<PAGE>
 
                                                                    EXHIBIT 10.7
================================================================================



                           DELTIC TIMBER CORPORATION

                         DATED AS OF DECEMBER 18, 1998


                             ____________________

                            NOTE PURCHASE AGREEMENT

                             _____________________


             $40,000,000 6.66% SENIOR NOTES DUE DECEMBER 18, 2008



================================================================================
<PAGE>
 
                                TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                                                    PAGE
<S>                                                                                                 <C>      
1.       AUTHORIZATION OF NOTES...................................................................     1

2.       SALE AND PURCHASE OF NOTES...............................................................     1

3.       CLOSING..................................................................................     1

4.       CONDITIONS TO CLOSING....................................................................     2
         4.1      Representations and Warranties..................................................     2
         4.2      Performance; No Default.........................................................     2
         4.3      Compliance Certificates.........................................................     2
         4.4      Opinions of Counsel.............................................................     3
         4.5      Purchase Permitted By Applicable Law, etc.......................................     3
         4.6      Subsidiary Guarantee............................................................     3
         4.7      Payment of Special Counsel Fees.................................................     3
         4.8      Private Placement Number........................................................     4
         4.9      Changes in Corporate Structure..................................................     4
         4.10     Proceedings and Documents.......................................................     4

5.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................     4
         5.1      Organization; Power and Authority...............................................     4
         5.2      Authorization, etc..............................................................     4
         5.3      Disclosure......................................................................     5
         5.4      Organization and Ownership of Shares of Subsidiaries; Affiliates................     5
         5.5      Financial Statements............................................................     6
         5.6      Compliance with Laws, Other Instruments, etc....................................     6
         5.7      Governmental Authorizations, etc................................................     7
         5.8      Litigation; Observance of Agreements, Statutes and Orders.......................     7
         5.9      Taxes...........................................................................     7
         5.10     Title to Property; Leases.......................................................     8
         5.11     Licenses, Permits, etc..........................................................     8
         5.12     Compliance with ERISA...........................................................     8
         5.13     Private Offering by the Company.................................................     9
         5.14     Use of Proceeds; Margin Regulations.............................................     9
         5.15     Existing Debt; Future Liens.....................................................    10
         5.16     Foreign Assets Control Regulations, etc.........................................    10
         5.17     Status under Certain Statutes...................................................    10
         5.18     Environmental Matters...........................................................    10
         5.19     Year 2000 Compliance............................................................    11

6.       REPRESENTATIONS OF THE PURCHASER.........................................................    11
         6.1      Purchase for Investment.........................................................    11
         6.2      Source of Funds.................................................................    12
</TABLE> 

                                       i
<PAGE>
 
                            TABLE OF CONTENTS (cont.)

<TABLE> 
<CAPTION> 
                                                                                                    PAGE
<S>                                                                                                 <C> 
7.       INFORMATION AS TO COMPANY................................................................    13
         7.1      Financial and Business Information..............................................    13
         7.2      Officer's Certificate...........................................................    16
         7.3      Inspection......................................................................    16

8.       PAYMENT OF THE NOTES.....................................................................    17
         8.1      Required Prepayment; Payment at Maturity........................................    17
         8.2      Optional Prepayments with Make-Whole Amount.....................................    17
         8.3      Allocation of Partial Prepayments...............................................    17
         8.4      Maturity; Surrender, etc........................................................    17
         8.5      No Other Optional Prepayments or Purchase of Notes..............................    18
         8.6      Offer to Prepay upon Change in Control, etc.....................................    18
         8.7      Make-Whole Amount...............................................................    20

9.       AFFIRMATIVE COVENANTS....................................................................    21
         9.1      Compliance with Law.............................................................    21
         9.2      Insurance.......................................................................    22
         9.3      Maintenance of Properties.......................................................    22
         9.4      Payment of Taxes and Claims.....................................................    22
         9.5      Corporate Existence, etc........................................................    22

10.      NEGATIVE COVENANTS.......................................................................    23
         10.1     Transactions with Affiliates....................................................    23
         10.2     Merger, Consolidation, etc......................................................    23
         10.3     Consolidated Tangible Net Worth.................................................    24
         10.4     Limitation on Current Debt......................................................    24
         10.5     Limitation on Debt..............................................................    24
         10.6     Fixed Charge Coverage...........................................................    25
         10.7     Restricted Payments; Restricted Investments.....................................    25
         10.8     Liens...........................................................................    25
         10.9     Sale of Assets, etc.............................................................    28
         10.10    Line of Business................................................................    30
         10.11    PariPassu.......................................................................    30
         10.12    Restrictions on Dividends of Subsidiaries, Etc..................................    30
         10.13    Maintenance of Guarantees of Subsidiaries.......................................    31

11.      EVENTS OF DEFAULT........................................................................    32

12.      REMEDIES ON DEFAULT, ETC.................................................................    35
         12.1     Acceleration....................................................................    35
         12.2     Other Remedies..................................................................    35
         12.3     Rescission......................................................................    35
         12.4     No Waivers or Election of Remedies, Expenses, etc...............................    36

13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES............................................    36
         13.1     Registration of Notes...........................................................    36
</TABLE> 

                                       ii
<PAGE>
 
                            TABLE OF CONTENTS (cont.)
       

<TABLE> 
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                                                                                                    PAGE
<S>                                                                                                 <C>        
         13.2     Transfer and Exchange of Notes..................................................    36
         13.3     Replacement of Notes............................................................    37

14.      PAYMENTS ON NOTES........................................................................    37
         14.1     Place of Payment................................................................    37
         14.2     Home Office Payment.............................................................    37

15.      EXPENSES, ETC............................................................................    38
         15.1     Transaction Expenses............................................................    38
         15.2     Survival........................................................................    38

16.      SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
         AGREEMENT................................................................................    38

17.      AMENDMENT AND WAIVER.....................................................................    39
         17.1     Requirements....................................................................    39
         17.2     Solicitation of Holders of Notes................................................    39
         17.3     Binding Effect, etc.............................................................    40
         17.4     Notes held by Company, etc......................................................    40

18.      NOTICES..................................................................................    40

19.      REPRODUCTION OF DOCUMENTS................................................................    41

20.      CONFIDENTIAL INFORMATION.................................................................    41

21.      SUBSTITUTION OF PURCHASER................................................................    42

22.      MISCELLANEOUS............................................................................    43
         22.1     Successors and Assigns..........................................................    43
         22.2     Payments Due on Non-Business Days...............................................    43
         22.3     Severability....................................................................    43
         22.4     Construction....................................................................    43
         22.5     Counterparts....................................................................    43
         22.6     Governing Law...................................................................    44
</TABLE> 

                                       iii
<PAGE>
 
                           TABLE OF CONTENTS (cont.)


SCHEDULE A      --   Information Relating to Purchaser                        
                                                                               
SCHEDULE B      --   Defined Terms                                            
                                                                               
SCHEDULE 3      --   Payment Instructions                                     
                                                                               
SCHEDULE 4.9    --   Changes in Corporate Structure                           
                                                                               
SCHEDULE 5.3    --   Disclosure Materials                                     
                                                                               
SCHEDULE 5.4    --   Subsidiaries of the Company and Ownership of Subsidiary
                     Stock
               
SCHEDULE 5.5    --   Financial Statements                                      
                                                                                
SCHEDULE 5.8    --   Certain Litigation                                        
                                                                                
SCHEDULE 5.11   --   Patents, etc.                                             
                                                                                
SCHEDULE 5.12   --   ERISA Affiliates                                          
                                                                                
SCHEDULE 5.14   --   Use of Proceeds                                           
                                                                                
SCHEDULE 5.15   --   Existing Debt and Liens                                   
                     
SCHEDULE B-C    --   Competitors                                               
                                                                                
SCHEDULE B-CVT  --   Description of Property Comprising Chenal Valley Transfer  

                                      iv
<PAGE>
 
                           TABLE OF CONTENTS (cont.)

Exhibit 1               --       Form of 6.66% Senior Note due December
                                 18, 2008   
                        
Exhibit 4.4(a)          --       Form of Opinion of General Counsel of
                                 the Company      
                        
Exhibit 4.4(b)          --       Form of Opinion of Special New York
                                 Counsel for the Company and Special  
                                 Counsel to the Purchaser
                        
Exhibit B(SG)           --       Form of Subsidiary Guarantee 
                        
Exhibit B(SGAA)         --       Form of Subsidiary Guarantor Accession
                                 Agreement

                                       v
<PAGE>
 
                           DELTIC TIMBER CORPORATION
                              210 East Elm Street
                           El Dorado, Arkansas 71731


             $40,000,000 6.66% SENIOR NOTES DUE DECEMBER 18, 2008

                                                   Dated as of December 18, 1998


To the Purchaser Named on
the Signature Page Hereto


Ladies and Gentlemen:

         DELTIC TIMBER CORPORATION, a Delaware corporation (together with its
successors and assigns, the "COMPANY"), agrees with you as follows:

 1.      AUTHORIZATION OF NOTES.

         The Company will authorize the issue and sale of $40,000,000 aggregate
principal amount of its 6.66% Senior Notes due December 18, 2008 (the "NOTES",
such term to include any such notes issued in substitution therefor pursuant to
Section 13 of this Agreement). The Notes shall be substantially in the form set
out in Exhibit 1, with such changes therefrom, if any, as may be approved by you
and the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement. The payment
by the Company of the principal of, Make Whole Amount, if any, and interest on
the Notes shall be unconditionally guaranteed, as provided in Section 10.13, by
the Subsidiary Guarantors pursuant to a Subsidiary Guarantee substantially in
the form of Exhibit B(SG) hereto.

 2.      SALE AND PURCHASE OF NOTES.

         Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified below your
name in Schedule A at the purchase price of 100% of the principal amount
thereof.

 3.      CLOSING.

         The sale and purchase of the Notes to be purchased by you shall occur
at the offices of Hebb & Gitlin, One State Street, Hartford, Connecticut 06103,
at 10:00 a.m., local time, at a closing (the "CLOSING") on December 18, 1998 or
on such other Business Day as may be agreed upon in writing by the Company and
you. At the Closing the Company will deliver to you the Notes to be purchased by
you in the form of a single Note (or such greater number of Notes in
denominations of at least $1,000,000 as you may request), dated the date of the
Closing, and registered in your name (or in the name of your nominee) as
indicated in Schedule A, against payment by federal funds wire transfer in
immediately available funds of the amount of the purchase price therefor as
directed by the Company in Schedule 3. If at the Closing the Company shall fail
to tender such Notes to you as provided above in this Section 3, or any of the
<PAGE>
 
conditions specified in Section 4 shall not have been fulfilled to your
reasonable satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.

4.       CONDITIONS TO CLOSING.

         Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your reasonable satisfaction, prior
to or at the Closing, of the following conditions:

         4.2      REPRESENTATIONS AND WARRANTIES.

         The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.

         4.4      PERFORMANCE; NO DEFAULT.

         The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
Section 10.1 had such Section applied since such date.

         4.6      COMPLIANCE CERTIFICATES.

                  (B)  OFFICER'S CERTIFICATE. The Company shall have delivered
         to you an Officer's Certificate, dated the date of the Closing,
         certifying that the conditions specified in Sections 4.1, 4.2 and 4.9
         have been fulfilled.

                  (D)  SECRETARY'S CERTIFICATE. The Company shall have delivered
         to you a certificate of its Secretary or one of its Assistant
         Secretaries, dated the date of the Closing, certifying as to the
         resolutions attached thereto and other corporate proceedings relating
         to the authorization, execution and delivery of the Notes and this
         Agreement.

                  (E)  SUBSIDIARY GUARANTOR SECRETARY'S CERTIFICATE. Each
         Subsidiary Guarantor shall have delivered to you a certificate
         certifying as to the resolutions attached thereto and other corporate
         proceedings relating to the authorization, execution and delivery of
         the Subsidiary Guarantee, and certifying to such other matters as you
         may reasonably request.

         4.8      OPINIONS OF COUNSEL.

         You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing, from

                  (a)  W. Bayless Rowe, Esq., General Counsel of the Company and
         each of the Subsidiary Guarantors, substantially in the form set out in
         Exhibit 4.4(a) and covering such other matters incident to the
         transactions contemplated hereby as you or your

                                       2
<PAGE>
 
         counsel may reasonably request (and the Company hereby instructs such
         counsel to deliver such opinion to you), and

                  (b)  Hebb & Gitlin, special New York counsel for the Company
         and each of the Subsidiary Guarantors, and, with the Company's and the
         Purchaser's consent, special counsel to the Purchaser, substantially in
         the form set out in Exhibit 4.4(b) and covering such other matters
         incident to the transactions contemplated hereby as you or your counsel
         may reasonably request (and the Company hereby instructs such counsel
         to deliver such opinion to you).

         4.9      PURCHASE PERMITTED BY APPLICABLE LAW, ETC.

         On the date of the Closing your purchase of Notes shall (a) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (c) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.

         4.11     SUBSIDIARY GUARANTEE.

         Each of Deltic Timber Purchasers, Inc., an Arkansas corporation, and
Chenal Properties, Inc., an Arkansas corporation, shall have executed and
delivered to you the Subsidiary Guarantee.

         4.13     PAYMENT OF SPECIAL COUNSEL FEES.

         Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4(b) to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the date of the Closing.

         4.15     PRIVATE PLACEMENT NUMBER.

         A Private Placement Number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.

         4.17     CHANGES IN CORPORATE STRUCTURE.

         Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.

                                       3
<PAGE>
 
         4.19     PROCEEDINGS AND DOCUMENTS.

         All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be reasonably satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.

 5.      REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to you, as of the date of the
Closing, that:

         5.2      ORGANIZATION; POWER AND AUTHORITY.

         The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the Notes and to perform the provisions hereof and thereof.

         5.3      AUTHORIZATION, ETC.

                  (a)  This Agreement and the Notes have been duly authorized by
         all necessary corporate action on the part of the Company, and this
         Agreement constitutes, and upon execution and delivery thereof each
         Note will constitute, a legal, valid and binding obligation of the
         Company enforceable against the Company in accordance with its terms,
         except as such enforceability may be limited by (a) applicable
         bankruptcy, insolvency, reorganization, moratorium or other similar
         laws affecting the enforcement of creditors' rights generally and (b)
         general principles of equity (regardless of whether such enforceability
         is considered in a proceeding in equity or at law).

                  (b)  The Subsidiary Guarantee has been duly authorized by all
         necessary corporate action on the part of each Subsidiary Guarantor
         and, upon execution and delivery thereof, the Subsidiary Guarantee will
         constitute, a legal, valid and binding obligation of each Subsidiary
         Guarantor, enforceable against each such Subsidiary Guarantor in
         accordance with its terms, except as such enforceability may be limited
         by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
         other similar laws affecting the enforcement of creditors' rights
         generally and (ii) general principles of equity (regardless of whether
         such enforceability is considered in a proceeding in equity or at law)
         and public policy.

         5.5      DISCLOSURE.

         The Company, through the Placement Agent, has delivered to you a copy
of a Private Placement Memorandum, dated November 1998 (the "MEMORANDUM"),
relating to the transactions contemplated hereby. The Memorandum fairly
describes, in all material respects, the general nature of the business and
principal properties of the Company and its Subsidiaries.

                                       4
<PAGE>
 
Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the
documents, certificates or other writings delivered to you by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings delivered to you by or on behalf of the Company
in connection with the transactions contemplated hereby, or in the financial
statements listed in Schedule 5.5, since December 31, 1997, there has been no
change in the financial condition, operations, business, properties or prospects
of the Company or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.

         5.7      ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES.

                  (a)  Schedule 5.4 contains (except as noted therein) complete
         and correct lists of (i) the Company's Subsidiaries, showing, as to
         each Subsidiary, the correct name thereof, the jurisdiction of its
         organization, the percentage of shares of each class of its capital
         stock or similar equity interests outstanding owned by the Company and
         each other Subsidiary and whether such Subsidiary is a Subsidiary
         Guarantor as of the date of the Closing, and (ii) the Company's
         Affiliates, other than Subsidiaries.

                  (b)  All of the outstanding shares of capital stock or similar
         equity interests of each Subsidiary shown in Schedule 5.4 as being
         owned by the Company and its Subsidiaries have been validly issued, are
         fully paid and nonassessable and are owned by the Company or another
         Subsidiary free and clear of any Lien (except as otherwise disclosed in
         Schedule 5.4).

                  (c)  Each Subsidiary identified in Schedule 5.4 is a
         corporation or other legal entity duly organized, validly existing and
         in good standing under the laws of its jurisdiction of organization,
         and is duly qualified as a foreign corporation or other legal entity
         and is in good standing in each jurisdiction in which such
         qualification is required by law, other than those jurisdictions as to
         which the failure to be so qualified or in good standing could not,
         individually or in the aggregate, reasonably be expected to have a
         Material Adverse Effect. Each such Subsidiary has the corporate or
         other power and authority to own or hold under lease the properties it
         purports to own or hold under lease and to transact the business it
         transacts and proposes to transact. Each Subsidiary Guarantor has the
         corporate power and authority to execute and deliver the Subsidiary
         Guarantee and to perform the provisions thereof.

                  (d)  No Subsidiary is a party to, or otherwise subject to any
         legal restriction or any agreement (other than this Agreement, the
         agreements listed in Schedule 5.4 and customary limitations imposed by
         corporate law statutes) restricting the ability of such Subsidiary to
         pay dividends out of profits or make any other similar distributions of
         profits to the Company or any of its Subsidiaries that owns outstanding
         shares of capital stock or similar equity interests of such Subsidiary.

                                       5
<PAGE>
 
         5.9      FINANCIAL STATEMENTS.

         The Company has delivered to you copies of the consolidated financial
statements of the Company and its Subsidiaries listed in Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).

