<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant in Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
COMMISSION FILE NUMBER 1-5964
IKON OFFICE SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
OHIO 23-0334400
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
BOX 834, VALLEY FORGE, PENNSYLVANIA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (610) 296-8000
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
-------------- ---------------------
<S> <C>
Common Stock, no par value New York Stock Exchange
(with Preferred Share Purchase Rights)
Securities registered pursuant to Section 12(g) of the Act: None
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 18, 1998 WAS APPROXIMATELY $1,287,849,603 BASED UPON
THE CLOSING SALES PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE OF
$8.8125 PER COMMON SHARE ON DECEMBER 18, 1998. FOR PURPOSES OF THE FOREGOING
SENTENCE ONLY, ALL DIRECTORS AND OFFICERS OF THE REGISTRANT WERE ASSUMED TO BE
AFFILIATES.
THE NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OF THE REGISTRANT
OUTSTANDING AS OF DECEMBER 18, 1998 WAS 147,233,253.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS I AND II--PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1998
PART III--PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 1999 ANNUAL
MEETING OF SHAREHOLDERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
IKON Office Solutions, Inc. ("IKON" or the "Company") was incorporated in
Ohio in 1952 and is the successor to a business incorporated in 1928. The
address of the Company's principal executive offices is 70 Valley Stream
Parkway, Malvern, Pennsylvania 19355 (telephone number: (610) 296-8000).
IKON provides fully customized cost-effective document-management and
network solutions, offering products manufactured by a variety of leading
vendors. IKON provides a high level of personal service and support for these
products, so that customers can achieve the full measure of office technology
integration. IKON has three categories of product and service offerings--
business services, document services and technology services.
IKON'S business services product offerings include traditional analog copier
and facsimile products, with an increased emphasis on digital, high-volume and
color units which may also include networking capability. There are over one
million copiers placed and serviced by IKON worldwide, with approximately 70%
of this equipment covered by lease and service contracts, which provide a
predictable revenue stream.
IKON'S document services offerings include photocopying and document coding
services for the legal industry, and document production (including services
such as digital printing, binding and finishing, and conversion of paper files
to electronic format). IKON also provides management services for customers'
mailrooms, copy centers and general administrative facilities, serving over
1300 customers in 70 cities.
IKON'S technology services offerings include consulting and professional
services for network integration and design, network support and management
services, and education and training services.
IKON operates over 800 locations in the United States, Canada, Mexico, the
United Kingdom, Germany, France and Denmark. These locations comprise the
largest network of independent copier and office equipment dealers in North
America and in the United Kingdom. IKON competes against numerous competitors
over a wide range of markets, competing on the basis of quality, customer
service, price and product performance.
IKON distributes the products of numerous manufacturers, including Canon,
Oce and Ricoh, throughout the United States, Canada, in Europe and in Mexico.
IKON also distributes the products of Microsoft, IBM, Lotus, Compaq and
Hewlett-Packard in the United States and Canada. Customers include large and
small businesses, professional firms and government agencies.
In fiscal 1998, IKON generated approximately $5.6 billion in revenues, and
had operating income of $74.5 million, including pretax charges of $150
million, before transformation costs (see "Business Transformation," below).
After transformation costs, the Company sustained an operating loss for fiscal
1998 of $3.5 million.
During fiscal 1998, IKON acquired 34 companies in the United States, Canada,
and Europe, with an aggregate of approximately $231 million in annualized
trailing revenues. Of the 34 companies acquired in fiscal 1998, thirteen were
traditional copier companies, ten were outsourcing and imaging companies and
eleven were technology services companies. IKON's international expansion
during fiscal 1998 included the acquisition of companies in the United
Kingdom, France and Germany.
In the fourth quarter of fiscal 1998, the Company initiated a program to
increase productivity and reduce costs (see New Management Program on page 2).
As a result, while there can be no assurance of future results, IKON expects
its financial performance to begin to show improvement in fiscal 1999.
1
<PAGE>
INFORMATION CONCERNING IKON'S BUSINESS IN GENERAL
MANAGEMENT AND BOARD CHANGES
On July 9, 1998, the Company's Board of Directors appointed James J. Forese
as the Company's President and Chief Executive Officer, and elected him a
member of the Board of Directors. The Board also named Richard A. Jalkut, a
director of the Company since 1996, as Non-Executive Chairman. John E. Stuart,
who had served as Chairman and Chief Executive Officer, resigned all positions
with the Company.
After Mr. Forese's appointment, a number of other executive appointments
occurred. Peter W. Shoemaker was named Senior Vice President and President of
North American Business Services, and Lynn B. Graham was named Senior Vice
President, in addition to his existing role as President of IKON Document
Services. Edward C. Groark was named Vice President and President of IKON
Technology Services and David M. Mills was named Vice President and President
of IKON - Europe.
Judith M. Bell, a proprietor of several small businesses, was elected to the
Board of Directors in May 1998. Thomas P. Gerrity, Dean of The Wharton School
of the University of Pennsylvania, also joined the Board in May 1998, after
his election by the shareholders in January 1998.
NEW MANAGEMENT PROGRAM
The Company's new management team initiated a program in the fourth quarter
of fiscal 1998 to increase productivity and reduce costs. Components of the
program include: restructuring of business districts nationwide using IKON's
successful Northeast District as a model; increasing sales focus on fast-
growing segments; creating integrated marketing on a nationwide basis;
centralizing financial reporting; implementing work force reductions; closing
under-performing branches; consolidating operations to achieve greater
economies of scale; changing sales compensation; realigning sales territories;
and introducing a national sales training curriculum. In addition, the Company
has hired PricewaterhouseCoopers to examine the Company's structure and
productivity to identify ways to achieve a higher level of efficiency.
BUSINESS TRANSFORMATION
In September 1995, the Company announced its transformation program designed
to change the organization into a more cohesive and integrated network by
building a uniform information technology system and implementing best
practices for critically important management functions throughout the IKON
companies. The transformation involved a variety of activities that IKON
believes will ultimately lower administrative costs and improve gross margins
through the creation of marketplace-focused field operations with greater
attention to customer sales and services. These activities included
consolidating purchasing, inventory control, logistics and other activities
into thirteen customer service centers in the United States, establishing a
single financial processing center, building a common information technology
system, adopting a common name, and creating common benefit programs.
The Company incurred transformation expense of $78 million, $127 million and
$21 million during fiscal 1998, 1997 and 1996, respectively. At September 30,
1998, the transformation program was substantially complete. The Company's
September 30, 1998 balance sheet, as set forth on page 35 of the Company's
1998 Annual Report to Shareholders ("1998 Annual Report") includes a severance
accrual of approximately $9.3 million and facility consolidation accrual of
approximately $10.8 million relating to the transformation program.
SUPPLIERS AND CUSTOMERS
Products distributed by IKON are purchased from numerous domestic and
overseas suppliers, primarily Canon, Oce and Ricoh. There has been no
significant difficulty in obtaining products from these suppliers.
2
<PAGE>
Supplier relationships are good and are expected to continue. IKON has a large
number of customers, and is not dependent upon a single customer, or a few
customers, the loss of any one or more of which would have a material adverse
effect on IKON's business taken as a whole.
Many of the Company's operations carry significant amounts of inventory to
meet rapid delivery requirements of customers. At September 30, 1998,
inventories accounted for approximately 19% of IKON's current assets.
PROPRIETARY MATTERS
The Company has a number of trademarks, trade names and service marks which
the Company uses in the conduct of its business. However, except for the "IKON
Office Solutions" and "IKON" designations, the Company does not believe that
any single name, trademark, trade name or service mark is material to its
business taken as a whole.
ENVIRONMENTAL REGULATION
IKON is engaged in distribution and services businesses which do not
generate significant hazardous wastes. Some of IKON's distribution facilities
have tanks for storage of diesel fuel and other petroleum products which are
subject to laws regulating such storage tanks. Federal, state and local
provisions relating to the protection of the environment have not had and are
not expected to have a material adverse effect upon the Company's capital
expenditures, liquidity, earnings or competitive position. Certain
environmental claims, however, are now pending against the Company for
manufacturing or landfill sites relating to predivestiture activities of
discontinued manufacturing operations. While it is not possible to estimate
what expenditures may be required in order for the Company to comply with
environmental laws or discharge environmental liabilities in the future, the
Company does not believe that such expenditures will have a material adverse
effect on it or its operations as a whole.
EMPLOYEES
At September 30, 1998, IKON had approximately 42,600 employees. IKON
believes its relations with its employees are good.
FOREIGN OPERATIONS
IKON has operations in Canada, Mexico, the United Kingdom, Germany, France
and Denmark. Information concerning revenues, income before taxes and
identifiable assets of the Company's foreign continuing operations for each of
the three years in the period ended September 30, 1998 set forth in note 17 to
the consolidated financial statements (included on page 48 of the 1998 Annual
Report) is incorporated herein by reference. Revenues from exports during the
last three fiscal years were not significant. There are additional risks
attendant to foreign operations, such as possible currency fluctuations and
unsettled political conditions.
ITEM 2. PROPERTIES.
At September 30, 1998, IKON owned or leased approximately 880 facilities in
50 states, ten Canadian provinces, in Europe and in Mexico, of which
approximately 1% are owned and 99% are leased under lease agreements with
various expiration dates. These properties occupy a total of approximately 8.6
million square feet. IKON believes that its facilities are suitable and
adequate for the purposes for which they are used.
3
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain current and former principal officers and employee
directors were named as defendants in a series of purported class action
complaints which were purportedly filed on behalf of purchasers of the
Company's common stock. The complaints were filed in the United States
District Court for the Eastern District of Pennsylvania following the issuance
of the Company's August 14, 1998 earnings release. By court order dated
November 30, 1998, the Court appointed co-lead plaintiffs and co-lead counsel.
By court order dated December 3, 1998, all of the complaints were
consolidated. The consolidated complaint (the "Complaint") was filed on
December 18, 1998 and alleges that the defendants publicly disseminated a
series of false and misleading statements, including filings with the
Securities and Exchange Commission, concerning the Company's revenue,
profitability and financial condition, in violation of the federal securities
laws. The plaintiffs seek to represent a class of persons who purchased or
acquired the Company's common stock between January 24, 1996 and August 14,
1998. The Complaint seeks unspecified compensatory and punitive damages,
prejudgment interest, attorneys' fees and costs. The Company has not yet
responded to the Complaint, but believes that the allegations contained
therein are without merit and that the outcome of the proceedings will not
have a material adverse effect on the financial position or overall trends in
the results of operations of the Company. However, due to the inherent
uncertainties of litigation, the Company cannot predict the ultimate outcome
of these proceedings or the probability of any liability or losses relating
thereto, and, accordingly, no provision has been made for any liability or
loss that may result from the adjudication or settlement of these proceedings
in the financial statements contained in the 1998 Annual Report. An
unfavorable outcome of these proceedings could have a material adverse impact
on the Company's financial condition and results of operations.
A number of ordinary course legal proceedings are pending against the
Company. The outcome of these legal proceedings is not expected to have a
material adverse effect on the Company's financial condition and results of
operations.
Except as described above, there are no material pending legal proceedings
to which the Company is a party (or to which any of its property is subject),
and to the Company's knowledge, no material legal proceedings are contemplated
by governmental authorities against the Company or any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(No response to this item is required.)
----------------
4
<PAGE>
EXECUTIVE OFFICERS OF IKON
The following is a list of the Company's executive officers, their ages and
their positions for at least the last five years. Unless otherwise indicated,
positions shown are with IKON or its subsidiaries.
----------------
<TABLE>
<CAPTION>
NAME AGE POSITION AND YEARS SERVED
---- --- -------------------------
<S> <C> <C>
James J. Forese......... 63 Chairman, Chief Executive Officer and a director (1998-
Present); Executive Vice President and President,
International Operations (1996-1998); Chief Operating
Officer (1996) and a director (1994-1996)
Kurt E. Dinkelacker..... 45 Executive Vice President and Chief Financial Officer
(1997-Present; 1993-1995); President (1995-1997) and
Chief Operating Officer (1996-1997)
Peter W. Shoemaker...... 56 Senior Vice President and President, North American
Business Services (1998-Present); Senior Vice President
(1997-1998); President, IKON Northeast Region (1995-
1997); Executive Vice President, Alco Office Products
(former division of the Company)(1994-1995)
Lynn B. Graham.......... 51 Senior Vice President (1998-Present) and President, IKON
Document Services (1994-1998); Regional Vice President,
NightRider (former division of the Company)(1992-1994)
David M. Mills.......... 40 Vice President and President, IKON-Europe (1998-Present);
President, IKON-United Kingdom (1996-1998); United
Kingdom Finance Director, Alco Office Products (former
division of the Company)(1993-1996)
Edward C. Groark........ 53 Vice President and President, IKON Technology Services
(1998-Present); President, Technology Services (IKON
Washington, D.C. and IKON Baltimore locations) (1997-
1998); President, Riverbend Group, Inc. (1983-1997)
David M. Gadra.......... 50 Senior Vice President and Chief Information Officer
(1996-Present); Manager, General Electric Corporation
Corporate Information Services (1992-1996)
Michael J. Dillon....... 45 Vice President (1994-Present) and Controller (1993-
Present); Group Controller, Office Products Group (1991-
1993)
Michael H. Dudek........ 42 Vice President-Finance (1998-Present); Vice President-
Acquisitions (1993-1998); Director of Financial
Operations, Office Products Group (1991-1993)
Beth B. Sexton.......... 42 Vice President--Human Resources (1996-Present); Human
Resources Director, Americas, CH2M Hill (1993-1996)
Karin M. Kinney......... 38 Corporate Secretary (1996-Present) and Corporate Counsel
(1992-Present); Counsel (1990-1992)
J. F. Quinn............. 43 Treasurer (1997-Present); Assistant Treasurer (1996-
1997); Manager, Foreign Exchange and Cash Management
(1994-1996); Manager, Foreign Exchange, ARCO Chemical
Company (1991-1994)
</TABLE>
5
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The New York Stock Exchange is the principal market on which the Company's
common stock is traded (ticker symbol IKN). As of December 18, 1998, there
were approximately 14,910 holders of record of IKON's common stock. The
information regarding the quarterly market price ranges of IKON's common stock
and dividend payments under "Quarterly Financial Summary" on page 49 of the
1998 Annual Report is incorporated herein by reference.
IKON anticipates that it will pay a quarterly dividend of $.04 per common
share in March 1999. The Company currently expects to continue its policy of
paying regular cash dividends, although there can be no assurance as to future
dividends because they are dependent upon future operating results, capital
requirements and financial condition and may be limited by covenants in
certain loan agreements.
ITEM 6. SELECTED FINANCIAL DATA.
Information appearing under "Corporate Financial Summary" for fiscal 1994
through 1998 regarding revenues, income from continuing operations, income
from continuing operations per common share, total assets, total debt, serial
preferred stock and cash dividends per common share on pages 50 and 51 of the
1998 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information appearing under "Financial Review" on pages 29 through 33 of the
1998 Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information appearing under "Market Risk" on page 33 of the 1998 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Auditors and Consolidated Financial Statements of
IKON and its subsidiaries on page 28 and pages 34 through 48 and the
information appearing under "Quarterly Financial Summary" for fiscal 1998 and
1997 on page 49 of the 1998 Annual Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
(No response to this item is required)
----------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors appearing in IKON's Notice of Annual Meeting
of Shareholders and Proxy Statement for the March 23, 1999 annual meeting of
shareholders (the "1999 Proxy Statement") is incorporated herein by reference.
Information regarding executive officers is set forth in Part I of this report
and additional information regarding executive officers appearing under
"Executive Compensation" in the 1999 Proxy Statement is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" in the 1999 Proxy
Statement is incorporated herein by reference.
6
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership" in the 1999 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Transactions" in the 1999 Proxy
Statement is incorporated herein by reference.
----------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 14 is submitted on page S-1 hereof as a
separate section of this report.
(a) (3) List of Exhibits.*
The following exhibits are filed as a part of this report (listed by numbers
corresponding to the Exhibit Table of Item 601 in Regulation S-K):
3.1 Amended and Restated Articles of Incorporation, filed as
Exhibit 3.1 to IKON's Form 10-K for the year ended September
30, 1997, are incorporated herein by reference. Amendment to
Amended and Restated Articles of Incorporation.
3.2 Code of Regulations of IKON, filed as Exhibit 3.2 to IKON's
Form 10-Q for the quarter ended March 31, 1996, is incorporated
herein by reference.
4.1 Credit Agreement, dated January 16, 1998, among IKON and
various institutional lenders, with CoreStates Bank, N.A., as
Agent.
4.2 Credit Agreement among IKON, certain of its subsidiaries,
various banks and Deutsche Bank AG, New York Branch, as Agent,
dated as of August 30, 1996. Amendment 1 to Credit Agreement,
dated as of April 1, 1997, filed as Exhibit 4.2 to IKON's 1997
Form 10-K, is incorporated herein by reference. Amendment 2 to
Credit Agreement.
4.3 Credit Agreement dated as of October 13, 1995 among IKON Office
Solutions, Inc., an Ontario corporation (formerly Alco Office
Systems Canada), Deutsche Bank Canada, Chemical Bank of Canada
and Royal Bank of Canada, filed as Exhibit 4.5 to IKON's 1995
Form 10-K, is incorporated herein by reference. Amendment 1 to
Guarantee.
4.4 Note Purchase Agreement between IKON and various purchasers
dated July 15, 1995 for $55 million in 7.15% Notes due November
15, 2005, filed as Exhibit 4.9 to IKON's 1995 Form 10-K, is
incorporated herein by reference.
4.5 Pursuant to Regulation S-K item 601(b)(iii), IKON agrees to
furnish to the Commission, upon request, a copy of other
instruments defining the rights of holders of long-term debt of
IKON and its subsidiaries.
10.1 Distribution Agreement between IKON and Unisource dated as of
November 20, 1996, filed as Exhibit 2.1 to Unisource's
Registration Statement on Form 10 (effective November 26,
1996), is incorporated herein by reference.
10.2 Tax Sharing and Indemnification Agreement between IKON and
Unisource dated as of November 20, 1996, filed as Exhibit 10.1
to Unisource's Registration Statement on Form 10 (effective
November 26, 1996), is incorporated herein by reference.
10.3 Benefits Agreement between IKON and Unisource dated as of
November 20, 1996, filed as Exhibit 10.5 to Unisource's
Registration Statement on Form 10 (effective November 26,
1996), is incorporated herein by reference.
7
<PAGE>
10.4 Support Agreement dated as of October 22, 1996 between IKON and
IKON Capital, Inc. (IKON's leasing subsidiary), filed as
Exhibit 10.4 to IOS Capital, Inc.'s Form 8-K dated October 22,
1996, is incorporated herein by reference.
10.5 Amended and Restated Receivables Transfer Agreement dated as of
March 31, 1997 among IKON Funding, Inc., IOS Capital, Inc.,
Twin Towers, Inc. and Deutsche Bank AG, New York Branch, filed
as Exhibit 10.5 to IKON's 1997 Form 10-K, is incorporated
herein by reference.
10.6 First Tier Transfer Agreement, dated as of March 31, 1997,
between IOS Capital, Inc. and IKON Funding, Inc., filed as
Exhibit 10.6 to IKON's 1997 Form 10-K, is incorporated herein
by reference.
10.7 Receivables Transfer Agreement dated as of September 30, 1996
among IKON Funding, Inc., IOS Capital, Inc., Old Line Funding
Corp. and Royal Bank of Canada, filed as Exhibit 10.5 to IKON's
1996 Form 10-K, is incorporated herein by reference. Amendment
1 to Receivables Transfer Agreement, dated as of November 7,
1997.
10.8 Transfer Agreement dated as of September 30, 1996 between IOS
Capital, Inc. and IKON Funding, Inc., filed as Exhibit 10.6 to
IKON's 1997 Form 10-K, is incorporated herein by reference.
Amendment 1 to Transfer Agreement.
10.9 Receivables Transfer Agreement dated as of December 1, 1998
among IOS Capital, Inc., IKON Funding-1, LLC, Market Street
Funding Corporation and PNC Bank, N.A., as Agent.
10.10 Transfer Agreement dated as of December 1, 1998 between IKON
Funding-1, LLC and IOS Capital, Inc.
10.11 Master Concurrent Lease Agreement between IKON Office
Solutions, Inc., a Canadian corporation, IKON Capital, Inc., a
Canadian corporation, IKON Office Solutions, Inc., an Ohio
corporation, Prime Trust and TD Securities, Inc.
10.12 Indenture dated as of December 11, 1995 between IKON and First
Union Bank, N.A., as Trustee, filed as Exhibit 4 to IKON's
Registration Statement No. 33-64177, is incorporated herein by
reference.
10.13 Indenture dated as of July 1, 1995 between IOS Capital, Inc.
and Chase Manhattan Bank, N.A. (formerly Chemical Bank, N.A.),
as Trustee, filed as Exhibit 10.8 to IKON's 1996 Form 10-K, is
incorporated herein by reference.
10.14 Indenture dated as of July 1, 1994 between IOS Capital, Inc.
and NationsBank, N.A., as Trustee, filed as Exhibit 4 to IKON
Capital, Inc.'s Registration Statement No. 33-53779, is
incorporated herein by reference.
10.15 Indenture dated as of April 1, 1986 between IKON and the Chase
Manhattan Bank, N.A., as Trustee, filed as Exhibit 4.1 to
IKON's Registration Statement No. 30-4829, is incorporated
herein by reference.
10.16 Distribution Agreement dated as of June 4, 1997 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.13 to IKON's 1997 Form 10-K, is incorporated herein by
reference.
10.17 Distribution Agreement dated as of June 30, 1995 between IOS
Capital, Inc. and various distribution agents, filed as Exhibit
10.21 to IKON's 1995 Form 10-K, is incorporated herein by
reference.
10.18 Distribution Agreement dated July 1, 1994, filed as Exhibit 1
to IOS Capital Inc.'s Form 10-Q for the quarter ended June 30,
1994, is incorporated herein by reference.
10.19 Rights Agreement dated as of February 10, 1988 between IKON and
National City Bank, filed on February 11, 1988 as Exhibit 1 to
IKON's Registration Statement on Form 8-A, as amended by an
Amended and Restated Rights Agreement dated as of June 18,
1997, filed as Exhibit 4.1 to IKON's Form 8-K dated June 18,
1997, is incorporated herein by reference.
8
<PAGE>
10.20 Amended and Restated Long Term Incentive Compensation Plan,
filed as Exhibit 10.1 to IKON's Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference. Amendment
Number 1 to Long Term Incentive Compensation Plan.
10.21 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form
10-K, is incorporated herein by reference**
10.22 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995
Form 10-K, is incorporated herein by reference. Amendment to
1986 Stock Option Plan**
10.23 1995 Stock Option Plan, filed as Exhibit 10.5 to IKON's Form
10-Q for the quarter ended March 31, 1996, is incorporated
herein by reference. Amendment to 1995 Stock Option Plan**
10.24 Non-Employee Directors Stock Option Plan, filed as Exhibit
10.31 to IKON's 1997 Form 10-K, is incorporated herein by
reference.**
10.25 Executive Employment Contracts for Lynn B. Graham and Peter W.
Shoemaker**
10.26 Executive Employment Contracts for John E. Stuart, Kurt E.
Dinkelacker and David M. Gadra., filed as Exhibit 10.25 to
IKON's 1997 Form 10-K, are incorporated herein by reference**
10.27 Form of Change in Control Agreement--Peter W. Shoemaker, Lynn
B. Graham and David M. Gadra, filed as Exhibit 10.26 to IKON's
1997 Form 10-K, is incorporated herein by reference.
10.28 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1980 Deferred Compensation
Plan**
10.29 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1985 Deferred Compensation
Plan**
10.30 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to
IKON's 1992 Form 10-K, is incorporated herein by reference.
Amendment dated November 6, 1997 to 1991 Deferred Compensation
Plan**
10.31 Amended and Restated 1994 Deferred Compensation Plan. **
10.32 Executive Deferred Compensation Plan.**
12.1 Ratio of Earnings to Fixed Charges.
12.2 Ratio of Earnings to Fixed Charges Excluding Captive Finance
Subsidiaries.
12.3 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
12.4 Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends Excluding Captive Finance Subsidiaries.
13 Financial Section of IKON's Annual Report to Shareholders for
the fiscal year ended September 30, 1998 (which, except for
those portions thereof expressly incorporated herein by
reference, is furnished for the information of the Commission
and is not "filed" as part of this report).
21 Subsidiaries of IKON.
23 Auditors' Consent.
24 Powers of Attorney; certified resolution re: Powers of
Attorney.
27 Financial Data Schedule.
- --------
* Copies of the exhibits will be furnished to any security holder of IKON upon
payment of the reasonable cost of reproduction.
** Management contract or compensatory plan or arrangement.
9
<PAGE>
(b) Reports on Form 8-K.
On July 10, 1998, the Company filed a Current Report on Form 8-K to file,
under Item 5 of the form, its press release dated July 9, 1998, announcing the
appointment of James J. Forese as the Company's President, Chief Executive
Officer and a member of the Board of Directors. IKON also announced that
Richard A. Jalkut, a director of IKON since 1996, was appointed Non-executive
Chairman. John E. Stuart, who had served as IKON's Chairman, President and
Chief Executive Officer, resigned all positions with IKON.
On August 5, 1998, the Company filed a Current Report on form 8-K to file,
under Item 5 of the Form, its press release dated August 4, 1998, stating that
IKON is in the process of conducting the full review of operations previously
announced and that third quarter results would be announced on August 14,
1998.
On November 5, 1998, the Company filed a Current Report on Form 8-K to file,
under Item 5 of the Form, information contained in its press release dated
November 4, 1998 concerning IKON's earnings for the fiscal quarter and year
ended September 30, 1998.
(c) The response to this portion of Item 14 is submitted in response to Item
14(a)(3) above.
(d) The response to this portion of Item 14 is contained on page F-1 of this
report.
