percent of Equity Plus Debt 48 56 34 21 22 - ---------------------------------------------------------------------------------------------------------------------------
The Company acquired the remaining 50 percent of the common stock of Pioneer-Standard of Maryland, Inc. on November 30, 1995. The consolidated statements include the operating results of Maryland from the date of acquisition. Prior to the acquisition, the Company accounted for its investment in Maryland under the equity method of accounting. 34 EX-21 8 EXHIBIT 21 1 Exhibit 21 SUBSIDIARIES OF PIONEER-STANDARD ELECTRONICS, INC. State or jurisdiction Subsidiary of the Company of organization or incorporation - ------------------------- -------------------------------- Pioneer-Standard of Maryland, Inc. Maryland Pioneer-Standard Canada Inc. Ontario Pioneer-Standard FSC, Inc. Virgin Islands of the United States Pioneer-Standard Illinois, Inc. Delaware Pioneer-Standard Minnesota, Inc. Delaware Pioneer-Standard Electronics, Ltd. Delaware EX-23 9 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Pioneer-Standard Electronics, Inc. of our report dated May 1, 1997 included in the 1997 Annual Report to Shareholders of Pioneer-Standard Electronics, Inc. We also consent to the incorporation by reference in the Registration Statements (Forms S-3 and Forms S-8) listed below and the related prospectuses of Pioneer-Standard Electronics Inc. of our reports dated May 1, 1997 with respect to the consolidated financial statements and schedule of Pioneer-Standard Electronics, Inc. incorporated by reference and included in this Annual Report (Form 10-K) for the year ended March 31, 1997: - - Registration of 220,000 Common Shares (Form S-3 333-26697) - - Registration of $200,000,000 of Debt Securities and Common Shares (Form S-3 No. 333-07665) - - 1995 Stock Option Plan for Outside Directors of Pioneer-Standard Electronics, Inc. (Form S-8 No. 333-07143) - - 1991 Incentive Stock Option Plan of Pioneer-Standard Electronics, Inc. (Forms S-8 No. 33-46008 and 33-53329) - - 1982 Incentive Stock Option Plan of Pioneer-Standard Electronics, Inc. (Form S-8 No. 33-18790) ERNST & YOUNG LLP Cleveland, Ohio June 25, 1997 2 REPORT OF INDEPENDENT AUDITORS To the Shareholders and the Board of Directors Pioneer-Standard Electronics, Inc. We have audited the consolidated financial statements of Pioneer-Standard Electronics, Inc. as of March 31, 1997 and 1996 and for each of the three years in the period ended March 31, 1997 and have issued our report thereon dated May 1, 1997, incorporated by reference in this Annual Report (Form 10-K). Our audits also included the consolidated financial statement schedule of Pioneer-Standard Electronics, Inc. as of March 31, 1997 and 1996 and for each of the three years in the period ended March 31, 1997, listed in item 14(a) of this Annual Report (Form 10-K). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Cleveland, Ohio May 1, 1997 S-1 3 PIONEER-STANDARD ELECTRONICS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Balance at Deductions - Balance beginning Charged to costs net write-offs at end of of period and expenses Other (Net recoveries) period --------- ------------ ----- ---------------- ------ Description - ----------- 1997: Allowance for doubtful accounts $6,982,000 $ 193,000 ($ 366,000) $7,541,000 Inventory valuation reserve $8,777,000 $ 987,000 $3,105,000 $6,659,000 1996: Allowance for doubtful accounts $4,606,000 $ 940,000 $2,195,000(1) $ 759,000 $6,982,000 Inventory valuation reserve $3,416,000 $1,489,000 $5,534,000(1) $1,662,000 $8,777,000 1995: Allowance for doubtful accounts $2,869,000 $2,281,000 $ 544,000 $4,606,000 Inventory valuation reserve $2,540,000 $2,167,000 $1,291,000 $3,416,000 (1) Amount for Pioneer/Technologies Group, Inc., purchased November 30, 1995.
S-2 EX-27 10 EXHIBIT 27
5 12-MOS MAR-31-1997 MAR-31-1997 28,116 0 216,627 7,541 243,940 498,057 91,681 39,087 592,513 199,522 173,587 9,228 0 0 204,751 592,513 1,508,709 1,508,709 1,249,873 1,249,873 201,449 0 17,066 40,321 17,067 23,254 0 0 0 23,254 1.00 1.00
EX-99.A 11 EXHIBIT 99(A) 1 EXHIBIT 99(a)
[LOGO - ACORD] CERTIFICATE OF INSURANCE ISSUE DATE (MM/DD/YY) 06/17/97 ------------------------------------------------------------------- PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE Aon Risk Services, Inc. DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE 1660 W. 2nd St., Suite 650 POLICIES BELOW. Skylight Office Tower ------------------------------------------------------------------- Cleveland, Ohio 44113 COMPANIES AFFORDING COVERAGE (216) 621-8100 COMPANY LETTER A Federal Insurance Company COMPANY LETTER B INSURED COMPANY Pioneer-Standard Electronics, Inc. LETTER C 4800 East 131st Street Cleveland, Ohio 44105 COMPANY LETTER D COMPANY LETTER E - -------------------------------------------------------------------------------------------------------------------------------- COVERAGES THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. CO POLICY EFFECTIVE POLICY EXPIRATION LTR TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS - -------------------------------------------------------------------------------------------------------------------------------- GENERAL LIABILITY GENERAL AGGREGATE $ COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OP AGG. $ CLAIMS MADE OCCUR. PERSONAL & ADV. INJURY $ OWNER'S & CONTRACTOR'S PROT. EACH OCCURRENCE $ FIRE DAMAGE (Any one fire) $ MED. EXPENSE (Any one person) $ - ----------------------------------------------------------------------------------------------------------------------------------- AUTOMOBILE LIABILITY ANY AUTO COMBINED SINGLE LIMIT $ ALL OWNED AUTOS BODILY INJURY SCHEDULED AUTOS (Per person) $ HIRED AUTOS BODILY INJURY (Per accident) $ NON-OWNED AUTOS PROPERTY DAMAGE $ GARAGE LIABILITY - ----------------------------------------------------------------------------------------------------------------------------------- EXCESS LIABILITY EACH OCCURRENCE $ UMBRELLA FORM AGGREGATE $ OTHER THAN UMBRELLA FORM - ----------------------------------------------------------------------------------------------------------------------------------- WORKER'S COMPENSATION STATUTORY LIMITS AND EACH ACCIDENT $ EMPLOYERS' LIABILITY DISEASE-POLICY LIMIT $ DISEASE-EACH EMPLOYEE $ - ----------------------------------------------------------------------------------------------------------------------------------- OTHER Executive Liability XX and Indemnification 8102-64-55H 11/01/95 11/01/97 $25,000,000 Ea. Loss Insurance Policy $25,000,000 Ea. Policy Year - ----------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS - ----------------------------------------------------------------------------------------------------------------------------------- CERTIFICATE HOLDER CANCELLATION To Whom It May Concern SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 60 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES. ---------------------------------------------------------------------- AUTHORIZED REPRESENTATIVE /s/ Monica H. Peres
ACORD 25-S (7/90) (c)ACORD CORPORATION 1990 -----END PRIVACY-ENHANCED MESSAGE-----