         5.10     COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.

         Neither the execution, delivery and performance by the Company of this
Agreement and the Notes nor the execution, delivery and performance of the
Subsidiary Guarantee by the Subsidiary Guarantors will

                  (a)  contravene, result in any breach of, or constitute a
         default under, or result in the creation of any Lien in respect of any
         property of the Company or any Subsidiary under, any indenture,
         mortgage, deed of trust, loan, purchase or credit agreement, lease,
         corporate charter or by-laws, or any other agreement or instrument to
         which the Company or any Subsidiary is bound or by which the Company or
         any Subsidiary or any of their respective properties may be bound or
         affected

                  (b)  conflict with or result in a breach of any of the terms,
         conditions or provisions of any order, judgment, decree, or ruling of
         any court, arbitrator or Governmental Authority applicable to the
         Company or any Subsidiary, or

                  (c)  violate any provision of any statute or other rule or
         regulation of any Governmental Authority applicable to the Company or
         any Subsidiary.

         5.11     GOVERNMENTAL AUTHORIZATIONS, ETC.

         No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes. No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by each Subsidiary Guarantor of the
Subsidiary Guarantee.

         5.13     LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.

                  (a)  Except as disclosed in Schedule 5.8, there are no
         actions, suits or proceedings pending or, to the knowledge of the
         Company, threatened against or affecting the Company or any Subsidiary
         or any property of the Company or any Subsidiary in any court or before
         any arbitrator of any kind or before or by any Governmental Authority
         that, individually or in the aggregate, could reasonably be expected to
         have a Material Adverse Effect.

                                       6
<PAGE>
 
                  (b)  Neither the Company nor any Subsidiary is in default
         under any term of any agreement or instrument to which it is a party or
         by which it is bound, or any order, judgment, decree or ruling of any
         court, arbitrator or Governmental Authority or is in violation of any
         applicable law, ordinance, rule or regulation (including, without
         limitation, Environmental Laws) of any Governmental Authority, which
         default or violation, individually or in the aggregate, could
         reasonably be expected to have a Material Adverse Effect.

         5.15     TAXES.

         The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (a) the amount of which is not
individually or in the aggregate Material or (b) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes (and in respect of any payment pursuant to any tax sharing
agreement) for all fiscal periods are adequate.

         5.17     TITLE TO PROPERTY; LEASES.

         The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.

         5.18     LICENSES, PERMITS, ETC.

         Except as disclosed in Schedule 5.11,

                  (a)  the Company and its Subsidiaries own or possess all
         licenses, permits, franchises, authorizations, patents, copyrights,
         service marks, trademarks and trade names, or rights thereto, that
         individually or in the aggregate are Material, without known conflict
         with the rights of others;

                  (b)  to the best knowledge of the Company, no product of the
         Company or any Subsidiary infringes in any material respect any
         license, permit, franchise, authorization, patent, copyright, service
         mark, trademark, trade name or other right owned by any other Person;
         and

                  (c)  to the best knowledge of the Company, there is no
         Material violation by any Person of any right of the Company or any of
         its Subsidiaries with respect to any

                                       7
<PAGE>
 
patent, copyright, service mark, trademark, trade name or other right owned or
used by the Company or any of its Subsidiaries.

         5.20     COMPLIANCE WITH ERISA.

                   (a) The Company and each ERISA Affiliate have operated and
         administered each Plan in compliance with all applicable laws except
         for such instances of noncompliance as have not resulted in and could
         not reasonably be expected to result in a Material Adverse Effect.
         Neither the Company nor any ERISA Affiliate has incurred any liability
         pursuant to Title I or IV of ERISA in the nature of a penalty or excise
         tax or the penalty or excise tax provisions of the Code relating to
         employee benefit plans (as defined in section 3 of ERISA), and no
         event, transaction or condition has occurred or exists that could
         reasonably be expected to result in the incurrence of any such
         liability by the Company or any ERISA Affiliate, or in the imposition
         of any Lien on any of the rights, properties or assets of the Company
         or any ERISA Affiliate, in either case pursuant to Title I or IV of
         ERISA or to such penalty or excise tax provisions or to section 401
         (a)(29) or 412 of the Code, other than such liabilities or Liens as
         would not be individually or in the aggregate Material.

                  (b)  The present value of the aggregate benefit liabilities
         under each of the Plans subject to Title IV of ERISA (other than
         Multiemployer Plans), determined as of the end of each such Plan's most
         recently ended plan year on the basis of the actuarial assumptions
         specified for funding purposes in such Plan's most recent actuarial
         valuation report, did not exceed the aggregate current value of the
         assets of such Plan allocable to such benefit liabilities. The term
         "BENEFIT LIABILITIES" has the meaning specified in section 4001 of
         ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the
         meaning specified in section 3 of ERISA.

                  (c)  The Company and the ERISA Affiliates have not incurred
         withdrawal liabilities (and are not subject to contingent withdrawal
         liabilities) under section 4201 or 4204 of ERISA in respect of
         Multiemployer Plans that individually or in the aggregate are Material.

                  (d)  The expected postretirement benefit obligation
         (determined as of the last day of the Company's most recently ended
         fiscal year in accordance with Financial Accounting Standards Board
         Statement No. 106, without regard to liabilities attributable to
         continuation coverage mandated by section 4980B of the Code) of the
         Company and its Subsidiaries is not Material.

                  (e)  The execution and delivery of this Agreement and the
         issuance and sale of the Notes hereunder will not involve any
         transaction that is subject to the prohibitions of section 406 of ERISA
         or in connection with which a tax could be imposed pursuant to section
         4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
         first sentence of this Section 5.12(e) is made in reliance upon and
         subject to the accuracy of your representation in Section 6.2 as to the
         Sources used to pay the purchase price of the Notes to be purchased by
         you.

                  (f)  Schedule 5.12 sets forth all ERISA Affiliates and all
         "employee benefit plans" maintained by the Company (or any "affiliate"
         thereof) or in respect of which the Notes could constitute an "employer
         security" ("EMPLOYEE BENEFIT PLAN" has the meaning

                                       8
<PAGE>
 
         specified in section 3 of ERISA, "AFFILIATE" has the meaning specified
         in section 407(d) of ERISA and section V of the Department of Labor
         Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and
         "EMPLOYER SECURITY" has the meaning specified in section 407(d) of
         ERISA)

         5.22    PRIVATE OFFERING BY THE COMPANY.

         Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you, an Institutional Investor who was offered the Notes
at a private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of section 5 of the
Securities Act.

         5.24     USE OF PROCEEDS; MARGIN REGULATIONS.

         The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.

         5.26     EXISTING DEBT; FUTURE LIENS.

                  (a)  Except as described therein, Schedule 5.15 sets forth a
         complete and correct list of all outstanding Debt of the Company and
         its Subsidiaries as of October 31, 1998 (and specifying, as to each
         such Debt, the collateral, if any, securing such Debt), since which
         date there has been no Material change in the amounts, interest rates,
         sinking funds, instalment payments or maturities of the Debt of the
         Company or its Subsidiaries. Neither the Company nor any Subsidiary is
         in default and no waiver of default is currently in effect, in the
         payment of any principal or interest on any Debt of the Company or such
         Subsidiary and no event or condition exists with respect to any Debt of
         the Company or any Subsidiary that would permit (or that with notice or
         the lapse of time, or both, would permit) one or more Persons to cause
         such Debt to become due and payable before its stated maturity or
         before its regularly scheduled dates of payment.

                  (b)  Except as disclosed in Schedule 5.15, neither the Company
         nor any Subsidiary has agreed or consented to cause or permit in the
         future (upon the happening of a contingency or otherwise) any of its
         property, whether now owned or hereafter acquired, to be subject to a
         Lien not permitted by Section 10.8(a).

         5.27     FOREIGN ASSETS CONTROL REGULATIONS, ETC.

                                       9
<PAGE>
 
         Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

         5.29     STATUS UNDER CERTAIN STATUTES.

         Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as
amended, or the Federal Power Act, as amended.

         5.31    ENVIRONMENTAL MATTERS.

         Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as disclosed in Schedule
5.18

                  (a)  neither the Company nor any Subsidiary has knowledge of
         any facts which would give rise to any claim, public or private, of
         violation of Environmental Laws or damage to the environment emanating
         from, occurring on or in any way related to real properties now or
         formerly owned, leased or operated by any of them or to other assets or
         their use, except, in each case, such as could not reasonably be
         expected to result in a Material Adverse Effect;

                  (b)  neither the Company nor any of its Subsidiaries has
         stored any Hazardous Materials on real properties now or formerly
         owned, leased or operated by any of them or disposed of any Hazardous
         Materials in a manner contrary to any Environmental Laws in each case
         in any manner that could reasonably be expected to result in a Material
         Adverse Effect; and

                  (c)  all buildings on all real properties now owned, leased or
         operated by the Company or any of its Subsidiaries are in compliance
         with applicable Environmental Laws, except where failure to comply
         could not reasonably be expected to result in a Material Adverse
         Effect.

         5.33     YEAR 2000 COMPLIANCE.

         The Company has reviewed the areas within the business and operations
of the Company and each Subsidiary that could be adversely affected by, and has
developed or is developing programs to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications, as well as embedded
microchips in non-computing devices, used by the Company or any Subsidiary may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31,1999). Based on such
review and program, the Company reasonably believes that the "Year 2000 Problem"
will not result in a Material Adverse Effect. At the request of any holder of
Notes, the Company agrees

                                       10
<PAGE>
 
to provide such holder with copies of all filings and other disclosures made by
the Company pursuant to the Exchange Act and the regulations promulgated
thereunder with respect to the "Year 2000 Problem."

6.       REPRESENTATIONS OF THE PURCHASER.

         6.2      PURCHASE FOR INVESTMENT.

         You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.

         6.4      SOURCE OF FUNDS.

         You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:

                  (a)  the Source is an "insurance company general account" as
         defined in United States Department of Labor Prohibited Transaction
         Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect
         thereof you represent that there is no "employee benefit plan" (as
         defined in section 3(3) of ERISA and section 4975(e)(1) of the Code,
         treating as a single plan all plans maintained by the same employer or
         employee organization or affiliate thereof) with respect to which the
         amount of the general account reserves and liabilities of all contracts
         held by or on behalf of such plan exceeds 10% of the total reserves and
         liabilities of such general account (exclusive of separate account
         liabilities) plus surplus, as set forth in the National Association of
         Insurance Commissioners' Annual Statement filed with your state of
         domicile and that such acquisition is eligible for and satisfies the
         other requirements of such exemption; or

                  (b)  if you are an insurance company, the Source does not
         include assets allocated to any separate account maintained by you in
         which any employee benefit plan (or its related trust) has any
         interest, other than a separate account that is maintained solely in
         connection with your fixed contractual obligations under which the
         amounts payable, or credited, to such plan and to any participant or
         beneficiary of such plan (including any annuitant) are not affected in
         any manner by the investment performance of the separate account; or

                  (c)  the Source is either (i) an insurance company pooled
         separate account, within the meaning of PTE 90-1 (issued January
         29,1990), or (ii) a bank collective investment fund, within the meaning
         of the PTE 91-38 (issued July 12, 1991) and, except as you have
         disclosed to the Company in writing pursuant to this paragraph (c), no
         employee benefit plan or group of plans maintained by the same employer
         or employee organization beneficially owns more than 10% of all assets
         allocated to such pooled separate account or collective investment
         fund; or

                                       11
<PAGE>
 
                  (d)  the Source constitutes assets of an "investment fund"
         (within the meaning of part V of PTE 84-14 (the "QPAM EXEMPTION"))
         managed by a "qualified professional asset manager" or "QPAM" (within
         the meaning of part V of the OPAM Exemption), no employee benefit
         plan's assets that are included in such investment fund, when combined
         with the assets of all other employee benefit plans established or
         maintained by the same employer or by an affiliate (within the meaning
         of section V(c)(1) of the QPAM Exemption) of such employer or by the
         same employee organization and managed by such QPAM, exceed 20% of the
         total client assets managed by such QPAM, the conditions of part 1(c)
         and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
         person controlling or controlled by the QPAM (applying the definition
         of "control" in section V(e) of the QPAM Exemption) owns a 5% or more
         interest in the Company and

                       (i)    the identity of such QPAM and

                       (ii)   the names of all employee benefit plans whose
               assets are included in such investment fund

         have been disclosed to the Company in writing pursuant to this
paragraph (d); or

                  (e)  the Source is a governmental plan; or

                  (f)  the Source is one or more employee benefit plans, or a
         separate account or trust fund comprised of one or more employee
         benefit plans, each of which has been identified to the Company in
         writing pursuant to this paragraph (f); or

                  (g)  the Source does not include assets of any employee
         benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.

7.       INFORMATION AS TO COMPANY.

         7.2      FINANCIAL AND BUSINESS INFORMATION..

         The Company shall deliver to each holder of Notes that is an
Institutional Investor:

                  (B)  QUARTERLY STATEMENTS -- within 60 days after the end of
         each quarterly fiscal period in each fiscal year of the Company (other
         than the last quarterly fiscal period of each such fiscal year),
         duplicate copies of,

                       (i)    a consolidated balance sheet of the Company and
                  its Subsidiaries as at the end of such quarter, and

                       (ii)   consolidated statements of income, stockholders
                  equity and cash flows of the Company and its Subsidiaries, for
                  such quarter and (in the case of the second and third
                  quarters) for the portion of the fiscal year ending with such
                  quarter,

                                       12
<PAGE>
 
     setting forth in each case in comparative form the figures for the
     corresponding periods in the previous fiscal year, all in reasonable
     detail, prepared in accordance with GAAP applicable to quarterly financial
     statements generally, and certified by a Senior Financial Officer as fairly
     presenting, in all material respects, the consolidated financial position
     of the companies being reported on and their consolidated results of
     operations and cash flows, subject to changes resulting from year-end
     adjustments, provided that delivery within the time period specified above
     of copies of the Company's Quarterly Report on Form 10-Q prepared in
     compliance with the requirements therefor and filed with the Securities and
     Exchange Commission shall be deemed to satisfy the requirements of this
     Section 7.1(a);

          (d)  ANNUAL STATEMENTS-- within 120 days after the end of each fiscal
     year of the Company, duplicate copies of,

               (i)   a consolidated balance sheet of the Company and its
          Subsidiaries, as at the end of such year, and

               (ii)  consolidated statements of income, stockholders equity and
          cash flows of the Company and its Subsidiaries, for such year,

     setting forth in each case in comparative form the figures for the previous
     fiscal year, all in reasonable detail, prepared in accordance with GAAP,
     and accompanied by

                     (A) an opinion thereon of independent certified public
               accountants of recognized national standing, which opinion shall
               state that such financial statements present fairly, in all
               material respects, the consolidated financial position of the
               companies being reported upon and their consolidated results of
               operations and cash flows and have been prepared in conformity
               with GAAP, and that the examination of such accountants in
               connection with such financial statements has been made in
               accordance with generally accepted auditing standards, and that
               such audit provides a reasonable basis for such opinion in the
               circumstances, and

                     (B) a certificate of such accountants stating that they
               have reviewed this Agreement and stating further whether, in
               making their audit, they have become aware of any condition or
               event that then constitutes a Default or an Event of Default,
               and, if they are aware that any such condition or event then
               exists, specifying the nature and period of the existence thereof
               (it being understood that such accountants shall not be liable,
               directly or indirectly, for any failure to obtain knowledge of
               any Default or Event of Default unless such accountants should
               have obtained knowledge thereof in making an audit in accordance
               with generally accepted auditing standards or did not make such
               an audit);

     provided that the delivery within the time period specified above of the
     Company's Annual Report on Form 10-K for such fiscal year (together with
     the Company's annual report to shareholders, if any, prepared pursuant to
     Rule 14a-3 under the Exchange Act) prepared in accordance with the
     requirements therefor and filed with the Securities and Exchange Commission
     shall be deemed to satisfy the requirements of this Section 7.1(b);

                                       13
<PAGE>
 
          (F)  SEC AND OTHER REPORTS -- promptly upon their becoming available,
     one copy of (i) each financial statement, report, notice or proxy statement
     sent by the Company or any Subsidiary to public securities holders
     generally, and (ii) each regular or periodic report, each registration
     statement (without exhibits except as expressly requested by such holder),
     and each prospectus and all amendments thereto filed by the Company or any
     Subsidiary with the Securities and Exchange Commission and of all press
     releases and other statements made available generally by the Company or
     any Subsidiary to the public concerning developments that are Material;

          (H)  NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
     event within five days after a Responsible Officer becoming aware of the
     existence of any Default or Event of Default or that any Person has given
     any notice or taken any action with respect to a claimed default hereunder
     or that any Person has given any notice or taken any action with respect to
     a claimed default of the type referred to in Section 11(f), a written
     notice specifying the nature and period of existence thereof and what
     action the Company is taking or proposes to take with respect thereto;

          (J)  ERISA MATTERS -- promptly, and in any event within five days
     after a Responsible Officer becoming aware of any of the following, a
     written notice setting forth the nature thereof and the action, if any,
     that the Company or an ERISA Affiliate proposes to take with respect
     thereto:

               (i)    with respect to any Plan, any reportable event, as defined
          in section 4043(c) of ERISA and the regulations thereunder, for which
          notice thereof has not been waived pursuant to such regulations as in
          effect on the date of the Closing; or

               (ii)   the taking by the PBGC of steps to institute, or the
          threatening by the PBGC of the institution of, proceedings under
          section 4042 of ERISA for the termination of, or the appointment of a
          trustee to administer, any Plan, or the receipt by the Company or any
          ERISA Affiliate of a notice from a Multiemployer Plan that such action
          has been taken by the PBGC with respect to such Multiemployer Plan; or

               (iii)  any event, transaction or condition that could result in
          the incurrence of any liability by the Company or any ERISA Affiliate
          pursuant to Title I or IV of ERISA or the penalty or excise tax
          provisions of the Code relating to employee benefit plans, or in the
          imposition of any Lien on any of the rights, properties or assets of
          the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
          or such penalty or excise tax provisions, if such liability or Lien,
          taken together with any other such liabilities or Liens then existing,
          could reasonably be expected to have a Material Adverse Effect;

          (I)  NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event
     within 30 days of receipt thereof, copies of any notice to the Company or
     any Subsidiary from any Federal or state Governmental Authority relating to
     any order, ruling, statute or other law or regulation that could reasonably
     be expected to have a Material Adverse Effect; and

                                       14
<PAGE>
 
          (N)  REQUESTED INFORMATION -- with reasonable promptness, such other
     data and information relating to the business, operations, affairs,
     financial condition, assets or properties of the Company or any of its
     Subsidiaries or relating to the ability of the Company to perform its
     obligations hereunder and under the Notes as from time to time may be
     reasonably requested by any such holder of Notes.