FORWARD LOOKING INFORMATION
This Report includes or incorporates by reference information which may
constitute forward-looking statements within the meaning of the federal
securities laws, including, but not limited to, fiscal 1999 predictions of
improved performance. Although the Company believes the expectations contained
in such forward-looking statements are reasonable, no assurances can be given
that such expectations will prove correct. Such forward-looking information is
based upon management's current plans or expectations and is subject to a
number of uncertainties and risks that could significantly affect current
plans, anticipated actions and the Company's future financial condition and
results. These uncertainties and risks include, but are not limited to, those
relating to successfully managing the integration of acquired companies,
including companies with technical services and products that are relatively
new to the Company, and also including companies outside the United States,
which present additional risks relating to international operations; risks and
uncertainties relating to conducting operations in a competitive environment;
delays, difficulties, technological changes, management transitions and
employment issues associated with consolidation of business operations; risks
and uncertainties associated with the adoption of a preferred vendor program;
risks and uncertainties relating to potential Year 2000 deficiencies
associated with IKON's internal systems and distributed products; risks and
uncertainties relating to material litigation; debt service requirements
(including sensitivity to fluctuation in interest rates); and general economic
conditions. As a consequence, current plans, anticipated actions and future
financial condition and results may differ materially from those expressed in
any forward-looking statements made by or on behalf of the Company.
10
<PAGE>
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
ITEMS 14(A)(1) AND (2) AND 14(D)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS: The following consolidated financial statements of
IKON Office Solutions, Inc. and its subsidiaries included in the 1998 Annual
Report to Shareholders are incorporated by reference in Item 8 of Part II of
this report:
Consolidated Statements of Operations
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Consolidated Balance Sheets
--September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
--Fiscal years ended September 30, 1998, September 30, 1997 and
September 30, 1996
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES: The following consolidated financial
statement schedule of IKON Office Solutions, Inc. and its subsidiaries is
submitted in response to Item 14(d):
Schedule II--Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
F-1
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
IKON OFFICE SOLUTIONS, INC.
Date: December 18, 1998
/s/ Michael J. Dillon
By___________________________________
(MICHAEL J. DILLON) VICE PRESIDENT
AND CONTROLLER (PRINCIPAL
ACCOUNTING OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED BELOW ON DECEMBER 18, 1998 BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURES TITLE
/s/ James J. Forese President, Chief Executive Officer
- ------------------------------------- and a Director (Principal Executive
(JAMES J. FORESE) Officer)
/s/ Kurt E. Dinkelacker Executive Vice President, Chief
- ------------------------------------- Financial Officer and a Director
(KURT E. DINKELACKER) (Principal Financial Officer)
/s/ Michael J. Dillon Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
(MICHAEL J. DILLON)
*Judith M. Bell Director
- -------------------------------------
(JUDITH M. BELL)
*James R. Birle Director
- -------------------------------------
(JAMES R. BIRLE)
*Philip E. Cushing Director
- -------------------------------------
(PHILIP E. CUSHING)
*Thomas P. Gerrity Director
- -------------------------------------
(THOMAS P. GERRITY)
*Frederick S. Hammer Director
- -------------------------------------
(FREDERICK S. HAMMER)
*Barbara Barnes Hauptfuhrer Director
- -------------------------------------
(BARBARA BARNES HAUPTFUHRER)
*Richard A. Jalkut Non-Executive Chairman and a
- ------------------------------------- Director
(RICHARD A. JALKUT)
*By his signature set forth below, Michael J. Dillon, pursuant to duly
executed Powers of Attorney duly filed with the Securities and Exchange
Commission, has signed this Form 10-K on behalf of the persons whose
signatures are printed above, in the capacities set forth opposite their
respective names.
/s/ Michael J. Dillon December 18, 1998
- -------------------------------------
(MICHAEL J. DILLON)
<PAGE>
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------------ ------ ------------ -----------
ADDITIONS
----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended September 30,
1998
Allowance for doubtful
accounts............... $54,192,000 $47,052,000 $ 903,000(1) $38,556,000(2) $63,591,000
Lease default reserve... 76,767,000 94,768,000 74,014,000(2) 97,521,000
Year Ended September 30,
1997
Allowance for doubtful
accounts............... $35,308,000 $25,724,000 $3,755,000(1) $10,595,000(2) $54,192,000
Lease default reserve... 60,484,000 56,231,000 39,948,000(2) 76,767,000
Year Ended September 30,
1996
Allowance for doubtful
accounts............... $32,856,000 $18,296,000 $6,634,000(1) $22,478,000(2) $35,308,000
Lease default reserve... 46,994,000 36,651,000 23,161,000(2) 60,484,000
</TABLE>
(1) Represents beginning balances of acquired companies.
(2) Accounts written off during year, net of recoveries.
<PAGE>
IKON OFFICE SOLUTIONS, INC.
P.O. BOX 834
VALLEY FORGE, PENNSYLVANIA 19482-0834
(610) 296-8000
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
BY DIRECTORS OF
IKON OFFICE SOLUTIONS, INC.
________________________________________________________________________________
Michael Dillon, who is:
______ Chairman of the Board ______ President X Vice President (check one)
-----
and
Karin M. Kinney,_who is:
X Secretary ____ Assistant Secretary (check one)
------
of the above named Ohio corporation for profit do hereby certify that:
X a meeting of the Board of Directors called and held on the 3rd day of
------
November, 1998,
______ in writing signed by all the Directors pursuant to Section 1701.54 of
the Ohio Revised Code,
the following resolutions were adopted pursuant to Section 1701.70(B)(3) of the
Ohio Revised Code:
See attached Exhibit A
IN WITNESS WHEREOF, the above named officers, acting for and on behalf of the
corporation, have hereunto subscribed their names this __________ day of
______________________, 1998.
BY: /s/ Michael Dillon - Vice President
-----------------------------------
BY: /s/ Karin M. Kinney - Secretary
--------------------------------
NOTE: Ohio law does not permit one officer to sign in two capacities. Two
separate signatures are required, even if this necessitates the election of a
second officer before the filing can be made.
<PAGE>
Exhibit A
---------
RESOLVED, that all of the shares of Serial Preferred stock of the
corporation which have been converted are hereby eliminated from the authorized
capital of the corporation as stated in its Amended Articles of Incorporation,
the amounts of such being:
38,772 shares of Series BB
FURTHER RESOLVED, that the first paragraph of Article Four of the Amended
Articles of Incorporation which presently ends immediately prior to "Division
A", is hereby amended in its entirety to read as follows:
"Fourth: The number of shares which the corporation is authorized to
have outstanding is 302,056,856 consisting of 2,056,856 shares of
serial preferred stock of no par value (herein after called "serial
preferred stock), and 300,000,000 shares of common stock of no par
value (herein after called "common stock"), the shares of such classes
shall have the following express terms:"
FURTHER RESOLVED, that in Division A the following paragraph is hereby
deleted in its entirety with the appropriate re-numbering of other paragraphs
thereby effected:
Paragraph 9 concerning series BB Serial Preferred
FURTHER RESOLVED, that all other provisions of the Amended Articles of
Incorporation not specifically modified by these resolutions, shall remain in
full force and effect unchanged.
FURTHER RESOLVED, that the officers of the corporation are hereby
authorized to take all necessary or appropriate action to carry out the purposes
of the foregoing resolutions.
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
IKON Office Solutions, Inc.
Certain of its Subsidiaries
and
The Banking Institutions Named Herein
and
CoreStates Bank, N.A.,
as Agent
AMENDED AND RESTATED
CREDIT AGREEMENT
dated January 16, 1998
U.S. $600,000,000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Definitions.............................................................................. 1
1.1 Certain Definitions.......................................................... 1
2. The Credit............................................................................... 9
2.1 Revolving Credit Facility Loans.............................................. 9
(a) Revolving Credit Facility............................................. 9
(b) Selected Currency..................................................... 10
(c) The Revolving Credit Facility Notes................................... 11
2.2 Revolving Credit Facility Funding Procedures................................. 11
(a) Request for Advances.................................................. 11
(b) Actions by Agent...................................................... 12
(c) Availability of Funds................................................. 12
(d) Funding Assumptions................................................... 12
(e) Maximum Borrowings Outstanding........................................ 13
2.3 Swingline Loans.............................................................. 13
(a) Swingline Facility.................................................... 13
(b) Funding Procedure..................................................... 13
(c) Swingline Facility Note............................................... 14
2.4 Letters of Credit............................................................ 15
(a) General Requirements.................................................. 15
(b) Minimum Stated Amount................................................. 15
(c) Letter of Credit Requests............................................. 15
(d) Letter of Credit Participations....................................... 16
(e) Agreement to Repay Letter of Credit Drawings.......................... 19
2.5 Bid Option Facility.......................................................... 20
(a) Bid Loans General Requirements........................................ 20
(b) Bid Loan Notes........................................................ 20
(c) Procedure for Bid Borrowings.......................................... 21
2.6 Joint and Several Obligations................................................ 24
2.7 Interest Rates............................................................... 24
(a) Alternate Base Rate Loans............................................. 24
(b) Eurocurrency Rate Loans............................................... 25
(c) Post Maturity Rate.................................................... 25
2.8 Fees......................................................................... 25
(a) Facility Fee.......................................................... 25
(b) Letter of Credit Fee.................................................. 26
(c) Bid Loan Fee.......................................................... 26
2.9 Termination or Reduction of Credit; Recomputation Date....................... 26
(a) Termination or Reduction of Credit.................................... 26
(b) Reduction............................................................. 26
(c) Recomputation Date.................................................... 27
2.10 Optional Loan Prepayments.................................................... 27
2.11 Payments..................................................................... 28
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
2.12 Illegality................................................................... 29
2.13 Increased Cost............................................................... 29
2.14 Indemnity Against Funding Losses or Expenses................................. 31
2.15 Substitution of Bank......................................................... 31
3. Representations and Warranties........................................................... 31
3.1 Organization and Good Standing............................................... 31
3.2 Corporate Power and Authority................................................ 31
3.3 Validity of Agreement and Notes.............................................. 32
3.4 Litigation................................................................... 32
3.5 Financial Statements......................................................... 32
3.6 ERISA........................................................................ 32
3.7 Regulations G, T, U and X.................................................... 33
3.8 Compliance with Laws......................................................... 33
3.9 Taxes and Assessments........................................................ 34
3.10 Investment Company........................................................... 34
3.11 Environmental Matters........................................................ 34
3.12 Liens........................................................................ 34
3.13 Disclosure Generally......................................................... 34
3.14 Ownership of Subsidiary Borrowers............................................ 35
4. Conditions............................................................................... 35
4.1 Effectiveness of Agreement................................................... 35
(a) Compliance............................................................ 35
(b) Evidence of Corporate Action.......................................... 35
(c) Opinions of Counsel................................................... 35
(d) Incumbency Certificate................................................ 35
(e) Executed Agreements................................................... 36
(f) Notes................................................................. 36
(g) Material Adverse Change............................................... 36
4.2 Conditions to Loans.......................................................... 36
4.3 Copies of Documents.......................................................... 37
5. Covenants................................................................................ 37
5.1 Financial Statements and Information......................................... 37
5.2 Funded Debt to Total Capitalization Ratio.................................... 38
5.3 Subsidiaries' Debt........................................................... 38
5.4 Sale of Assets............................................................... 39
5.5 Mergers and Acquisitions..................................................... 39
5.6 Negative Pledge.............................................................. 39
5.7 Sale, Discount of Receivables; Sale, Leaseback Transactions.................. 41
5.8 Regulations G, T, U and X.................................................... 41
5.9 Corporate Existence.......................................................... 41
5.10 Books and Records............................................................ 41
5.11 Insurance.................................................................... 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
5.12 Litigation; Event of Default................................................. 41
5.13 Taxes........................................................................ 42
5.14 Compliance with Laws......................................................... 42
5.15 Employee Benefit Plans....................................................... 42
5.16 Use of Proceeds.............................................................. 42
5.17 Continued Ownership of each Subsidiary Borrower.............................. 43
6. Defaults................................................................................. 43
6.1 Defaults..................................................................... 43
6.2 Acceleration by Reason of Default............................................ 45
7. The Banks and the Agent.................................................................. 45
7.1 Authority of Agent........................................................... 45
7.2 Responsibility of Agent...................................................... 46
7.3 Pro-Rata Payments............................................................ 46
7.4 Indemnification of Agent..................................................... 46
7.5 Credit Decision.............................................................. 47
7.6 The Agent as a Bank.......................................................... 47
7.7 Successor Agent.............................................................. 47
7.8 Withholding Taxes............................................................ 48
7.9 Allocations Made By Agent.................................................... 48
8. Indemnification.......................................................................... 48
8.1 Indemnification of the Agent and the Banks................................... 48
9. Miscellaneous............................................................................ 49
9.1 Notices...................................................................... 49
9.2 Effective Date, Successors and Assigns and Survival of Terms................. 49
9.3 Participations............................................................... 49
9.4 Expenses..................................................................... 50
9.5 Modifications and Waivers.................................................... 50
9.6 No Implied Rights or Waivers................................................. 50
9.7 Offsets...................................................................... 50
9.8 Application of Payments...................................................... 50
9.9 Counterparts................................................................. 51
9.10 Governing Law; Submission to Jurisdiction.................................... 51
9.11 Severability of Provisions................................................... 53
9.12 Captions..................................................................... 53
9.13 Plural and Singular.......................................................... 53
9.14 Judgment Currency............................................................ 53
</TABLE>
-iii-
<PAGE>
Exhibits
- --------
A List of Subsidiary Borrowers
B List of Banks and Commitments
C-1 Form of Revolving Facility Note
C-2 Form of Bid Loan Note
C-3 Form of Swingline Facility Note
D Opinion of Counsel Form
E Opinion of Counsel to Subsidiary Borrower Form
F-1 Form of Competitive Bid Request
F-2 Form of Competitive Bid
F-3 Bid Loan Notice
-vi-
<PAGE>
Credit Agreement
This Amended and Restated Agreement, dated January 16, 1998 between and
among IKON OFFICE SOLUTIONS, INC., an Ohio corporation, with its main business
office located at Valley Forge, Pennsylvania 19482 (herein called the
"Company"), those subsidiaries of the Company set forth on Exhibit A hereto (the
"Subsidiary Borrowers"), the banking institutions named in Exhibit B attached
hereto (herein called collectively the "Banks" and individually a "Bank") and
CORESTATES BANK, N.A., a national banking association, as agent for the Banks
under this Agreement (herein in such capacity called the "Agent").
Witnesseth:
WHEREAS, the Company and the Subsidiary Borrowers anticipate the need to
borrow money from time to time for working capital, acquisitions and general
corporate purposes and have requested the Banks establish credit facilities and
make available loans to one or more of them under the terms and conditions
hereinafter set forth;
WHEREAS, the Company, the Subsidiary Borrowers and certain of the Banks are
parties to a Credit Agreement, dated as of December 16, 1996 (the "1996 Credit
Agreement"), providing for a revolving credit facility for loans and letters of
credit, which revolving credit facility is used to provide working capital to
the Company and the Subsidiary Borrowers and for acquisitions and general
corporate purposes; and
WHEREAS, the Company, the Subsidiary Borrowers, certain of the Banks and
the Agent have agreed to amend the 1996 Credit Agreement as provided herein, to
add a banking institution as a Bank and to restate the 1996 Credit Agreement as
so amended.
NOW, THEREFORE, in consideration of the premises and promises hereinafter
set forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions
1.1 Certain Definitions. The terms defined in this Section 1.1, whenever
used and capitalized in this Agreement, shall, unless the context otherwise
requires, have the respective meanings herein specified:
"1934 Act" shall have the meaning assigned to it in Section 6.1(g) hereof.
--------
"Agent" shall mean CoreStates Bank, N.A., a national banking association in
-----
its capacity as agent for the Banks hereunder.
<PAGE>
"Alternate Base Rate" shall mean the higher of (i) the rate of interest
-------------------
for commercial loans established and publicly announced by the Agent from
time to time as its prime rate, or (ii) the Federal Funds Rate plus 1/2 of
1% per annum.
"Alternate Base Rate Loan" shall mean a Loan made at the Alternate Base
------------------------
Rate pursuant to the applicable Request for Advance.
"Applicable Margin" shall mean with respect to each Eurocurrency Rate Loan,
-----------------
the margin determined by the then Applicable Rate.
"Applicable Rate" shall mean, with respect to each Eurocurrency Rate Loan
---------------
or with respect to the Facility Fee and the Letter of Credit Fee payable
hereunder, as the case may be, the applicable rate per annum set forth
below corresponding to such Loans or fees as of the applicable date:
<TABLE>
<CAPTION>
Letter of
Applicable Facility Fee Credit Fee
Level Ratings Margin Rate Rate
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 A+ or better from S&P 12.5 basis points 6.25 basis points 12.5 basis points
A1 or better from Moody's
-------------------------------------------------------------------------------------------------
2 A from S&P 13.5 basis points 6.75 basis points 13.5 basis points
A2 from Moody's
-------------------------------------------------------------------------------------------------
3 A- from S&P 15.0 basis points 7.25 basis points 15.0 basis points
A3 from Moody's
-------------------------------------------------------------------------------------------------
4 BBB+ or lower from S&P 17.0 basis points 8.50 basis points 17.0 basis points
Baa1 or lower from Moody's
-------------------------------------------------------------------------------------------------
5 BBB or lower from S&P 20.5 basis points 10.0 basis points 20.5 basis points
Baa2 or lower from Moody's
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
The ratings applicable to the foregoing chart shall be based on the ratings
established with respect to the Company's senior, unsecured long-term debt. If
the ratings established by S&P and Moody's fall within different Levels, the
Applicable Rate shall be based on the higher of the two ratings unless one of
the ratings is two or more Levels higher than the other, in which case the
Applicable Rate shall be determined by reference to the Level immediately above
the Level determined by the lower rating. If the ratings of either S&P or
Moody's changes, the Applicable Rate shall adjust, and such adjustment shall be
effective, on the date on which such change in rating is first publicly
announced.
"Bank" shall mean any bank listed in Exhibit B hereto.
----
"Bid Borrowing" shall mean each individual loan under the Bid Loan
-------------
Facility.
<PAGE>
"Bid Loan" shall have the meaning assigned to it in Section 2.5 hereof.
--------
"Bid Loan Borrowing Date" shall mean the date on which a Borrower receives
-----------------------
a Bid Loan.
"Bid Loan Fee" shall have the meaning assigned to it in Section 2.9 hereof.
------------
"Bid Loan Lender" shall mean the Bank issuing the Bid Loan.
---------------
"Bid Loan Note" shall have the meaning assigned to it in Section 2.5(b).
-------------
"Borrowing" shall mean a borrowing hereunder consisting of Loans made to a
---------
Borrower by the Banks on a given occasion. A Borrowing is an "Alternate
Base Rate Borrowing" if such Loans are Alternate Base Rate Loans or a
"Eurocurrency Rate Borrowing" if such Loans are Eurocurrency Rate Loans.
"Borrower" shall mean the Company or a Subsidiary Borrower.
--------
"Borrowers" shall mean the Company and each Subsidiary Borrower.
---------
"Business Day" shall mean (i) for all purposes other than as covered by
------------
clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any
day which shall be in the City of New York a legal holiday or a day on
which banking institutions are authorized by law or other government action
to close, (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, any U.S. Dollar Loan, any
day which is a Business Day described in clause (i) above and which is also
a day for trading by and between banks in U.S. Dollar deposits in the
London interbank Eurodollar market and (iii) with respect to all notices
and determinations in connection with, and payments of principal and
interest on any Eurocurrency Rate Loan, any day which is a Business Day
described in clause (i) above and which is also (a) any day except a day
which, in London, shall be a legal holiday or a day on which banking
institutions are authorized by law or other government action to close and
(b) a day for trading by and between banks in deposits of the Selected
Currency of such Eurocurrency Rate Loans in the interbank market.
"Code" shall have the meaning assigned to it in Section 5.17 hereof.
----
"Commitment" shall have the meaning assigned to it on Exhibit B hereto
----------
under the caption "Banks' Commitments and Percentages."
-3-
<PAGE>
"Commitment Percentage" shall have the meaning assigned to it in Section
---------------------
2.1(a) hereof.
"Company" shall mean IKON Office Solutions, Inc., an Ohio corporation.
-------
"Consolidated Net Worth" shall be determined in accordance with GAAP and
----------------------
shall mean the sum (as reflected in the consolidated balance sheet of the
Company and its Consolidated Subsidiaries) of (i) the stated dollar amount
of outstanding capital stock, (ii) the stated dollar amount of additional
paid in capital, if any, plus (iii) the amount of surplus and retained
earnings minus (iv) the cost of treasury shares and the excess of
redemption value over the stated value of preferred stock of the Company
and its Consolidated Subsidiaries.
"Consolidated Subsidiaries" shall mean all Subsidiaries.
-------------------------
"Consolidated Total Assets" shall mean the total assets of the Company and
-------------------------
its Consolidated Subsidiaries computed on a consolidated basis in
accordance with GAAP.
"Controlling Person" shall have the meaning assigned to it in Section
------------------
6.1(g) hereof.
"Credit" shall mean the aggregate amounts of the Commitments of the Banks
------
hereunder at any time.
"Danish Kroner" shall mean lawful currency of the Kingdom of Denmark.
-------------
"Debt" shall mean (i) Funded Debt and (ii) any portions of notes payable
----
and capital lease obligations which are classified as current liabilities.
"Deutsche Mark" shall mean lawful currency of the Federal Republic of
-------------
Germany.
"Employee Benefit Plan" shall have the meaning assigned to it in Section
---------------------
3.6 hereof.
"Environmental Control Statutes" shall have the meaning assigned to it in
------------------------------
Section 3.11 hereof.
-4-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" shall have the meaning assigned to it in Section 3.6
---------------
hereof.
"Eurocurrency Rate Loan" shall mean a Loan to be made at the LIBO Rate
----------------------
pursuant to the applicable Request for Advance.
"Eurodollar Rate Loan" shall mean a Eurocurrency Rate Loan for which the
--------------------
Selected Currency is U.S. Dollars.
"Event of Default" shall have the meaning assigned to it in Section 6.1
----------------
hereof.
"Facility" shall mean either of the Revolving Credit Facility, the Bid
--------
Option Facility or the Swingline Facility.
"Facility Fee" shall have the meaning assigned to it in Section 2.8 hereof.
------------
"FAX" shall mean any means of facsimile transmission.
---
"Federal Funds Rate" shall mean the daily rate of interest announced from
------------------
time to time by the Board of Governors of the Federal Reserve System in
publication H.-15 as the "Federal Funds Rate," or if such publication is
unavailable, such rate as is available to Agent on such day.
"Fees" shall mean the Facility Fee, the Letter of Credit Fee and the Bid
----
Loan Fee.
"Finance Leasing Subsidiaries" shall mean IKON Capital, Inc., a Delaware
----------------------------
corporation, IKON Capital Inc., a Canadian corporation, IKON Capital, PLC,
an English company, and their respective successor corporations, and such
additional subsidiaries whose primary business is the leasing of products
distributed by the Company and its Subsidiaries.
"Financial Officer" shall mean Chief Financial Officer, Treasurer or
-----------------
Controller.
"Foreign Subsidiary Borrower" shall mean any Subsidiary Borrower that is
---------------------------
not formed under the laws of the United States or any of the states
therein.
-5-
<PAGE>
"French Francs" shall mean lawful currency of the Republic of France.
-------------
"Funded Debt" shall mean any obligation payable more than one year from the
-----------
date of the creation thereof which under GAAP is shown on the consolidated
balance sheet as a liability (excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute
obligations for borrowed money) and including, without limitation, the
portion of any such obligation properly classified as a current liability
and capitalized leases.
"GAAP" shall mean generally accepted accounting principles applied on a
----
consistent basis, set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or in such other
statements by such other entity as the Agent and the Company may reasonably
approve, which are applicable in the circumstances and as of the date in
question, and the requisite that such principles be applied on a consistent
basis shall mean that the accounting principles observed in a current
period are comparable, in all material respects to those applied in a
preceding period, except for the adoption within any permissible period of
new accounting standards required by the Financial Accounting Standards
Board from time to time.
"Interest Period" shall mean:
---------------
(1) with respect to each Alternate Base Rate Borrowing the period
commencing on the date of such Alternate Base Rate Borrowing and ending not
more than 180 days thereafter, as the Company may elect in the applicable
Request for Advance (and ending 90 days thereafter if the Company shall
fail to so elect), provided that no Interest Period shall end later than
the Revolving Credit Facility Termination Date, as applicable;
(2) with respect to each Eurocurrency Rate Borrowing the period
commencing on the date of such Eurocurrency Rate Borrowing and ending one,
two, three, or six months thereafter, as the Company may elect in the
applicable Request for Advance; provided that:
--------
(a) any Interest Period which would otherwise end on a day which
is not a London Business Day shall be extended to the next succeeding
London Business Day unless such London Business Day falls in another
calendar month, in which case such Interest Period shall end on the
next preceding London Business Day;
-6-
<PAGE>
(b) any Interest Period which begins on the last London Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the last London
Business Day of a calendar month; and
(c) no Interest Period shall end later than the Revolving Credit
Facility Termination Date; and
(3) with respect to each Bid Loan, the period commencing on the date
of such Bid Loan and ended at the end of the applicable Bid Loan Duration,
provided that no Interest Period shall end later than the Revolving Credit
Facility Termination Date, as applicable.
The end of an Interest Period shall be deemed a maturity for purposes
of all Loans.
"Issuing Bank" shall mean CoreStates Bank, N.A.
------------
"Letter of Credit" shall mean the standby letters of credit available
----------------
pursuant to Section 2.4 hereof.
"Letter of Credit Fee" shall have the meaning assigned to it in Section 2.8
--------------------
hereof.
"Letter of Credit Outstandings" shall mean, at any time, the aggregate
-----------------------------
Stated Amount of all outstanding Letters of Credit plus the aggregate
amount of Unpaid Drawings.
"Letter of Credit Sublimit" shall mean $25,000,000.
-------------------------
"LIBO Rate" shall mean the average (rounded upward, if necessary, to the
---------
next 1/16 of 1%) of the rates per annum at which the Reference Banks are
offered deposits in the Selected Currency as of 11:00 a.m., London time, on
the second London Business Day preceding the date of the proposed
Eurocurrency Rate Borrowing by prime banks in the London interbank
eurocurrency market for delivery on the date of such Borrowing, for the
applicable Interest Period of such Borrowing, and in an amount equal to the
aggregate amount of such Borrowing and in like funds.