     7.4  OFFICER'S CERTIFICATE.

     Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:

          (B)  COVENANT COMPLIANCE -- the information (including detailed
     calculations) required in order to establish whether the Company was in
     compliance with the requirements of Sections 10.3 through 10.9, inclusive,
     during the quarterly or annual period covered by the statements then being
     furnished (including with respect to each such Section, where applicable,
     the calculations of the maximum or minimum amount, ratio or percentage, as
     the case may be, permissible under the terms of such Sections, and the
     calculation of the amount, ratio or percentage then in existence); and

          (D)  EVENT OF DEFAULT -- a statement that such officer has reviewed
     the relevant terms hereof and has made, or caused to be made, under his or
     her supervision, a review of the transactions and conditions of the Company
     and its Subsidiaries from the beginning of the quarterly or annual period
     covered by the statements then being furnished to the date of the
     certificate and that such review has not disclosed the existence during
     such period of any condition or event that constitutes a Default or an
     Event of Default or, if any such condition or event existed or exists
     (including, without limitation, any such event or condition resulting from
     the failure of the Company or any Subsidiary to comply with any
     Environmental Law), specifying the nature and period of existence thereof
     and what action the Company shall have taken or proposes to take with
     respect thereto.

     7.6  INSPECTION.

     The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:

          (B)  No Default -- if no Default or Event of Default then exists, at
     the expense of such holder and upon reasonable prior notice to the Company,
     to visit the principal executive office of the Company, to discuss the
     affairs, finances and accounts of the Company and its Subsidiaries with the
     Company's officers, and (with the consent of the Company, which consent
     will not be unreasonably withheld) its independent public accountants, and
     (with the consent of the Company, which consent will not be unreasonably
     withheld) to visit the other offices and properties of the Company and each
     Subsidiary, all at such reasonable times and as often as may be reasonably
     requested in writing; and

          (D)  DEFAULT -- if a Default or Event of Default then exists, at the
     expense of the Company, to visit and inspect any of the offices or
     properties of the Company or any Subsidiary, to examine all their
     respective books of account, records, reports and other

                                       15
<PAGE>
 
     papers, to make copies and extracts therefrom, and to discuss their
     respective affairs, finances and accounts with their respective officers
     and independent public accountants (and by this provision the Company
     authorizes said accountants to discuss the affairs, finances and accounts
     of the Company and its Subsidiaries), all at such times and as often as may
     be requested.

8.   PAYMENT OF THE NOTES.

     8.2  REQUIRED PREPAYMENT; PAYMENT AT MATURITY.

     There shall be no scheduled principal prepayments on account of the Notes.
The unpaid principal amount of each Note, together with accrued unpaid interest
thereon, shall be due and payable on December 18, 2008.

     8.4  OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.

     The Company may, at its option, upon notice as provided below, prepay at
any time all, or from time to time any part of, the Notes, on a pro rota basis
in respect of all Notes outstanding at such time, in an amount not less than 5%
of the aggregate principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid and accrued
interest thereon to the date of prepayment, plus the Make-Whole Amount, if any,
determined for the prepayment date with respect to the principal amount of Notes
being so prepaid. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such prepayment date, the aggregate principal amount of the Notes
to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount, if any, due in connection with
such prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount, if any, as of the specified prepayment date.

     8.6  ALLOCATION OF PARTIAL PREPAYMENTS.

     In the case of each partial prepayment of the Notes, the principal amount
of the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment. All partial
prepayments made pursuant to Section 8.6 with respect to a Change in Control
shall be applied as provided for in Section 8.4.

     8.7  MATURITY; SURRENDER, ETC.

     In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make-

                                      16
<PAGE>
 
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.

     Any prepayment of Notes in respect of a Change in Control under Section 8.6
shall be on terms as set forth in said Section 8.6, provided that only those
holders who shall have accepted the offer under said Section 8.6 shall have
their Notes prepaid in whole in connection therewith. Any Debt Prepayment
Application shall be on terms as set forth in Section 8.2 and this Section 8.4.

     8.9   NO OTHER OPTIONAL PREPAYMENTS OR PURCHASE OF NOTES.

     The Company will not and will not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Notes except upon the payment or prepayment of the Notes in accordance with the
terms of this Agreement and the Notes. The Company will promptly cancel all
Notes acquired by it or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.

     8.10  OFFER TO PREPAY UPON CHANGE IN CONTROL, ETC.

           (A)  NOTICE AND OFFER. In the event of either

                (i)    a Change in Control, or

                (ii)   the obtaining of actual knowledge of a Control Event by a
           Senior Financial Officer,

     the Company will, within five Business Days of the occurrence of either of
     such events, give written notice of such Change in Control or Control Event
     to each holder of Notes by facsimile transmission and, simultaneously with
     the sending of such facsimile notice, send a copy of such notice to each
     such holder via an overnight courier of national reputation. Such written
     notice shall contain, and such written notice shall constitute, an
     irrevocable offer to prepay all, but not less than all, the Notes held by
     such holder on a date specified in such notice (the "CONTROL PREPAYMENT
     DATE") that is not less than 60 days and not more than 90 days after the
     date of such notice, provided that, in the case of a Control Event that
     does not give rise to a Change in Control, such notice shall be null and
     void and in the case of a Control Event that does give rise to a Change in
     Control which shall occur more than 90 days following the date the written
     notice required by this Section 8.6(a) must be given, the Control
     Prepayment Date may be delayed by the Company to a date not later than the
     date on which the Change in Control arising from such Control Event shall
     actually be consummated or finalized. If the Control Prepayment Date shall
     not be specified in such notice, the Control Prepayment Date shall be the
     60th day after the date of such notice; it being understood by the parties
     hereto, for purposes of the avoidance of doubt, that any such notice shall
     be dated the date on which it is first given to the holders of Notes and
     that all notices to all holders of Notes shall bear the same date.

           If the Company shall not have received a written response to such
     written notice from any holder of Notes within 10 days after the date of
     the facsimile transmission of

                                       17
<PAGE>
 
     such notice to such holder, the Company shall use its best efforts to send
     a second written notice via an overnight courier of national reputation to
     such holder of Notes but shall be under no obligation to do so.

           (B)   ACCEPTANCE AND PAYMENT; ACCEPTANCE.

                 (i)    ACCEPTANCE AND PAYMENT. To accept or reject such offered
           prepayment, a holder of Notes shall cause a notice of such acceptance
           or rejection to be delivered to the Company not later than 30 days
           after the date of the notice constituting such offered prepayment
           (which, if there shall have been two written notices, shall be deemed
           to be the first written notice). If so accepted, such offered
           prepayment in respect of such principal amount of such Notes shall be
           due and payable on the Control Prepayment Date. Such offered
           prepayment shall be made at 100% of the principal amount of the Notes
           held by holders having accepted such offer, together with interest on
           the Notes then being prepaid accrued to the Control Prepayment Date
           and the applicable Make-Whole Amount, if any.

                 (ii)   REJECTION. A failure by any holder of Notes to respond
           in writing to all written offers of prepayment referred to in Section
           8.6(b) by the deadlines set forth therein shall be deemed to
           constitute a rejection of such offer by such holder.

           (C)   OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant
     to this Section 8.6 shall be accompanied by a certificate, executed by a
     Senior Financial Officer and dated the date of such offer, specifying:

                 (i)    the Control Prepayment Date;

                 (ii)   that such offer is being made pursuant to this Section
           8.6 and that failure by a holder to respond to such offer by the
           deadlines as established by this Section 8.6 shall result in such
           offer to such holder being deemed rejected;

                 (iii)  the interest that would be due on each such Note offered
           to be prepaid, accrued to the date fixed for payment;

                 (iv)   a calculation of the estimated Make-Whole Amount due in
           connection with such prepayment (calculated as if the date of such
           notice were the date of the prepayment), setting forth the details of
           such computation;

                 (v)    that the conditions of this Section 8.6 have been
           fulfilled; and

                 (vi)   in reasonable detail, a description of the nature and
           date or proposed date of the Change in Control.

           (D)   CALCULATION OF MAKE-WHOLE AMOUNT. Two Business Days prior to
     the Control Prepayment Date, the Company shall deliver to each holder of
     Notes that has accepted an offer of prepayment under this Section 8.6 a
     certificate of a Senior Financial Officer specifying the calculation of
     such Make-Whole Amount, if any, as of the Control Prepayment Date.

                                       18
<PAGE>
 
           (E)   CANCELLATION OF NOTES. Any Note acquired by the Company under
     this Section 8.6 shall be cancelled and shall not be reissued.

     8.11  MAKE-WHOLE AMOUNT.

     The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:

          "CALLED PRINCIPAL" means, with respect to any Note, the principal of
     such Note that is to be prepaid pursuant to Section 8.2 or Section 8.6, or
     has become or is declared to be immediately due and payable pursuant to
     Section 12.2, as the context requires.

           "DISCOUNTED VALUE" means, with respect to the Called Principal of any
     Note, the amount obtained by discounting all Remaining Scheduled Payments
     with respect to such Called Principal from their respective scheduled due
     dates to the Settlement Date with respect to such Called Principal, in
     accordance with accepted financial practice and at a discount factor
     (applied on the same periodic basis as that on which interest on the Notes
     is payable) equal to the Reinvestment Yield with respect to such Called
     Principal.

          "REINVESTMENT YIELD" means, with respect to the Called Principal of
     any Note, the sum of (a) 0.50% per annum plus (b) the yield to maturity
     implied by (i) the yields reported, as of 10:00 a.m. (New York City time)
     on the second Business Day preceding the Settlement Date with respect to
     such Called Principal, on the display designated as "Page U.S.D." of the
     Bloomberg Financial Markets Services Screen (or, if not available, any
     other nationally recognized trading screen reporting on-line intraday
     trading in the U.S. Treasury securities) for actively traded U.S. Treasury
     securities having a maturity equal to the Remaining Average Life of such
     Called Principal as of such Settlement Date, or (ii) if such yields are not
     reported as of such time or the yields reported as of such time are not
     ascertainable (including by interpolation), the Treasury Constant Maturity
     Series Yields reported, for the latest day for which such yields have been
     so reported as of the second Business Day preceding the Settlement Date
     with respect to such Called Principal, in Federal Reserve Statistical
     Release H.15 (519) (or any comparable successor publication) for actively
     traded U.S. Treasury securities having a constant maturity equal to the
     Remaining Average Life of such Called Principal as of such Settlement Date.
     Such implied yield will be determined, if necessary, by (1) converting U.S.
     Treasury bill quotations to bond-equivalent yields in accordance with
     accepted financial practice and (2) interpolating linearly between (A) the
     actively traded U.S. Treasury security with the maturity closest to and
     greater than the Remaining Average Life and (B) the actively traded U.S.
     Treasury security with the maturity closest to and less than the Remaining
     Average Life.

          "REMAINING AVERAGE LIFE" means, with respect to any Called Principal,
     the number of years (calculated to the nearest one-twelfth year) obtained
     by dividing

               (i)   such Called Principal into

               (ii)  the sum of the products obtained by multiplying

                                       19
<PAGE>
 
                     (a) the principal component of each Remaining Scheduled
               Payment with respect to such Called Principal by

                     (b) the number of years (calculated to the nearest one-
               twelfth year) that will elapse between the Settlement Date with
               respect to such Called Principal and the scheduled due date of
               such Remaining Scheduled Payment.

          "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
     Principal of any Note, all payments of such Called Principal and interest
     thereon that would be due after the Settlement Date with respect to such
     Called Principal if no payment of such Called Principal were made prior to
     its scheduled due date, provided that if such Settlement Date is not a date
     on which interest payments are due to be made under the terms of the Notes,
     then the amount of the next succeeding scheduled interest payment will be
     reduced by the amount of interest accrued to such Settlement Date and
     required to be paid on such Settlement Date pursuant to Section 8.2,
     Section 8.6 or Section 12.1.

          "SETTLEMENT DATE" means, with respect to the Called Principal of any
     Note, the date on which such Called Principal is to be prepaid pursuant to
     Section 8.2 or Section 8.6 or has become or is declared to be immediately
     due and payable pursuant to Section 12.1, as the context requires.

9.   AFFIRMATIVE COVENANTS.

     The Company covenants that so long as any of the Notes are outstanding:

     9.2  COMPLIANCE WITH LAW.

     The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     9.4  INSURANCE.

     The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.

                                       20
<PAGE>
 
     9.6  MAINTENANCE OF PROPERTIES.

     The Company will and will cause each of its Subsidiaries to maintain and
keep, or cause to be maintained and kept, their respective properties in good
repair, working order and condition (other than ordinary wear and tear), so that
the business carried on in connection therewith may be properly conducted at all
times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

     9.8  PAYMENT OF TAXES AND CLAIMS.

     The Company will and will cause each of its Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes, assessments,
charges or levies have become due and payable and before they have become
delinquent and all claims for which sums have become due and payable that have
or might become a Lien on properties or assets of the Company or any Subsidiary,
provided that neither the Company nor any Subsidiary need pay any such tax or
assessment or claims if (a) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (b) the nonpayment of all such taxes, assessments, charges
and levies in the aggregate could not reasonably be expected to have a Material
Adverse Effect.

     9.9  CORPORATE EXISTENCE, ETC.

     The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2, and 10.9, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of its Subsidiaries (unless merged into the Company or a
Wholly-Owned Subsidiary) and all rights and franchises of the Company and its
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate, have
a Material Adverse Effect.

                                       21
<PAGE>
 
10.  NEGATIVE COVENANTS.
     
     The Company covenants that so long as any of the Notes are outstanding:

     10.2  TRANSACTIONS WITH AFFILIATES.

     The Company will not, and will not permit any Subsidiary to, enter into
directly or indirectly any Material transaction or Material group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary), except in the ordinary
course and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable arm's-
length transaction with a Person not an Affiliate.

     10.3  MERGER, CONSOLIDATION, ETC.

     The Company will not and will not permit any of its Subsidiaries to
consolidate or merge with or into any other Person or convey, transfer or lease
all or substantially all of its assets in a single transaction or series of
transactions to any Person (except that (x) any Subsidiary may consolidate or
merge with or into, or convey, transfer or lease all or substantially all of its
assets in a single transaction or series of transactions to, the Company or any
Wholly-Owned Subsidiary (provided, if such Subsidiary is a Subsidiary Guarantor,
then such successor or transferee shall also be (or concurrently with such
event, become) a Subsidiary Guarantor) and (y) any Subsidiary may transfer or
lease all or substantially all of its assets if permitted pursuant to Section
10.9(d)), provided that the foregoing restrictions do not apply to the
consolidation or merger of the Company with or into, or the conveyance, transfer
or lease of all or substantially all of the assets of the Company in a single
transaction or series of transactions to, any Person so long as:

          (i)   the successor formed by such consolidation or the survivor of
     such merger or the Person that acquires by conveyance, transfer or lease
     all or substantially all of the assets of the Company as an entirety, as
     the case may be (the "SUCCESSOR COMPANY"'), shall be a solvent corporation
     organized and existing under the laws of the United States of America or
     any State thereof (including, without limitation, the District of
     Columbia);

          (ii)  if the Company is not the Successor Company, such Successor
     Company shall have executed and delivered to each holder of any Notes its
     assumption of the due and punctual payment of the principal of and premium,
     if any, and interest on all of the Notes, according to their tenor, and the
     due and punctual performance and observance of each covenant and condition
     of this Agreement and the Notes and shall have caused to be delivered to
     each holder of any Notes an opinion of independent counsel reasonably
     satisfactory to the Required Holders, to the effect that all agreements or
     instruments effecting such assumption have been duly authorized, executed
     and delivered and are enforceable in accordance with their terms and comply
     with the terms hereof;

          (iii) each Subsidiary Guarantor shall have confirmed, in writing, its
     obligations under the Subsidiary Guarantee; and

          (iv)  immediately before and after giving effect to such transaction
no Default or Event of Default would exist.

                                       22
<PAGE>
 
No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor Company
from its liability under this Agreement or the Notes, and no such conveyance,
transfer or lease of all or substantially all of the assets of any Subsidiary
Guarantor shall have the effect of releasing such Subsidiary Guarantor from its
liability under the Subsidiary Guarantee except as provided in Section 10.13(c).

     10.4  CONSOLIDATED TANGIBLE NET WORTH.

     The Company will not, at any time, permit Consolidated Tangible Net Worth
to be less than the sum of

           (i)  $135,000,000, plus

           (ii) an aggregate amount equal to 25% of Consolidated Adjusted Net
     Income (but only if a positive number) for each completed fiscal quarter of
     the Company beginning with the fiscal quarter ending December 31, 1998.

     10.5  LIMITATION ON CURRENT DEBT.

     The Company will not, and will not allow any Subsidiary to, have any
Current Debt outstanding on any date after the date of the Closing unless, for
any period of 30 consecutive days during the fiscal year of the Company most
recently ended prior to such time, the aggregate principal amount of
Consolidated Current Debt outstanding on each day during such 30 day period did
not exceed the amount of additional Consolidated Funded Debt which the Company
would have been permitted to incur on such day pursuant to Section 10.5(b).

     10.6  LIMITATION ON DEBT.

           (A)  SUBSIDIARY DEBT. The Company will not permit any of its
     Subsidiaries to directly or indirectly create, incur, assume, guarantee, or
     otherwise become liable in respect of any Debt after the date of the
     Closing, unless, after giving effect to the incurrence of such Debt and the
     application of the proceeds thereof,

                (i)  no Default or Event of Default would exist and

                (ii) the aggregate principal amount (without duplication) of

                     (A)  all Debt of the Company then outstanding secured by
                Liens permitted pursuant to clause (k) of Section 10.8
                (excluding, in any case, any such Debt owing to a Subsidiary)
                and

                     (B)  all Adjusted Consolidated Subsidiary Debt then
                outstanding

           does not exceed 15% of Consolidated Tangible Net Worth, determined at
           such time.

           For the avoidance of doubt, this Section 10.5(a) shall have no
     application to the creation, incurrence, assumption or guarantee of any
     Debt of a Subsidiary owing to the Company or a Wholly-Owned Subsidiary, any
     Debt of a Person existing at the time such

                                       23
<PAGE>
 
     Person becomes a Subsidiary (unless such Debt was created in anticipation
     of, or in connection with, such Person becoming a Subsidiary), any Debt
     owing by any Subsidiary that is a Subsidiary Guarantor and any Debt
     expressly permitted under clause (f), (h), (i) or (j) of Section 10.8.

           (B) LIMITATION ON FUNDED DEBT. The Company will not, at any time,
     permit the ratio of Consolidated Funded Debt determined at such time to
     Consolidated Net Capitalization determined as of the last day of the most
     recently ended fiscal quarter of the Company to exceed 0.60:1.00.

     10.7  FIXED CHARGE COVERAGE.

     The Company will not at any time permit the ratio of

           (a) Consolidated Net Income Available for Fixed Charges for the
     period of 4 consecutive fiscal quarters of the Company then most recently
     ended to

           (b) Consolidated Fixed Charges for such period to be less than
     1.75 to 1.0.

     10.9  RESTRICTED PAYMENTS; RESTRICTED INVESTMENTS.

           (B) RESTRICTED PAYMENTS. The Company will not, nor will it permit any
     Subsidiary to, at any time, declare or make or incur any liability to
     declare or make any Restricted Payment unless immediately after giving
     effect to the proposed Restricted Payment no Default or Event of Default
     would exist.

           (D) AUTHORIZATION OF RESTRICTED PAYMENT. The Company will not, nor
     will it permit any Subsidiary to, authorize a Restricted Payment that is
     not payable within 60 days of authorization.

           (F) RESTRICTED INVESTMENTS. The Company will not, nor will it permit
     any Subsidiary to, at any time, make any Restricted Investment.

     10.10 LIENS.

     The Company will not and will not permit any of its Subsidiaries to
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or such Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom or assign or otherwise convey any right to receive such income or
profits, unless it makes, or causes to be made, effective provision whereby the
Notes will be equally and ratably secured with any and all other obligations
thereby secured, such security to be pursuant to an agreement reasonably
satisfactory to the Required Holders and, in any such case, the Notes shall have
the benefit, to the fullest extent that, and with such priority as, the holders
of the Notes may be entitled under applicable law, of an equitable Lien on such
property, provided that the foregoing restrictions and limitations shall not
apply to:

                                       24
<PAGE>
 
          (a)  Liens for taxes, assessments or other governmental charges the
     payment of which is not at the time required by Section 9.4, and

          (b)  Liens

               (i)   arising from judicial attachments and judgments,

               (ii)  securing appeal bonds or supersedeas bonds, or

               (iii) arising in connection with court proceedings (including,
          without limitation, surety bonds and letters of credit or any other
          instrument serving a similar purpose),

     provided that (1) the execution or other enforcement of such Liens is
     effectively stayed, (2) the claims secured thereby are being actively
     contested in good faith and by appropriate proceedings and (3) adequate
     book reserves shall have been established and maintained with respect
     thereto in accordance with GAAP;

          (c)  statutory Liens of landlords and Liens of carriers, warehousemen,
     mechanics, materialmen, inventory suppliers and other similar Liens, in
     each case, incurred in the ordinary course of business for sums not yet due
     or the payment of which is not at the time required by Section 9.4;

          (d)  leases or subleases granted to others, licenses, easements,
     rights-of-way, restrictions, zoning restrictions, governmental restrictions
     in respect of any property or property right or franchise of the Company or
     any Subsidiary and other similar charges or encumbrances, in each case
     incidental to, and not interfering with, the ordinary conduct of the
     business of the Company and the Subsidiaries, taken as a whole, provided
     that such charges and encumbrances do not, in the aggregate, materially
     detract from the value of such property;

          (e)  Liens incurred or deposits made in the ordinary course of
     business (i) in connection with workers' compensation, unemployment
     insurance and other types of social security or retirement benefits, or
     (ii) to secure (or to obtain letters of credit that secure) the performance
     of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases
     (other than Capital Leases), performance bonds, purchase, construction or
     sales contracts, leases and other similar obligations, in each case not
     incurred or made in connection with the borrowing of money, the obtaining
     of advances or credit or the payment of the deferred purchase price of
     property, and which Liens do not, in the aggregate, materially impair the
     use of the property subject thereto in the operation of the business of the
     Company and the Subsidiaries or the value of such property for the purposes
     of such business;

          (f)  Liens (i) existing on the date of the Closing and referred to in
     Schedule 5.15 and (ii) on the Company's membership interest in Del-Tin
     Fiber L.L.C., an Arkansas limited liability company, to secure Debt of such
     entity or any Guaranty of such Debt;

          (g)  Liens on property or assets of the Company or any Subsidiary
     securing Debt owing to the Company or any Wholly-Owned Subsidiary;

                                       25
<PAGE>
 
          (h)  Liens created to secure all or any part of the purchase price, or
     to secure Debt incurred or assumed to pay all or any part of the purchase
     price or cost of construction, of property (or any improvement thereon)
     acquired or constructed by the Company or any Subsidiary, provided that all
     of the following conditions are satisfied:

               (i)   any such Lien shall extend solely to the item or items of
          such property (or improvement thereon) or proceeds thereof so acquired
          or constructed and, if required by the terms of the instrument
          originally creating such Lien, other property which is an improvement
          to or is acquired for specific use in connection with such acquired or
          constructed property (or improvement thereon) or which is real
          property being improved by such acquired or constructed property (or
          improvement thereon),

               (ii)  the principal amount of the Debt secured by any such Lien
          shall at no time exceed an amount equal to the lesser of (A) the cost
          to such person of the property (or improvement thereon) so acquired or
          constructed and (B) the Fair Market Value (as determined in good faith
          by the Board of Directors of the Company) of such property (or
          improvement thereon) at the time of such acquisition or construction,
          and

               (iii) any such Lien shall be created contemporaneously with, or
          within 180 days after, the acquisition or construction of such
          property; 

          (i)  Liens existing on property of a Person immediately prior to its
     being consolidated or merged into the Company or any Subsidiary or its
     becoming a Subsidiary, or any Lien existing on any property acquired by the
     Company or any Subsidiary at the time such property is so acquired (whether
     or not the Debt secured thereby shall have been assumed), provided that

               (i)   no such Lien shall have been created or assumed in
          contemplation of such consolidation or merger or such Person's
          becoming a Subsidiary or such acquisition of property,

               (ii)  each such Lien shall extend solely to the item or items of
          property so acquired and proceeds thereof and, if required by the
          terms of the instrument originally creating such Lien, other property
          which is an improvement to or is acquired for specific use in
          connection with such acquired property,

               (iii) the principal amount of the Debt secured by any such Lien
          shall at no time exceed an amount equal to the Fair Market Value (as
          determined in good faith by the Board of Directors of the Company) of
          such property at the time of such consolidation, merger, becoming a
          Subsidiary or acquisition; and

          (j)  Liens renewing, extending or replacing Liens permitted by clauses
     (a) through (i) above, provided that all of the following conditions are
     satisfied:

               (i)   no such new Lien shall extend to any property of the
          Company or any Subsidiary other than property already encumbered by
          the existing Lien being so renewed, extended or replaced,

                                       26
<PAGE>
 
               (ii)   the principal amount of the underlying obligation secured
          by such existing Lien outstanding at the time of such renewal,
          extension or replacement shall not be increased in connection with
          such renewal, extension or replacement and the average life thereof
          shall not be reduced, and

               (iii)  immediately after such renewal, extension or refunding no
          Default or Event of Default shall exist;

          (k)  any Lien (other than a Lien permitted under clause (a) through
     clause (j) above) securing any Debt of the Company or any Subsidiary, which
     Debt, as of the date of the creation of such Lien, does not exceed the
     remainder of

               (i)    15% of Consolidated Tangible Net Worth, determined as of
          the end of the most recently ended fiscal quarter of the Company,
          minus

               (ii)   the sum (without duplication) of (A) the aggregate
          principal amount of all Adjusted Consolidated Subsidiary Debt
          outstanding as of the date of creation of such Lien plus (B) the total
          amount of Debt of the Company outstanding as of the date of creation
          of such Lien secured by Liens pursuant to this clause (k).

     For the purposes of this Section 10.8, any Person becoming a Subsidiary
after the date of the Closing shall be deemed, at the time it becomes a
Subsidiary, to have incurred all of its then existing Liens securing outstanding
Debt.

     10.11 SALE OF ASSETS, ETC.

     Neither the Company nor any Subsidiary will make any Transfer, provided
that the foregoing restriction does not apply to a Transfer:

           (a)  if the asset that is the subject of such Transfer constitutes
     either (i) inventory held for sale or (ii) equipment, fixtures, supplies or
     materials no longer required in the operation of the business of the
     Company or any Subsidiary or that is obsolete, and, in each case, such
     Transfer is in the ordinary course of business;

           (b)  if such Transfer is from the Company or any Subsidiary to any
     Wholly-Owned Subsidiary or any Subsidiary to the Company or to any Wholly-
     Owned Subsidiary;

           (c)  if such Transfer is subject to Section 10.2 and satisfies the
     requirements thereof;

           (d)  if such Transfer is not a Transfer described in clause (a)
     through clause (c) above (each Transfer not described in clause (a) through
     clause (c) above is referred to as a "BASKET TRANSFER"'), and all of the
     following conditions shall have been satisfied with respect to such
     Transfer:

                (i)   the Transfer is in exchange for consideration with a Fair
          Market Value (determined in good faith by a Responsible Officer) at
          least equal to that of the asset exchanged,

                                       27
<PAGE>
 
                (ii)  immediately after giving effect to such transaction no
          Default or Event of Default would exist, and

                (iii) immediately after giving effect to such Transfer:

                      (A) if such asset so Transferred consists of Timberland
                Assets, the Fair Market Value of all Timberland Assets that were
                the subject of Basket Transfers after the date of the Closing
                occurring during the period of 365 days immediately preceding
                such time would not exceed 10% of Consolidated Total Assets
                determined as of the last day of the then most recently ended
                fiscal quarter of the Company;

                      (B) if such asset so Transferred is not a Timberland
                Asset, the net book value of all assets other than Timberland
                Assets that were the subject of Basket Transfers after the date
                of the Closing occurring during the period of 365 days
                immediately preceding such time would not exceed 15% of
                Consolidated Total Assets determined as of the last day of the
                then most recently ended fiscal quarter of the Company; and

                      (C) the sum of

                          (I)  the Fair Market Value of all Timberland Assets
                      that were the subject of each Basket Transfer after the
                      date of the Closing occurring during the period of 365
                      days immediately preceding such time plus

                          (II) the net book value of all property other than
                      Timberland Assets that was the subject of each Basket
                      Transfer after the date of the Closing occurring during
                      the period of 365 days immediately preceding such time

                would not exceed 15% of Consolidated Total Assets determined as
                of the last day of the then most recently ended fiscal quarter
                of the Company.

          If the Net Proceeds Amount, or any portion thereof, with respect to
     any Basket Transfer is applied to a Debt Prepayment Application and/or is
     applied to, or committed in writing to, a Property Reinvestment
     Application, in each case within 365 days (or, in the case of the Chenal
     Valley Transfer, within 730 days) after the consummation of such Transfer
     (and, in the case of any such commitment, such Property Reinvestment
     Application is actually consummated within 30 days after the expiration of
     such 365-day period, or such 730-day period, as the case may be), then such
     Basket Transfer (or, in the case of a partial application or partial
     commitment of such Net Proceeds Amount, a ratable portion of such Basket
     Transfer) shall be excluded from any calculations set forth above in
     subclause (iii) of this clause (d).

          For purposes of determining the book value of any asset that is the
subject of a Transfer, such book value shall be the net book value of such asset
as determined in accordance with GAAP, at the time of the consummation of such
Transfer, provided that, in the case of a Transfer of any capital stock or other
equity interests of a Subsidiary, the book value thereof shall be deemed to be
an amount equal to

                                       28
<PAGE>
 
           (A)  the remainder (determined after eliminating all inter-company
    transactions, assets and liabilities in accordance with GAAP) of

                (1)  the book value of the total net assets of such Subsidiary
     less

                (2)  the liabilities of such Subsidiary times

            (B)  a percentage that is equal to the percentage of total equity
     interests of such Subsidiary attributable to the capital stock or other
     equity interest being so Transferred.

     10.12  LINE OF BUSINESS.

     The Company will not and will not permit any Subsidiary to engage in any
business if, as a result, the general nature of the businesses in which the
Company and the Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the businesses of the Company
and the Subsidiaries as described in the Memorandum.

     10.13  PAN PASSU OBLIGATIONS.

     The Company covenants that its obligations under the Notes and under
this Agreement do and will rank at least pan passu in right of payment with all
of its other present and future unsecured and unsubordinated Debt except for
those obligations that are mandatorily preferred by law.

     10.15  RESTRICTIONS ON DIVIDENDS OF SUBSIDIARIES, ETC.

     Except as provided for in this Agreement, the Company will not, and
will not permit any of its Subsidiaries to, enter into any agreement with a
Person other than the Company or another Subsidiary which would restrict any
such Subsidiary's ability or right to pay dividends to, or make advances to or
Investments in, the Company or, if such Subsidiary is not directly owned by the
Company, the "parent" Subsidiary of such Subsidiary.

     10.16  MAINTENANCE OF GUARANTEES OF SUBSIDIARIES.

            (A)  ADDITIONAL SUBSIDIARY GUARANTORS -- Conformity to Certain Other
     Agreements. No Subsidiary will be or become a guarantor, obligor or co-
     obligor in respect of any bank credit facility of the Company unless such
     Subsidiary is already a party to, and a guarantor under, the Subsidiary
     Guarantee or unless such Subsidiary shall contemporaneously therewith
     become a party to, and a guarantor under, the Subsidiary Guarantee.

            (b)  DELIVERY OF SUBSIDIARY GUARANTEE. In connection with any
     Subsidiary becoming a Subsidiary Guarantor under clause (a) of this Section
     10.13, (i) if the Subsidiary Guarantee is not outstanding and in effect at
     such time, then the Company shall cause such Subsidiary to execute and
     deliver to each holder of Notes (x) the Subsidiary Guarantee, substantially
     in the form thereof set forth in Exhibit B(SG), and (y) each of the
     documents, certificates and opinions described on Annex 3 to the Subsidiary
     Guarantor Accession Agreement (defined below) prepared with respect to such
     Subsidiary, and until the Subsidiary Guarantee and each of such documents,
     certificates

                                       29
<PAGE>
 
      and opinions is delivered to each of the holders of Notes, such Subsidiary
      shall not be deemed to be a Subsidiary Guarantor hereunder and (ii) if the
      Subsidiary Guarantee is outstanding and in effect at such time, then the
      Company shall cause such Subsidiary to execute and deliver to each holder
      of Notes a Subsidiary Guarantor Accession Agreement, substantially in the
      form thereof set forth in Exhibit B(SGAA) (together with each of the
      documents, certificates and opinions set forth on the schedules thereto, a
      ("SUBSIDIARY GUARANTOR ACCESSION AGREEMENT"), and until such Subsidiary
      Guarantor Accession Agreement is delivered to each of the holders of
      Notes, such Subsidiary shall not be deemed to be a Subsidiary Guarantor
      hereunder.

          (c)  RELEASE OF SUBSIDIARY GUARANTEE OF SUBSIDIARY GUARANTORS. If,
      with respect to any Subsidiary that is a Subsidiary Guarantor,

               (i)   all, or substantially all, of the assets of such Subsidiary
          Guarantor are Transferred in accordance with the requirements of
          Sections 10.2 and 10.9 and such Subsidiary Guarantor is wound-up and
          terminated in accordance with the requirements of Section 9.5 or is
          deemed, in the good faith opinion of a Senior Financial Officer, to
          not have material assets,

               (ii)  all of the Company's and any Subsidiary's capital shares or
          other equity ownership interests in such subsidiary Guarantor is
          Transferred in accordance with the requirements of Section 10.9, or

               (iii) such Subsidiary Guarantor is not required to be maintained
          as a Subsidiary Guarantor in order for the Company to remain in
          compliance with Section 10.13(a),

      then the Company may elect to cause the withdrawal of such Subsidiary
      Guarantor from the Subsidiary Guarantee and such Subsidiary Guarantor will
      thereby be deemed to be fully discharged from the Subsidiary Guarantee.
      Such election shall be exercised by a Senior Financial Officer (A)
      informing, in writing, each holder of Notes of such election, (B)
      certifying that the requirements of this Section 10.13(c) have been
      satisfied, (C) certifying that the requirements of Section 10.13(a) will
      be satisfied immediately after giving effect to the withdrawal and
      cessation of the Subsidiary Guarantor with respect to the Subsidiary
      Guarantee and (D) certifying that no Default or Event of Default exists.
      Thereafter, such Subsidiary Guarantor shall be discharged from the
      Subsidiary Guarantee and, at the Company's election and expense and upon
      the Company's reasonable request, the holders of the Notes will provide
      written confirmation of each such discharge. Any Subsidiary Guarantor that
      has been discharged is nonetheless available to again become a "Subsidiary
      Guarantor" in accordance with Section 10.13(a).