"Loan" shall mean any Revolving Credit Facility Loan, Swingline Loan or Bid
----
Loan.
"London Business Day" shall mean any Business Day described in clause (iii)
-------------------
of the definition of "Business Day."
-7-
<PAGE>
"Majority Banks" shall mean the Banks whose Commitment Percentages under
--------------
this Agreement aggregate at least 51.0% of the total Commitment Percentages
of all the Banks; provided, however, that for all purposes after the Loans
become due and payable pursuant to Article 6 or the expiration or
termination of the Revolving Credit Facility, Majority Banks shall mean
Banks holding at least 51.0% of the aggregate outstanding principal amount
of all Loans then outstanding.
"Moody's"shall mean Moody's Investors Service, Inc.
-------
"Multiemployer Plan" shall have the meaning assigned to it in Section 3.6
------------------
hereof.
"Notes" shall mean the Revolving Credit Facility Notes, the Bid Loan Notes
-----
and the Swingline Facility Note or any of them.
"PBGC" shall have the meaning assigned to it in Section 3.6 hereof.
----
"Participant" shall have the meaning assigned to it in Section 9.3 hereof.
-----------
"Participations" shall have the meaning assigned to it in Section 9.3
--------------
hereof.
"Pension Plan" shall have the meaning assigned to it in Section 3.6 hereof.
------------
"Pounds Sterling" means lawful currency of the United Kingdom of England,
---------------
Scotland, Northern Ireland and Wales.
"Recomputation Date" shall have the meaning assigned to it in Section
------------------
2.10(c).
"Reference Bank" shall mean each of CoreStates Bank, N.A. and The Chase
--------------
Manhattan Bank, N.A.
"Request for Advance" shall have the meaning assigned to it in Section
-------------------
2.3(a) hereof.
"Revolving Credit Facility" shall have the meaning assigned to it in
--------------------------
Section 2.1(a) hereof.
-8-
<PAGE>
"Revolving Credit Facility Amount" shall have the meaning assigned to it in
--------------------------------
Section 2.1(a) hereof.
"Revolving Credit Facility Commitment" shall have the meaning assigned to
------------------------------------
it in Section 2.1(a) hereof.
"Revolving Credit Facility Loans" shall have the meaning assigned to it in
-------------------------------
Section 2.1(a) hereof.
"Revolving Credit Facility Notes" shall have the meaning assigned to it in
-------------------------------
Section 2.1(c).
"Revolving Credit Facility Termination Date" shall have the meaning
------------------------------------------
assigned to it in Section 2.1(a) hereof.
"S&P" shall mean Standard & Poor's.
---
"Securitization" means with respect to the Company and its Consolidated
--------------
Subsidiaries the transfer or pledge of assets or interests in assets to a
trust, partnership, corporation or other entity, which transfer or pledge
is funded by such entity in whole or in part by the issuance of instruments
or securities that are paid principally from the cash flow derived from
such assets or interests in assets.
"Selected Currency" shall mean, with respect to each Eurocurrency Rate
-----------------
Borrowing, the currency, which may be U.S. Dollars, Pounds Sterling,
Deutsche Marks, French Francs, Danish Kroner, or such currency as may be
approved from time to time by the Agent and the Majority Banks, so long as
such Selected Currency remains freely transferable and convertible into
U.S. Dollars and readily available to banks in the London interbank market,
selected by the Company pursuant to Section 2.2 and designated by the
Company as such in the Request for Advance for such Borrowing.
"Significant Subsidiary" shall mean a Subsidiary which is a 'significant
----------------------
subsidiary' as defined in (S)210.1-02(v) of Regulation S-X of the
Securities and Exchange Commission, 17 C.F.R. Part 210, as in effect on the
date hereof.
"Spin-off" shall have the meaning assigned to it in Section 4.1(i).
--------
"Stated Amount" of each Letter of Credit shall mean, at any time, the
-------------
maximum amount available to be drawn thereunder, determined without regard
to whether any conditions to drawing could then be met.
-9-
<PAGE>
"Subsidiary" shall mean any corporation of which the Company directly or
----------
indirectly owns or controls at least a majority of the outstanding stock
having general voting power, including without limitation the right, under
ordinary circumstances, to vote for the election of a majority of the Board
of Directors of such corporation.
"Swingline Facility Note" shall have the meaning assigned to it in Section
-----------------------
2.3(c).
"Swingline Loans" shall have the meaning assigned to it in Section 2.3
---------------
hereof.
"U.S. Dollars" or "U.S. $" means lawful currency of the United States of
------------ ------
America.
"U.S. Dollar Equivalent" of any amount of a Selected Currency other than
----------------------
U.S. Dollars on any date shall mean the equivalent amount in U.S. Dollars
on such date, after giving effect to a conversion of such amount of such
Selected Currency to U.S. Dollars at the buy spot rate quoted for wholesale
transactions by the Agent at approximately 11:00 a.m. Philadelphia time on
such date in accordance with its normal practice. The U.S. Dollar
Equivalent of all Loans the Selected Currency of which is not U.S. Dollars
shall be calculated as of the date two London Business Days preceding the
date on which such Loan was made and thereafter as of the London Business
Day immediately preceding the applicable Recomputation Date.
"U.S. Dollar Loan" shall mean an Alternate Base Rate Loan and/or a
----------------
Eurodollar Rate Loan.
"Unfunded Pension Liabilities" shall have the meaning assigned to it in
----------------------------
Section 3.6 hereof.
"Unrecognized Retiree Welfare Liability" shall have the meaning assigned to
--------------------------------------
it in Section 3.6 hereof.
"Unpaid Drawing" shall have the meaning assigned to it in Section 2.4
--------------
hereof.
20 The Credit
2.1 Revolving Credit Facility Loans.
-------------------------------
-10-
<PAGE>
(a) Revolving Credit Facility. Each Bank severally agrees, upon the
-------------------------
terms and conditions hereinafter set forth, to make loans to the Borrowers (the
"Revolving Credit Facility Loans") from time to time during the period beginning
on the date hereof and ending on January 16, 2003 or on the earlier date of
termination in full, pursuant to Section 2.9 or Section 6.2 hereof, of the
obligations of such Bank under this Section 2.1(a) (January 16, 2003 or such
earlier date of termination being herein called the "Revolving Credit Facility
Termination Date") in amounts not to exceed at any time outstanding in the
aggregate the commitment amount set forth opposite the name of such Bank on
Exhibit B hereto under the caption "Banks' Commitments and Percentages" (each
such amount, as the same may be reduced pursuant to Section 2.9 hereof being
hereinafter called such Bank's "Revolving Credit Facility Commitment"). (The
Banks' collective commitment to make Revolving Credit Facility Loans shall be
the "Revolving Credit Facility").
The obligation of each Bank to make a Revolving Credit Facility Loan to the
Borrowers at any time shall be limited to the Bank's Commitment Percentage, as
defined on Exhibit B hereto under the caption "Banks' Commitments and
Percentages" (the "Commitment Percentage") times the aggregate amount of the
Revolving Credit Facility Loans requested. No Bank shall be required to make
any Revolving Credit Facility Loan if, immediately after giving effect to such
Revolving Credit Facility Loan and the application of the proceeds thereof to
the extent applied to the repayment of Revolving Credit Facility Loans, (i) the
sum of (a) the aggregate principal amount of such Bank's Revolving Credit
Facility Loans in U.S. Dollars outstanding, (b) the U.S. Dollar Equivalent of
the aggregate principal amount of such Bank's Revolving Credit Facility Loans
in a Selected Currency other than U.S. Dollars outstanding, (c) such Bank's
Commitment Percentage of Swingline Loans participated pursuant to Section
2.3(b)(3) and (d) such Bank's Commitment Percentage of Letter of Credit
Outstandings would exceed such Bank's Revolving Credit Facility Commitment, or
(ii) the sum of (a) the aggregate principal amount of all Revolving Credit
Facility Loans in U.S. Dollars outstanding, (b) the U.S. Dollar Equivalent of
the aggregate principal amount of all Revolving Credit Facility Loans in a
Selected Currency other than U.S. Dollars outstanding, (c) the aggregate
principal amount of all Bid Loans outstanding, (d) the aggregate principal
amount of all Swingline Loans outstanding and (e) Letter of Credit Outstandings,
would exceed the Revolving Credit Facility.
The failure of any one or more of the Banks to make Revolving Credit
Facility Loans in accordance with its or their obligations shall not relieve the
other Banks of their several obligations hereunder, but in no event shall the
aggregate amount at any one time outstanding which any Bank shall be required to
lend under this Revolving Credit Facility exceed its Revolving Credit Facility
Commitment.
Within the limits of this Section 2.1(a) and subject to Section 2.11 below,
the Borrower may borrow, prepay pursuant to Section 2.10 and reborrow under this
Section 2.1(a).
-11-
<PAGE>
(b) Selected Currency. Subject to the provisions of this Article 2, each
------------------
Borrower shall have the right to receive the proceeds of Eurocurrency Rate
Borrowings in either U.S. Dollars or any other Selected Currency. All Alternate
Base Rate Loans shall be made in U.S. Dollars. The Selected Currency of
Eurocurrency Rate Borrowings sought by a Borrower shall be designated by the
Borrower in its Request for Advance for such Borrowing. All Eurocurrency Rate
Loans to be made on the occasion of a particular Eurocurrency Rate Borrowing
shall be made in a single currency.
(c) The Revolving Credit Facility Notes. The obligation of Borrowers to
-----------------------------------
repay the Revolving Credit Facility Loans of each Bank shall be evidenced by a
separate promissory note issued by the Borrowers in the form attached hereto as
Exhibit C-1 (the "Revolving Credit Facility Notes"). Each Revolving Credit
Facility Note shall be in a stated amount equal to the Revolving Credit Facility
Commitment of such Bank and each such Revolving Credit Facility Note shall bear
interest as provided herein and be payable at the times and in the manner herein
provided and each such Revolving Credit Facility Note shall be delivered in
substitution for any Revolving Credit Facility Note previously delivered to such
Bank; provided, however, that notwithstanding the stated amount of such
Revolving Credit Facility Notes, the Borrowers' liability under the Revolving
Credit Facility Notes shall be limited at all times to the outstanding principal
amount of the Revolving Credit Facility Loans evidenced thereby (which principal
amount may be less than or may exceed the stated amount of such Revolving Credit
Facility Note), plus all interest accrued thereon and the amount of all costs
and expenses then payable thereunder, as established by each such Bank's books
and records, which books and records shall be conclusive absent manifest error.
2.2 Revolving Credit Facility Funding Procedures.
--------------------------------------------
(a) Request for Advances. Revolving Credit Facility Loans to the
--------------------
Borrowers on the occasion of each Borrowing shall be made pursuant to a written
request by the Borrowers therefor (a "Request for Advance"), delivered to the
Agent by 11:00 a.m. on the date on which such Loan is desired, in the case of
Alternate Base Rate Loans, and by 12:00 noon at least three London Business
Days, in the case of Eurocurrency Rate Loans for which the Selected Currency is
U.S. Dollars, and by 9:30 a.m. at least three London Business Days in the case
of Eurocurrency Rate Loans for which the Selected Currency is any currency other
than U.S. dollars, prior to the date on which such Loan is desired, stating:
(1) the date of such Borrowing, which shall be a Business Day in the
case of an Alternate Base Rate Borrowing and shall be a London Business Day
in the case of a Eurocurrency Rate Borrowing, the identities of the
Borrowers and the allocation of such Loans among the Borrowers;
(2) the amount of such Borrowing by each Borrower, which on the date
of each Borrowing shall be (a) in the case of an Alternate Base Rate
Borrowing, U.S.
-12-
<PAGE>
$25,000,000 in the aggregate by all Borrowers or any larger integral
multiple of U.S. $1,000,000, and (b) in the case of a Eurocurrency
Borrowing, the amount of the Selected Currency with a U.S. Dollar
equivalent of U.S. $25,000,000 in the aggregate by all Borrowers or any
larger integral multiple of the amount of the Selected Currency with a U.S.
Dollar equivalent of U.S. $1,000,000;
(3) whether the Revolving Credit Facility Loans comprising such
Borrowing are to be Alternate Base Rate Loans or Eurocurrency Rate Loans;
(4) if the Borrowing is to be comprised of Eurocurrency Rate Loans,
the Selected Currency; and
(5) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period.
Each written Request for Advance shall be signed by an authorized officer of the
Company on behalf of the Borrowers and shall be for Revolving Credit Facility
Loans at a single interest rate option for all Borrowers. No Request for Advance
shall become effective until actually received by the Agent.
(b) Actions by Agent. Upon the Agent's receipt of any Request for Advance,
----------------
such Request for Advance shall not thereafter be revocable by the Borrowers and
the Agent shall promptly provide to each Bank such Request for Advance and
amount of the Revolving Credit Facility Loan to be made by such Bank. In
addition, upon receipt of a Request for Advance in which the Borrowers specify a
Eurocurrency Rate Borrowing, the Agent shall inform each Bank of the amount of
the U.S. Dollar Equivalent of such Eurocurrency Rate Loan.
(c) Availability of Funds. Each Bank shall make available to the Agent
---------------------
the amount of such Bank's Revolving Credit Facility Loan at the main office of
the Agent, or at such other office or account of the Agent as is designated in
writing by the Agent to the Bank, in immediately available funds no later than
12:00 noon, Philadelphia time, on the date of each Borrowing. All such funds
shall be in U.S. Dollars, in the case of Alternate Base Rate Loans, and in the
applicable Selected Currency, in the case of Eurocurrency Rate Loans. On each
such Borrowing date, and subject to the prior receipt of funds from each Bank,
the Agent shall make available to the Borrowers in immediately available funds,
no later than 2:00 p.m., Philadelphia time, all of the proceeds of the Revolving
Credit Facility Loans to be made on such date upon satisfaction by the Borrowers
of all the applicable conditions specified in Article 4 hereof.
(d) Funding Assumptions. Unless the Agent has been notified by any Bank at
-------------------
least one Business Day prior to the date of such Revolving Credit Facility Loan
(or by noon on the date of an Alternate Base Rate Loan) that such Bank does not
intend to make available to the Agent such Bank's portion of the total amount of
the Loan to be made on such date, the Agent may assume that each Bank has made
the amount of such Bank's Revolving Credit Facility Loan available to the
-13-
<PAGE>
Agent on the date for the Borrowing of such Revolving Credit Facility Loan and
the Agent may, in reliance upon such assumption, make available to the Borrowers
a corresponding amount. If such corresponding amount is not in fact made
available to the Agent by such Bank, the Agent shall be entitled to recover such
corresponding amount on demand from such Bank, which demand shall be made in a
reasonably prompt manner. If such Bank does not pay such corresponding amount
forthwith upon the Agent's demand therefor, the Agent shall promptly notify the
Borrowers and the Borrowers shall pay such corresponding amount to the Agent.
The Agent shall also be entitled to recover from such Bank or the Borrowers, as
the case may be, interest on such corresponding amount in respect of each day
from the date such corresponding amount was made available by the Agent to the
Borrowers to the date such corresponding amount is recovered by the Agent at a
rate equal to (i) if recovered from such Bank, the Federal Funds Rate for three
Business Days, and thereafter at the Alternate Base Rate and (ii) if recovered
from the Borrowers, the rate otherwise accruing on such Revolving Credit
Facility Loan. Nothing herein shall be deemed to relieve any Bank of its
obligation to fulfill its Commitment hereunder or to prejudice any rights which
any Borrower may have against any Bank as a result of any default by such Bank
hereunder.
(e) Maximum Borrowings Outstanding. The Borrowers may not have more than
------------------------------
ten Borrowings outstanding at any one time. For such purpose, one Borrowing by
one Borrower or Borrowings by more than one Borrower commenced on the same date,
in the same currency and with the same Interest Period shall be deemed a single
Borrowing.
2.3 Swingline Loans.
---------------
(a) Swingline Facility. The Agent, in its individual capacity and under
------------------
the terms and subject to the conditions of this Agreement, shall provide
advances in U.S. Dollars (herein called "Swingline Loans"), to the Borrowers,
from time to time, as requested by the Company, provided that:
(1) the aggregate amount of Swingline Loans outstanding at any one
time shall not exceed the least of (A) $25,000,000; and (B) such amount, if
any, as will, when added to the sum of (a) the aggregate principal amount
of all Revolving Credit Facility Loans in U.S. Dollars outstanding, (b) the
U.S. Dollar Equivalent of the aggregate principal amount of all Revolving
Credit Facility Loans in a Selected Currency other than U.S. Dollars
outstanding, (c) the aggregate principal amount of all Bid Loans
outstanding, and (d) Letter of Credit Outstandings, would exceed the
Revolving Credit Facility; and
(2) no Swingline Loan shall be outstanding for more than thirty (30)
calendar days.
(b) Funding Procedure.
-----------------
-14-
<PAGE>
(1) The Company may request a Swingline Loan (on their own behalf or
on behalf of any Subsidiary Borrower) by delivering a Request For Swingline Loan
(in the form attached hereto as Exhibit B, the "Request For Swingline Loan")
signed by an authorized officer of the Company to the Agent on or before 12:00
noon Philadelphia time on the date the Swingline Loan is to be made. Upon
receipt of such Request For Swingline Loan and if the conditions provided herein
shall be satisfied at the time of such receipt, the Agent shall make the
Swingline Loan on the date specified therein.
(2) Swingline Loans shall bear interest for any day at the Alternate
Base Rate or at an overnight money market rate determined by the Agent in good
faith if such rate is lower than the Alternate Base Rate provided, that
--------
immediately on the giving of the notice referred to in the first sentence of
Section 2.3(b)(3) below, any Swingline Loans bearing interest at such an
overnight money market rate shall automatically convert to the Alternate Base
Rate.
(3) The Agent may by written notice given to the Banks not later than
10:00 a.m. (Philadelphia time), on any Business Day require the Banks to acquire
participations on such Business Day in all or a portion of the Swingline Loans
outstanding. Such notice shall specify the aggregate amount of Swingline Loans
in which Banks will participate, which participation will be based upon each
Bank's Commitment Percentage of the Swingline Loans to be participated. Each
Bank hereby absolutely and unconditionally agrees, upon receipt of notice as
provided above, to pay to the Agent such Bank's Commitment Percentage of such
Swingline Loan or Loans. Each Bank acknowledges and agrees that its obligation
to acquire participations in Swingline Loans pursuant to this paragraph is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of an Event of Default or
event that, with the giving of notice or lapse of time or both would constitute
an Event of Default or reduction or termination of the Revolving Credit Facility
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. Each Bank shall comply with its
obligation under this paragraph by wire transfer of immediately available funds,
in the same manner as provided in Section 2.2(c) with respect to Revolving
Credit Facility Loans made by such Bank. Any amounts received by the Agent from
a Borrower (or other party on behalf of a Borrower) in respect of a Swingline
Loan after receipt by the Agent of the proceeds of a sale of participations
therein shall be promptly remitted by the Agent to the Banks that shall have
made their payments pursuant to this paragraph, as their interests may appear.
The purchase of participations in a Swingline Loan pursuant to this paragraph
shall not relieve the relevant Borrower of any default in the payment thereof.
(4) Within the foregoing limits, the Borrowers may request Swingline
Loans without regard to any minimum amount, repay them within thirty calendar
days and request new Swingline Loans. The Borrowers agree that the Swingline
Loans facility shall be used only for their convenience and need for very short
term funds. This facility shall not be used as a substitute for Loans by
continuously maintaining a significant dollar amount of Swingline Loans
outstanding.
-15-
<PAGE>
(5) All Swingline Loans shall, in any event, be repaid by the
Borrowers on the Revolving Credit Facility Termination Date.
(c) SWINGLINE FACILITY NOTE. At the signing of this Agreement, the
-----------------------
Borrowers shall deliver to the Agent a properly completed and duly executed
Swingline Facility Note substantially in the form of Exhibit C-3 hereto (the
"Swingline Facility Note") which shall evidence the Swingline Loans made by the
-----------------------
Agent and be payable to the order of the Agent in the principal amount equal to
the $25,000,000 and shall be delivered in substitution for the Swingline
Facility Note previously delivered to the Agent; provided, however, that
notwithstanding the stated amount of such Swingline Facility Note, the
Borrowers' liability under the Swingline Facility Note shall be limited at all
times to the outstanding principal amount of the Swingline Facility evidenced
thereby, plus all interest accrued thereon and the amount of all costs and
expenses then payable thereunder, as established by the Agent's books and
records.
2.4 Letters of Credit.
-----------------
(a) General Requirements.
(1) Subject to and upon the terms and conditions herein set forth,
the Company, on behalf of the applicable Borrower, may request the Issuing Bank,
at any time and from time to time prior to the Revolving Credit Facility
Termination Date, to issue, and subject to the terms and conditions contained
herein the Issuing Bank shall issue, for the account of the Borrower, one or
more Letters of Credit in U.S. Dollars in such form as is approved by the
Issuing Bank in its sole discretion; provided, however, that no Letter of Credit
shall be issued if, upon such issuance, (A) all Letter of Credit Outstandings
would exceed the Letter of Credit Sublimit or (B) the sum of (a) the aggregate
principal amount of all Revolving Credit Facility Loans in U.S. Dollars
outstanding, (b) the U.S. Dollar Equivalent of the aggregate principal amount of
all Revolving Credit Facility Loans in a Selected Currency other than U.S.
Dollars outstanding, (c) the aggregate principal amount of all Bid Loans
outstanding, (d) the aggregate principal amount of all Swingline Loans
outstanding and (e) Letter of Credit Outstandings, exceed the Revolving Credit
Facility.
(2) No Letter of Credit shall bear an expiry date later than 365 days
from issuance, and no Letter of Credit issued less than 90 days prior to the
Revolving Credit Facility Termination Date shall bear an expiry date later than
90 days from issuance.
(b) Minimum Stated Amount. The Stated Amount of each Letter of Credit
shall not be less than such amount as may be acceptable to the Issuing Bank.
(c) Letter of Credit Requests.
(1) Whenever a Borrower desires that a Letter of Credit be issued for
its account, the Company shall give the Issuing Bank at least five Business
Days' prior written request therefor (or such shorter period of notice as the
Issuing Bank may agree upon with the Borrower
-16-
<PAGE>
from time to time).
(2) The execution and delivery of each request for a Letter of Credit
shall be deemed to be a representation and warranty by the Borrowers that such
Letter of Credit may be issued in accordance with, and will not violate the
requirements of, this Section 2.4. Unless the Issuing Bank has received notice
from the Agent or the Majority Banks before it issues the respective Letter of
Credit that one or more of the conditions specified in Section 4.2 are not then
satisfied, or that the issuance of such Letter of Credit would violate Section
2.4, then the Issuing Bank may issue the requested Letter of Credit for the
account of the Borrower in accordance with the terms of this Agreement and, with
respect to any matters not specifically covered by this Agreement, in accordance
with the Issuing Bank's usual and customary practices and any Letter of Credit
Agreement in effect with such Borrower. In the event that any conflict shall
exist between the terms of this Agreement and the terms of any such Letter of
Credit Agreement, the terms of this Agreement shall prevail. For the purposes of
this Section 2.4(c)(2) the extension or renewal of an existing Letter of Credit
by the Issuing Bank shall be deemed to be the issuance of a Letter of Credit.
(d) Letter of Credit Participations.
(1) Immediately upon the issuance by the Issuing Bank of any Letter
of Credit, the Issuing Bank shall be deemed to have sold and transferred to each
Bank (other than the Issuing Bank), and each such Bank shall be deemed
irrevocably and unconditionally to have purchased and received from the Issuing
Bank, without recourse or warranty, an undivided interest and participation, to
the extent of such Bank's Commitment Percentage, in such Letter of Credit, each
substitute letter of credit, each drawing made thereunder and the obligations of
the Borrowers under this Agreement with respect thereto, and any security
therefor or guaranty pertaining thereto. Upon any change in the Revolving Credit
Facility Commitments of the Banks, it is hereby agreed that, with respect to all
outstanding Letters of Credit and Unpaid Drawings (as defined in Section 2.4(e)
hereof), there shall be an automatic adjustment to the participations pursuant
to this Section 2.4(d) to reflect the new Revolving Credit Facility Commitment
Percentages of the assigning and assignee Banks.
(2) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall have no obligation relative to the Banks other than to
confirm that any documents required to be delivered under such Letter of Credit
appear to have been delivered and that they appear to comply on their face with
the requirements of such Letter of Credit. Any action taken or omitted to be
taken by the Issuing Bank under or in connection with any Letter of Credit if
taken or omitted in the absence of gross negligence or wilful misconduct, shall
not create for the Issuing Bank any resulting liability to any Bank.
(3) In the event that the Issuing Bank makes any payment under any
Letter of Credit and the Borrowers shall not have reimbursed such amount in full
in cash to the Issuing Bank
-17-
<PAGE>
pursuant to and as required by Section 2.4(e), the Issuing Bank shall promptly
notify the Agent, which shall promptly notify each Bank of such failure, and
each Bank shall promptly and unconditionally pay to the Agent for the account of
the Issuing Bank, the amount of such Bank's Commitment Percentage of such
unreimbursed payment in U.S. Dollars and in same day funds. If the Agent so
notifies, prior to 11:00 A.M. (Philadelphia time) on any Business Day, any Bank
required to fund a payment under a Letter of Credit, such Bank shall make its
required payment on the same Business Day. If and to the extent such Bank shall
not have so made its Commitment Percentage of the amount of such payment
available to the Agent for the account of the Issuing Bank, such Bank agrees to
pay to the Agent for the account of the Issuing Bank, forthwith on demand, such
amount, together with interest thereon at the Federal Funds Rate, for each day
from such date until the date such amount is paid to the Agent for the account
of the Issuing Bank. The failure of any Bank to make available to the Agent for
the account of the Issuing Bank its Commitment Percentage of any payment under
any Letter of Credit shall not relieve any other Bank of its obligation
hereunder to make available to the Agent for the account of the Issuing Bank its
Commitment Percentage of any payment under any Letter of Credit on the date
required, as specified above; but no Bank shall be responsible for the failure
of any other Bank to make available to the Agent for the account of the Issuing
Bank such other Bank's Commitment Percentage of any such payment.
(4) Whenever the Issuing Bank receives a payment of a reimbursement
obligation as to which the Agent has received for the account of the Issuing
Bank any payments from the Banks pursuant to clause (3) above, the Issuing Bank
shall pay to the Agent and the Agent shall promptly pay to each Bank which has
paid its Commitment Percentage thereof, in U.S. Dollars and in same day funds,
an amount equal to such Bank's Commitment Percentage thereof.
(5) Upon the request of any Bank, the Issuing Bank shall furnish to
such Bank copies of any Letter of Credit to which the Issuing Bank is party and
such other documentation relating to such Letter of Credit as may reasonably be
requested by such Bank.
(6) As between the Borrowers on the one hand and the Issuing Bank and
the Banks on the other hand, the Borrowers assume all risks of the acts and
omissions of, or misuse of the Letters of Credit by the respective beneficiaries
of such Letters of Credit. Without limiting the generality of the foregoing,
neither the Issuing Bank nor any other Bank shall be responsible (except in the
case of its gross negligence or willful misconduct) for the following:
(A) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any documents submitted by any party in connection with the
application for and issuance of or any drawing under such Letters of
Credit, even if it should in fact prove to be in any respects invalid,
insufficient, inaccurate, fraudulent or forged;
(B) the validity or sufficiency of any instrument transferring
or
-18-
<PAGE>
assigning or purporting to transfer or assign any such Letter of Credit or
the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(C) failure of the beneficiary of any such Letter of Credit to
comply fully with conditions required in order to draw upon such Letter of
Credit, other than material conditions or instructions that expressly
appear in such Letter of Credit;
(D) errors, omissions, interruptions or delays in the
transmission or delivery of any messages by mail, cable, telecopier, telex
or otherwise, whether or not they are encoded;
(E) errors in interpretation of technical terms;
(F) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of
Credit or the proceeds thereof;
(G) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing of any such Letter of Credit; and
(H) any consequences arising from causes beyond the control of
the Issuing Bank, including without limitation any acts of governments.
(7) The obligations of the Borrowers to make payments to the Agent
for the account of the Issuing Bank with respect to Letters of Credit shall be
irrevocable and not subject to any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(A) any lack of validity or enforceability of this Agreement or
any of the other Loan Documents;
(B) the existence of any claim, setoff, defense or other right
which any Borrower may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), the Agent, the Issuing Bank, any
Bank, or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions;
-19-
<PAGE>
(C) any draft, certificate or any other document presented under
the Letter of Credit shall prove to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein shall prove to be
untrue or inaccurate in any respect;
(D) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan Documents;
(E) the occurrence of any Event of Default or event which, with
giving of notice or lapse of time, or both, would constitute an Event of
Default; or
(F) the termination of this Agreement or any Revolving Credit
Facility Commitment (but only with respect to Letters of Credit issued
prior to such termination).
(8) Immediately upon the issuance by the applicable Issuing Bank of
any Letter of Credit, such Issuing Bank will provide to each other Bank a copy
of the Borrower's written request therefor. In addition, promptly upon receipt
by the Agent of fees payable with respect to a Letter of Credit, the Agent will
distribute to each of the Banks (including such Issuing Bank) the Letter of
Credit Fee. The Company shall pay to the Issuing Bank such fronting fee and
customary charges as shall be agreed by the Company and the Issuing Bank.
(e) Agreement to Repay Letter of Credit Drawings
(1) Each Borrower agrees to reimburse the Issuing Bank, in U.S.
Dollars and in immediately available funds, for any payment made by the Issuing
Bank under any Letter of Credit issued at the request of such Borrower (each
such amount so paid until reimbursed, an "Unpaid Drawing") immediately after,
and in any event on the date of, such payment, with interest on the amount so
paid by the Issuing Bank, to the extent not reimbursed prior to 1:00 p.m.
(Philadelphia time) on the date of such payment, from and including the date
paid to but excluding the date reimbursement is made as provided above, at a
rate per annum equal to the Alternate Base Rate plus 200 basis points, such
interest to be payable promptly following demand.
(2) The obligations of each Borrower under this Section 2.4(e) to
reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which any Borrower may have or have had against any Bank (including in its
capacity as the Issuing Bank or as a participant in any Letter of Credit),
including, without limitation, any defense based upon any non-application or
misapplication by the beneficiary of the proceeds of any drawing under a Letter
of Credit (each, a "Drawing"); provided, however, that no Borrower shall be
obligated to reimburse the Issuing Bank for any wrongful
-20-
<PAGE>
payment made by the Issuing Bank under a Letter of Credit as a result of acts or
omissions constituting wilful misconduct or gross negligence on the part of the
Issuing Bank.
(3) On the Revolving Credit Facility Termination Date, the Borrowers
shall deliver to the Agent cash or U.S. Treasury Bills with maturities of not
more than ninety (90) days from the date of delivery (discounted in accordance
with customary banking practice to present value to determine amount) in an
amount equal at all times to one hundred five percent (105%) of the Letter of
Credit Outstandings, such cash or U.S. Treasury Bills and all interest earned
thereon to constitute cash collateral for the Borrowers' reimbursement
obligation with respect to all Letters of Credit outstanding on the Revolving
Credit Facility Termination Date. If such cash collateral or U.S. Treasury Bills
has not been deposited within five (5) days after the date required, one or more
of the Banks shall be entitled to charge any account maintained by any Borrower
with such Bank or Banks to the extent necessary to create such cash collateral.
Any cash collateral deposited under this paragraph, and all interest earned
thereon, shall be held by the Agent and invested and reinvested at the expense
and the written direction of the Company, in U.S. Treasury Bills with maturities
of no more than ninety (90) days from the date of investment.
2.5 BID OPTION FACILITY.
-------------------
(a) BID LOANS GENERAL REQUIREMENTS.
------------------------------
(1) The Company may, in accordance with the provisions of this
Section 2.5, from time to time prior to the Revolving Credit Facility
Termination Date request from the Banks offers to make Bid Loans in U.S. Dollars
to a Borrower (the "Bid Loans"); provided, however, that the Banks may, but
shall have no obligation to, submit such offers and the Company may, but shall
have no obligation to, accept any such offers. After giving effect to the Bid
Loans so requested by the Company and all other Loans to be made on the same Bid
Loan Borrowing Date, at no time shall (i) the aggregate number of Bid Loans
outstanding exceed five (5), provided that all Bid Loans issued on the same day
for the same duration shall be deemed to be one (1) Bid Loan or (ii) the sum of
(a) the aggregate principal amount of all Revolving Credit Facility Loans in
U.S. Dollars outstanding, (b) the U.S. Dollar Equivalent of the aggregate
principal amount of all Revolving Credit Facility Loans in a Selected Currency
other than U.S. Dollars outstanding, (c) the aggregate principal amount of all
Bid Loans outstanding, (d) the aggregate principal amount of all Swingline Loans
outstanding and (e) Letter of Credit Outstandings, exceed the Revolving Credit
Facility.
(2) No Bid Loan shall have a duration less than seven (7) days or
greater than one hundred eighty (180) days the ("BID LOAN DURATION").
(i) Interest on each Bid Loan (or any portion thereof) shall
accrue during each Bid Loan Duration at the rate of interest per annum
rounded upward to the nearest 1/100 of 1% (the "ABSOLUTE RATE") applicable
to such Bid Loan.
(ii) The principal amount of a Bid Loan is due and payable by
the Company at the maturity of such Bid Loan. Accrued interest on Bid Loans
shall be
-21-
<PAGE>
paid pursuant to Section 2.12 below. Interest accrued on any amount of a
Bid Loan prepaid pursuant to Section 2.11 is due and payable on the date of
such prepayment. The Company shall make all payments of principal and
interest on each Bid Loan to the Agent and the Agent shall remit such
payments to the Bid Loan Lender.
(3) All Bid Loans shall, in any event, be repaid by the Borrowers on
the Revolving Credit Facility Termination Date.
(b) BID LOAN NOTES. At the signing of this Agreement, the Borrowers shall
--------------
deliver to each Bank a properly completed and duly executed Bid Loan Note
substantially in the form of Exhibit C-2 hereto (the "BID LOAN NOTES") which
shall evidence the Bid Loans made by such Bank and be payable to the order of
such Bank in the principal amount equal to the Revolving Credit Facility and
shall be delivered in substitution for any Bid Loan Note previously delivered to
such Bank; provided, however, that notwithstanding the stated amount of such Bid
Loan Notes, the Borrowers' liability under the Bid Loan Notes shall be limited
at all times to the outstanding principal amount of the Bid Loans evidenced
thereby, plus all interest accrued thereon and the amount of all costs and
expenses then payable thereunder, as established by each such Bank's books and
records.
(c) PROCEDURE FOR BID BORROWINGS.
----------------------------
(1) When the Company wishes to request offers to make Bid Loans
hereunder, it shall notify the Agent by FAX of a notice in substantially the
form of Exhibit F-1 (a "COMPETITIVE BID REQUEST") no later than 9:00 a.m.
(Philadelphia time), two Business Days prior to the proposed Bid Loan Borrowing
Date of a Bid Borrowing, specifying: (i) the date of such Bid Borrowing, which
shall be a Business Day; (ii) the aggregate amount of such Bid Borrowing, which
shall be a minimum amount of $10,000,000 or in any integral multiple of
$1,000,000 in excess thereof; (iii) the Bid Loan Duration applicable thereto;
(iv) the Borrower requesting such Bid Loan; and (v) the Company's account to
which the proceeds of the Bid Loan should be credited. The Company may neither
request Competitive Bids for more than two Bid Loan Durations in a single
Competitive Bid Request nor request Competitive Bids more frequently than once
every three Business Days.
(2) Upon receipt of a Competitive Bid Request, the Agent will
promptly notify each Bank by FAX of the Competitive Bid Request. Such
notification shall constitute an invitation by the Company to each Bank to
submit Competitive Bids to make the Bid Loans to which such Competitive Bid
Request relates in accordance with this Section 2.5(c).
(3) Each Bank may at its sole discretion submit a bid ("COMPETITIVE
BID") containing an offer or offers to make Bid Loans in response to any
Competitive Bid Request. Each Competitive Bid must comply with the requirements
of this Section 2.5(c)(3) and must be submitted to the Agent (which may be by
FAX) at the Agent's office set forth on the signature page hereto not later than
9:45 a.m. (Philadelphia time) on the proposed Bid Loan Borrowing Date; provided
that Competitive Bids submitted by the Agent (or any Affiliate of the Agent) may
only be submitted if
-22-
<PAGE>
the Agent or such Affiliate notifies the Company of the terms of its Competitive
Bid not later than 9:30 a.m. (Philadelphia time) on the proposed Bid Loan
Borrowing Date.
Each Competitive Bid shall be in substantially the form of Exhibit F-
2, specifying therein:
(i) the proposed Bid Loan Borrowing Date;
(ii) the principal amount of each Bid Loan for which such
Competitive Bid is being made, which principal amount (x) may be equal
to, greater than or less than the Revolving Credit Facility Commitment
of the quoting Bank, (y) must be $1,000,000 or in multiples of
$1,000,000 in excess thereof, and (z) may not exceed the principal
amount of the Bid Loan for which Competitive Bids were requested;
(iii) the Absolute Rate offered for each such Bid Loan and the
Bid Loan Duration applicable thereto; and
(iv) the identity of the quoting Bank.
A Competitive Bid may contain separate offers by the quoting Bank with respect
to each Bid Loan Duration specified in the related Competitive Bid Request.
Any Competitive Bid shall be disregarded if it:
(i) is not substantially in conformity with Exhibit F-2 or
does not specify all of the information required by this Section 2.5;
(ii) contains qualifying, conditional or similar language;
(iii) proposes terms other than or in addition to those set
forth in the applicable Competitive Bid Request; or
(iv) arrives after the time set forth in this Section 2.5.
(4) Promptly on receipt and not later than 10:00 a.m. (Philadelphia
time) on the proposed Bid Loan Borrowing Date, the Agent will notify the Company
by telephone (confirmed the same day by FAX) of the terms (i) of any Competitive
Bid submitted by a Bank that is in accordance with Section 2.5, and (ii) of any
Competitive Bid that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid submitted by such Bank with respect to the same
Competitive Bid Request. Any such subsequent Competitive Bid shall be
disregarded by the Agent unless such subsequent Competitive Bid is submitted
solely to correct a manifest error in such former Competitive Bid and only if
received within the times set forth in this Section 2.5. The Agent's notice to
the Company shall specify (1) the aggregate principal amount of Bid Loans for
-23-
<PAGE>
which offers have been received for each Bid Loan Duration specified in the
related Competitive Bid Request; and (2) the respective principal so offered and
the Bid Loan Durations applicable thereto. Subject only to the provisions of
this subsection (4), any Competitive Bid shall be irrevocable except with the
written consent of the Company.
(5) Not later than 10:15 a.m. (Philadelphia time) on the proposed
Bid Loan Borrowing Date, the Company shall notify the Agent of its acceptance or
non-acceptance of the offers so notified to it pursuant to this Section 2.5 by
telephone, such verbal notice to be confirmed the same day by FAX of a written
notice substantially in the form of Exhibit F-3 hereto (the "BID LOAN NOTICE"),
which notice shall set forth the amounts, interest rates, dates of borrowings
and maturities of each Bid Loan comprising such Borrowing and of the Banks
making such Loans. The Company shall be under no obligation to accept any offer
and may choose to reject all offers. The Company's failure to accept an offer in
accordance with the provisions of this Section 2.5 shall constitute the
Company's rejection of such offer. In the case of acceptance, such notice shall
specify the aggregate principal amount of offers for each Bid Loan Duration that
is accepted. The Company may accept any Competitive Bid in whole or in part;
provided that:
(i) the aggregate principal amount of each Bid Borrowing may not
exceed the applicable amount set forth in the related Competitive Bid
Request;
(ii) each Bid Loan must be in a minimum principal amount of
$10,000,000 or in any multiple of $1,000,000 in excess thereof, provided
that all Bid Loans made on the same day for the same duration shall be
deemed to be one (1) Bid Loan;
(iii) acceptance of offers may only be made on the basis of ascending
Absolute Rates within each Bid Loan Duration; and
(iv) the Company may not accept any offer that is required to be
disregarded pursuant to this Section 2.5(c) or that otherwise fails to
comply with the requirements of this Agreement.
(6) If offers are made by two or more Banks with the same Absolute
Rates for a greater aggregate principal amount than the amount in respect of
which such offers are accepted for the related Bid Loan Duration, the principal
amount of Bid Loans in respect of which such offers are accepted shall be
allocated by the Company in consultation with the Agent among such Banks as
nearly as possible (in such multiples as the Company in consultation with the
Agent may deem appropriate) in proportion to the aggregate principal amounts of
such offers. Determination by the Company in consultation with the Agent of the
amounts of Bid Loans shall be conclusive in the absence of manifest error.
(7) Promptly upon receipt of notice from the Company in accordance
with Section 2.5(c)(5), the Agent shall notify each Bank having submitted a
Competitive Bid whether or not its offer has been accepted and, if its offer has
been accepted, of the amount of the Bid Loan or
-24-
<PAGE>
Bid Loans to be made by it on the Bid Loan Borrowing Date. Promptly following
each Bid Borrowing, the Agent shall notify each Bank that submitted a
Competitive Bid (and each other Bank that so requests) of the ranges of the bids
submitted and the highest and lowest bids accepted for each Bid Loan Duration
requested by the Company and the aggregate amount borrowed pursuant to such Bid
Borrowing.
(8) On the Bid Loan Borrowing Date, upon satisfaction of all
applicable conditions specified in Article 3 hereof, each Bank whose Competitive
Bid was accepted by the Company shall make the proceeds of its Bid Loan
available to the Agent by 1:00 p.m. (Philadelphia time) at the address set forth
opposite its name on the signature page hereof or at such office or account as
the Agent shall specify to the Banks. The Agent will make the funds so received
from the Banks available not later than 3:00 p.m. (Philadelphia time) to the
Company on the Bid Loan Borrowing Date by a credit to the account of the Company
set forth in the Bid Loan Notice.
2.6 Joint and Several Obligations.
-----------------------------
(a) Each Borrower (including without limitation the Company) shall bear
liability under the Notes and Letter of Credit Outstandings and all other
amounts payable hereunder jointly and severally with each other Borrower and
whether or not such Borrower is designated in any Request for Advance as the
Borrower requesting any Loans, it having been determined by each Borrower that
it will benefit from the availability of credit to all Borrowers under the terms
and conditions of this Agreement. Notwithstanding the foregoing, no Foreign
Subsidiary Borrower shall be liable for the obligations of any other Borrower
hereunder, and each Foreign Subsidiary Borrower shall be liable solely for the
Loans where it is designated as Borrower, for Letters of Credit issued to it,
and for its pro rata share of all fees and expenses and other sums due hereunder
(other than principal and interest on the Loans) based upon the ratio of Loans
and Letters of Credit outstanding to such Borrower to the total amount of Loans
outstanding and Letter of Credit Outstandings hereunder.
(b) The liability of each Borrower under this Agreement and each Note for
any and all obligations of the Borrowers, individually and collectively, owed to
the Banks under this Agreement and each Note shall be unconditional and absolute
irrespective of (a) any lack of enforceability of any obligation, (b) any change
of the time, manner, place of payment, or any other term of any obligation, (c)
any law, regulation or order of any jurisdiction affecting the genuineness,
validity, or rights of the Banks, individually and collectively, with respect to
any obligation or any instrument evidencing any obligation, or (d) any other
circumstance which might otherwise constitute a defense to or discharge of any
Borrower, including, without limitation, the release of any other Borrower from
such obligations. Each Borrower agrees that its obligations hereunder are
irrevocable; that a separate action or actions may be brought and prosecuted
against it or other remedies hereunder may be sought regardless of whether any
other Borrower is joined in any such action or actions or subject to enforcement
of any such remedies; and that it waives the benefit of any statute of
limitations affecting its liabilities hereunder and each Note or the enforcement
hereof or thereof if the action otherwise barred by such statute of limitations
is brought against any other Borrower
-25-
<PAGE>
within such statute of limitations. Each Borrower hereby irrevocably waives any
right of subrogation or contribution it may have against any other Borrower for
amounts paid hereunder.
2.7 Interest Rates.
--------------
(a) Alternate Base Rate Loans. Each Alternate Base Rate Loan shall bear
-------------------------
interest on the unpaid principal balance thereof from day to day at a rate per
annum which at all times shall be equal to the Alternate Base Rate. Any change
in such interest rate due to a change in the Alternate Base Rate shall be
effective on the date of such change. Interest on an Alternate Base Rate Loan
shall be computed on the basis of a year of 360 days and shall be payable
quarterly on the last Business Day of each March, June, September and December
after the date hereof and at maturity of the applicable Interest Period, subject
to the Company's prepayment option set forth at Section 2.10 hereof.
(b) Eurocurrency Rate Loans. Each Eurocurrency Rate Loan shall bear
-----------------------
interest from its date on the unpaid principal amount thereof at a rate per
annum equal to the LIBO Rate plus the Applicable Margin. Interest on each
Eurocurrency Rate Loan shall be computed on the basis of a year of 360 days and
shall be payable at the maturity thereof, except that interest on each
Eurocurrency Rate Loan having a maturity of more than three months shall be
payable at intervals of three months after the date of such Loan and at maturity
of the applicable Interest Period, subject to the Company's prepayment option
set forth at Section 2.10 hereof.
The Agent shall give prompt notice by FAX to the Company and to each of the
Banks of the LIBO Rate determined in respect of each Eurocurrency Rate Loan and
of any change therein. If the Agent shall not so notify the Company and each
Bank of a rate, or if otherwise the Agent shall determine (which determination
shall be, in the absence of fraud or manifest error, conclusive and binding upon
all parties hereto) that by reason of abnormal circumstances affecting the
interbank eurodollar or applicable eurocurrency market, adequate and reasonable
means do not exist for ascertaining the LIBO Rate to be applicable to the
requested Eurocurrency Rate Loan or that applicable funds in amounts sufficient
to fund such Eurocurrency Rate Loan are not obtainable on reasonable terms, the
Agent shall give notice of such inability or determination by FAX to the Company
and to each of the Banks at least one Business Day prior to the date of the
proposed Eurocurrency Rate Loan and thereupon the obligations of the Banks to
make such Eurocurrency Rate Loans shall be excused, subject, however, to the
right of the Company at any time thereafter to submit another such request.
(c) Post Maturity Rate. After maturity (whether by acceleration or
------------------
otherwise) each Loan shall bear interest at a rate per annum equal to 3% in
excess of the rate otherwise in effect from time to time thereafter, from the
date when due, until such Loan is fully paid, which interest shall be payable by
the Borrowers on demand.
2.8 Fees.
----
-26-
<PAGE>
(a) Facility Fee. The Borrowers agree to pay to the Agent in U.S.
------------
Dollars, for the account of each Bank, a facility fee (the "Facility Fee")
computed on the basis of a year of 360 days, equal to the then Applicable Rate
on the average daily amount of such Bank's Revolving Credit Facility Commitment,
irrespective of usage during the period in respect of which payment is made. The
Facility Fee shall be payable in arrears quarterly on the last Business Day of
each March, June, September and December and on the Revolving Credit Facility
Termination Date.
(b) Letter of Credit Fee. The Borrowers agree to pay the Agent in U.S.
--------------------
Dollars, a Letter of Credit fee (the "Letter of Credit Fee"), computed on the
basis of a year of 360 days, equal to the then Applicable Rate multiplied by the
average daily Stated Amount of all outstanding Letters of Credit during the
period in respect of which payment is made, which Letter of Credit Fee shall be
distributed by the Agent to the Banks in accordance with their respective
Commitment Percentage. The Letter of Credit Fee shall be payable in arrears
quarterly on the last Business Day of each March, June, September and December
and on the Revolving Credit Facility Termination Date.
(c) Bid Loan Fee
------------
The Borrowers will pay to the Agent a fee of $350 (the "Bid Loan Fee") due
the Agent in connection with the Competitive Bid Request, such fee to be due and
payable on the date of each Competitive Bid Request.
2.9 Termination or Reduction of Credit; Recomputation Date.
------------------------------------------------------
(a) Termination or Reduction of Credit. The Borrowers shall have the
----------------------------------
right at any time and from time to time, upon five Business Days' written notice
to the Agent (which shall promptly relay such notice to the other Banks), to
terminate in whole or reduce in part, in each case permanently but without
premium or penalty, the Revolving Credit Facility, provided that each such
partial reduction shall be in the aggregate amount of U.S. $25,000,000 or an
integral multiple thereof, and provided that each Bank's Commitment shall be
reduced pro rata in proportion to its Commitment Percentage.
(b) Reduction. In the event the Revolving Credit Facility is reduced, the
Borrowers shall, simultaneously with such reduction, make a prepayment of
principal and interest in respect of the Alternate Base Rate Loans borrowed
under such Facility in such amount as is necessary to assure that the aggregate
principal amount of Loans outstanding and Letter of Credit Outstandings under
such Facility immediately after such reduction will not exceed the Revolving
Credit Facility as reduced. If prepayment in full of the Alternate Base Rate
Loans does not reduce the amount of all Loans outstanding and Letter of Credit
Outstandings under such Facility to an amount that will not exceed the Revolving
Credit Facility as reduced, the Borrowers shall deposit with the Agent cash in
an amount sufficient to repay that portion of the principal amount of
Eurocurrency Rate Loans
-27-
<PAGE>
outstanding, with interest thereon through the end of each applicable Interest
Period, as is necessary to assure that the aggregate principal amount of Loans
and Letters of Credit outstanding under such Facility immediately after such
reduction less the principal amount of Eurocurrency Rate Loans under each
Facility repaid by such deposit will not exceed the Revolving Credit Facility as
reduced, such deposit to be held by the Agent on behalf of the Banks until the
maturity date of such Loans and then applied to the repayment of such Loans. If
prepayment in full of the Alternate Base Rate Loans and Eurocurrency Rate Loans
does not reduce the amount of all Loans outstanding and Letter of Credit
Outstandings under such Facility to an amount that will not exceed the Revolving
Credit Facility as reduced, the Borrowers shall deposit with the Agent cash in
an amount sufficient to repay that portion of the principal amount of Bid Loans
outstanding, with interest thereon through the end of each applicable Interest
Period, as is necessary to assure that the aggregate principal amount of Loans
outstanding and Letter of Credit Outstandings under such Facility immediately
after such reduction less the principal amount of Bid Loans under each Facility
repaid by such deposit will not exceed the Revolving Credit Facility as reduced,
such deposit to be held by the Agent on behalf of the Banks until the maturity
date of such Loans and then applied to the repayment of such Loans. Interest on
amounts so held by the Agent shall accrue at the Federal Funds Rate and shall be
paid to each Bank in accordance with their Commitment Percentage.
(c) Recomputation Date. Notwithstanding any other provisions of this
------------------
Agreement to the contrary, if there are any Eurocurrency Rate Loans outstanding
the Selected Currency of which is not U.S. Dollars, the Agent shall recompute,
on and as of the last day of each calendar quarter and on the date of the
reduction of the Revolving Credit Facility (each such date, a "Recomputation
Date"), the U.S. Dollar Equivalent of such Eurocurrency Rate Loans. If pursuant
to such recomputations the Agent determines that the aggregate principal amount
of Revolving Credit Facility Loans when added to (a) the aggregate principal
amount of all Bid Loans outstanding, (b) the aggregate principal amount of all
Swingline Loans and (c) Letter of Credit Outstandings is greater than 105% of
the Revolving Credit Facility, as then in effect, the Agent shall so advise the
Borrowers, and the Borrowers shall prepay the amount in excess of 100% of the
Revolving Credit Facility, together with accrued interest on the amount so
prepaid within five Business Days of receipt of such notice from the Agent.
(d) If the Borrower prepays any Eurocurrency Rate Loan pursuant to this
Section 2.9, simultaneously with such prepayment the Borrower shall pay the
applicable Bank or Banks pursuant to Section 2.14 hereof all funding costs and
loss of earnings which may arise in connection with such prepayment as
determined by each such Bank in good faith. The Agent shall promptly notify each
Bank of each such prepayment of Loans.