 11.  EVENTS OF DEFAULT.

      An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:

          (a)  the Company defaults in the payment of any principal or 
      Make-Whole Amount, if any, on any Note when the same becomes due and
      payable, whether at maturity or at a date fixed for prepayment or by
      declaration or otherwise; or

                                       30
<PAGE>
 
          (b)  the Company defaults in the payment of any interest on any Note
      for more than 5 Business Days after the same becomes due and payable; or

          (c)  the Company defaults in the performance of or compliance with any
      term contained in Section 10 or Section 7.1(d); or

          (d)  the Company defaults in the performance of or compliance with any
      term contained herein (other than those referred to in paragraphs (a), (b)
      and (c) of this Section 11) and such default is not remedied within 30
      days after the earlier of (i) a Responsible Officer obtaining actual
      knowledge of such default and (ii) the Company receiving written notice of
      such default from any holder of a Note; or

          (e)  any representation or warranty made in writing by or on behalf of
      the Company or any Subsidiary Guarantor or by any officer of the Company
      or any Subsidiary Guarantor in this Agreement or in any writing furnished
      in connection with the transactions contemplated hereby proves to have
      been false or incorrect in any material respect on the date as of which
      made; or

          (f)  (i)  the Company or any Subsidiary is in default (as principal or
          as guarantor or other surety) in the payment of any principal of or
          premium or make-whole amount or interest on any Debt (other than Debt
          under this Agreement, the Subsidiary Guarantee and the Notes) beyond
          any period of grace provided with respect thereto, that individually
          or together with such other Debt as to which any such failure exists
          has an aggregate outstanding principal amount of at least $5,000,000,
          or

               (ii)  the Company or any Subsidiary is in default in the
         performance of or compliance with any term of any evidence of any Debt
         (other than Debt under this Agreement, the Subsidiary Guarantee and the
         Notes), that individually or together with such other Debt as to which
         any such failure exists has an aggregate outstanding principal amount
         of at least $5,000,000, or of compliance with any mortgage, indenture
         or other agreement relating thereto or any other condition exists, and
         as a consequence of such default or condition such Debt has become, or
         has been declared (or one or more Persons are entitled to declare such
         Debt to be), due and payable before its stated maturity or before its
         regularly scheduled dates of payment, or

               (iii) as a consequence of the occurrence or continuation of any
          event or condition (other than the passage of time or the right of the
          holder of Debt to convert such Debt into equity interests),

                     (A) the Company or any Subsidiary has become obligated 
               (other than at its election) to purchase or repay Debt before
               its regular maturity or before its regularly scheduled dates of
               payment in an aggregate outstanding principal amount of at least
               $5,000,000 or

                     (B) one or more Persons have the right to require the
               Company or any Subsidiary to purchase or repay Debt in an
               aggregate outstanding principal amount of at least $5,000,000 and
               have exercised such right; or

                                       31
<PAGE>
 
          (g)  the Company or any Subsidiary (i) is generally not paying, or
     admits in writing its inability to pay, its debts as they become due, (ii)
     files, or consents by answer or otherwise to the filing against it of, a
     petition for relief or reorganization or arrangement or any other petition
     in bankruptcy, for liquidation or to take advantage of any bankruptcy,
     insolvency, reorganization, moratorium or other similar law of any
     jurisdiction, (iii) makes an assignment for the benefit of its creditors,
     (iv) consents to the appointment of a custodian, receiver, trustee or other
     officer with similar powers with respect to it or with respect to any
     substantial part of its property, (v) is adjudicated as insolvent or to be
     liquidated, or (vi) takes corporate action for the purpose of any of the
     foregoing; or

          (h)  a court or governmental authority of competent jurisdiction
     enters an order appointing, without consent by the Company or any
     Subsidiary, a custodian, receiver, trustee or other officer with similar
     powers with respect to the Company or any Subsidiary or with respect to any
     substantial part of the property of the Company or any Subsidiary, or
     constituting an order for relief or approving a petition for relief or
     reorganization or any other petition in bankruptcy or for liquidation or to
     take advantage of any bankruptcy or insolvency law of any jurisdiction, or
     ordering the dissolution, winding-up or liquidation of the Company or any
     Subsidiary, or any such petition shall be filed against the Company or any
     Subsidiary and such petition shall not be dismissed within 60 days; or

          (i)  a final judgment or judgments for the payment of money
     aggregating in excess of $5,000,000 are rendered against one or more of the
     Company and any Subsidiary and which judgments are not, within 60 days
     after entry thereof, bonded, discharged or stayed pending appeal, or are
     not discharged within 60 days after the expiration of such stay; or

          (j) if  (i)   any Plan shall fail to satisfy the minimum funding
          standards of ERISA or the Code for any plan year or part thereof or a
          waiver of such standards or extension of any amortization period is
          sought or granted under section 412 of the Code,

                  (ii)  a notice of intent to terminate any Plan shall have been
          or is reasonably expected to be filed with the PBGC or the PBGC shall
          have instituted proceedings under ERISA section 4042 to terminate or
          appoint a trustee to administer any Plan or the PBGC shall have
          notified the Company or any ERISA Affiliate that a Plan may become a
          subject of any such proceedings,

                  (iii) the aggregate "amount of unfunded benefit liabilities"
          (within the meaning of section 4001(a)(18) of ERISA) under all Plans,
          determined in accordance with Title IV of ERISA, shall exceed
          $5,000,000,

                  (iv)  the Company or any ERISA Affiliate shall have incurred
          or is reasonably expected to incur any liability in the nature of a
          penalty, excise tax or fine pursuant to Title I of ERISA, any
          liability under Title IV of ERISA or any liability under penalty or
          excise tax provisions of the Code relating to employee benefit plans,

                  (v)   the Company or any ERISA Affiliate withdraws from any
          Multiemployer Plan, or

                                       32
<PAGE>
 
                  (vi)  the Company or any Subsidiary establishes or amends any
          employee welfare benefit plan that provides post-employment welfare
          benefits in a manner that would increase the liability of the Company
          or any Subsidiary thereunder;

     and any such event or events described in clauses (i) through (vi) above,
     either individually or together with any other such event or events, could
     reasonably be expected to have a Material Adverse Effect; or

          (I)     the Subsidiary Guarantee in respect of any Subsidiary
     Guarantor or any provision thereof shall cease to be in full force or
     effect except as otherwise provided herein, or any Subsidiary Guarantor or
     any Person acting by or on behalf of such Subsidiary Guarantor shall deny
     or disaffirm such Subsidiary Guarantor's obligations under the Subsidiary
     Guarantee, or any Subsidiary Guarantor shall default in the due performance
     or observance of any term, covenant or agreement on its part to be
     performed pursuant to the Subsidiary Guarantee.

As used in Section 11 (j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in section 3 of ERISA.

                                       33
<PAGE>
 
12.      REMEDIES ON DEFAULT, ETC.

         12.2     ACCELERATION.

                  (a)  If an Event of Default with respect to the Company
         described in paragraph (g) or paragraph (h) of Section 11 (other than
         an Event of Default described in clause (i) of paragraph (g) or
         described in clause (vi) of paragraph (g) by virtue of the fact that
         such clause encompasses clause (i) of paragraph (g)) has occurred, all
         the Notes then outstanding shall automatically become immediately due
         and payable.

                  (b)  If any other Event of Default has occurred and is
         continuing, any holder or holders of more than 33 and 1/3% in principal
         amount of the Notes at the time outstanding may at any time at its or
         their option, by notice or notices to the Company, declare all the
         Notes then outstanding to be immediately due and payable.

                  (c)  If any Event of Default described in paragraph (a) or (b)
         of Section 11 has occurred and is continuing, any holder or holders of
         Notes at the time outstanding affected by such Event of Default may at
         any time, at its or their option, by notice or notices to the Company,
         declare all the Notes held by it or them to be immediately due and
         payable.

         Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.

         12.4     OTHER REMEDIES.

         If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

         12.6     RESCISSION.

         At any time after any Notes have been declared due and payable pursuant
to clause (b) or clause (c) of Section 12.1, the holders of not less than 67% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (i)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, due and payable on any Notes other than by reason of
such

                                       34
<PAGE>
 
declaration, and all interest on such overdue principal and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (ii) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (iii) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

         12.7     NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.

         No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.

13.      REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

         13.2     REGISTRATION OF NOTES.

         The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.

         13.4     TRANSFER AND EXCHANGE OF NOTES.

         Except as set forth in the last sentence of this Section 13.2, upon
surrender of any Note at the principal executive office of the Company for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental

                                       35
<PAGE>
 
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $1,000,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $1,000,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2. Notwithstanding anything to the contrary contained herein, no Note
shall be transferred to a Competitor.

         13.6     REPLACEMENT OF NOTES.

         Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and

                  (a) in the case of loss, theft or destruction, of indemnity
         reasonably satisfactory to it (provided that if the holder of such Note
         is, or is a nominee for, an original Purchaser or another holder of a
         Note with a minimum net worth of at least $100,000,000, such Person's
         own unsecured agreement of indemnity shall be deemed to be
         satisfactory), or

                  (b) in the case of mutilation, upon surrender and cancellation
         thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

14. PAYMENTS ON NOTES.

    14.2     PLACE OF PAYMENT.

    Subject to Section 14.2, payments of principal, Make-Whole Amount, if any,
and interest becoming due and payable on the Notes shall be made in El Dorado,
Arkansas at the principal office of First National Bank of El Dorado, Arkansas
in such jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of payment
shall be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.

     14.4     HOME OFFICE PAYMENT.

     So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the

                                       36
<PAGE>
 
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.

15.  EXPENSES, ETC.

     15.2     TRANSACTION EXPENSES.

     Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
one special counsel and, if reasonably required, one local counsel) incurred
jointly by you and each other holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Notes (whether or not such amendment, waiver
or consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in responding
to any subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the Notes, or by reason of being a holder
of any Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary Guarantor or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).

     15.4     SURVIVAL.

     The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.

 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

     All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.

 17. AMENDMENT AND WAIVER.

                                       37
<PAGE>
 
     17.2  REQUIREMENTS.

     This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of any of Sections 1, 2, 3, 4, 5, 6 and 21, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in
writing, (b) no such amendment or waiver may, without the written consent of the
holder of each Note at the time outstanding affected thereby, (i) subject to the
provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes and (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver and (c) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby
amend any of Sections 8,11(a), 11(b), 12, 17 and 20.

     17.4  SOLICITATION OF HOLDERS OF NOTES.

           (B) SOLICITATION. The Company will provide each holder of the Notes
     (irrespective of the amount of Notes then owned by it) with sufficient
     information, sufficiently far in advance of the date a decision is
     required, to enable such holder to make an informed and considered decision
     with respect to any proposed amendment, waiver or consent in respect of any
     of the provisions hereof or of the Notes. The Company will deliver executed
     or true and correct copies of each amendment, waiver or consent effected
     pursuant to the provisions of this Section 17 to each holder of outstanding
     Notes promptly following the date on which it is executed and delivered by,
     or receives the consent or approval of, the requisite holders of Notes.

           (D) PAYMENT. The Company will not directly or indirectly pay
     or cause to be paid any remuneration, whether by way of supplemental or
     additional interest, fee or otherwise, or grant any security, to any holder
     of Notes as consideration for or as an inducement to the entering into by
     any holder of Notes of any waiver or amendment of any of the terms and
     provisions hereof unless such remuneration is concurrently paid, or
     security is concurrently granted, on the same terms, ratably to each holder
     of Notes then outstanding even if such holder did not consent to such
     waiver or amendment.

            (C) CONSENT IN CONTEMPLATION OF TRANSFER. Any consent made
     pursuant to this Section 17 by a holder of Notes that has transferred or
     has agreed to transfer its Notes to the Company, any Subsidiary or any
     Affiliate of the Company and has provided or has agreed to provide such
     written consent as a condition to such transfer shall be void and of no
     force or effect except solely as to such holder, and any amendments
     effected or waivers granted or to be effected or granted that would not
     have been or would not be so effected or granted but for such consent (and
     the consents of all other holders of Notes that were acquired under the
     same or similar conditions) shall be void and of no force or effect except
     solely as to such holder.

     17.5   BINDING EFFECT, ETC.

     Any amendment or waiver consented to as provided in this Section 17 applies
equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon

                                       38
<PAGE>
 
the Company without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.

     17.6   NOTES HELD BY COMPANY, ETC.

     Solely for the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.

18.  NOTICES.

     All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:

            (i)   if to you or your nominee, to you or it at the address
     specified for such communications in Schedule A, or at such other address
     as you or it shall have specified to the Company in writing,

            (ii)  if to any other holder of any Note, to such holder at such
     address as such other holder shall have specified to the Company in
     writing, or

            (iii) if to the Company, to the Company at its address set forth at
     the beginning hereof to the attention of Clefton D. Vaughan, telecopier:
     (870) 881-6457, or at such other address as the Company shall have
     specified to the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

19.  REPRODUCTION OF DOCUMENTS.

     This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the

                                       39
<PAGE>
 
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.

20.  CONFIDENTIAL INFORMATION.

     For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement, provided that such term does not include information that

            (a)  was publicly known or otherwise known to you prior to the
     time of such disclosure,

            (b)  subsequently becomes publicly known through no act or
     omission by you or any person acting on your behalf,

            (c)  otherwise becomes known to you other than through
     disclosure by the Company or any Subsidiary, or

            (d)  constitutes financial statements delivered to you under Section
     7.1 that are otherwise publicly available.

You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to:

            (i)   your directors, officers, trustees, employees, agents,
     attorneys and affiliates (to the extent such disclosure reasonably relates
     to the administration of the investment represented by your Notes),

            (ii)  your financial advisors and other professional advisors who
     agree to hold confidential the Confidential Information substantially in
     accordance with the terms of this Section 20,

            (iii)  any other holder of any Note,

            (iv)   any Institutional Investor to which you sell or offer to sell
     such Note or any part thereof or any participation therein (if such Person
     has agreed in writing prior to its receipt of such Confidential Information
     to be bound by the provisions of this Section 20),

            (v)    any Person from which you offer to purchase any security of
     the Company (if such Person has agreed in writing prior to its receipt of
     such Confidential Information to be bound by the provisions of this Section
     20),

            (vi)   any federal or state regulatory authority having jurisdiction
     over you,

                                       40
<PAGE>
 
            (vii)  the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires 
access to information about your investment portfolio or

            (viii) any other Person to which such delivery or disclosure may be
necessary or appropriate

                   (A)   to effect compliance with any law, rule, regulation or
             order applicable to you,

                   (B)   in response to any subpoena or other legal process,

                   (C)   in connection with any litigation to which you are a
             party, or

                   (D)   if an Event of Default has occurred and is continuing,
             to the extent you may reasonably determine such delivery and
             disclosure to be necessary or appropriate in the enforcement or for
             the protection of the rights and remedies under your Notes and this
             Agreement.

Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.

21.  SUBSTITUTION OF PURCHASER.

     You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.

22.  MISCELLANEOUS.

     22.2   SUCCESSORS AND ASSIGNS.

     All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.

                                       41
<PAGE>
 
     22.4   PAYMENTS DUE ON NON-BUSINESS DAYS.

     Anything in this Agreement or the Notes to the contrary notwithstanding,
any payment of principal of or Make-Whole Amount or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.

     22.6   SEVERABILITY.

     Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

     22.8   CONSTRUCTION.

     Each covenant contained herein shall be construed (absent express provision
to the contrary) as being independent of each other covenant contained herein,
so that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.

     22.10  COUNTERPARTS.

     This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

     22.12  GOVERNING LAW.

     THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

     [Remainder of page intentionally blank. Next page is signature page.]

                                       42
<PAGE>
 
          If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.

                                            Very truly yours,

                                            DELTIC TIMBER CORPORATION


                                            By____________________________
                                                  Name:
                                                  Title: 
                                                        
   
The foregoing is hereby
agreed to as of the
date thereof.

[PURCHASER]



By______________________________
       Name:
       Title:
       


<PAGE>
 
                                  SCHEDULE A

                       INFORMATION RELATING TO PURCHASER

<TABLE> 
<CAPTION> 
=================================================================================================================================
<S>                                     <C>   
PURCHASER NAME                          PACIFIC COAST FARM CREDIT SERVICES, ACA
---------------------------------------------------------------------------------------------------------------------------------
Name in Which Note is Registered        Pacific coast Farm credit Services, ACA
---------------------------------------------------------------------------------------------------------------------------------
Note Registration Number; Principal     R-1; $40,000,000
Amount
---------------------------------------------------------------------------------------------------------------------------------
Payment on Account of Note              
 
                                         Federal Funds Wire Transfer

                                         Bank of America
         Method                          10 Santa Rosa Avenue
                                         Santa Rosa, CA 95405
         Account Information             ABA No. 121000358
                                         For the Account of: Pacific coast Farm credit Services, ACA
                                         Account No. 14984-00266
---------------------------------------------------------------------------------------------------------------------------------
Accompanying Information                 Name of company:           DELTIC TIMBER CORPORATION

                                        Description of
                                        Security:         6.66% Senior Notes due December 18, 2008
                                        PPN:                     247850 A*1

                                        Due Date and Application (as among
                                        principal, Make-Whole Amount and
                                        interest) of the payment being made:
---------------------------------------------------------------------------------------------------------------------------------
Address for Notices Related to          Tina Anaya
Payments                                P.O. Box 1120
                                        Santa Rosa, CA 95402

                                        Tel: (707) 545-1200 
                                        Fax: (707) 545-4446
---------------------------------------------------------------------------------------------------------------------------------
                                        Katherine Wheelock
                                        P.O. Box 398
Address for all other Notices           Fields Landing, CA 95537
                                        or:      5560 South Broadway
                                                 Eureka, CA 95503
---------------------------------------------------------------------------------------------------------------------------------
Instructions re Delivery of Notes       Law Department of Purchaser
Tax  IdentifIcation Number             94-1160795
=================================================================================================================================
</TABLE> 

                                 Schedule A-1

                                       
<PAGE>
 
                                  SCHEDULE B

                                 DEFINED TERMS
                                 -------------

         As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:

         "ADJUSTED CONSOLIDATED SUBSIDIARY DEBT" means, as of any date of
determination, the total of all Debt of all Subsidiaries outstanding, in each
case, on such date, after eliminating (without duplicative effect):

               (a)  any such Debt owing by any Subsidiary to the Company or any
          other Wholly-Owned Subsidiary;

               (b)  any such Debt owing by any Subsidiary that is a Subsidiary
          Guarantor; and

               (c)  any such Debt secured by Liens expressly permitted under
          clause (f), (h), (i) or (j) of Section 10.8.

          "AFFILIATE" means at any time, and with respect to any Person,

               (a)  any other Person that at such time directly or indirectly
          through one or more intermediaries Controls, or is Controlled by, or
          is under common Control with, such first Person, and

               (b)  any Person beneficially owning or holding, directly or
          indirectly, 10% or more of any class of voting or equity interests of
          the Company or any Subsidiary or any corporation of which the Company
          and its Subsidiaries beneficially own or hold, in the aggregate,
          directly or indirectly, 10% or more of any class of voting or equity
          interests.

As used in this definition, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.

          "AGREEMENT, THIS" is defined in Section 17.3.

          "BUSINESS DAY" means (a) for the purposes of Section 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in El Dorado, Arkansas are required or authorized
to be closed.

          "CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

          "CAPITAL LEASE OBLIGATION" means, with respect to the Company or any
of its Subsidiaries and a Capital Lease, the amount of the obligation of such
Person as the lessee

                                 Schedule B-1
<PAGE>
 
under such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.

          "CAPITAL STOCK" means any class of capital stock, share capital or
similar equity interest of a Person.

          "CHANGE IN CONTROL" means, at any time, the acquisition by any person
(as such term is used in section 13(d) and section 14(d)(2) of the Exchange
Act) or related persons constituting a group (as such term is used in Rule 13d-5
under the Exchange Act), directly or indirectly, of the beneficial ownership and
control of more than 50% of the total voting power of all of the then issued and
outstanding Voting Stock of the Company or any Successor Company.

          "CHENAL VALLEY TRANSFER" means the Transfer of all or substantially
all of the property identified on Schedule B-CVT.

          "CLOSING" is defined in Section 3.

          "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.

          "COMPANY" is defined in the introductory sentence of this Agreement.

          "COMPETITOR" means each Person identified on Schedule B-C (and each of
the majority-owned affiliates thereof) and each other Person identified in
writing to the holders of Notes at such time (and each of the majority-owned
affiliates of such Person) as having been determined in good faith by the
Company to be a competitor of the Company or any Subsidiary in a line of
business that is described in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31,1997 and in which the Company and its Subsidiaries
are involved to a Material extent.

          "CONFIDENTIAL INFORMATION" is defined in Section 20.

          "CONSOLIDATED ADJUSTED NET INCOME" shall mean (without duplication)
for any period consolidated net income (or loss) of the Company and its
Subsidiaries, as determined in accordance with GAAP, after excluding the sum of

                  (i)   net earnings (or losses) of any Subsidiary accrued prior
          to the date it becomes a Subsidiary or is merged with or consolidated
          into the Company or any Subsidiary;

                  (ii)  the net earnings (or losses) of any Person (other than a
          Subsidiary) in which the Company or a Subsidiary has an ownership
          interest that has not been received in the form of cash;

                  (iii) the undistributed earnings of any Subsidiary to the
          extent that the declaration or payment of dividends or similar
          distributions by such Subsidiary is not at the time permitted by the
          terms of its charter or any agreement, instrument, judgment, decree,
          order, statute, rule or governmental regulation applicable to such
          Subsidiary;

                                 Schedule B-2
<PAGE>
 
                  (iv)   any restoration to income of any contingency reserve
          (other than reserves established in the normal course of business,
          such as allowances for uncollectible accounts), except to the extent
          that such reserve was established during such period;

                  (v)    any gain on the sale or disposition of Investments or
          fixed or capital assets, including any tax effect;

                  (vi)   any gains resulting from any write-up of assets;

                  (vii)  any net gain from the proceeds of any life insurance
          policy;

                  (viii) any gain arising from the acquisition of any securities
          of the Company or Subsidiary;

                  (ix)   any net income or gain resulting from changes in GAAP,
          any extraordinary items, or any discontinued operations;

                  (x)    any deferred or other credit representing the excess of
          the equity in any Subsidiary over the cost of the investment at the
          acquisition date;

                  (xi)   in the case of a successor to the Company by
          consolidation or merger, any earnings of the successor corporation
          prior to such consolidation or merger; and

                  (xii)  any income not freely convertible into U.S. Dollars.

          "CONSOLIDATED CURRENT DEBT" means, at any time, the total of all
Current Debt of the Company and its Subsidiaries outstanding on such date,
determined on a consolidated basis at such time in accordance with GAAP.

          "CONSOLIDATED CURRENT LIABILITIES" means, at any time, the amount of
current liabilities of the Company and its Subsidiaries, determined on a
consolidated basis at such time in accordance with GAAP.

          "CONSOLIDATED DEBT" means, at any time, the total of all Debt of the
Company and its Subsidiaries outstanding on such date, determined on a
consolidated basis at such time in accordance with GAAP.

         "CONSOLIDATED FIXED CHARGES" shall mean with respect to any period, the
sum of (i) Interest Expense and (ii) Lease Rentals, in each case for the Company
and its Subsidiaries for such period, determined on a consolidated basis at such
time in accordance with GAAP.

          "CONSOLIDATED FUNDED DEBT" means, at any time, the total of all Funded
Debt of the Company and its Subsidiaries outstanding on such date, determined on
a consolidated basis at such time in accordance with GAAP.

          "CONSOLIDATED INTANGIBLE ASSETS" means, at any time, the aggregate
amount of the following assets to the extent included in determining
Consolidated Total Assets at such time: debt discount and expense, goodwill (to
the extent, but only to the extent, such goodwill was recorded on the books of
the Company and its Subsidiaries after the date of the Closing), trademarks,
trade names, patents, deferred assets (other than prepaid insurance and prepaid

                                 Schedule B-3
<PAGE>
 
taxes), copyrights, franchises, experimental expense and other similar
intangible assets of the Company and its Subsidiaries, determined on a
consolidated basis at such time in accordance with GAAP and after netting
therefrom all amortization or depreciation, if any, in respect thereof.

          "CONSOLIDATED NET CAPITALIZATION" means, at any time, Consolidated Net
Tangible Assets at such time minus Consolidated Current Liabilities determined
at such time.

          "CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean for
any period the sum of (i) Consolidated Adjusted Net Income for such period, (ii)
income tax expense to the extent included in the determination of Consolidated
Adjusted Net Income for such period and (iii) Consolidated Fixed Charges for
such period.

          "CONSOLIDATED NET TANGIBLE ASSETS" means, at any time, Consolidated
Total Assets at such time minus Consolidated Intangible Assets at such time.

          "CONSOLIDATED TANGIBLE NET WORTH" means, at any time, Consolidated Net
Capitalization minus Consolidated Funded Debt, in each case determined at such
time.

          "CONSOLIDATED TOTAL ASSETS" means, at any time, the total assets of
the Company and its Subsidiaries determined on a consolidated basis at such time
in accordance with GAAP, after deducting related depreciation, obsolescence,
amortization, valuation and other proper reserves and excluding any amount on
account of write-ups of assets subsequent to the date of the Closing.

          "CONTROL EVENT" means:

                 (a)  the execution by the Company or an Affiliate of the
          Company of any agreement or letter of intent with respect to any
          proposed transaction or event or series of transactions or events
          which, individually or in the aggregate, may reasonably be expected to
          result in a Change in Control,

                 (b)  the execution of any written agreement which, when fully
          performed by the parties thereto, would result in a Change in Control,
          or

                 (c)  the making of any written offer by any person (as such
          term is used in section 13(d) and section 14(d)(2) of the Exchange
          Act) or related persons constituting a group (as such term is used in
          Rule 13d-5 under the Exchange Act) to the holders of the Voting Stock
          of the Company, which offer, if accepted by the requisite number of
          holders, would result in a Change in Control.

          "CONTROL PREPAYMENT DATE" is defined in Section 8.6.

          "CURRENT DEBT" -- means at any time, with respect to any Person, all
Debt of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures on demand or within one year from the date of
the creation thereof and is not directly or indirectly renewable or extendible
at the option of the obligor in respect thereof to a date one year or more from
such date, provided that (a) Debt outstanding under a revolving credit or
similar agreement which obligates the lender or lenders to extend credit over a
period of one year or more shall constitute Funded Debt and not Current Debt,
even though such Debt by its terms matures on

                                 Schedule B-4
<PAGE>
 
demand or within one year from such date, and (b) Current Maturities of Funded
Debt shall be deemed to constitute "Current Debt."

          "CURRENT MATURITIES OF FUNDED DEBT" means, at any time and with
respect to any item of Funded Debt of any Person, the portion of such Funded
Debt outstanding at such time which by the terms of such Funded Debt or the
terms of any instrument or agreement relating thereto is due on demand or within
one year from such time (whether by sinking fund, other required prepayment or
final payment at maturity) and is not directly or indirectly renewable,
extendible or refundable at the option of the obligor under an agreement or firm
commitment in effect at such time to a date one year or more from such time.

          "DEBT" means, with respect to the Company or any of its Subsidiaries,
without duplication,

                 (a)  its liabilities for borrowed money;

                 (b)  its liabilities for the deferred purchase price of
          property acquired by such Person (excluding accounts payable arising
          in the ordinary course of business, but including, without limitation,
          all liabilities created or arising under any conditional sale or other
          title retention agreement with respect to any such property);

                 (c)  its Capital Lease Obligations;

                 (d)  all liabilities for borrowed money secured by any Lien
          with respect to any property owned by such Person (whether or not it
          has assumed or otherwise become liable for such liabilities);

                 (e)  all reimbursement obligations in respect of any letter of
          credit issued for the account of such Person other than (i) commercial
          letters of credit issued in the ordinary course of such Person's
          business (and not as a substitute for direct borrowing or Guaranties
          thereof) and (ii) letters of credit issued in the ordinary course of
          such Person's business that act as the functional equivalent of a
          surety bond or performance bond for such Person;

                 (f)  such Person's obligations in respect of any Mandatorily
          Redeemable Preferred Stock, in each case taken at the greatest of (i)
          its voluntary liquidation or redemption price, (ii) its involuntary
          liquidation or redemption price and (iii) its stated par value, in
          each case as determined at such time;

                 (g)  Swaps of such Person; and

                 (h)  any Guaranty of such Person with respect to liabilities of
          a type described in any of clauses (a) through (g) hereof.

          For the purposes of the avoidance of doubt, "Debt" shall not include
any benefit liability or funding obligation of the Company or any of its
Subsidiaries in respect of any Plan. For purposes of determining "Debt," no
amount listed above shall be included more than once in such determination, and
all obligations of any Person of the character described in clauses (a) through
(h) above shall be included in such determination if such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
have been extinguished under

                                 Schedule B-5
<PAGE>
 
GAAP (provided that any assets that have been derecognized by GAAP with respect
to such extinguishment are counted as "assets" for purposes of any GAAP
determinations under this Agreement).

          "DEBT PREPAYMENT APPLICATION" means, with respect to any Transfer of
property, the prepayment by the Company or any Subsidiary Guarantor of any
Senior Debt (other than Senior Debt owing to any Affiliate and other than Senior
Debt in respect of any revolving credit or similar credit facility providing the
Company or a Subsidiary Guarantor with the right to obtain loans or other
extensions of credit from time to time, except to the extent that in connection
with such payment of Senior Debt the availability of credit under such credit
facility is permanently reduced by an amount not less than the amount of such
proceeds applied to the payment of such Senior Debt), together with any interest
and premium in respect thereof, in cash and in an amount not exceeding the Net
Proceeds Amount with respect to such Transfer.

          "DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.

          "DEFAULT RATE" means the lesser of

                 (a)  the maximum rate of interest allowed by applicable law,
          and

                 (b)  the greater of (i) 8.66% per annum and (ii) 2% per annum
          over the rate of interest publicly announced from time to time by
          Morgan Guaranty Trust Company of New York (or its successors) in New
          York, New York as its "base" or "prime" rate.

          "DISTRIBUTION" means, in respect of any corporation, association or
other business entity:

                  (a) dividends or other distributions or payments on capital
          stock or other equity interest of such corporation, association or
          other business entity (except distributions in such stock or other
          equity interest); and

                  (b) the redemption or acquisition of such stock or other
          equity interests or of warrants, rights or other options to purchase
          such stock or other equity interests (except when solely in exchange
          for such stock or other equity interests).

          "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

          "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.

          "EVENT OF DEFAULT" is defined in Section 11.

                                 Schedule B-6
<PAGE>
 
          "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.

          "FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an 
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).

         "FUNDED DEBT" means, with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, one year or
more from, or is directly or indirectly renewable or extendible at the option of
the obligor in respect thereof to a date one year or more (including, without
limitation, an option of such obligor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more) from, the date of the creation thereof. For the avoidance of
doubt, Debt that is not Current Debt shall be deemed to be Funded Debt.

          "GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.

          "GOVERNMENTAL AUTHORITY" means

                 (a)  the government of

                      (i)   the United States of America or any state or other
                 political subdivision thereof, or

                      (ii)  any jurisdiction in which the Company or any
                 Subsidiary conducts all or any part of its business, or that
                 asserts jurisdiction over any properties of the Company or any
                 Subsidiary, or

                 (b)  any entity exercising executive, legislative, judicial,
          regulatory or administrative functions of, or pertaining to, any such
          government.

          "GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by such Person:

                 (a) to purchase such indebtedness or obligation or any property
          constituting security therefor;

                 (b) to advance or supply funds (i) for the purchase or payment
          of such indebtedness or obligation, or (ii) to maintain any working
          capital or other balance sheet condition or any income statement
          condition of any other Person or otherwise to advance or make
          available funds for the purchase or payment of such indebtedness or
          obligation;

                                 Schedule B-7
<PAGE>
 
                  (c) to lease properties or to purchase properties or services
          primarily for the purpose of assuring the owner of such indebtedness
          or obligation of the ability of any other Person to make payment of
          the indebtedness or obligation; or

                  (d) otherwise to assure the owner of such indebtedness or
          obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

          "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

          "HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.

          "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.

          "INTEREST EXPENSE" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP): (a) all interest in respect of Debt of the Company and its Subsidiaries
(including imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Adjusted Net Income for such period, and (b) all debt
discount and expense amortized or required to be amortized in the determination
of Consolidated Adjusted Net Income for such period. For the avoidance of doubt,
Distributions in respect of Mandatorily Redeemable Preferred Stock of the
Company shall not be included in the calculation of Interest Expense.

          "INVESTMENT" means any investment, made in cash or by delivery of
property, by the Company or any of its Subsidiaries (a) in any Person, whether
by acquisition of stock, indebtedness or other obligation or Security, or by
loan, Guaranty, advance, capital contribution or otherwise, or (ii) in any
property.

          "LEASE RENTALS" means, with respect to any period, the sum of the
minimum amount of rental and other obligations required to be paid during such
period by the Company or any Subsidiary as lessee under all leases of real or
personal property (other than Capital Leases), excluding any amounts required to
be paid by the lessee (whether or not therein designated as rental or additional
rental) (a) which are on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges, or (b) which are based on profits,
revenues

                                 Schedule B-8
<PAGE>
 
or sales realized by the lessee from the leased property or otherwise based on
the performance of the lessee.

          "LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).

          "MAKE-WHOLE AMOUNT" is defined in Section 8.7.

          "MANDATORILY REDEEMABLE PREFERRED STOCK" -- means, with respect to any
Person, such Person's Preferred Stock to the extent that it is required to be
redeemed, purchased or otherwise retired or extinguished, or is convertible into
Debt of, such Person.

          "MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.

          "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Notes, or (c) the
validity or enforceability of this Agreement or the Notes.

          "MEMORANDUM" is defined in Section 5.3.

          "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001 (a)(3) of ERISA).

          "NOTES" is defined in Section 1.

          "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.

          "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

          "PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.

          "PLACEMENT AGENT" means NationsBanc Montgomery Securities LLC and any
of its affiliates.

          "PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

                                 Schedule B-9
<PAGE>
 
          "PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.

          "PROPERTY OR PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.

          "PROPERTY REINVESTMENT APPLICATION" means, with respect to any
Transfer of property, the application of part or all of the Net Proceeds Amount
with respect to such Transfer to the acquisition by the Company or a Subsidiary
of property of a similar utility or a business (or an interest therein)
reasonably related to the business of the Company and the Subsidiaries, taken as
a whole (as determined by the Board of Directors in good faith).

          "PTE" is defined in Section 6.2(a).

          "QPAM EXEMPTION" is defined in Section 6.2(d).

          "REQUIRED HOLDERS" means, at any time, the holder or holders of at
least 51% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).

          "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.