2.10 Optional Loan Prepayments. Any Borrower, upon two Business Days'
-------------------------
written notice to the Agent (which shall promptly relay such notice to the other
Banks), may prepay one or more Loans as such Borrower shall designate in such
notice, in whole at any time or in part from time to time without premium or
penalty but with accrued interest to the date of such prepayment on the
principal amount being prepaid, provided that (a) each such partial prepayment
shall be in the
-28-
<PAGE>
aggregate principal amount of (i) U.S. $10,000,000 plus integrals of U.S.
$1,000,000, if U.S. Dollar Loans are to be prepaid, and (ii) at least
$10,000,000 in U.S. Dollar Equivalent plus integrals of $1,000,000 in U.S.
Dollars Equivalents, if Eurocurrency Rate Loans are to be prepaid, and shall be
applied as among the Banks pro rata in accordance with their respective
Commitments or, if such payment relates to a Bid Loan or Swingline Loan, based
upon the proportion of such Bid Loan or Swingline Loan made by or participated
to such Bank, (b) the Borrower shall specify the date, type and amount of each
Loan being prepaid and (c) if such prepayment applies to Eurocurrency Rate
Loans, simultaneously with such prepayment the Borrower shall pay the applicable
Bank or Banks pursuant to Section 2.14 hereof all funding costs and loss of
earnings which may arise in connection with such prepayment as determined by
each such Bank in good faith. The Agent shall promptly notify each Bank of each
such prepayment of Loans.
2.11 Payments.
--------
(a) All payments (including prepayments) to a Bank of the principal of
or interest on any Eurocurrency Rate Loan shall be made in the Selected Currency
of such Loan, and all other payments hereunder, including in respect of any Fee
and all payments (including prepayments) to a Bank of the principal of or
interest on any U.S. Dollar Loan shall be made in U.S. Dollars. All payments
(including prepayments) to a Bank of the principal of or interest on any Loan or
in respect of any Fee shall be remitted for the account of such Bank to the
Agent at the main office of the Agent, or at such office or account in London as
the Agent shall specify to the Banks and the Borrowers with respect to Loans
denominated in a Selected Currency other than U.S. Dollars, not later than 11
a.m. Philadelphia time or London time, as applicable, on the due date thereof in
immediately available funds.
(b) Each such payment for the account of a Bank shall be made absolutely
net of, without deduction or offset for and altogether free and clear of any and
all present and future taxes, levies, imposts, deductions, charges and
withholdings and all liabilities with respect thereto under the laws of the
United States or any foreign jurisdiction (or any state, county, or political
subdivision thereof), excluding income and franchise taxes imposed on such Bank
under the laws of the United States or any foreign jurisdiction (or any state,
county or political subdivision thereof). If a Borrower is compelled by law to
deduct any such taxes (other than such excluded taxes) or to make any such other
deductions or withholdings, it will pay such additional amounts as may be
necessary in order that the net payments after such deduction, and after giving
effect to any income taxes under the laws of the United States or any foreign
jurisdiction (or any state, county or political subdivision thereof) required to
be paid by any Bank in respect of such additional amounts, shall equal the
amount provided for herein or in any Note.
(c) Any payments to a Bank of the principal or interest due under any
Alternate Base Rate Loan or Eurocurrency Rate Loan or in respect of the Fee,
shall be made simultaneously with corresponding payments for the respective
accounts of the other Banks. All such simultaneous payments shall, as among the
Banks, be in amounts pro rata in accordance with their respective
-29-
<PAGE>
Commitment Percentages. Payments received by the Agent shall be applied in
accordance with Section 9.8.
(d) Each Revolving Credit Facility Loan shall mature on the earlier of the
last day of the applicable Interest Period therefor and Revolving Credit
Facility Termination Date.
(e) If the Banks make a Loan on a day on which all or any part of
outstanding Loans from the Banks denominated in the same Selected Currency are
to be repaid, each Bank shall apply the proceeds of its new Loan to make such
repayment and only an amount equal to the difference (if any) between the amount
being borrowed and the amount being repaid shall be made available by such Bank
to the Agent and by the Agent to the Borrowers.
(f) In the event that the currency of any jurisdiction currently issuing a
Selected Currency changes, this Agreement will be deemed amended to the extent
the Agent specifies (after consultation with the Borrowers) to be necessary to
reflect such change in currency and to put the Banks in the same position, to
the extent possible, as existed prior to such change.
2.12 Illegality. Notwithstanding any other provisions herein, if any
----------
requirement of law, regulation, order or decree of any jurisdiction applicable
to any Bank (including the United States, the United Kingdom or any state,
county or political subdivision thereof) or any change therein or in the
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain certain or all of the Loans contemplated by this Agreement,
such Bank shall so notify the Agent and the Borrowers and the Agent shall
forthwith give notice thereof to the other Banks. Upon the giving of any such
notice to the Agent and the Borrowers (a) such Bank shall no longer be obligated
to make those types of Loans determined by such Bank to be unlawful and (b) the
Borrowers shall prepay in full such Loans made by such Bank then outstanding,
together with accrued interest thereon and any other amounts which may be due to
such Bank under this Agreement (including, without limitation, amounts owing to
such Bank pursuant to Sections 2.13 and 2.14) on the earlier of (i) the last day
of the then current Interest Period applicable to each Loan of such Bank or (ii)
on the date after which such Bank may no longer lawfully continue to maintain
and fund such Loans. If a circumstance of the type described in this Section
2.12 occurs, the Banks agree to negotiate in good faith with the Borrowers to
amend this Agreement to provide Loans hereunder which will not be unlawful. In
addition, as soon as practicable after the Agent or any Bank obtains knowledge
of any event which will cause, or is likely to cause, a circumstance of the type
described in this Section 2.12, the Agent or the Bank, as the case may be, shall
notify the Borrowers thereof and each affected Bank shall designate a different
lending office for its Loans or take such other action to avoid the need for
repayment of its Loans pursuant to this Section 2.12 to the extent that such a
designation or the taking of such action would not, in the reasonable opinion of
such Bank, be disadvantageous to such Bank.
2.13 Increased Cost.
--------------
-30-
<PAGE>
(a) If Regulation D of the Board of Governors of the Federal Reserve
System, as the same may be amended or supplemented from time to time, or any
other requirement of law or regulation applicable to any Bank, including,
without limitation, the United States or the United Kingdom or any state, county
or political subdivision thereof, or any order or decree or in the
interpretation or application thereof or compliance by a Bank with any request
or directive (whether or not having the force of law) occurring after the date
hereof from any central bank or monetary authority or other governmental
authority:
(1) does or shall subject such Bank to any tax of any kind whatsoever
with respect to this Agreement or any Eurocurrency Rate Loan, or change the
basis of taxation of payments to such Bank of principal, Facility Fees,
interest or other amount payable hereunder (except for changes in the rate
of tax on general income and similar taxes on the overall net income of
such Bank in any jurisdiction); or
(2) does or shall impose, modify or hold applicable or change any
reserve, special deposit, Federal Deposit Insurance Corporation premium,
compulsory loan or similar requirement against assets held by, or deposits
or other liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by, any office
of such Bank which are not otherwise included in the determination of the
LIBO Rate hereunder; or
(3) does or shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank of
making, renewing, converting or maintaining advances or extensions of credit as
Eurocurrency Rate Loans, or to reduce any amount receivable in respect of such
Eurocurrency Rate Loans then, in any such case, the Borrowers shall promptly pay
to such Bank such additional amount which will compensate the Bank for such
additional cost or reduced amount receivable which the Bank deems to be material
as determined by the Bank with respect to this Agreement or the Eurocurrency
Rate Loans hereunder.
(b) If any Bank shall have determined that compliance by such Bank with
any applicable law, governmental rule, regulation or order of any jurisdiction
applicable to such Bank (including, without limitation, the United States or the
United Kingdom or any state, county or political subdivision thereof) regarding
capital adequacy of banks or bank holding companies, or any interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Bank with any request or directive regarding capital adequacy (whether
or not having the force of law and whether or not failure to comply therewith
would be unlawful) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Bank's capital
as a consequence of such Bank's obligations hereunder to a level below that
which such
-31-
<PAGE>
Bank could have achieved but for such compliance (taking into consideration such
Bank's policies with respect to capital adequacy immediately before such
compliance and assuming that such Bank's capital was fully utilized prior to
such compliance) by an amount deemed by such Bank to be material, then, upon
demand, the Borrowers shall immediately pay to such Banks as are so affected
such additional amounts as shall be sufficient to compensate such Banks for such
reduced return, together with interest on each such amount from four Business
Days after the date demanded until payment in full thereof at the rate of
interest of 3% per annum over the Alternate Base Rate. In determining such
amount, such Bank may use any reasonable averaging and attribution methods. No
liability or cost pursuant to this Section 2.13(b) shall be incurred by the
Borrowers prior to, or relating to any period before, the date that the
Borrowers receive a demand from a Bank under this Section 2.13(b).
(c) If a Bank becomes entitled to claim any additional amounts pursuant to
this Section 2.13, it shall promptly notify the Borrowers thereof. A certificate
as to any additional amounts payable pursuant to the foregoing submitted by a
Bank to the Borrowers shall be conclusive absent manifest error. For purposes of
the application of this Section 2.13, and in calculating the amount necessary to
compensate such Bank for any imposition of or increase in capital requirements
or taxes hereunder, such Bank shall determine the applicability of this
provision and calculate the amount payable to it hereunder in a manner
consistent with the manner in which it shall apply and calculate similar
compensation payable to it by other borrowers having provisions in their credit
agreements comparable to this Section 2.13.
(d) If any Bank shall, at any time, incur costs associated with reserve
requirements pursuant to Regulation D in connection with the making or
maintenance of any Eurocurrency Rate Loan, then the Borrowers shall immediately
pay such costs to such Bank in accordance with Section 2.13(c) hereof.
2.14 Indemnity Against Funding Losses or Expenses. The Borrowers shall
--------------------------------------------
indemnify each Bank against any loss, funding cost, expense or loss of earnings,
which such Bank may, as a consequence of the Borrowers' failure to accept Loans
requested at any time, failure to make a payment on the due date thereof or the
payment, prepayment or conversion of any Eurocurrency Rate Loans or Bid Loans on
a day other than the maturity date thereof, reasonably sustain or reasonably
incur in liquidating or employing deposits from third parties acquired to
effect, fund or maintain such or any part thereof. If a Bank becomes entitled to
claim any additional amounts pursuant to this Section 2.14, it shall promptly
notify the Agent, which shall promptly notify the Borrowers thereof.
2.15 Substitution of Bank. If any Bank has demanded compensation under
--------------------
Section 2.13 or Section 2.14, the Borrowers shall have the right, after
consultation with the Agent, to seek a substitute bank or banks (which may be
one or more of the Banks) to purchase the Notes for cash without recourse to
such Bank and assume the Commitment of such Bank, which shall thereupon be
released from all of its obligations hereunder.
-32-
<PAGE>
3. Representations and Warranties
The Borrowers represent and warrant that:
3.1 Organization and Good Standing. The Company, each Subsidiary
------------------------------
Borrower and each Significant Subsidiary is a corporation duly organized and in
good standing (where such concept exists) under the laws of the jurisdiction of
its incorporation and has the power to carry on its business as now conducted.
The officers of the Company have exercised due diligence to qualify the Company,
and to cause the qualification of each Subsidiary Borrower and each Significant
Subsidiary, as a foreign corporation in the various jurisdictions wherein the
nature of the business they transact makes such qualification necessary. The
Company's only Significant Subsidiaries on the date hereof are IKON Capital Inc.
and IKON Office Solutions, Inc./IKON Solution de Bureau, Inc. (Canada).
3.2 Corporate Power and Authority. The execution, delivery and
-----------------------------
performance of this Agreement and the Notes are within the corporate power and
authority of each Borrower, have been duly authorized by proper corporate
proceedings, will not contravene any provision of law or the Certificate or
Articles of Incorporation, Memorandum and Articles of Association or Bylaws or
Code of Regulations of any Borrower or constitute a default under any agreement
binding upon any Borrower, and do not require the consent or approval of, or
registration with, any governmental body, agency or authority.
3.3 Validity of Agreement and Notes. This Agreement is a legal, valid
-------------------------------
and binding obligation of each Borrower, and the Notes when issued will be
legal, valid and binding obligations of each Borrower, enforceable in accordance
with their respective terms.
3.4 Litigation. Except as set forth on Schedule A, there are no suits,
----------
litigation or other proceedings pending, or to the knowledge of any officer of
any Borrower threatened, against or affecting the Company or any Subsidiary or
any of their respective properties, before any court, governmental commission,
bureau or other regulatory body, the outcome of which might materially and
adversely affect the financial condition or business of the Company and its
Subsidiaries considered in the aggregate or the ability of any Borrower to
perform its obligations hereunder.
3.5 Financial Statements. The Company has heretofore furnished to the
--------------------
Banks consolidated balance sheets of the Company and its Subsidiaries as at
September 30, 1997 and September 30, 1996 and the related consolidated
statements of income and retained earnings, with a report thereon by Ernst &
Young, independent certified public accountants, stating in comparative form the
amounts for the corresponding dates and periods for the previous fiscal year.
Such balance sheets and such statements of income and retained earnings fairly
present the consolidated financial position of the Company and its Consolidated
Subsidiaries as of the dates thereof and the results of their operations for the
periods then ended.
-33-
<PAGE>
All such financial statements were prepared in accordance with GAAP. Since
September 30, 1997, there has not been any material adverse change in the
financial condition, business or operations of the Company and its Subsidiaries.
3.6 ERISA. Each Employee Benefit Plan of the Company and any ERISA
-----
Affiliate is in compliance with ERISA and the Code, where applicable, in all
material respects. As of the date hereof, (i) the amount of all Unfunded Pension
Liabilities under the Pension Plans, (ii) the amount of the aggregate
Unrecognized Retiree Welfare Liability under all applicable Employee Benefit
Plans, and (iii) the aggregate potential annual withdrawal liability payments,
as determined in accordance with Title IV of ERISA, of the Company and any ERISA
Affiliate with respect to all Pension Plans which are Multiemployer Plans, are,
in the aggregate, no more than U.S. $5,000,000. The Company and each ERISA
Affiliate have complied with the requirements of ERISA Section 515 with respect
to each Pension Plan which is a Multiemployer Plan. The Company and/or any ERISA
Affiliate has, as of the date hereof, made all contributions or payments to or
under each such Pension Plan required by law or the terms of such Pension Plan
or any contract or agreement. No material liability on a consolidated basis to
the Pension Benefit Guaranty Corporation ("PBGC") has been incurred, or is
expected to be incurred by the Company or any ERISA Affiliate.
For purposes of ERISA matters under this Agreement, "Employee Benefit
Plan" means any employee benefit plan within the meaning of ERISA Section 3(3)
maintained, sponsored or contributed to by the Company or any ERISA Affiliate;
"ERISA Affiliate" means any entity that is a member of any group of
organizations within the meaning of Code Sections 414(b), (c), (m) or (o) of
which the Company is a member; "Multiemployer Plan" means a pension plan that is
a multiemployer plan as defined in ERISA Section 4001(a)(3); "Pension Plan"
means any Employee Benefit Plan, including a Multiemployer Plan, the funding
requirements of which (under ERISA Section 302 or Code Section 412) are or, at
any time within the six years immediately preceding the time in question, were
in whole or in part, the responsibility of the Company or any ERISA Affiliate;
"Unfunded Pension Liabilities" means, with respect to any Pension Plan at any
time, the amount determined by taking the accumulated benefit obligation, as
disclosed in accordance with FAS number 87, over the fair market value of
Pension Plan assets; and "Unrecognized Retiree Welfare Liability" means, with
respect to any Employee Benefit Plan that provides post-retirement benefits
other than pension benefits, the amount of the transition obligation, as
determined in accordance with FAS number 106, as of the most recent valuation
date that has not been recognized as an expense on the income statement of the
Company and its Subsidiaries.
3.7 Regulations G, T, U and X. Except for Partners Securities Company,
-------------------------
neither the Company nor any of its Subsidiaries is or will be engaged
principally or as one of its important activities in the business of extending
credit for the purpose of purchasing or carrying or trading in any margin stocks
or margin securities (within the meaning of Regulations G, T, U and X of the
-34-
<PAGE>
Board of Governors of the Federal Reserve System). No part of the proceeds of
any Loan made hereunder will be applied for the purpose of purchasing or
carrying or trading in any such stocks or securities, or of refinancing any
credit previously extended or of extending credit to others for the purpose of
purchasing or carrying or trading in any such margin stocks or margin
securities.
3.8 Compliance with Laws. The Company and each Subsidiary is in
--------------------
compliance in all material respects with all applicable laws and regulations,
federal, state and local, the violation of which would have a material adverse
effect on the Company and its Consolidated Subsidiaries taken as a whole; the
Company and each Subsidiary possess all the material franchises, permits and
licenses necessary or required in the conduct of its business, and the same are
valid, binding and enforceable.
3.9 Taxes and Assessments. The Company and each Subsidiary have filed
---------------------
all required tax returns or have filed for extensions of time for the filing
thereof, and have paid all applicable taxes, governmental charges and similar
obligations, including United States federal, state and local taxes, other than
taxes, governmental charges and similar obligations not yet due or which may be
paid hereafter without material penalty; the Internal Revenue Service has
completed audits of tax returns filed through September 30, 1992; and neither
the Company nor any Subsidiary has knowledge of any material deficiency or
additional assessment against it in connection with any applicable taxes not
provided for in the financial statements referred to in Section 3.5 hereof.
3.10 Investment Company. Neither the Company nor any Subsidiary is an
------------------
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
3.11 Environmental Matters. The Company and each Subsidiary have
---------------------
received all permits and filed all notifications necessary to carry on their
businesses and are in compliance in all material respects with all federal,
state or local laws and regulations governing the control, removal, spill,
release or discharge of hazardous or toxic wastes, substances and petroleum
products; including without limitation as provided in the provisions or the
regulations, as amended, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendment
and Reauthorization Act of 1986, the Solid Waste Disposal Act, the Clean Water
Act, the Clean Air Act, and the Occupational Safety and Health Act, and any
regulations thereunder (all of the foregoing enumerated and non-enumerated
statutes, including without limitation any applicable state or local
environmental statutes, collectively the "Environmental Control Statutes"), the
effect of which if not received, filed or complied with could have a material
adverse affect on the financial condition, business or operations of the Company
and its Subsidiaries. Also, neither the Company nor any Subsidiary has received
notice of potential responsibility for costs associated with responding to the
release or threatened release of hazardous substances for any site where the
Company's potential responsibility could have a material adverse affect on the
financial condition, business or operations of the Company and its Subsidiaries.
-35-
<PAGE>
3.12 Liens. Except as disclosed on Schedule B hereto, mortgages,
-----
pledges, security interests, encumbrances and other liens upon properties of the
Company and its Subsidiaries which are in existence at the date hereof do not
secure indebtedness that is, in the aggregate, material to the Company and its
Consolidated Subsidiaries and do not encumber properties which are material to
the Company and its Consolidated Subsidiaries.
3.13 Disclosure Generally. The representations and statements made by
--------------------
or on behalf of the Company and its Subsidiaries in connection with this credit
facility, and each Loan, do not and will not contain any untrue statement of a
material fact or omit to state a material fact or any fact necessary to make the
representations made not materially misleading. No written information, exhibit,
report or financial statement furnished by the Company or any Subsidiary to the
Banks in connection with this credit facility or the Loans contains or will
contain any material misstatement of fact or omit to state a material fact or
any fact necessary to make the statements contained therein not materially
misleading.
3.14 Ownership of Subsidiary Borrowers. The Company owns, directly or
---------------------------------
indirectly, all of the issued and outstanding capital stock of each Subsidiary
Borrower other than qualifying shares held by the directors of such Subsidiary
Borrower.
4. Conditions
4.1 Conditions to Effectiveness. This Agrement shall not be effective
---------------------------
until each of the following conditions has been satisfied:
(a) Compliance. (i) Each Borrower shall have complied and be in
----------
compliance with all of the terms, covenants and conditions of this Agreement
which are binding upon it, (ii) there shall exist no Event of Default and no
event which, with the giving of notice or the lapse of time, or both, would
constitute such an Event of Default, and (iii) the representations and
warranties contained in Article 3 hereof shall be true and correct. As evidence
hereof, the Agent shall have received for the account of each Bank a
certificate, dated the date hereof, signed by an executive officer of the
Company verifying the foregoing, to the best of his or her knowledge and belief.
Each Request for Advance in respect of any Loan hereunder, and the acceptance of
the proceeds of such Loan, shall constitute a reaffirmation by the officer
signing such Request for Advance (to the best of his or her knowledge and
belief) as of the time thereof and by the Borrowers of the continuing truth and
accuracy of the foregoing.
(b) Evidence of Corporate Action. The Agent shall have received
----------------------------
copies, certified as of the date hereof, of all corporate action taken by each
Borrower to authorize this Agreement, the Notes and the borrowing hereunder, and
such other evidence of corporate power and authority as the Banks shall
reasonably require.
-36-
<PAGE>
(c) Opinions of Counsel. The Agent shall have received a favorable
-------------------
written opinion of the Company's General Counsel in the form and substance
attached hereto as Exhibit D or Exhibit E, in the case of a Foreign Subsidiary.
(d) Incumbency Certificate. The Agent shall have received a
----------------------
certificate of the Secretary or an Assistant Secretary of each Borrower setting
forth the name of the officer or officers of each Borrower authorized to sign on
behalf of such Borrower this Agreement and the Notes and other documents and
certificates to be delivered by such Borrower hereunder, together with the true
signatures of such officer or officers, upon which certificate each Bank and the
Agent may rely conclusively until they shall have received a further certificate
of the Secretary or an Assistant Secretary of such Borrower amending the prior
certificate and submitting the signatures of the appropriate officers named in
such certificate.
(e) Executed Agreements. The Agent shall have received this Agreement
-------------------
or counterparts hereof executed by all parties to this Agreement.
(f) Notes. The Agent shall have received for each Bank a Revolving
-----
Credit Facility Note and a Bid Loan Note, duly executed, completed and issued in
accordance herewith.
(g) Material Adverse Change. Since September 30, 1997, there shall not
-----------------------
have been any material adverse change in the financial condition, operations or
assets of the Company and its Subsidiaries taken as a whole, and there shall not
be any other event or circumstance which gives the Majority Banks reasonable
grounds to conclude that any Borrower may not or will not be able to perform or
observe (in the normal course) its obligations hereunder and under the Notes.
(h) Certificate of Compliance. The Agent shall have received a
-------------------------
certificate, dated the effective date of this Agreement and signed by the
President, a Vice President or a Financial Officer of the Company, confirming
compliance with the conditions set forth in Section 4.2.
4.2 Conditions to Loans. After this Agreement has become effective,
-------------------
the obligation of each Bank to make each Loan to be made by it hereunder and of
the Issuing Bank to issue, extend or renew each Letter of Credit hereunder is
further conditioned upon the following:
(a) The Agent shall have received a Request for Advance, or, as
applicable, the Issuing Bank shall have received a request for the issuance of a
Letter of Credit;
(b) The Company and its Subsidiaries, including but not limited to
each Subsidiary Borrower, shall be in compliance with all of the terms,
covenants and conditions of this Agreement which are binding upon it;
(c) After giving effect to such Loan or, as applicable, Letter of
Credit, and the receipt of the proceeds thereof, no Event of Default or no event
which, with the giving of notice or the
-37-
<PAGE>
lapse of time, or both, would constitute such an Event of Default, shall have
occurred and be continuing;
(d) Each representation and warranty contained herein shall be true
and accurate on and as of the date of the proposed Loan as though such was made
on such date; provided, however, that such condition shall include the truth and
accuracy of the representation contained in Section 3.14 only as such
representation applies to those Subsidiary Borrowers with Loans then outstanding
or to whom such Loan is to be made; and
(e) If such Loan is requested to be made to a Subsidiary Borrower, or
the Letter of Credit is requested to be made for the issuance of a Letter of
Credit for the account of a Subsidiary Borrower, the Agent shall have received a
favorable written opinion from counsel to such Subsidiary Borrower (which
counsel shall be reasonably acceptable to the Agent) in the form and substance
attached hereto as Exhibit E or in such form as shall be reasonably acceptable
to the Agent.
4.3 Copies of Documents. All documents and instruments to be delivered
-------------------
hereunder in satisfaction of the conditions set forth in Section 4.1 and Section
4.2 (other than the Notes themselves) shall be delivered in sufficient numbers
of original counterparts to enable separate counterparts thereof to be furnished
to the Agent and each of the Banks. Upon its receipt of the same, the Agent
shall promptly supply each Bank with a counterpart of each document, certificate
and other paper delivered to the Agent in fulfillment of the conditions set
forth in Section 4.1 and Section 4.2.
5. Covenants
The covenants set forth in this Section shall be effective until the
expiration or prior termination of the Commitments or until payment in full of
all Notes issued and other amounts owing hereunder, whichever is later.
5.1 Financial Statements and Information. The Company will furnish to
------------------------------------
each Bank:
(a) as soon as available and in any event within 60 days after
the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, copies of a consolidated balance sheet
of the Company and its Consolidated Subsidiaries as of the end of such
accounting period and of the related consolidated income and retained
earnings statements of the Company and its Consolidated Subsidiaries
for the elapsed portion of the fiscal year ended with the last day of
such accounting period, all in reasonable detail and stating in
comparative form the amounts for the corresponding date and period in
the previous fiscal year, and all prepared in accordance with GAAP,
subject to year end audit adjustments and certified by an authorized
financial officer of the Company;
-38-
<PAGE>
(b) as soon as available and in any event within 120 days after
the end of each fiscal year of the Company, copies of consolidated
balance sheets of the Company and its Consolidated Subsidiaries as of
the end of such fiscal year and consolidated statements of income and
retained earnings of the Company and its Consolidated Subsidiaries for
such fiscal year, in reasonable detail and stating in comparative form
the figures as of the end of and for the previous fiscal year prepared
in accordance with GAAP and certified by independent public accountants
of recognized standing as may be selected by the Company and reasonably
satisfactory to the Agent;
(c) concurrently with each of the financial statements furnished
pursuant to the foregoing subsections (a) and (b), a certificate of the
Chairman of the Board, President, a Vice President (whose duties are in
the finance area) or Financial Officer, stating that in the opinion of
the signer, based upon a review made under their supervision, no Event
of Default or event which, with the giving of notice or lapse of time,
or both, would constitute an Event of Default, has occurred is
continuing, and the Company has performed and observed all of, and the
Company is not in default in the performance or observance of any of,
the terms and covenants hereof or, if the Company shall be in default,
specifying all such defaults, and the nature thereof, of which the
signer of such certificate may have knowledge;
(d) concurrently with their being filed, mailed or delivered, as
applicable, copies of all proxy statements, financial statements and
reports which the Company shall send or make available generally to its
shareholders, and copies of all reports on Forms 10-K, 10-Q and 8-K and
all other filings and reports specifically requested by a Bank which
the Company or any Subsidiary may be required to file with the
Securities and Exchange Commission or any similar or corresponding
governmental commission, department or an agency substituted therefor
or with any securities exchange located in the United States of
America; and
(e) such other information relating to the business, affairs and
financial condition of the Company and its Subsidiaries as the Agent
(when requested so to do by any Bank) may from time to time reasonably
request.
5.2 Funded Debt to Total Capitalization Ratio. The Company will not
-----------------------------------------
permit Funded Debt of the Company and its Consolidated Subsidiaries to exceed
50% of the sum of (1) Funded Debt of the Company and its Consolidated
Subsidiaries plus (2) the consolidated minority interest obligations shown on
the consolidated balance sheet of the Company and its Consolidated Subsidiaries
plus (3) the Consolidated Net Worth of the Company and its Consolidated
Subsidiaries. For purposes of calculating such ratio, Finance Leasing
Subsidiaries shall be excluded from the definition of "Consolidated
Subsidiaries."
-39-
<PAGE>
5.3 Subsidiaries' Debt. The Company will not permit any of its
------------------
Subsidiaries directly or indirectly to create, incur, assume, suffer to exist,
guarantee or otherwise become, be or remain liable with respect to any Debt
(other than Excluded Debt, as defined below) in an aggregate amount outstanding
(as to all Subsidiaries) at any time in excess of 20% of Consolidated Net Worth
plus the amount of Debt outstanding on the date hereof (other than Excluded Debt
outstanding on the date hereof). For the purposes of this Agreement, Excluded
Debt shall mean: (i) Debt owing exclusively to the Company or another
Subsidiary, (ii) Debt of a Subsidiary outstanding on the date that the Company
acquires such Subsidiary, (iii) Debt with respect to property to be used by the
Company or its Subsidiaries, the interest on which Debt is exempt from Federal
income tax pursuant to ss.103 of the Internal Revenue Code of 1986, as amended,
(iv) Debt of any foreign Subsidiary that is not guaranteed by the Company or any
other Subsidiary, (v) Debt of Finance Leasing Subsidiaries owing to the Company
or any of its Consolidated Subsidiaries, (vi) Debt of Finance Leasing
Subsidiaries to a person or persons other than the Company and its Consolidated
Subsidiaries provided that such Debt is not guaranteed by the Company or any of
its Consolidated Subsidiaries or (vii) Debt hereunder or under the Existing
Credit Agreement.
5.4 Sale of Assets. The Company will not, and will not permit any
--------------
Consolidated Subsidiary to, sell, lease or transfer all or substantially all of
its assets unless (i) immediately after giving effect thereto the Company is in
compliance with the covenants and provisions of this Agreement and (ii) such
sale, lease or transfer shall not have any materially adverse effect upon the
financial condition of the Company and its Subsidiaries taken as a whole or the
Company's ability to perform its obligations hereunder. Notwithstanding this
provision, any Consolidated Subsidiary that is not a Subsidiary Borrower may
sell, lease or transfer all or substantially all of its assets to any other
Consolidated Subsidiary or to the Company, and any Subsidiary Borrower may sell,
lease or transfer all or substantially all of its assets to any other Subsidiary
Borrower or to the Company.
5.5 Mergers and Acquisitions. Neither the Company nor any Subsidiary
------------------------
Borrower will merge or consolidate with, or otherwise acquire control of the
assets of, any other corporation or other entity, unless (i) the Company is the
surviving or parent corporation of any merger or other acquisition involving the
Company, (ii) a Subsidiary Borrower is the surviving or parent corporation of
any merger or other acquisition involving one or more Subsidiary Borrowers and
(iii) the Company and each Subsidiary Borrower are in compliance with this
Agreement prior to and after such merger or acquisition; provided, however, that
the provisions of this Section 5.5 shall apply to a Subsidiary Borrower only if
and so long as such Subsidiary Borrower has outstanding Loans.
5.6 Negative Pledge. The Company will not, and will not permit any
---------------
Consolidated Subsidiary to, create, incur, assume or suffer to exist any
mortgage, pledge, security interest, encumbrance or other lien upon any
property, now owned or hereafter acquired, of the Company or any Consolidated
Subsidiary (the sale with recourse of receivables or any sale and lease back of
any fixed assets being deemed to be the giving of a lien thereon for money
borrowed), other than:
-40-
<PAGE>
(a) liens existing on the date of this Agreement on any property,
provided that the amount secured by any such lien is not greater than the
amount secured thereby on the date of this Agreement;
(b) liens on any property (including but not limited to margin stock
(within the meaning of Regulations G, T, U and X of the Board of Governors
of the Federal Reserve System)) hereafter acquired existing at the time of
such acquisition or created within a period of 120 days following any such
acquisition to secure or provide for the payment of any part of the
purchase price thereof or liens to secure indebtedness incurred to fund or
refund any liens within the scope of this subsection (b) provided that the
amount secured by any such lien is not greater than the amount secured
thereby on the date of such acquisition or within the 120 day period, as
the case may be;
(c) liens securing indebtedness of a Consolidated Subsidiary
outstanding on the date that the Company acquires such Consolidated
Subsidiary;
(d) liens for taxes, assessments or governmental charges or levies
not yet due and payable or being contested in good faith and by appropriate
proceedings promptly initiated and diligently conducted, provided that a
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor and no foreclosure, distraint, sale or
other similar proceedings shall have been commenced;
(e) statutory liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen incurred in the ordinary course of business for
sums not yet due or being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, provided that a
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor;
(f) liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(g) liens created hereafter in connection with borrowing or pledges
of receivables which liens when added to all sales and discounting
transactions contemplated by Section 5.7 do not in the aggregate exceed 10%
of Consolidated Net Worth;
(h) liens, security interests and any other encumbrances on any of
its treasury shares; and
-41-
<PAGE>
(i) liens arising in connection with a Securitization permitted by
Section 5.7 hereof, limited in each case to the accounts therein or in any
trust or similar entity utilized to effect such Securitizations and to any
equipment giving rise to such accounts.
5.7 Sale, Discount of Receivables; Sale, Leaseback Transactions. The
-----------------------------------------------------------
Company will not, and will not permit its Consolidated Subsidiaries, with the
exception of the Finance Leasing Subsidiaries, to enter into any
Securitizations, or sell or discount receivables with recourse or sell and lease
back fixed assets the aggregate amount of which when added to all liens
permitted by Section 5.6(g) exceed 10% of Consolidated Net Worth.
5.8 Regulations G, T, U and X. The Company will not, and will not permit
-------------------------
any Subsidiary to, use Borrowings hereunder in any manner which may cause a
violation of or non-compliance with Regulations G, T, U or X of the Board of
Governors of the Federal Reserve Board.
5.9 Corporate Existence. The Company will maintain its existence and,
-------------------
except as otherwise allowed by Section 5.5 above, the existence of each
Subsidiary in good standing as a business corporation under the laws of the
jurisdiction of its incorporation, and remain qualified and cause each
Subsidiary to remain qualified to do business in all jurisdictions wherein the
nature of the business it transacts or the character of the properties owned by
it makes such qualification necessary.
5.10 Books and Records. The Company will keep and maintain, and cause each
-----------------
Subsidiary to keep and maintain, satisfactory and adequate books and records of
account in accordance with GAAP and make or cause the same to be made available
to Banks or their agents or nominees at any reasonable time upon reasonable
notice for inspection and to make extracts thereof.
5.11 Insurance. The Company will insure and keep insured, and cause each
---------
Subsidiary to insure and keep insured, with reputable insurance companies, so
much of their respective properties, to such an extent and against such risks
(including liability and fire) as companies engaged in similar businesses
customarily insure properties of a similar character; or, in lieu thereof, the
Company or any one or more of its Subsidiaries will maintain or cause to be
maintained a system or systems of self-insurance which will be in accord with
the approved practices of companies owning or operating properties of a similar
character and maintaining such systems, and, in such cases of self-insurance,
maintain or cause to be maintained an insurance reserve or reserves in adequate
amounts.
5.12 Litigation; Event of Default. The Company will notify the Banks in
----------------------------
writing immediately of the institution of any litigation, the commencement of
any administrative proceedings, the happening of any event or the assertion or
threat of any claim which might materially or adversely affect its and its
Subsidiaries' business, operations or financial condition (taken as a whole), or
the
-42-
<PAGE>
occurrence of any Event of Default hereunder or an event which with the passage
of time or the giving of notice or both would constitute an Event of Default
hereunder.
5.13 Taxes. The Company will pay and discharge, and cause each Subsidiary
-----
to pay and discharge, all taxes, assessments or other governmental charges or
levies imposed on it or any of its property or assets prior to the date on which
any material penalty for non-payment or late payment is incurred, unless the
same is currently being contested in good faith by appropriate proceedings and
reserves in accordance with GAAP are being maintained.
5.14 Compliance with Laws. The Company will comply and cause each
--------------------
Subsidiary to comply in all material respects with all local, state and federal
laws and regulations material to its business and operations, including but not
limited to: (i) all rules and regulations of the Securities and Exchange
Commission, (ii) local, state and federal laws governing the control, removal,
spill, release, or discharge of hazardous or toxic wastes, substances or
petroleum products, including without limitation the Environmental Control
Statutes, and (iii) the provisions and requirements of all franchises, permits
and licenses applicable to its business, including, but not limited to, those
required by the Environmental Control Statutes. The Company shall notify the
Banks promptly in detail of any actual or alleged failure to comply with or
perform, breach, violation or default under any such laws or regulations or if
the Company receives notice of potential responsibility for the release or
threatened release of hazardous substances, or of the occurrence or existence of
any facts or circumstances which with the passage of time, the giving of notice
or both or otherwise could create such a breach, violation or default or could
occasion the termination of any of such franchises or grants of authority or the
creation of potential responsibility for releases or threatened releases of
hazardous substances, if any of the foregoing would have a material adverse
effect on the Company and its Subsidiaries taken as a whole.
5.15 Employee Benefit Plans. The Company will and will cause each ERISA
----------------------
Affiliate (a) to comply in all material respects with the provisions of ERISA to
the extent applicable to any Employee Benefit Plan maintained by it and cause
all Employee Benefit Plans maintained by it to satisfy the conditions under the
Internal Revenue Code of 1986, as amended (the "Code"), for tax qualification of
all such plans intended to be tax qualified; and (b) to avoid (1) any material
accumulated funding deficiency (within the meaning of ERISA section 302 and Code
section 412(a)) (whether or not waived) (2) any act or omission on the basis of
which it or an ERISA Affiliate might incur a material liability to the PBGC
(other than for the payment of required premiums) or to a trust established
under ERISA section 4049; (3) any transaction with a principal purpose described
in ERISA section 4069; and (4) any act or omission that might result in the
assessment by a Multiemployer Plan of withdrawal liability against the Company
or any ERISA Affiliate, but only to the extent that the liability arising from a
failure to comply with any covenant set forth in (a) or (b) of this Section 5.15
could reasonably be expected to result in a liability to the Company or a
Subsidiary or an ERISA Affiliate for any one such event in excess of U.S.
$10,000,000.
-43-
<PAGE>
5.16 Use of Proceeds. Each Borrower shall use the proceeds of its Loans
---------------
for working capital, acquisitions and general corporate purposes.
5.17 Continued Ownership of each Subsidiary Borrower. The Company shall
-----------------------------------------------
continue to own, directly or indirectly, all of the issued and outstanding
capital stock of each Subsidiary Borrower, other than qualifying shares held by
the directors of such Subsidiary Borrower; provided, however that this Section
5.17 shall apply to the Company's direct or indirect ownership of a Subsidiary
Borrower (i) as a condition to such Subsidiary Borrower obtaining a Loan
hereunder and (ii) if and so long as such Subsidiary Borrower has outstanding
Loans.
6. Defaults
6.1 Defaults. Any of the following shall constitute an "Event of Default"
with respect to this Agreement and the Notes:
(a) Failure of any Borrower to pay any amount payable on account of
the principal of or interest on any Note when due or to reimburse the
Issuing Bank for any Unpaid Drawing when due, or the failure to pay any Fee
or other payment due hereunder within 10 days after the same shall become
due;
(b) Failure of any Borrower to observe or perform any term, covenant
or agreement contained in this Agreement, the Notes or any other document
evidencing the Loans (other than that specified in (a) above) and the
continuation of such failure for 30 days after written notice thereof has
been given to the Borrowers by the Agent at the request of the holder of
any Note (including but not limited to itself);
(c) Any statement, certificate, report, representation or warranty
made or furnished by any Borrower in this Agreement or in compliance with
the provisions hereof shall prove to have been false or misleading in any
material respect at the time when made;
(d) Any obligation(s) of the Company and/or any Subsidiary in excess
of U.S. $15,000,000, individually or in the aggregate (as principal or
guarantor or other surety), to any person other than the Banks in
connection with this Agreement and the Notes for borrowed money (other than
the Notes) shall become or is declared to be due and payable prior to its
stated maturity or any event of default or event which with the passing of
time or notice or both shall have occurred the effect of which permits
payment of any such obligation to be demanded prior to its stated maturity;
(e) If (1) any Employee Benefit Plan shall cease to have "qualified"
status under the Code, (2) the minimum funding standards applicable to any
Employee Benefit Plan shall not be complied with, (3) any excise tax or tax
lien shall be incurred in connection with any Employee Benefit Plan and the
-44-
<PAGE>
administration thereof, (4) any claim shall be incurred with respect to any
Employee Benefit Plan other than in the ordinary operation of such Plan,
(5) any "prohibited transaction" as defined by the Code or ERISA shall have
occurred, (6) any liability shall be incurred to the PBGC, (7) any
withdrawal liability shall be incurred with respect to a Multiemployer
Plan, (8) any liability shall be incurred in connection with a failure to
make timely reports and filings with respect to Employee Benefit Plans, or
(9) any other thing shall have occurred with respect to any Employee
Benefit Plan, the result of which (in any one of the foregoing clauses (1)
through (8), any combination of said clauses, or otherwise) is that the
Company or any Subsidiary, in the reasonable judgment of the Majority
Banks, has or is likely to incur liabilities (whether the liability is
direct or indirect, current or deferred, fixed or contingent) of U.S.
$10,000,000 or more;
(f) Any judgment or judgments against the Company and/or any
Subsidiary or any attachments against any of their assets or property in an
amount in excess of U.S. $10,000,000 in any one instance or in the
aggregate shall remain unpaid, unstayed on appeal, undischarged, unbonded
or undismissed for a period of 30 days;
(g) If (1) any person or group within the meaning of ss.13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
rules and regulations promulgated thereunder shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act), directly or
indirectly, of securities of the Company (or other securities convertible
into such securities) representing twenty percent (20%) of the combined
voting power of all securities of the Company entitled to vote in the
election of directors, other than securities having such power only by
reason of the happening of a contingency (hereinafter called a "Controlling
Person"); or (2) a majority of the Board of Directors of the Company shall
cease for any reason to consist of (A) individuals who on the date of this
Agreement were serving as directors of the Company and (B) individuals who
subsequently become members of the Board if such individuals' nomination
for election or election to the Board is recommended or approved by a
majority of the Board of Directors of the Company. For purposes of clause
(1) above, a person or group shall not be a Controlling Person if such
person or group holds voting power in good faith and not for the purpose of
circumventing this Section 6.1(g) as an agent, bank, broker, nominee,
trustee, or holder of revocable proxies given in response to a solicitation
pursuant to the 1934 Act, for one or more beneficial owners who do not
individually, or, if they are a group acting in concert, as a group have
the voting power specified in clause (1).
(h) The Company and/or any Subsidiary shall (i) apply for or consent
to the appointment of a receiver, trustee or liquidator of itself or of its
property, (ii) be unable, or admit in writing inability, to pay its Debts
as they mature, (iii) make a general assignment for the benefit of
creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a
voluntary petition in bankruptcy, or a petition or answer seeking
reorganization or an
-45-
<PAGE>
arrangement with creditors to take advantage of any insolvency law, or an
answer admitting the material allegations of a bankruptcy, reorganization
or insolvency petition filed against it, (vi) take corporate action for the
purpose of effecting any of the foregoing, or (vii) have an order for
relief entered against it in any proceeding under the United States
Bankruptcy Code;
(i) An order, judgment or decree shall be entered, without the
application, approval or consent of the Company and/or any Subsidiary by
any court of competent jurisdiction, approving a petition seeking
reorganization of the Company or such Subsidiary or appointing a receiver,
trustee or liquidator of the Company or such Subsidiary or of all or a
substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of 60 consecutive days; or
(j) The Company shall fail to continue to maintain its ownership of
each of the Subsidiary Borrowers to the extent required by Section 5.17.
6.2 Acceleration by Reason of Default. If an Event of Default occurs
---------------------------------
under Section 6.1(a) through Section 6.1(g) or Section 6.1(j) above, the Agent
shall (a), if requested by the Majority Banks, immediately terminate the
Commitments by notice in writing to the Borrowers and (b), if requested by the
Majority Banks, immediately declare the Notes to be and they shall thereupon
forthwith become due and payable without presentment, demand, or notice of any
kind, all of which are hereby expressly waived. Simultaneously with the giving
of any such notice to the Borrowers, the Agent shall notify the Banks of any
such action. If an Event of Default occurs under Section 6.1(h) or Section
6.1(i) above, then, forthwith and without any election or notice, the
Commitments shall terminate and the Notes shall forthwith become due and payable
without presentment, demand or other notice of any kind, all of which are hereby
expressly waived.
7. The Banks and the Agent
7.1 Authority of Agent. Each of the Banks authorizes the Agent to act on
------------------
its behalf to the extent herein provided and to exercise such other powers as
are reasonably incidental thereto, including the receipt of all payments of
principal of and interest on the Notes, fees and other amounts payable
hereunder, with full power and authority as attorney-in-fact for the Banks to
institute and maintain actions, suits or proceedings for the collection and
enforcement of the Notes and to file such proofs of debt or other documents as
may be necessary to have the claims of the Banks allowed in any proceeding
relative to any Borrower or its creditors or affecting its properties and to
take such other action for the protection, collection and enforcement of the
Notes as the Agent may deem advisable. The Agent may take any such action in its
discretion and shall take such action for the protection, collection and
enforcement of the Notes as may be requested by the Majority Banks. The
relationship between the Agent and each Bank has no fiduciary aspects, and the
Agent's duties (as Agent) hereunder are acknowledged to be only ministerial and
not involving the exercise of discretion on its part. Nothing in this Agreement
or any Note shall be
-46-
<PAGE>
construed to impose on the Agent any duties or responsibilities other than those
for which express provision is made herein or therein. In performing its duties
and functions hereunder, the Agent does not assume and shall not be deemed to
have assumed, and hereby expressly disclaims, any obligation with or for the
Borrowers. As to matters not expressly provided for in this Agreement or any
Note, the Agent shall not be required to exercise any discretion or to take any
action or communicate any notice, but shall be fully protected in so acting or
refraining from acting upon the instructions of the Majority Banks and their
respective successors and assigns; provided, however, that in no event shall the
Agent be required to take any action which exposes it to personal liability or
which is contrary to this Agreement, any Note or applicable law, and the Agent
shall be fully justified in failing or refusing to take any action hereunder
unless it shall first be specifically indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or omitting to take any such action. If an indemnity furnished
to the Agent for any purpose shall, in the reasonable opinion of the Agent, be
insufficient or become impaired, the Agent may call for additional indemnity
from the Banks and not commence or cease to do the acts for which such indemnity
is requested until such additional indemnity is furnished. The Majority Banks
may revoke the authority of the Agent set forth herein effective upon receipt of
written notice by the Agent of such revocation. The Agent shall promptly notify
the Banks of any Event of Default.
7.2 Responsibility of Agent. In performing its functions and duties
-----------------------
hereunder on behalf of the Banks, the Agent shall exercise the same care and
skill as it would exercise in dealing with loans for its own account. Neither
the Agent nor any of its directors, officers or employees shall be liable for
any action taken or omitted in the absence of gross negligence or willful
misconduct. Each Borrower shall certify to the Agent the names and signatures of
its officers authorized to sign Notes, execute certificates and otherwise act in
respect hereof, and the Agent may conclusively rely thereon until receipt by it
of notice to the contrary. The Agent shall be entitled to rely upon any opinion
of counsel (including counsel for the Borrowers) in relation to this Agreement.
The Agent may treat the payee of any Note as the holder thereof until written
notice of transfer shall have been filed with it. The Agent shall promptly
notify the Borrowers of any such notice received by it.
7.3 Pro-Rata Payments. If any Bank, by exercising any right of set-off or
-----------------
counterclaim or otherwise, receives payment of principal or interest or other
amount due on any Loan or Letter of Credit, which is greater than the percentage
share of such Bank (determined as set forth below), the Bank receiving such
proportionately greater payment shall purchase such participations in the Loans
or Letter of Credit obligations held by the other Banks, and such other
adjustments shall be made as may be required, so that all such payments shall be
shared by the Banks on the basis of their percentage shares; provided that if
all or any portion of such proportionately greater payment of such indebtedness
is thereafter recovered from, or must otherwise be restored by, such purchasing
Bank, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest being paid by such purchasing
Bank. The percentage share of each Bank shall be based on the portion of the
outstanding Loans and Letter of Credit
-47-
<PAGE>
Outstandings due such Bank (prior to receiving any payment for which an
adjustment must be made under this Section 7.3)) in relation to the aggregate
outstanding Loans and Letter of Credit Outstandings due all the Banks (prior to
receiving any payment of which an adjustment must be made under this Section
7.3).
7.4 Indemnification of Agent. Each of the Banks agrees (which agreement
------------------------
shall survive payment of the Notes) to indemnify the Agent (to the extent not
reimbursed by the Borrowers), in amounts which are pro rata to their respective
Commitments, if such amounts are due prior to the making of the Loans hereunder,
and thereafter to the outstanding principal amount of their respective Loans,
from and against any and all losses, claims, damages, liabilities and expenses
which may be imposed on, incurred by or asserted against the Agent in any way
related to or arising out of this Agreement, the Notes or the Loans or any
action taken or omitted by the Agent, except any losses, claims, damages,
liabilities or expenses resulting from the Agent's gross negligence or willful
misconduct; provided, however, that in the event any Bank is required hereunder
to make available to the Agent the amount of a Loan, and any such Bank fails to
make such amount available to the Agent, such Bank agrees to indemnify the Agent
to the extent provided in Section 2.2 hereof. All reasonable expenses, including
reasonable counsel fees, incurred by the Agent in taking any action hereunder
shall be borne, subject to the Borrowers' liability therefor, by the Banks pro
rata in accordance with their respective Commitment Percentages under this
Agreement, and the Banks hereby agree to reimburse the Agent for all such
expenses on request.
7.5 Credit Decision. Each Bank acknowledges that it has, independently
---------------
and without reliance upon the Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon the Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
any action under this Agreement. Each of the Banks agrees that the Agent shall
not have any responsibility for the accuracy or adequacy of any information
contained in any document, or any oral information, supplied to such Bank by the
Borrowers directly or through the Agent.
7.6 The Agent as a Bank. With respect to its Commitment and the Loans
-------------------
made and to be made by it, CoreStates Bank, N.A. shall have the same rights,
powers and obligations under this Agreement and its Notes as the other Banks and
may exercise the same as if it were not the Agent, and the terms "Bank" and
"Banks" as used herein shall, unless otherwise expressly indicated, include
CoreStates Bank, N.A. in its individual capacity. CoreStates Bank, N.A. and any
successor Agent which is a commercial bank, and their respective affiliates, may
accept deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of business with, any Borrower and its affiliates
from time to time, all as if the Agent were not the agent hereunder and without
any duty to account therefor to any Bank.
-48-
<PAGE>
7.7 Successor Agent. The Agent may resign at any time by giving written
---------------
notice of such resignation to the Banks and the Borrowers, such resignation or
removal to be effective only upon the appointment of a successor Agent as
hereinafter provided. Upon any such notice of resignation, the Banks other than
the Bank, if any, then serving as Agent shall jointly appoint a successor Agent
upon written notice to the Borrowers and the retiring Agent. If no successor
Agent shall have been jointly appointed by such Banks and shall have accepted
such appointment within 30 days after the retiring Agent shall have given notice
of resignation, the retiring Agent may, upon notice to the Borrowers and the
Banks, appoint a successor Agent. Upon its acceptance of any appointment as
Agent hereunder, the successor Agent shall succeed to and become vested with all
of the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring Agent's resignation hereunder, the provisions
hereof shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was the Agent under this Agreement.
7.8 Withholding Taxes. Each Bank (a) represents and warrants to, and
-----------------
agrees with, the Agent that as of the date hereof with respect to Loans to
Borrowers that are not Foreign Subsidiaries under applicable law and treaties no
taxes will be required to be withheld by the Agent with respect to any payments
to be made to such Bank hereunder, and (b) agrees to furnish (if it is organized
under the laws of any jurisdiction other than the United States or any State
thereof) to the Agent prior to the time that the Agent pays over to such Bank
its portion of any payment of interest or principal or their amounts hereunder
either (i) U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein such Bank claims entitlement to the benefits of a tax
treaty that provides for a complete exemption from U.S. federal income
withholding tax on all interest payments hereunder) and (ii) to the extent it is
then legally entitled to do so, a new Form 1001 or Form 4224 upon the
obsolescence of any previously delivered form or comparable statements in
accordance with applicable U.S. laws and regulations and amendments thereto,
duly executed and completed by such Bank, and (c) agrees to comply, from time to
time with all applicable U.S. laws and regulations with regard to such
withholding tax exemption. Upon request of the Agent from time to time, each
Bank shall deliver to the Agent such evidence of compliance with this Section as
the Agent requires.