          "RESTRICTED INVESTMENTS" means all Investments except the following:

                  (a) Investments in property to be used in the ordinary course
          of business of the Company and its Subsidiaries;

                  (b) Investments in inventory, receivables and other current
          assets arising from the sale of goods and services in the ordinary
          course of business of the Company and its Subsidiaries;

                  (c) Investments in receivables arising from the sale of land
          in the ordinary course of business of the Company and its
          Subsidiaries;

                  (d) Investments in one or more Subsidiaries or any Person that
          concurrently with such Investment becomes a Subsidiary;

                  (e) Investments existing on the date of the Closing
          (including, without limitation, any increase in the value thereof as a
          result of the application of the equity method of accounting in
          respect thereof);

                  (f) Investments in United States Governmental Securities,
          provided that such obligations mature within 365 days from the date of
          acquisition thereof;

                  (g) Investments in certificates of deposit or banker's
          acceptances issued by an Acceptable Bank, provided that such
          obligations mature within 365 days from the date of acquisition
          thereof;

                                 Schedule B-10
<PAGE>
 
                  (h) Investments in commercial paper rated at least A-I by S&P
          or P-I by Moody's and maturing not more than 270 days from the date of
          creation thereof; and

                  (i) Investments in addition to those permitted by the
          foregoing clauses (a) through (h), provided that, with respect to, and
          immediately after giving effect to, any Investment then being made
          pursuant to this clause (i), (x) no Default or Event of Default shall
          exist and (y) the aggregate amount of such Investment and all
          Investments previously made pursuant to this clause (i) and
          outstanding at such time (valued as set forth below as of the date of
          any determination under this clause (i)) shall not exceed 20% of
          Consolidated Tangible Net Worth, determined as at the date of any
          determination under this clause (i).

As of any date of determination, each Restricted Investment shall be valued at
the greater of:

                  (x) the amount at which such Restricted Investment is shown on
          the books of the Company or any of its Subsidiaries (or zero if such
          Restricted Investment is not shown on any such books); and

                  (y) either

                      (i)   in the case of any Guaranty of the obligation of any
                  Person, the amount which the Company or any of its
                  Subsidiaries has paid on account of such obligation less any
                  recoupment by the Company or such Subsidiary of any such
                  payments, or

                      (ii)  in the case of any other Restricted Investment, the
                  excess of (x) the greater of (A) the amount originally entered
                  on the books of the Company or any of its Subsidiaries with
                  respect thereto and (B) the cost thereof to the Company or its
                  Subsidiary over (y) any return of capital (after income taxes
                  applicable thereto) upon such Restricted Investment through
                  the sale or other liquidation thereof or part thereof or
                  otherwise.

          As used in this definition of "Restricted Investments":

                  "Acceptable Bank" means any bank or trust company (i) which is
          organized under the laws of the United States of America or any State
          thereof, (ii) which has capital, surplus and undivided profits
          aggregating at least $200,000,000, and (iii) whose long-term unsecured
          debt obligations (or the long-term unsecured debt obligations of the
          bank holding company owning all of the capital stock of such bank or
          trust company) shall have been given a rating of "A-" or better by
          S&P, "A3" or better by Moody's or an equivalent rating by any other
          credit rating agency of recognized national standing.

                  "Moody's" means Moody's Investors Service, Inc.

                  "S&P" means Standard & Poor's Ratings Group, a division of
          McGraw Hill, Inc.

                  "United States Governmental Security" means any direct
          obligation of, or obligation guaranteed by, the United States of
          America, or any agency controlled or supervised by or acting as an
          instrumentality of the United States of America pursuant to authority
          granted by the Congress of the United States of America, so long as
          such

                                 Schedule B-11
<PAGE>
 
          obligation or guarantee shall have the benefit of the full faith and
          credit of the United States of America which shall have been pledged
          pursuant to authority granted by the Congress of the United States of
          America.

          "RESTRICTED PAYMENT" means any Distribution in respect of the Company
or any Subsidiary of the Company (other than on account of (a) capital stock or
other equity interests of a Subsidiary owned legally and beneficially by the
Company or another Subsidiary and (b) in respect of Mandatorily Redeemable
Preferred Stock of the Company), including, without limitation, any Distribution
resulting in the acquisition by the Company of Securities which would constitute
treasury stock.

          "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.

          "SENIOR DEBT" means any unsecured Debt of the Company or any
Subsidiary Guarantor that is not in any manner subordinated in right of payment
to the Notes or to any other Debt of such Person.

          "SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer, manager of treasury or controller of
the Company.

          "SOURCE" is defined in Section 6.2.

          "SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership or joint venture can and does ordinarily
take major business actions without the prior approval of such Person or one or
more of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the Company.

          "SUBSIDIARY GUARANTEE" means the Subsidiary Guarantee in the form of
Exhibit B(SG) as executed and delivered by a Subsidiary Guarantor. "Subsidiary
Guarantee" shall also include the Subsidiary Guarantee after any one or more
Subsidiaries have acceded thereto and/or been discharged therefrom, all as
provided for in Section 10.13.

          "SUBSIDIARY GUARANTOR" means, at any time, a Subsidiary that has
become a party to, and a guarantor under, the Subsidiary Guarantee pursuant to
Section 10.13, provided that any Subsidiary Guarantor that has been discharged
from the Subsidiary Guarantee pursuant to Section 10.13(c) and shall not have a
Subsidiary Guarantor Accession Agreement in effect at such time shall not be a
Subsidiary Guarantor.

          "SUBSIDIARY GUARANTOR ACCESSION AGREEMENT" is defined in Section 
10.13.

          "SUCCESSOR COMPANY" is defined in Section 10.2.

          "SWAPS" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments,

                                 Schedule B-12
<PAGE>
 
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement, the amount of the obligation under any Swap shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount so determined. For
purposes of this Agreement, any such interest rate swap, currency swap or other
similar obligation shall not be deemed to be a "Swap" for purposes of this
definition if such interest rate swap, currency swap or other similar obligation
is entered into either (a) to hedge interest rate and/or currency risk of such
Person with respect to Debt incurred by such Person in the ordinary course of
its business and pursuant to prudent and reasonable business practices that are
consistent with the business practices of other companies similarly situated to
such Person or (b) to hedge currency risk with respect to any cash payments
expected to be received by such Person from a contract entered into by such
Person in the ordinary course of business of such Person and pursuant to prudent
and reasonable business practices that are consistent with the business
practices of other companies similarly situated to such Person.

          "TIMBERLAND ASSET" means real property consisting substantially of
timberland.

          "TRANSFER" means, with respect to the Company or any Subsidiary, any
transaction in which such Person sells, conveys, transfers or leases (as lessor)
any of its property. The verb "Transfer" has the meaning correlative to the
meaning of the noun.

          "VOTING STOCK" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).

          "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary 100% of
all of the equity interests (except directors' qualifying shares) and voting
interests of which are owned by any one or more of the Company and the Company's
other Wholly-Owned Subsidiaries at such time.

                                 Schedule B-13
<PAGE>
 
                                  SCHEDULE 3
                   WIRE PAYMENT INSTRUCTIONS AT THE CLOSING


FIRST NATIONAL BANK OF EL DORADO, ARKANSAS
ABA NO.: #082 900 911
FOR THE ACCOUNT OF: DELTIC TIMBER CORPORATION
ACCOUNT NO.: 70-578-0
ATTN:  CLEFTON D. VAUGHAN
FAX:   (870) 881-6457

                                 Schedule C-1
<PAGE>
 
                             DISCLOSURE SCHEDULES 
                          TO NOTE PURCHASE AGREEMENT

                                Disclosures - 1
<PAGE>
 
                                                                       EXHIBIT 1

                                [FORM OF NOTE]

                                  Exhibit 1-1
<PAGE>
 
                                                                  EXHIBIT 4.4(A)


              [FORM OF OPINION OF GENERAL COUNSEL OF THE COMPANY]

                               Exhibit 4.4(a)-1
<PAGE>
 
                                                                  EXHIBIT 4.4(B)

          [FORM OF OPINION OF SPECIAL NEW YORK COUNSEL TO THE COMPANY
                     AND SPECIAL COUNSEL TO THE PURCHASER]

                               Exhibit 4.4(b)-1
<PAGE>
 
                                                                   EXHIBIT B(SG)


                        [FORM OF] SUBSIDIARY GUARANTEE

     THIS SUBSIDIARY GUARANTEE (as amended, modified or restated from time to
time, this "GUARANTEE") is made as of December 18, 1998 by ________ (the
"GUARANTOR" and, together with its successors and assigns, and each other Person
executing and delivering a "Subsidiary Guarantor Accession Agreement" (as
defined in the Note Purchase Agreement), collectively referred to herein as the
"SUBSIDIARY GUARANTORS").

                                   RECITALS:

     (A)  Deltic Timber Corporation, a Delaware corporation (the "COMPANY"), has
authorized the issuance of its 6.66% Senior Notes due December 18, 2008 in the
original aggregate principal amount of $40,000,000 (as amended, restated or
otherwise modified from time to time, collectively, the "NOTES"), pursuant to
that certain Note Purchase Agreement (as amended, modified or restated from time
to time, the "NOTE PURCHASE AGREEMENT"), dated as of December 18, 1998, between
the Company and the purchaser of the Notes named on Schedule A thereto (the
"PURCHASER").

     (B)  Each Subsidiary Guarantor has determined that it is in its own best
interest and in pursuance of its purposes that it enter into this Guarantee.

     (C)  Each Subsidiary Guarantor has agreed upon the terms and subject to the
conditions hereof to guarantee, jointly and severally with all other Subsidiary
Guarantors from time to time and with all other guarantors who have executed or
may from time to time execute this Guarantee (by means of a Subsidiary Guarantor
Accession Agreement or otherwise), to the Purchaser and each of the other
holders, from time to time, of the Notes the due and punctual payment by the
Company of sums from time to time due under the Notes and the Note Purchase
Agreement.

                                  AGREEMENT:

1.   DEFINITIONS

     Capitalized terms used herein and defined in the Note Purchase Agreement
shall have the meanings ascribed thereto in the Note Purchase Agreement unless
the context otherwise requires.

2.   GUARANTEE.

     2.1  GUARANTEED OBLIGATIONS.

     In consideration for the purchase by the Purchaser of the Notes and for
other valuable consideration, each of the Subsidiary Guarantors hereby
irrevocably, unconditionally, absolutely, jointly and severally guarantees to
each holder of Notes, as and for each such Subsidiary Guarantor's own debt,
until final and indefeasible payment has been made:

          (a)  the due and punctual payment by the Company of the principal of,
     and interest (including default interest), Make-Whole Amount (if any) on,
     the Notes at any time

                                Exhibit B(SG)-1
<PAGE>
 
     outstanding and the due and punctual payment of all other amounts payable,
     and all other indebtedness owing, by the Company to the holders of the
     Notes under the Note Purchase Agreement and the Notes (all such obligations
     so guaranteed are herein collectively referred to as the "GUARANTEED
     OBLIGATIONS"), in each case when and as the same shall become due and
     payable, whether at maturity, pursuant to mandatory or optional prepayment,
     by acceleration or otherwise, all in accordance with the terms and
     provisions hereof and thereof; it being the intent of each of the
     Subsidiary Guarantors that this Guarantee be a guarantee of payment and not
     a guarantee of collection; and

          (b)  the punctual and faithful performance, keeping, observance, and
     fulfillment by the Company of all duties, agreements, covenants and
     obligations of the Company contained in the Note Purchase Agreement and the
     Notes.

     2.2  PERFORMANCE UNDER THE NOTE PURCHASE AGREEMENT.

     In the event the Company fails to make, on or before the due date thereof,
any payment of the Guaranteed Obligations, or if the Company shall fail to
perform, keep, observe, or fulfill any other obligation referred to in clause
(a) or clause (b) of Section 2.1 in the manner provided in the Note Purchase
Agreement or the Notes after in each case giving effect to any applicable grace
periods or cure provisions or waivers or amendments, each Subsidiary Guarantor
shall cause forthwith to be paid the moneys, or to be performed, kept, observed,
or fulfilled each of such obligations, in respect of which such failure has
occurred in accordance with the terms and provisions of the Note Purchase
Agreement and the Notes.

     2.3  WAIVERS.

     To the fullest extent permitted by law, each Subsidiary Guarantor does
hereby waive:

          (a)  notice of acceptance of the Guarantee;

          (b)  notice of any purchase of the Notes under the Note Purchase
     Agreement or the creation, existence or acquisition of any of the
     Guaranteed Obligations, subject to such Subsidiary Guarantor's right to
     make inquiry of each holder of Notes to ascertain the amount of the
     Guaranteed Obligations at any reasonable time;

          (c)  notice of the amount of the Guaranteed Obligations, subject to
     such Subsidiary Guarantor's right to make inquiry of each holder of Notes
     to ascertain the amount of the Guaranteed Obligations at any reasonable
     time;

          (d)  notice of adverse change in the financial condition of the
     Company, any other Subsidiary Guarantor or any Subsidiary or any other fact
     that might increase or expand such Subsidiary Guarantor's risk hereunder;

          (e)  notice of presentment for payment, demand, protest, and notice
     thereof as to the Notes or any other instrument;

          (f)  notice of any Default or Event of Default (except if such notice
     or demand is specifically otherwise required to be given to such Subsidiary
     Guarantor pursuant to the terms of the Note Purchase Agreement);

                                Exhibit B(SG)-2
<PAGE>
 
          (g)  all other notices and demands to which such Subsidiary Guarantor
     might otherwise be entitled (except if such notice or demand is
     specifically otherwise required to be given to such Subsidiary Guarantor
     pursuant to the terms of the Note Purchase Agreement);

          (h)  the right by statute or otherwise to require any holder of Notes
     to institute suit against the Company or any other Subsidiary Guarantor or
     to exhaust its rights and remedies against the Company or any other
     Subsidiary Guarantor, such Subsidiary Guarantor being bound to the payment
     of each and all Guaranteed Obligations, whether now existing or hereafter
     accruing, as fully as if such Guaranteed Obligations were directly owing to
     the holders of Notes by such Subsidiary Guarantor;

          (i)  any defense of the Company under the Note Purchase Agreement and
     the Notes other than the full and timely performance thereof;

          (j)  any defense relating to the validity or enforceability (or
     absence or failure thereof) of any term of the Note Purchase Agreement and
     the Notes;

          (k)  any defense arising by reason of any disability or other defense
     (other than the defense that the Guaranteed Obligations shall have been
     fully and finally performed and indefeasibly paid) of the Company or by
     reason of the cessation from any cause whatsoever of the liability of the
     Company in respect thereof, and any other defense that such Subsidiary
     Guarantor may otherwise have against the Company or any holder of Notes;

          (l)  any stay (except in connection with a pending appeal), valuation,
     appraisal, redemption or extension law now or at any time hereafter in
     force which, but for this waiver, might be applicable to any sale of
     property of such Subsidiary Guarantor made under any judgment, order or
     decree based on this Guarantee, and such Subsidiary Guarantor covenants
     that it will not at any time insist upon or plead, or in any manner claim
     or take the benefit or advantage of such law; and

          (m)  any other defense which a Subsidiary Guarantor may have to the
     full and complete performance of its obligations hereunder.

     2.4  CERTAIN WAIVERS OF SUBROGATION, REIMBURSEMENT AND INDEMNITY.

     Until all of the Guaranteed Obligations shall have been fully and finally
paid, no Subsidiary Guarantor shall have any right of subrogation, reimbursement
or indemnity whatsoever and no right of recourse to or with respect to any
assets or property of the Company. Nothing shall discharge or satisfy the
liability of any of the Subsidiary Guarantors hereunder except the full and
final performance and indefeasible payment of the Guaranteed Obligations.

     2.5  RELEASES.

     Each of the Subsidiary Guarantors consents and agrees that, without notice
to or by such Subsidiary Guarantor and without impairing, releasing, abating,
deferring, suspending, reducing, terminating or otherwise affecting the
obligations of such Subsidiary Guarantor hereunder, each holder of Notes, in the
manner provided in the Note Purchase Agreement, by action or inaction, may:

                                Exhibit B(SG)-3
<PAGE>
 
          (a)  compromise or settle, renew or extend the period of duration or
     the time for the payment, or discharge the performance of, or may refuse
     to, or otherwise not, enforce, or may, by action or inaction, release all
     or any one or more parties to, any one or more of the Note Purchase
     Agreement or the Notes;

          (b)  assign, sell or transfer, or otherwise dispose of, any one or
     more of the Notes;

          (c)  grant waivers, extensions, consents and other indulgences to the
     Company, any other Subsidiary Guarantor or any other guarantor in respect
     of any one or more of the Note Purchase Agreement or the Notes;

          (d)  amend, modify or supplement in any manner and at any time (or
     from time to time) any one or more of the Note Purchase Agreement and the
     Notes;

          (e)  release or substitute any one or more of the endorsers or
     guarantors of the Guaranteed Obligations whether parties hereto or not;

          (f)  sell, exchange, release or surrender any property at any time
     pledged or granted as security in respect of the Guaranteed Obligations,
     whether so pledged or granted by such Subsidiary Guarantor or another
     guarantor of the Company's obligations under the Note Purchase Agreement
     and the Notes; and

          (g)  exchange, enforce, waive, or release, by action or inaction, any
     security for the Guaranteed Obligations or any other guarantee of any of
     the Notes.

     2.6  MARSHALING.

          Each Subsidiary Guarantor consents and agrees that:

          (a)  each holder of Notes shall be under no obligation to marshal any
     assets in favor of such Subsidiary Guarantor or against or in payment of
     any or all of the Guaranteed Obligations; and

          (b)  to the extent the Company, another Subsidiary Guarantor or
     another guarantor makes a payment or payments to any holder of Notes, which
     payment or payments or any part thereof are subsequently invalidated,
     declared to be fraudulent or preferential, set aside, or required, for any
     of the foregoing reasons or for any other reason, to be repaid or paid over
     to a custodian, trustee, receiver, or any other party under any bankruptcy
     law, common law, or equitable cause, then to the extent of such payment or
     repayment, the obligation or part thereof intended to be satisfied thereby
     shall be revived and continued in full force and effect as if said payment
     or payments had not been made and such Subsidiary Guarantor shall be
     primarily liable for such obligation.