7.9 Allocations Made By Agent. As between the Agent and the Banks, unless
-------------------------
a Bank objecting to a determination or allocation made by the Agent pursuant to
this Agreement delivers to the Agent written notice of such objection within one
hundred twenty (120) days after the date any distribution was made by the Agent,
such determination or allocation shall be conclusive on such one hundred
twentieth day and only those items expressly objected to in such notice shall be
deemed disputed by such Bank. The Agent shall not have any duty to inquire as to
the application by the Banks of any amounts distributed to them.
8. Indemnification
-49-
<PAGE>
8.1 Indemnification of the Agent and the Banks. Each Borrower hereby
------------------------------------------
agrees to indemnify and defend the Agent, each Bank and each Participant and
their respective directors, officers, agents, employees and counsel, from and
hold each of them harmless against, any and all losses, liabilities, claims,
damages, interests, costs, judgments or expenses, including reasonable
attorneys' fees, asserted against or incurred by any of them by or to any third
party arising out of or in connection with any Bank's Commitment, this
Agreement, or the Bank's financing of such Borrower's business and operations,
except any such amount claimed by a Bank resulting from such Bank's gross
negligence or wilful misconduct. All obligations provided for in this Section
8.1 shall survive any termination of this Agreement or the Notes, the repayment
of indebtedness hereunder, or any action taken by any Bank in the enforcement of
its rights and remedies, hereunder or thereunder, or any condition or event
relating to any Borrower or its business or operations.
9. Miscellaneous
9.1 Notices. All notices, requests, demands, directions and other
-------
communications provided for herein (other than telephonic communications to be
confirmed promptly thereafter in writing) shall be in writing (including
communication by FAX) and mailed, FAXED or delivered in hand to the applicable
party at the addresses and FAX numbers indicated opposite its signature on the
signature pages hereto or at such other addresses or FAX numbers as such party
may specify in prior written notice given to the Agent and the Company for
itself and on behalf of the Subsidiary Borrowers. All such notices, requests,
demands, directions and other communications shall, when mailed, or FAXED, be
effective when deposited in the mails or sent by FAX, respectively, addressed as
aforesaid, except that notices or requests or directions to the Agent pursuant
to any provision hereof shall not be effective until received by the Agent.
9.2 Effective Date, Successors and Assigns and Survival of Terms. This
------------------------------------------------------------
Agreement shall become effective upon receipt by the Agent from all parties
hereto of either an executed counterpart of this Agreement or written advice by
telex, telegram or FAX that a counterpart has been executed by the respective
party and is being concurrently sent to the Agent. The terms and provisions of
this Agreement shall be binding upon the parties hereto and their respective
successors and assigns except that no Borrower shall have the right to assign
any of its rights hereunder or any interest of it herein without the written
consent of all the Banks, and no Bank shall have the right to assign any of its
rights under or interest in this Agreement or any Note without (i) the written
consent of the Agent and the Company on behalf of the Borrowers received no
later than 14 days prior to such proposed assignment, (ii) execution and
delivery to the Agent and the Borrowers of an assignment agreement acceptable to
the Agent and the Company, and (iii) payment to the Agent (by the proposed
assignor or assignee) of an assignment fee of $3,000. All representations,
warranties and agreements herein contained on the part of the Borrowers shall
survive the execution of the Agreement and the execution of the Notes, the
expiration or prior termination of the Commitments, the payment of interest or
principal evidenced by any Note, and the payment of all fees and expenses, costs
or other payments due hereunder.
-50-
<PAGE>
9.3 Participations. Each Borrower hereby acknowledges and agrees that any
--------------
Bank may at any time grant participations in all or any portion of its Loans or
its Note or of its right, title and interest therein or in or to this Agreement,
(collectively, "Participations") to any other lending office or to any other
bank, lending institution, or any other entity which has the requisite
sophistication to evaluate the merits and risks of investments in Participations
(collectively, "Participants"); provided, however, that: (i) all amounts payable
by the Borrowers hereunder shall be determined as if such Bank had not granted
such Participation, and (ii) any agreement pursuant to which any Bank may grant
a participation in its rights with respect to any particular Loans (x) shall
provide that with respect to any such Loans such Bank shall retain the sole
right and responsibility to enforce the obligations of the Borrowers relating to
such Loans including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement, (y) may provide that
such Bank will not agree to any modification, amendment or waiver of this
Agreement without the consent of the Participant if such amendment, modification
or waiver would reduce the principal of or rate of interest on such Loans or
postpone the date fixed for any payment of principal of or interest on such
Loans, and (z) shall not relieve such Bank from its obligations, which shall
remain absolute, to make Loans hereunder. No Participant shall have the benefit
of the provisions contained in Section 2.13 hereof. Nothing contained herein
shall restrict the ability of any Bank to assign, pledge or hypothecate all or
any portion of its Note to any Federal Reserve Bank.
9.4 Expenses. The Borrowers agree to pay the reasonable out-of-pocket
--------
fees and expenses of the Agent incurred in connection with the negotiation and
documentation of this Agreement, the Notes and all related documents and any
amendments or waivers thereto, the enforcement of this Agreement and the Notes,
and the enforcement of any other rights of the Banks in connection herewith and
therewith. The Borrowers agree to pay the reasonable out-of-pocket fees and
expenses of the Banks, including reasonable counsel fees, in connection with the
enforcement of this Agreement and the Notes and the enforcement of any other
rights of the Banks in connection herewith and therewith.
9.5 Modifications and Waivers. No modifications or waivers of any
-------------------------
provision of this Agreement or any Note and no consent to any departure by any
Borrower therefrom shall in any event be effective, unless the same shall be in
writing, and approved by the Majority Banks, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given; provided, however, that without the written consent of all of the Banks
no such modification, waiver or consent shall (a) change the amount or maturity
date of the principal of, or change the rate or extend the time of payment of
interest on, any Loan, Letter of Credit Outstanding, or any fees hereunder, (b)
change any of the terms of the Commitments, (c) change or affect the provisions
of Section 2.1, Section 2.4(a)(2), Section 2.6, Section 2.7, Section 2.8,
Section 2.11, Section 2.12, Section 2.13, Section 2.14, Section 6.1, Section 6.2
or Section 8.1 hereof or modify the definition of "Majority Banks," or any other
provision which specifies a number or percentage of Banks, the consent or action
of which are required under
-51-
<PAGE>
such provision, (d) subordinate any Note in right of payment to any other
indebtedness or obligation whatsoever, or (e) change or affect any provision of
this Section 9.5.
9.6 No Implied Rights or Waivers. No notice to or demand on any Borrower
----------------------------
in any case shall entitle any Borrower to any other or further notice or demand
in the same, similar or other circumstances. Neither any failure nor any delay
on the part of the Banks in exercising any right, power or privilege hereunder
or under any Note shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of the same or
the exercise of any other right, power or privilege.
9.7 Offsets. Nothing in this Agreement shall be deemed a waiver or
-------
prohibition of any Bank's right of banker's lien or offset.
9.8 Application of Payments. Subject to the provisions of Sections 2.10
-----------------------
and 2.11, the Agent and notice of such resignation each Bank agree that all
payments on account of the Loans and Unpaid Drawings shall be applied by the
Agent and the Banks as follows:
(1) First, to the Agent for any fees, costs or expenses (including
expenses described in Section 9.4) accrued to or incurred by the Agent
under this Agreement or any of the Notes, then due and payable and not
reimbursed by the Borrowers or the Banks until such fees, costs and
expenses are paid in full;
(2) Second, as to all Loans other than Swingline Loans and Bid Loans
and other than Unpaid Drawings, to the Banks for their percentage shares of
the Fees then due and payable under this Agreement until such Fee is paid
in full;
(3) Third, as to all Loans other than Swingline Loans and Bid Loans
and other than Unpaid Drawings, to the Banks for their respective shares of
all costs, expenses and fees then due and payable from the Borrowers until
such costs, expenses and fees are paid in full;
(4) Fourth, as to all Loans other than Swingline Loans and Bid Loans
and other than Unpaid Drawings, to the Banks for their Commitment
Percentages of all interest then due and payable from the Borrowers until
such interest is paid in full, and, as to Swingline Loans, Bid Loans and
Unpaid Drawings, to the Agent or the Bank advancing such Bid Loan or to
which such Unpaid Drawing is due, respectively, in payment of all interest
then due and payable with respect to the applicable Swingline Loan, Bid
Loan or Unpaid Drawing; and
(5) Fifth, as to all Loans other than Swingline Loans and Bid Loans
and other than Unpaid Drawings, to the Banks for their Commitment
Percentages of the principal amount of the Loans then due and payable from
the Borrowers until such
-52-
<PAGE>
principal is paid in full, and, as to Swingline Loans, Bid Loans and Unpaid
Drawings, to the Agent or the Bank advancing such Bid Loan or to which such
Unpaid Drawing is due, respectively, in payment of the principal amount of
such Swingline Loan, Bid Loan or Unpaid Drawing, until such principal is
paid in full.
9.9 Counterparts. This Agreement and any amendment hereto or waiver of
------------
any provision hereof may be signed in any number of counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
9.10 Governing Law; Submission to Jurisdiction, Entire Agreement.
-----------------------------------------------------------
(a) This Agreement and the Notes shall be deemed to be contracts made
under and shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania without regard to Pennsylvania or federal
principles of the conflict of laws.
(b) Each Borrower hereby consents to the jurisdiction of any state or
federal court located in the Commonwealth of Pennsylvania in any action or
proceeding which may be brought against it under or in connection with this
Agreement or the Notes executed and delivered hereunder or to enforce any
covenant or agreement contained herein or in any Note, and in the event any
such action or proceeding shall be brought against it, each Borrower agrees
not to raise any objection to such jurisdiction or to the laying of the
venue thereof in any such court. Each Borrower hereby waives any and all
rights to a trial by jury.
(c) Each Borrower also agrees that any legal action or proceeding
arising out of or in connection with this Agreement or any Note may be
brought against it, at the sole election of the Banks in the jurisdiction
of incorporation of any Subsidiary Borrower.
(d) Each Subsidiary Borrower hereby agrees at all times to maintain,
and the Company agrees to cause each Subsidiary Borrower at all times to
maintain, the Company as its agent for service of process for all purposes
of this Agreement and the Notes. Each Subsidiary Borrower hereby appoints
the Company as its agent for such purpose and agrees that service may be
made upon it by mailing to the attention of the Treasury Department, FAXING
or delivering a copy of such process to it in care of the Company at the
Company's address as provided in Section 9.1 hereof and it hereby
irrevocably authorizes and directs the Company to accept such service on
its behalf. As an alternative method of service, each Subsidiary Borrower
also irrevocably consents to the service of process in any suit, action or
proceeding in Pennsylvania or its home jurisdiction arising out of this
Agreement or any Note by the mailing, FAXING or delivery of copies of such
process to it at its address set forth on the signature pages hereto.
-53-
<PAGE>
(e) Each Borrower hereby waives as a defense in any action brought
against it in respect of the Agreement or any Note, if brought in a court
described above with respect to it, that such action has been brought in an
inconvenient forum. Each Borrower agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.
(f) To the extent, if any, to which any Borrower or any of its
properties may be deemed to have or hereafter to acquire immunity from any
judicial process or proceeding to enforce this Agreement or any Note or to
collect amounts due hereunder or under any Note (including without
limitation, attachment proceedings prior to judgment) in any jurisdiction,
such Borrower waives such immunity and agrees not to claim the same.
(g) This Agreement and the Notes issued hereunder constitute the
entire understanding of the parties hereto as of the date hereof with
respect to the subject matter hereof and thereof and supersede any prior
agreements, written or oral, with respect hereto or thereto.
9.11 Severability of Provisions. Any provision of this Agreement which 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 or affecting the validity or
enforceability of such provision in any other jurisdiction.
9.12 Captions. Article and section captions in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
9.13 Plural and Singular. All words used herein in the plural shall be
-------------------
deemed to have been used in the singular and all words used herein in the
singular shall be deemed to have been used in the plural where the context and
construction so require.
9.14 Judgment Currency. The obligations of the Borrowers in respect of any
-----------------
sum due to any Bank or the Agent hereunder or under the Notes shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
the currency in which sum was originally denominated or required to be paid (the
"Original Currency"), be discharged only to the extent that on the Business Day
following receipt by such Bank or the Agent of any sum adjudged to be so due in
the Judgment Currency, such Bank or Agent, in accordance with normal banking
procedures, purchases the Original Currency with the Judgment Currency. If the
amount of Original Currency so purchased is less than the sum originally due to
such Bank or the Agent, the Borrowers agree, as a separate obligation and
notwithstanding any such judgment, to indemnify such Bank or the Agent, as the
case may be, against such loss, and if the amount of Original Currency so
purchased exceeds the sum originally due to such Bank
-54-
<PAGE>
or the Agent, as the case may be, such Bank or the Agent agrees to remit such
excess to the Company on behalf of the Borrowers.
-55-
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be duly executed by their duly authorized officers as of the date first above
written.
[CORPORATE SEAL] IKON OFFICE SOLUTIONS, INC.
Attest:
/s/ Karin M. Kinney /s/ Signature
______________________________ By:___________________________
Karin M. Kinney Name:
Secretary of IKON Office Solutions, Inc. Title:
70 Valley Stream
Parkway
P.O. Box 834
Malverne, PA 19355
FAX No. (610) 408-7022
[CORPORATE SEAL] IKON OFFICE SOLUTIONS GROUP PLC
Attest:
/s/ Karin M. Kinney /s/ Signature
______________________________ By:___________________________
Karin M. Kinney Name:
Secretary of IKON Office Solutions, Inc. Title:
/s/ Signature
By:___________________________
Name:
Title:
Address: Erskine House
Oak Hill Road,
Seven Oaks
Kent TN13 1NW
United Kingdom
[CORPORATE SEAL] IKON OFFICE SOLUTIONS, INC., a
Attest: Canadian corporation
/s/ Karin M. Kinney /s/ Signature
______________________________ By:___________________________
Karin M. Kinney Name:
Secretary of IKON Office Solutions, Inc. Title:
Address: 100 King Street
West, Suite 6600
1 First Canadian
Place
Toronto, Ontario M5X
1B8
Canada
CORESTATES BANK, N.A., FLEET NATIONAL BANK
for itself and as Agent
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
/s/ Signature /s/ Signature
By:______________________________ By:___________________________
Name: Name:
Title: Title:
FC 1-8-3-16 777 Main Street
1345 Chestnut Street MSN CTMOH24B
Philadelphia, PA 19107 Hartford, CT 06115
FAX No. (215) 973-6745 Fax No. 860-986-9378
BANK OF AMERICA ILLINOIS DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
/s/ Signature
By:______________________________ /s/ Signature
Name: By:___________________________
Title: Name:
231 South LaSalle Street Title:
Chicago, IL 60697
Attn: Celyndia Williams /s/ Signature
Fax No. 312-874-9626 By:___________________________
Name:
with a copy to: Title:
335 Madison Avenue, 5th Floor 31 West 52nd Street
New York, NY 10017 New York, NY 10019
Attn: _____________________ Fax No. 212-469-8212
Fax No. 212-503-7173
THE CHASE MANHATTAN BANK NATIONSBANK N.A.
/s/ Signature /s/ Signature
By:______________________________ By:___________________________
270 Park Avenue Name:
New York, NY 10017 Title:
Fax No. 212-270-6017 100 North Tryon Street
NC 1007-08-04
with a copy to: Charlotte, NC 28255
Johnathan Twitchell Fax No. 704-388-0960
Chase Securities, Inc.
10 South LaSalle Street
Chicago, IL 60603-1097
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Fax No. 312-807-4550
TORONTO DOMINION (NEW YORK), INC. FIRST UNION NATIONAL BANK
/s/ Signature /s/ Signature
By:______________________________ By:___________________________
Name: Name:
Title: Title:
909 Fannin Street, 17th Floor 123 South Broad Street
Houston, TX 77011 Philadelphia, PA 19109
Fax No. 713-951-9921 Fax No. 215-985-8793
PNC BANK NATIONAL ASSOCIATION SUNTRUST BANK, ATLANTA
/s/ Signature /s/ Signature
By:______________________________ By:___________________________
Name: Name:
Title: Title:
1600 Market Street
Philadelphia, PA 19103 /s/ Signature
Fax No. 215-585-5972 By:___________________________
Name:
Title:
711 Fifth Avenue, 16th
Floor
New York, NY 10022
Fax No. 212-371-9386
BANK OF TOKYO-MITSUBISHI
TRUST COMPANY
/s/ Signature
By:______________________________
Name:
Title:
U.S. Corporate Banking Division
1251 Avenue of the Americas
New York, NY 10020-1104
Fax No. 212-782-6440
<PAGE>
SCHEDULE A
None
<PAGE>
SCHEDULE B
All liens on any accounts or equipment giving rise to such accounts, arising in
connection with the Securitizations reported in the September 30, 1997 financial
statements.
<PAGE>
EXHIBIT A
SUBSIDIARY BORROWERS
IKON Office Solutions PLC
IKON Office Solutions, Inc., a Canadian corporation
A-1
<PAGE>
EXHIBIT B
Banks' Commitments and Percentages
<TABLE>
<CAPTION>
Revolving Credit
Facility Commitment
Bank Commitment Percentage*
(U.S. Dollars)
<S> <C> <C>
CoreStates Bank, N.A. $ 75,000,000 12.500%
Bank of America Illinois $ 62,500,000 10.417%
The Chase Manhattan Bank $ 62,500,000 10.417%
Deutsche Bank AG $ 62,500,000 10.417%
Nationsbank, N.A. $ 62,500,000 10.417%
Toronto Dominion (New York), Inc. $ 62,500,000 10.417%
Fleet National Bank $ 62,500,000 10.417%
PNC Bank National Association $ 45,000,000 7.500%
Sun Trust Bank, Atlanta $ 45,000,000 7.500%
First Union National Bank $ 30,000,000 5.000%
Bank of Tokyo-Mitsubishi
Trust Company $ 30,000,000 5.000%
----------------------------- ------------ -------
Total $600,000,000 100.000%
</TABLE>
* Commitment percentages may not total 100.000% due to rounding.
B-1
<PAGE>
EXHIBIT C-1
REVOLVING CREDIT FACILITY NOTE
U.S.$ (U.S. Dollar Equivalent) Philadelphia, PA
[Bank's Revolving Credit Facility Commitment] January __, 1998
FOR VALUE RECEIVED, IKON OFFICE SOLUTIONS, INC., an Ohio corporation, IKON
OFFICE SOLUTIONS GROUP PLC and IKON OFFICE SOLUTIONS, INC., a Canadian
corporation, (individually a "Borrower" and together the "Borrowers"), jointly
and severally, hereby promise to pay to the order of __________________________
(the "Bank"), in lawful currency of the United States of America or in such
other currencies as are provided in the Credit Agreement described below, in
immediately available funds, at the account of the Agent, located at Broad and
Chestnut Streets, Philadelphia, Pennsylvania, on the Revolving Credit Facility
Termination Date, or on such earlier date or dates as provided in the Credit
Agreement described below, the principal sum of U.S.$[Bank's Revolving Credit
Facility Commitment] or, if less, the then aggregate unpaid principal amount of
all Revolving Credit Facility Loans made by the Bank to the Borrowers pursuant
to the Credit Agreement.
Each Borrower promises also to pay interest on the unpaid principal amount
hereof in like money at such office from the date hereof until paid at the rates
and at the times provided in Article 2 of the Credit Agreement.
This Note is one of the Notes referred to in the Amended and Restated
Credit Agreement, dated January __, 1998 (as such may be further amended or
modified from time to time after such date) among the Borrowers, the financial
institutions from time to time party thereto (including the Bank) and the Agent
(as amended, modified or supplemented from time to time, the "Credit Agreement")
and is entitled to the benefits thereof. This Note is subject to voluntary
prepayment and mandatory repayment prior to the Revolving Credit Facility
Termination Date, in whole or in part, as provided in the Credit Agreement.
In case an Event of Default shall occur and be continuing, the principal of
and the accrued interest on this Note may be declared to be due and payable in
the manner and with the effect provided in the Credit Agreement.
Each Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
Notwithstanding the face amount of this Note, the undersigneds' liability
hereunder shall be limited at all times to the actual aggregate outstanding
indebtedness to the Bank relating to such
C-1-1
<PAGE>
Bank's Revolving Credit Facility Loans, including all principal and interest,
together with all fees and expenses as provided in the Credit Agreement, all as
established by the Bank's books and records which shall be conclusive absent
manifest error.
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Credit Agreement.
The liability of each Borrower under this Note and the Credit Agreement for
any and all obligations of the Borrowers, individually and collectively, owed to
the Banks under this Note and the Credit Agreement shall be unconditional and
absolute irrespective of (a) any lack of enforceability of any obligation, (b)
any change of the time, manner, place of payment, or any other term of any
obligation, (c) any law, regulation or order of any jurisdiction affecting the
genuineness, validity, or rights of the Banks, individually and collectively,
with respect to any obligation or any instruments evidencing any obligation, or
(d) any other circumstance which might otherwise constitute a defense to or
discharge of any Borrower. Each Borrower agrees that its obligations hereunder
and under the Credit Agreement are irrevocable; that a separate action or
actions may be brought and prosecuted against it regardless of whether any other
Borrower is joined in any such action or actions; and that it waives the benefit
of any statute of limitations affecting its liabilities hereunder and under the
Credit Agreement or the enforcement hereof and thereof.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO PENNSYLVANIA OR FEDERAL
PRINCIPLES OR CONFLICT OF LAWS.
IKON OFFICE SOLUTIONS, INC.
By:______________________________
Title:
IKON OFFICE SOLUTIONS GROUP PLC
By:______________________________
Title:
By:______________________________
Title:
IKON OFFICE SOLUTIONS, INC., a
Canadian corporation
By:______________________________
C-1-2
<PAGE>
Title:
C-1-3
<PAGE>
EXHIBIT C-2
BID LOAN NOTE
U.S. $600,000,000.00 Philadelphia, PA
January __, 1998
FOR VALUE RECEIVED, IKON OFFICE SOLUTIONS, INC., an Ohio corporation, IKON
OFFICE SOLUTIONS GROUP PLC and IKON OFFICE SOLUTIONS, INC., a Canadian
corporation (individually a "Borrower" and together the "Borrowers"), jointly
and severally, as and to the extent provided in Section 2.5 of the Credit
Agreement, hereby promise to pay to the order of __________________________ (the
"Bank"), in lawful currency of the United States of America or in such other
currencies as are provided in the Credit Agreement described below, in
immediately available funds, at the account of the Agent, located at Broad and
Chestnut Streets, Philadelphia, Pennsylvania, on the Revolving Credit Facility
Termination Date, or on such earlier date or dates as provided in the Credit
Agreement described below, the principal sum of U.S. $400,000,000.00 or, if
less, the then aggregate unpaid principal amount of all Bid Loans made by the
Bank to the Borrowers pursuant to the Credit Agreement.
Each Borrower promises also to pay interest on the unpaid principal amount
hereof in like money at such office from the date hereof until paid at the rates
and at the times provided in Article 2 of the Credit Agreement.
This Bid Loan Note is one of the Bid Loan Notes referred to in the Amended
and Restated Credit Agreement, dated January __, 1998 (as such may be further
amended or modified from time to time after such date) among the Borrowers, the
financial institutions from time to time party thereto (including the Bank) and
the Agent (as amended, modified or supplemented from time to time, the "Credit
Agreement") and is entitled to the benefits thereof. This Bid Loan Note is
subject to voluntary prepayment and mandatory repayment prior to the Revolving
Credit Facility Termination Date, in whole or in part, as provided in the Credit
Agreement.
In case an Event of Default shall occur and be continuing, the principal of
and the accrued interest on this Bid Loan Note may be declared to be due and
payable in the manner and with the effect provided in the Credit Agreement.
Each Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Bid Loan Note.
Notwithstanding the face amount of this Bid Loan Note, the undersigneds'
liability hereunder shall be limited at all times to the actual aggregate
outstanding indebtedness to the Bank relating
C-2-1
<PAGE>
to such Bank's Bid Loans, including all principal and interest, together with
all fees and expenses as provided in the Credit Agreement, all as established by
the Bank's books and records which shall be conclusive absent manifest error.
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Credit Agreement.
The liability of each Borrower under this Bid Loan Note and the Credit
Agreement for any and all obligations of the Borrowers, individually and
collectively, owed to the Banks under this Bid Loan Note and the Credit
Agreement shall be unconditional and absolute irrespective of (a) any lack of
enforceability of any obligation, (b) any change of the time, manner, place of
payment, or any other term of any obligation, (c) any law, regulation or order
of any jurisdiction affecting the genuineness, validity, or rights of the Banks,
individually and collectively, with respect to any obligation or any instruments
evidencing any obligation, or (d) any other circumstance which might otherwise
constitute a defense to or discharge of any Borrower. Each Borrower agrees that
its obligations hereunder and under the Credit Agreement are irrevocable; that a
separate action or actions may be brought and prosecuted against it regardless
of whether any other Borrower is joined in any such action or actions; and that
it waives the benefit of any statute of limitations affecting its liabilities
hereunder and under the Credit Agreement or the enforcement hereof and thereof.
THIS BID LOAN NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO PENNSYLVANIA OR
FEDERAL PRINCIPLES OR CONFLICT OF LAWS.
IKON OFFICE SOLUTIONS, INC.
By:______________________________
Title:
IKON OFFICE SOLUTIONS PLC
By:______________________________
Title:
By:______________________________
Title:
IKON OFFICE SOLUTIONS, INC., a
Canadian corporation
By:______________________________
C-2-2
<PAGE>
Title:
C-2-3
<PAGE>
EXHIBIT C-3
SWINGLINE FACILITY NOTE
U.S. $25,000,000.00 Philadelphia, PA
January __, 1998
FOR VALUE RECEIVED, IKON OFFICE SOLUTIONS, INC., an Ohio corporation, IKON
OFFICE SOLUTIONS GROUP PLC and IKON OFFICE SOLUTIONS, INC., a Canadian
corporation (individually a "Borrower" and together the "Borrowers"), jointly
and severally, as and to the extent provided in Section 2.3 of the Credit
Agreement, hereby promise to pay to the order of CORESTATES BANK, N.A. (the
"Agent"), in lawful currency of the United States of America or in such other
currencies as are provided in the Credit Agreement described below, in
immediately available funds, at the account of the Agent, located at Broad and
Chestnut Streets, Philadelphia, Pennsylvania, on the Revolving Credit Facility
Termination Date, or on such earlier date or dates as provided in the Credit
Agreement described below, the principal sum of U.S. $25,000,000.00 or, if less,
the then aggregate unpaid principal amount of all Swingline Facility Loans made
by the Agent to the Borrowers pursuant to the Credit Agreement.