     2.7  LIABILITY.

     Each Subsidiary Guarantor agrees that the liability of such Subsidiary
Guarantor in respect of this Guarantee shall be immediate and shall not be
contingent upon the exercise or enforcement by any holder of Notes of whatever
remedies such holder may have against the

                                Exhibit B(SG)-4
<PAGE>
 
Company, any other Subsidiary Guarantor or any other guarantor or the
enforcement of any Lien or realization upon any security such holder may at any
time possess.

     2.8  CHARACTER OF OBLIGATION.

     The Guarantee set forth herein is a primary and original obligation of each
Subsidiary Guarantor and is an absolute, unconditional, continuing and
irrevocable guarantee of payment and performance (and not of collectibility) and
shall remain in full force and effect until the full, final and indefeasible
payment of the Guaranteed Obligations without respect to future changes in
conditions.

     The obligations of the Subsidiary Guarantors hereunder, to the extent that
there is more than one Subsidiary Guarantor, are joint and several. The
obligations of each Subsidiary Guarantor under this Guarantee and the rights of
the holders of Notes to enforce such obligations by any proceedings, whether by
action at law, suit in equity or otherwise, shall not be subject to any
reduction, limitation, impairment or termination, whether by reason of any claim
of any character whatsoever or otherwise, including, without limitation, claims
of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense, set-off, counterclaim, recoupment or termination
whatsoever.

     Without limiting the generality of the foregoing, the obligations of each
Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise
affected by:

          (a)  any default, failure or delay, willful or otherwise, in the
     performance by the Company of any obligations of any kind or character
     whatsoever of the Company (including, without limitation, the obligations
     and undertakings of the Company under the Note Purchase Agreement);

          (b)  any creditors' rights, bankruptcy, receivership or other
     insolvency proceeding of the Company or any other Person or in respect of
     the property of the Company or any other Person or any merger,
     consolidation, reorganization, dissolution, liquidation or winding up of
     the Company or any other Person;

          (c)  impossibility or illegality of performance on the part of the
     Company of its obligations under the Note Purchase Agreement or under the
     Notes;

          (d)  the validity or enforceability of the Note Purchase Agreement or
     the Notes;

          (e)  in respect of the Company or any other Person, any change of
     circumstances, whether or not foreseen or foreseeable, whether or not
     imputable to the Company or any other Person, or other impossibility of
     performance through fire, explosion, accident, labor disturbance, floods,
     droughts, embargoes, wars (whether or not declared), civil commotions, acts
     of God or the public enemy, delays or failure of suppliers or carriers,
     inability to obtain materials, action of any regulatory body or agency,
     change of law or any other causes affecting performance, or any other force
     majeure, whether or not beyond the control of the Company or any other
     Person and whether or not of the kind hereinbefore specified;

          (f)  any order, judgment, decree, law, ruling or regulation (whether
     or not valid) of any court of any nation or of any political subdivision
     thereof or any body, agency,

                                Exhibit B(SG)-5
<PAGE>
 
     department, official or administrative or regulatory agency of any thereof
     or any other action, happening, event or reason whatsoever which shall
     delay, interfere with, hinder or prevent, or in any way adversely affect,
     the performance by any party of its respective obligations under any
     instruments; or

          (g)  any other circumstance which might otherwise constitute a defense
     available to, or a discharge of, any Subsidiary Guarantor in respect of the
     obligations of such Subsidiary Guarantor under this Guarantee.

     2.9   NO ELECTION.

     Each holder of Notes shall have the right to seek recourse against each
Subsidiary Guarantor to the fullest extent provided for in this Guarantee and
against the Company to the fullest extent provided for in the Note Purchase
Agreement and the Notes. No election to proceed in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of the right of such holder of Notes to proceed in any other form of
action or proceeding or against other parties unless such holder of Notes has
expressly waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by any holder of Notes
against the Company or any Subsidiary Guarantor under any document or instrument
evidencing obligations of the Company or such Subsidiary Guarantor to such
holder of Notes shall serve to diminish the liability of any Subsidiary
Guarantor under this Guarantee except to the extent that such holder of Notes
finally and unconditionally shall have realized payment by such action or
proceeding, notwithstanding the effect of any such action or proceeding upon
such Subsidiary Guarantor's right of subrogation against the Company.

     2.10  OTHER ENFORCEMENT RIGHTS.

     Each holder of Notes may proceed to protect and enforce this Guarantee by
suit or suits or proceedings in equity, at law or in bankruptcy, and whether for
the specific performance of any covenant or agreement contained herein or in
execution or aid of any power herein granted or for the recovery of judgment for
or in respect of the Guaranteed Obligations or for the enforcement of any other
proper, legal or equitable remedy available under applicable law.

     2.11  DELAY OR OMISSION; NO WAIVER.

     No course of dealing on the part of any holder of Notes and no delay or
failure on the part of such holder to exercise any right under the Note Purchase
Agreement, the Notes or this Guarantee shall impair such right or operate as a
waiver of such right or otherwise prejudice such holder's rights, powers and
remedies hereunder. Every right and remedy given in or by this Guarantee or by
law to any holder of Notes may be exercised from time to time as often as may be
deemed expedient by such Person.

     2.12  RESTORATION OF RIGHTS AND REMEDIES.

     If any holder of Notes shall have instituted any proceeding to enforce any
right or remedy contained in this Guarantee, under the Note Purchase Agreement
or under any Note held by such holder and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to such holder, then and in every such case each such holder, the
Company and each Subsidiary Guarantor shall, except as may be limited or
affected by any determination in such proceeding, be restored severally and
respectively to its respective

                                Exhibit B(SG)-6
<PAGE>
 
former positions hereunder and thereunder, and thereafter the rights and
remedies of such holder shall continue as though no such proceeding had been
instituted.

     2.13  CUMULATIVE REMEDIES.

     No remedy under this Guarantee, the Note Purchase Agreement or the Notes is
intended to be exclusive of any other remedy, but each and every remedy shall be
cumulative and in addition to any and every other remedy given pursuant to this
Guarantee, the Note Purchase Agreement or the Notes.

     2.14  SURVIVAL.

     So long as the Guaranteed Obligations shall not have been fully and finally
performed and indefeasibly paid, the obligations of each Subsidiary Guarantor
under this Guarantee shall survive the transfer and payment of any Note and the
payment in full of all the Notes.

     2.15  MISCELLANEOUS.

     If an Event of Default (as defined in the Note Purchase Agreement) exists,
then the holders of Notes (as provided in and subject to Section 12 of the Note
Purchase Agreement) shall have the right to declare all of the Guaranteed
Obligations to be, and such Guaranteed Obligations shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which have been expressly waived by the Company and
the Subsidiary Guarantors, and notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such Guaranteed Obligations from
becoming automatically due and payable) as against the Company. In any such
event, the holders of Notes shall have immediate recourse to each of the
Subsidiary Guarantors to the fullest extent set forth herein.

     Notwithstanding any provision in this Guarantee or the Note Purchase
Agreement to the contrary, each Subsidiary Guarantor agrees that any
indebtedness of a Subsidiary Guarantor owing to the Company or another
Subsidiary Guarantor shall be subordinated in right of payment to the Guaranteed
Obligations of such Subsidiary Guarantor under this Guarantee owing to the
holders of Notes.

     2.16  TERMINATION.

     If the Company shall at any time be entitled to discharge any Subsidiary
Guarantor pursuant to the provisions of Section 10.13 of the Note Purchase
Agreement, and shall have delivered the notices to the holders of the Notes
required pursuant thereto, then such Subsidiary Guarantor shall be discharged
from this Guarantee.

3.   MISCELLANEOUS

     3.1   CERTAIN REPRESENTATIONS AND WARRANTIES.

     The Guarantor hereby confirms that each of the warranties and
representations contained in Section 5 of the Note Purchase Agreement is,
insofar as it refers to a Subsidiary specifically, or to the Subsidiaries
generally, true and correct with respect to the Guarantor. In addition to the
foregoing, the Guarantor represents and warrants that

                                Exhibit B(SG)-7
<PAGE>
 
          (a)  this Guarantee has been duly authorized by all necessary
     corporate action on the part of the Guarantor and constitutes a legal,
     valid and binding obligation of the Guarantor, enforceable against it in
     accordance with its terms, except as such enforceability may be limited by
     (i) applicable bankruptcy, insolvency, reorganization, moratorium or other
     similar laws affecting the enforcement of creditors' rights generally and
     (ii) general principles of equity (regardless of whether such
     enforceability is considered in a proceeding in equity or at law) and
     public policy;

          (b)  the Guarantor has the corporate power and authority to execute
     and deliver this Guarantee and to perform the provisions hereof; and

          (c)  the execution, delivery and performance by the Guarantor of this
     Guarantee will not (i) contravene, result in any breach of, or constitute a
     default under, or result in the creation of any Lien in respect of any
     property of the Guarantor under, any Material indenture, mortgage, deed of
     trust, loan, purchase or credit agreement or lease, or the memorandum and
     articles of association, corporate charter or bylaws of the Guarantor, or
     any other Material agreement or instrument to which the Guarantor is party
     or by which such Guarantor or any of its properties may be bound or
     affected, (ii) conflict with or result in a breach of any of the terms,
     conditions or provisions of any order, judgment, decree, or ruling of any
     court, arbitrator or Governmental Authority applicable to the Guarantor or
     (iii) violate any provision of any statute or other rule or regulation of
     any Governmental Authority applicable to the Guarantor.

     3.2  NO WAIVER.

     No failure to exercise and no delay in exercising on the part of the
holders of Notes or any of them of any right, power or privilege under this
Guarantee shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No waiver by
the holders of Notes, or any of them, shall be effective unless it is in writing
and any such waiver shall affect only the rights of that party under this
Guarantee.

     3.3  GOVERNING LAW.

     THIS GUARANTEE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK,
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

          [Remainder of page intentionally blank; next page is signature page]

                                Exhibit B(SG)-8
<PAGE>
 
     IN WITNESS of which this document has been executed and delivered as a deed
the day and year first before written.

                                     [GUARANTOR]
                                  
                                  
                                  
                                     By__________________________________
                                       Name:
                                       Title:

                                Exhibit B(SG)-9
<PAGE>
 
                                                                 EXHIBIT B(SGAA)

                        [FORM OF] SUBSIDIARY GUARANTOR
                              ACCESSION AGREEMENT


[TO BE ADDRESSED TO ALL OF THE HOLDERS OF NOTES]


Date: ___________


      Reference is made to

          (a)  the Note Purchase Agreement, dated as of December 18, 1998 (as
      amended from time to time, the "NOTE PURCHASE AGREEMENT"), between Deltic
      Timber Corporation, a Delaware corporation (the "COMPANY"), and the
      purchaser listed on Schedule A attached thereto (the "PURCHASER"),
      pursuant to which the Company sold, and the Purchaser bought, the
      Company's 6.66% Senior Notes due December 18, 2008 in the original
      aggregate principal amount of $40,000,000 (as amended, restated or
      otherwise modified from time to time, collectively, the "NOTES");

          (b)  the Subsidiary Guarantee (as amended from time to time, the
      "SUBSIDIARY GUARANTEE") in the form attached to the Note Purchase
      Agreement as Exhibit B(SG), executed and delivered by one or more persons
      on or after the date of the Closing (as defined in the Note Purchase
      Agreement) and identified on Part A of Annex 1 hereto; and

          (c)  the Subsidiary guarantor accession agreements identified on Part
      B of Annex 1 hereto, if any, pursuant to which the persons identified on
      said Part B of Annex 1, prior to the execution and delivery of this
      Subsidiary Guarantor Accession Agreement, joined and were made joint and
      several Subsidiary Guarantors under the Subsidiary Guarantee (such persons
      and the persons identified on Part A of Annex 1 hereto (other than any
      such persons which shall have been discharged from the Subsidiary
      Guarantee pursuant to Section 10.13 of the Note Purchase Agreement) are
      herein referred to, collectively, as the "SUBSIDIARY GUARANTORS").

Capitalized terms used herein and not otherwise defined herein have the meanings
specified in the Note Purchase Agreement.

1.  ACCESSION OF ADDITIONAL SUBSIDIARY.

      In accordance with the terms of Section 10.13 of the Note Purchase
Agreement, _________,a company organized under the laws of _________ (the
"ADDITIONAL SUBSIDIARY GUARANTOR"), by the execution and delivery of this
Subsidiary Guarantor Accession Agreement, does hereby agree to become, and does
hereby become, (a) a party to the Subsidiary Guarantee and (b) bound by the
terms and conditions of the Subsidiary Guarantee, including, without limitation,
becoming jointly and severally liable with the Subsidiary Guarantors for the
Guaranteed Obligations (as defined in the Subsidiary Guarantee) and for the due
and punctual performance

                               Exhibit B(SGAA)-1
<PAGE>
 
and observance of all the covenants in the Notes and the Note Purchase Agreement
to be performed or observed by the Company, all as more particularly provided
for in Section 2 of the Subsidiary Guarantee. The Subsidiary Guarantee is
hereby, without any further action, amended to add the Additional Subsidiary
Guarantor as a "Subsidiary Guarantor" and signatory to the Subsidiary Guarantee.

2.   REPRESENTATIONS AND WARRANTIES OF THE ADDITIONAL SUBSIDIARY GUARANTOR.

     The Additional Subsidiary Guarantor hereby makes, as of the date hereof and
only as to itself in its capacity as a Subsidiary Guarantor under the Subsidiary
Guarantee and/or as a Subsidiary, each of the representations and warranties set
forth in Section 5 to the Note Purchase Agreement that are applicable to a
Subsidiary and each of the representations and warranties set forth in Section
4.1 of the Subsidiary Guarantee as applicable to it (in place of the Guarantor
thereunder), subject only to the exceptions in respect thereof set forth on
Annex 2 hereto.

3.   DELIVERIES BY ADDITIONAL SUBSIDIARY GUARANTOR.

     The Additional Subsidiary Guarantor hereby delivers to each of the holders
of Notes, contemporaneously with the delivery of this Subsidiary Guarantor
Accession Agreement, each of the documents and certificates set forth on Annex 3
hereto.

4.   MISCELLANEOUS.

     4.1  EFFECTIVE DATE.

     This Subsidiary Guarantor Accession Agreement shall become effective on the
date on which this agreement and each of the documents or certificates set forth
on Annex 3 are sent to the holders of Notes at the addresses and by a means
stipulated in Section 18 of the Note Purchase Agreement.

     4.2  EXPENSES.

     The Additional Subsidiary Guarantor agrees that it will pay, on the date
this Guarantee Accession Agreement becomes effective, the statement for the
reasonable fees and the disbursements of a single special counsel of the holders
of Notes presented on or prior to such date.

     4.3  SECTION HEADINGS, ETC.

     The titles of the Sections appear as a matter of convenience only, do not
constitute a part hereof and shall not affect the construction hereof. The words
"herein," "hereof," "hereunder" and "hereto" refer to this Subsidiary Guarantor
Accession Agreement as a whole and not to any particular Section or other
subdivision.

                               Exhibit B(SGAA)-2
<PAGE>
 
     4.4  GOVERNING LAW.

     This Subsidiary Guarantor Accession Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.

     4.5  SUCCESSORS AND ASSIGNS.

     This Subsidiary Guarantor Accession Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Additional Subsidiary
Guarantor.

          [Remainder of page intentionally blank; next page is signature page]

                               Exhibit B(SGAA)-3
<PAGE>
 
     IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this
Subsidiary Guarantor Accession Agreement to be executed on its behalf by a duly
authorized officer or agent thereof as of the date first above written.

                                             Very truly yours,

                                             [ADDITIONAL SUBSIDIARY GUARANTOR]


                                
                                             By_________________________________
                                               Name:
                                               Title:

                                             [Seal]

                               Exhibit B(SGAA)-4
<PAGE>
 
                                    ANNEX I
       EXISTING SUBSIDIARY GUARANTOR ACCESSION AGREEMENTS AND GUARANTEES

                               Exhibit B(SGAA)-5
<PAGE>
 
                                   ANNEX 2 
                 EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES

                               Exhibit B(SGAA)-6
<PAGE>
 
                                     ANNEX 3
                        ADDITIONAL DOCUMENTS AND INSTRUMENTS

     (a)  A certified copy of the resolution of the board of directors of the
Additional Subsidiary Guarantor approving the execution and delivery of this
Subsidiary Guarantor Accession Agreement and the accession of the Additional
Subsidiary Guarantor to the Subsidiary Guarantee and the performance of its
obligations thereunder and authorizing the person or persons signing this
Subsidiary Guarantor Accession Agreement and any other documents to be delivered
pursuant hereto to sign the same on behalf of the Additional Subsidiary
Guarantor.

     (b)  Authenticated signatures of the person or persons specified in the
board resolutions referred to in clause (a) above.

     (c)  The articles of incorporation or other organic formation documents of
the Additional Subsidiary Guarantor, certified as being up to date by the
secretary of the Additional Subsidiary Guarantor (including, if relevant, copies
of all amending resolutions or other amendments).

     (d)  A copy of the Additional Subsidiary Guarantor's latest audited
financial statements (including balance sheet and income statement).

     (e)  An opinion or opinions of counsel (which may be counsel employed by
the Company or such Additional Subsidiary Guarantor as inside counsel)
confirming that (i) such Additional Subsidiary Guarantor's obligations hereunder
and under the Subsidiary Guarantee are legal, valid, binding and enforceable
against such Additional Subsidiary Guarantor, (ii) the execution, delivery and
performance of this Subsidiary Guarantor Accession Agreement will not violate
any law in the jurisdiction of incorporation and (iii) no government approvals,
consents, registrations or filings are required in the jurisdiction of
incorporation by such Additional Subsidiary Guarantor in connection with the
execution, delivery and performance of its obligations hereunder and under the
Subsidiary Guarantee, provided that such opinion or opinions shall be subject to
customary exceptions and qualifications.

                               Exhibit B(SGAA)-7