Each Borrower promises also to pay interest on the unpaid principal amount
hereof in like money at such office from the date hereof until paid at the rates
and at the times provided in Article 2 of the Credit Agreement.
This Swingline Facility Note is one of the Swingline Facility Notes
referred to in the Amended and Restated Credit Agreement, dated January __, 1998
(as such may be further amended or modified from time to time after such date)
among the Borrowers, the financial institutions from time to time party thereto
and the Agent (as amended, modified or supplemented from time to time, the
"Credit Agreement") and is entitled to the benefits thereof. This Swingline
Facility Note is subject to voluntary prepayment and mandatory repayment prior
to the Revolving Credit Facility Termination Date, in whole or in part, as
provided in the Credit Agreement.
In case an Event of Default shall occur and be continuing, the principal of
and the accrued interest on this Swingline Facility Note may be declared to be
due and payable in the manner and with the effect provided in the Credit
Agreement.
Each Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Swingline Facility Note.
Notwithstanding the face amount of this Swingline Facility Note, the
undersigneds' liability hereunder shall be limited at all times to the actual
aggregate outstanding indebtedness to the
C-3-1
<PAGE>
Agent relating to the Agent's Swingline Facility Loans, including all principal
and interest, together with all fees and expenses as provided in the Credit
Agreement, all as established by the Agent's books and records which shall be
conclusive absent manifest error.
Capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Credit Agreement.
The liability of each Borrower under this Swingline Facility Note and the
Credit Agreement for any and all obligations of the Borrowers, individually and
collectively, owed to the Agent under this Swingline Facility Note and the
Credit Agreement shall be unconditional and absolute irrespective of (a) any
lack of enforceability of any obligation, (b) any change of the time, manner,
place of payment, or any other term of any obligation, (c) any law, regulation
or order of any jurisdiction affecting the genuineness, validity, or rights of
the Agent with respect to any obligation or any instruments evidencing any
obligation, or (d) any other circumstance which might otherwise constitute a
defense to or discharge of any Borrower. Each Borrower agrees that its
obligations hereunder and under the Credit Agreement are irrevocable; that a
separate action or actions may be brought and prosecuted against it regardless
of whether any other Borrower is joined in any such action or actions; and that
it waives the benefit of any statute of limitations affecting its liabilities
hereunder and under the Credit Agreement or the enforcement hereof and thereof.
THIS SWINGLINE FACILITY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO
PENNSYLVANIA OR FEDERAL PRINCIPLES OR CONFLICT OF LAWS.
IKON OFFICE SOLUTIONS, INC.
By:______________________________
Title:
IKON OFFICE SOLUTIONS GROUP PLC
By:______________________________
Title:
By:______________________________
Title:
IKON OFFICE SOLUTIONS, INC., a
Canadian corporation
By:______________________________
Title:
C-3-2
<PAGE>
EXHIBIT D
---------
WILLIAM F. DRAKE, JR., ESQUIRE
GENERAL COUNSEL
IKON OFFICE SOLUTIONS, INC.
January __, 1998
CoreStates Bank, N.A.
Itself and as Agent to
Each of the Banks Named on
Exhibit A Attached Hereto
Broad & Chestnut Streets
Philadelphia, PA 19107
Attn: Mr. David W. Mills
Vice President
Re: Amended and Restated Credit Agreement, dated January __, 1998
among IKON Office Solutions, Inc. and certain subsidiaries and
the Banks named on Schedule A attached hereto with CoreStates
Bank, N.A., as Agent
Gentlemen:
As General Counsel of IKON Office Solutions, Inc., an Ohio corporation
(the "Company"), I have served as counsel to the Company in connection with a
Amended and Restated Credit Agreement, dated January __, 1998 (the "Credit
Agreement"), among the Company, certain subsidiaries of the Company, the Banks
named on Exhibit A attached hereto and CoreStates Bank, N.A., as Agent for the
Banks. Terms defined in the Credit Agreement and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement.
I have examined the Credit Agreement with its exhibits and the
originals or copies, certified or otherwise authenticated to my satisfaction, of
the Certificate of Incorporation and Code of Regulations, both as amended to
date, of the Company and such other documents and instruments, and have made
such further inquiries of law and fact, as I have deemed appropriate for
purposes of this opinion.
Based upon the foregoing, I advise you that, in my opinion:
D-1
<PAGE>
1. The Company and each Subsidiary is a corporation duly organized,
validly existing and in good standing (where such concept exists) under the laws
of its jurisdiction of incorporation and has all the corporate power and
authority necessary to own its properties and to carry on its business as now
being conducted and as is presently proposed to be conducted and, in the case of
the Company, to enter into and perform its obligations under each of the Credit
Agreement and the Notes. Further, the Company and each Subsidiary is qualified
as a foreign corporation in the various jurisdictions wherein the nature of the
business they transact makes such qualification necessary.
2. The execution, delivery and performance by the Company and its
Subsidiaries of the Credit Agreement and the Notes have been duly authorized by
all necessary corporate action on its part. Neither the execution, delivery,
issuance and performance by the Company nor its Subsidiaries of this Agreement
nor the Notes (i) require any consent or approval of any shareholder of the
Company or any Subsidiary, as such, or of any public authority, (ii) violate any
provision of law (including without limitation any usury law) or any provision
of the Certificate of Incorporation or the Code of Regulations of the Company or
any rule or regulation (including without limitation Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect and having
application to the Company, or (iii) result in any breach of, or constitute a
default under, or result in the creation or imposition of any lien or charge
upon any property of the Company or any Subsidiary pursuant to the terms of, the
Certificate of Incorporation or Code of Regulations of the Company, the
applicable corporate documents of any Subsidiary or any indenture, loan or
credit agreement or other agreement, lease or instrument to which the Company or
any Subsidiary is a party or by which it may be bound or to which any of its
properties may be subject. Neither the Company nor any Subsidiary is in default
under any such law, order, writ, judgment, injunction, decree, determination or
award to an extent that would adversely affect the ability of the Company to
perform its obligations under this Credit Agreement or the Notes.
3. Each of the Credit Agreement and the Notes has been duly executed,
delivered and issued by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. The obligation of the Company includes but is not limited to the
obligation to pay the aggregate unpaid principal amount of all Loans made by the
Banks pursuant to the Credit Agreement whether or not the Company was the
Borrower at the time the Loan was made. The foregoing opinions as to
enforceability are subject to bankruptcy, insolvency, reorganization, moratorium
and other laws and equitable principles affecting the enforceability of
creditors' rights generally. No authorization, consent, approval, license,
exemption of or filing or registration with any court or other tribunal or any
governmental department, commission, board, bureau or agency, domestic or
foreign, is or under present law will be necessary to the valid execution,
delivery or performance by the Company of the Credit Agreement or any Note.
4. There are no actions, suits or proceedings pending or threatened
against or affecting the Company or any Subsidiary or any of their assets or
properties before any court or other
D-2
<PAGE>
tribunal or any governmental department, commission, board, bureau or agency,
domestic or foreign, which, if determined adversely to the Company or any
Subsidiary, could have a material adverse effect on the financial condition,
operations or properties of the Company or any Subsidiary or on the ability of
the Company to perform its obligations under the Credit Agreement or the Notes.
I am not aware of any challenge in any pending or threatened action or
proceeding to any material patent, copyright, franchise or other right owned,
leased or otherwise held by the Company or any Subsidiary.
5. Except for Partners Securities Company, neither the Company nor any
Subsidiary is engaged principally or as one of its important activities in the
business of extending credit for the purpose of purchasing or carrying margin
stocks (within the meaning of Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System). Assuming all of the proceeds of each
of the Loans will be applied duly in accordance with the provisions of the
Credit Agreement, no part of the proceeds of any Loan made under the Credit
Agreement will be applied for the purpose of purchasing or carrying any margin
stocks or of refinancing any credit previously extended or of extending credit
to others for the purpose of purchasing or carrying any such margin stocks.
6. None of the Banks will be required, by reason of the execution and
delivery of the Credit Agreement and the making of the Loans, to register or
qualify to do business under any law of the Commonwealth of Pennsylvania
relating to the registration or qualification of foreign corporations. There are
no documentary stamp taxes payable in connection with the execution and delivery
of any of the Credit Agreement or the Notes.
This Opinion is intended solely for the benefit of, and may only be relied
upon by, the Agent and each of the Banks.
Very truly yours,
William F. Drake, Jr.
General Counsel
D-3
<PAGE>
EXHIBIT A
BANKS
CoreStates Bank, N.A.
Bank of America Illinois
The Chase Manhattan Bank
Deutsche Bank AG, New York Branch and/or
Cayman Islands Branch
Nationsbank, N.A.
Toronto Dominion (New York), Inc.
Fleet National Bank
PNC Bank National Association
Sun Trust Bank, Atlanta
First Union National Bank
Bank of Tokyo-Mitsubishi Trust Company
D-4
<PAGE>
EXHIBIT E
January __, 1998
CoreStates Bank, N.A.
Itself and as Agent to
Each of the Banks Named on
Exhibit A Attached Hereto
Broad & Chestnut Streets
Philadelphia, PA 19107
Attn: Mr. David W. Mills
Vice President
Re: Amended and Restated Credit Agreement, dated January ___, 1998
among IKON Office Solutions, Inc., certain subsidiaries
thereof and the Banks named on Schedule A attached hereto with
CoreStates Bank, N.A., as Agent
Gentlemen:
1. We have acted as legal advisers in [England] to [name of subsidiary]
ALCO OFFICE PRODUCTS (U.K.) PLC (the "Company") in connection with an
amended and restated credit agreement dated as of January ___, 1998
made by and between the Company and IKON Office Solutions, Inc. (the
"Borrowers"), the Banks named on Exhibit A attached hereto (the
"Banks") and CoreStates Bank, N.A. (as Agent for the Banks) relating
to the granting of a facility of up to $600,000,000 by the Banks to
the Borrowers (the "Credit Agreement").
2. Terms defined in the Credit Agreement have the same meanings when used
in this opinion.
3. For the purposes of this opinion, we have examined the following
documents:
(a) a draft [certified] copy of the Credit Agreement;
(b) a [certified] copy of resolutions of the Board of Directors
(and/or a duly constituted and authorized committee thereof) of
the Company relating (inter alia) to the Credit Agreement;
(c) a [certified] copy of the [Memorandum and Articles of
Association] [applicable charter documents] of the Company;
E-1
<PAGE>
(d) a [certified] copy of resolutions, signed by all the shareholders of
the Company, relating to the assumption of joint liability under the
Credit Agreement; and
[(e) microfiches of the Company's files at the Companies Registry in
London as at _____________, 199__.]
4. Except as stated above, we have not examined any contracts, instruments or
other documents entered into by or affecting the Company or any corporate
records of the Company and have not made any other inquiries concerning the
Company or made any search at [the High Court, Strand, London] in respect
of winding-up or similar petitions.
5. We have not investigated the laws of any country other than [England]
[jurisdiction of incorporation] and this opinion is given only with respect
to [English] law. We assume that no foreign law affects any of the
conclusions stated below. We have not investigated whether the Company is
or will by reason of the transactions and matters contemplated by the
Credit Agreement be in breach of any of its obligations under any
agreement, document, deed or instrument.
6. Based upon the foregoing and subject to any matters not disclosed to us,
and subject to the qualifications set out below we are of the opinion that:
(1) The Company is a [limited liability] [public liability] company, duly
incorporated and subsisting under the laws of [England];
(2) The Company has all requisite corporate power to enter into and
perform the Credit Agreement and the transactions contemplated
thereby and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Credit Agreement and the
transactions and matters contemplated thereby;
(3) The entry into and performance of the Credit Agreement by the Company
and the transactions and matters contemplated thereby to be
undertaken by the Company do not and will not violate the [Memorandum
of Articles of Association] [charter documents] of the Company;
(4) No authorizations, approvals, consents, licenses, exemptions, filing,
registrations or other requirement of governmental, judicial and
public bodies and authorities of or in [England] are required in
connection with the entry into, performance, validity or
enforceability of the Credit Agreement;
(5) Subject to its enforceability under the laws of the Commonwealth of
Pennsylvania (and to the assumptions and qualifications set out in
this letter), the Credit Agreement would be enforceable against the
Company in [England] and the Credit Agreement contains, subject as
otherwise provided herein, no provisions which (if it
E-2
<PAGE>
were subject to, and construed in accordance with, [English] law)
would be contrary to law or public policy in [England] or which would
for any reason not be upheld by the courts in [England];
(6) The choice of the law of the Commonwealth of Pennsylvania to govern
the Credit Agreement would be recognized and enforced by the courts
in [England] save that there is some doubt in the event that a
contract is avoided, as to whether as a matter of [English] law the
choice of law provision would survive;
(7) The submission to the jurisdiction of the courts in the Commonwealth
of Pennsylvania as set out in the Credit Agreement constitutes a
valid submission by the Company;
(8) A judgment of a competent state or federal court sitting in the
Commonwealth of Pennsylvania finally and conclusively establishing a
debt should be capable of enforcement in the competent courts of
[England] without a re-examination of the merits, provided that the
defendant may have defenses open to it and enforcement may not be
permitted if, inter alia, the judgement was obtained by fraud, was
contrary to public policy of [English] law, relates to foreign penal
or revenue laws, is contrary to natural justice, amounts to judgement
on a matter previously determined by an [English] court, is given in
proceedings brought in breach of agreement for settlement of disputes
[or if enforcement of the judgement is restricted by the provisions
of the Protection of Trading Interests Act 1980];
(9) To ensure the legality, validity, enforceability or admissibility
into evidence of the Credit Agreement in the courts of [England], it
is not necessary that the Credit Agreement be registered, notarized,
filed or recorded with any court or other authority in [England] or
that any stamp or similar tax be paid with respect thereto in
[England];
(10) No approval, consent or withholding of objection on the part of, or
filing, registration or qualification with, any government department
or regulatory authority, is necessary under the laws of [England and
Wales] as a condition to the lawful execution, delivery and
performance of the Credit Agreement.
7. The searches made on [ ] 1998 at [the Companies Registry] revealed no
order or resolution for the winding-up or order for the administration of
the Company and no notice of the appointment of a receiver, liquidator or
similar person; but such a search is not capable of revealing whether or
not a winding-up petition has been presented, and notice of an order or
resolution for winding-up or an order for administration or notice of the
appointment of a receiver, liquidator or similar person may not be filed at
[the Companies Registry] immediately.
E-3
<PAGE>
8. This opinion is given subject to the following qualifications:
(a) the opinion is an opinion with respect to the matters referred to
above in so far as only [English domestic] law (as in force on the
date of this opinion) will itself determine those matters in the
[English] Courts; and we express no opinion as to the effect of any
other law which may be held to be applicable in determining any such
matter or as to the enforceability in any other jurisdiction of any
judgement which may be obtained in the [English] courts. An
obligation to be performed in any other jurisdiction may not be
enforceable in [England] in so far as its performance would be
illegal, void or unenforceable under the laws of that other
jurisdiction;
(b) the enforcement of a claim may be or become subject to a right of
set-off or a counter-claim [or subject to any limitations imposed by
the Limitation Act of 1980 or by liquidation, bankruptcy, insolvency,
reorganization, reconstruction or similar laws of general
application];
(c) we assume:
(i) that the Credit Agreement is within the capacity and powers of
and has been validly authorized, executed and delivered by each
person (except the Company) who is a party to the Credit
Agreement;
(ii) the genuineness of all signatures, the authenticity and
completeness of every document submitted to us as an original
document, the conformity to the original document and
completeness of every document submitted to us as a certified
or photostatic copy of any document and the authenticity of its
original; and
(iii) [that the resolutions of the board of directors of the Company
were duly passed at a meeting of properly appointed directors
duly convened and held, that a duly qualified quorum of such
directors present throughout the meeting voted in favor of
approving the resolutions, that any provisions contained in the
Companies Act 1985 or in the Company's Articles of Association
relating to the declaration of directors' interests or the
power of interested directors to vote were duly observed and
that those resolutions have not been rescinded or varied;]
(iv) the accuracy of all representations as to fact made in the
Credit Agreement by the Company;
(v) that immediately after the execution of the Credit Agreement
the Company was solvent;
E-4
<PAGE>
[(vi) that none of the transactions contemplated by the Credit
Agreement constituted financial assistance for the purposes of
Section 151 of the Companies Act 1985.]
(d) [English] Courts are prepared to render judgements for a monetary
amount in foreign currencies but the judgement may be converted into
[sterling] for enforcement purposes. Foreign currency amounts claimed
in an [English] liquidation must be converted into [sterling] at the
rate prevailing at the commencement of the liquidation;
(e) a certificate, determination, notification or opinion of the Banks or
the Agent as to any matters provided for in the Credit Agreement
might be held by the [English] Courts not to be conclusive;
(f) an [English] Court might not enforce a provision of a document
providing that an obligation of any party is to survive a judgement
on such document whether obtained in [England] or elsewhere on the
ground that such obligation would be discharged by a judgement;
(g) an [English] Court may stay proceedings if concurrent proceedings are
being brought elsewhere;
(h) equitable remedies, such as orders for specific performance or the
issue of an injunction, are available only at the discretion of the
Court and are not normally awarded if an award of damages is
considered an adequate remedy;
(i) an [English] Court may recognize oral amendments to the Credit
Agreement by the parties thereto notwithstanding provisions therein
to the contrary;
(j) the question of whether or not any provisions of the Credit Agreement
which may be invalid on account of illegality may be severed from the
other provisions thereof in order to preserve the validity of those
other provisions would be determined by an [English] Court in its
discretion;
(k) an [English] company only has authority to carry on those businesses
specified in [the objects Clause of its Memorandum of Association];
(l) in relation to the opinion expressed at paragraph 6(5) above, the
Courts in [England] would not enforce the Credit Agreement if the
application of principles of the law of the Commonwealth of
Pennsylvania to the Credit Agreement would involve applying foreign
penal, revenue or public laws or involve applying foreign
expropriatory legislation or was contrary to public policy of
[English] law;
E-5
<PAGE>
(m) the effectiveness of terms exculpating a party from a liability or
duty otherwise owed (including liability arising out of the non-
payment of stamp duty) is limited by law;
(n) we have not been involved in the drafting, preparation or negotiation
of the Credit Agreement and accordingly express no opinion as to the
sufficiency or effectiveness of the Credit Agreement to achieve the
purposes contemplated by the parties thereto;
(o) whilst we are of the opinion that the Company has the necessary
powers under its [Memorandum and Articles of Association] to assume
the joint liability for the whole of the amounts due under the Credit
Agreement, the directors of the Company must exercise those powers
bona fide in the interest of the Company which may involve
demonstrating a sufficient commercial benefit for the Company from
the arrangements contemplated by the Credit Agreement as to which we
express no opinion;
(p) an [English] Court may refuse to give effect to paragraph 8.1 of the
Credit Agreement in respect of the costs of unsuccessful litigation
brought before an [English] Court or where the Court has itself made
an order for costs;
(q) a provision of the Credit Agreement providing for a higher rate of
interest to be paid on overdue sums may amount to a penalty if not
found to represent a genuine pre-estimate of loss and may therefore
not be recoverable;
(r) the obligations of the Company under the Credit Agreement are subject
to all laws affecting creditors' rights generally;
(s) so far as they relate to United Kingdom stamp duties, the
undertakings and indemnities given by the Company in Sections 2.10(b)
and 8.1 of the Credit Agreement may be void under Section 117 of the
Stamp Act of 1891.
9. This opinion is given for the sole benefit of the person(s) to whom it is
addressed and is not to be relied upon by or communicated to any other
person or for any other purpose, nor is it to be quoted or referred to in
any public document or made public in any way or filed with anyone without
our prior written consent, save that it may be referred to in any
proceedings against us upon this opinion itself.
Yours faithfully,
E-6
<PAGE>
EXHIBIT F-1
FORM OF COMPETITIVE BID REQUEST
___________, 19__
CORESTATES BANK, N.A., as Agent
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Stacy Shegda
Telecopier No.: (215) 973-1887
Re: Amended and Restated Credit Agreement, dated January __, 1998 (as from
time to time amended, restated, supplemented or otherwise modified,
the "Credit Agreement") among IKON Office Solutions, Inc., certain
Subsidiaries party thereto, certain Banks party thereto, and
CoreStates Bank, N.A., as agent (the "Agent"). (The terms defined in
the Credit Agreement are used herein as defined therein.)
Ladies and Gentlemen:
Pursuant to Section 2.5(c) of the Credit Agreement, IKON Office Solutions,
Inc. (the "Borrower") hereby requests offers to make the Bid Loans specified
herein:
(1) The date of the proposed Bid Borrowing is ___________, 199__ (which
day is a Banking Business Day).
(2) The aggregate amount of the proposed Bid Borrowing is $________.*
(3) The Competitive Bids requested are for Bid Loans in the following
amounts and having the following Bid Loan Durations:
Principal Amount Bid Loan Duration**
---------------- -----------------
__________________
* Insert an amount which is a minimum amount of $10,000,000 or any multiple
of $1,000,000 in excess thereof.
** The minimum Bid Loan Duration is 7 days and the maximum Bid Loan Duration
is 180 days and no more than two Bid Loan Durations may be requested in a
single Competitive Bid Request.
F-1-1
<PAGE>
________________ ________________
________________ ________________
(4) Borrower's Account to which the proceeds of the Bid Loan should be
credited:__________________.
Borrower hereby certifies that the following statements are true and correct
on and as of the date hereof, and will be true and correct on and as of the date
of the proposed Bid Borrowing, before and after giving effect thereto and to the
application of the proceeds therefrom:
(a) the representations and warranties of Borrower contained in the
Credit Agreement (except to the extent such representations and warranties
by their express terms relate to an earlier date) are true and correct in
all material respects and will be true and correct in all material respects
on the date of the Bid Borrowing as if made on and as of such date;
(b) Borrower has complied and on the date of the proposed Bid
Borrowing will be in compliance with all the terms, covenants and
conditions of the Credit Agreement; and
(c) no Event of Default or event which with the giving of the notice
or lapse of time, or both would constitute such Event of Default exists or
shall result from the proposed Bid Borrowing.
You are hereby authorized to debit our demand deposit account in the amount
of $300 in payment of the service fee due the Agent in connection with this
request.
Very truly yours,
IKON OFFICE SOLUTIONS, INC.
By:___________________________
Name:
Title:
F-1-2
<PAGE>
EXHIBIT F-2
FORM OF COMPETITIVE BID
___________, 19__
CORESTATES BANK, N.A., as Agent
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Stacy Shegda
Telecopier No.: (215) 973-1887
Re: Amended and Restated Credit Agreement, dated January __, 1998 (as from
time to time amended, restated, supplemented or otherwise modified,
the "Credit Agreement") among IKON Office Solutions, Inc., certain
Subsidiaries party thereto, certain Banks party thereto, and
CoreStates Bank, N.A., as agent (the "Agent"). (The terms defined in
the Credit Agreement are used herein as defined therein.)
Ladies and Gentlemen:
In response to the Competitive Bid Request made by IKON Office Solutions,
Inc. (the "Borrower") dated ________________ ___, 19__ and in accordance with
Section 2.5(c) of the Credit Agreement, the undersigned Bank offers to make Bid
Loan(s) thereunder in the following principal amount(s) at the following
interest rate(s) for the following Bid Loan Durations:
Borrowing Date: ________________ __, 19__
Offer 1: Maximum Amount $_______________; Minimum Amount $______________.*
BID LOAN DURATION PRINCIPAL AMOUNT ABSOLUTE RATE
- ----------------- ---------------- -------------
_____________________ _____________________ ______________________
Offer 2: Maximum Amount $_______________; Minimum Amount $______________.*
BID LOAN DURATION PRINCIPAL AMOUNT ABSOLUTE RATE
- ----------------- ---------------- -------------
_____________________ _____________________ ______________________
F-2-1
<PAGE>
____________________
* Not less than $1,000,000
F-2-2
<PAGE>
Acceptance of any bid contained herein is subject to compliance with the
terms and conditions of the Credit Agreement.
[NAME OF BANK]
By:____________________________
Name:
Title:
F-2-3
<PAGE>
EXHIBIT F-3
FORM OF BID LOAN NOTICE
_________ ___, 19__
CORESTATES BANK, N.A., as Agent
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Stacy Shegda
Telecopier No.: (215) 973-1887
Re: Amended and Restated Credit Agreement, dated January __, 1998 (as from
time to time amended, restated, supplemented or otherwise modified,
the "Credit Agreement") among IKON Office Solutions, Inc., certain
Subsidiaries party thereto, certain Banks party thereto, and
CoreStates Bank, N.A., as agent (the "Agent"). (The terms defined in
the Credit Agreement are used herein as defined therein.)
Ladies and Gentlemen:
Pursuant to Section 2.5(c) of the Credit Agreement, IKON Office Solutions,
Inc. (the "Borrower") hereby notifies you of the Borrower's acceptance of the
following offers made by the Banks in response to the Competitive Bid Request
submitted on __________________, 19__:
Borrowing Date: _________________, 19___.
Name of Bid Loan Absolute Principal Amount
Bank Duration Rate of Bid Loan
---- -------- ---- -----------
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
F-3-1
<PAGE>
________________ _______________ ______________ ________________
________________ _______________ ______________ ________________
F-3-2
<PAGE>
Borrower hereby certifies that its acceptance of the offers listed above
complies with the terms of the Credit Agreement, including, but not limited to,
Section 2.5(c). Borrower hereby confirms and restates each of the statements
certified by it in the Competitive Bid Request relating to this Bid Loan Notice
and further certifies that after giving effect to the above Bid Loans, there
will not be more than five (5) Bid Loans outstanding and the outstanding
aggregate principal amount of all Loans will not exceed the Revolving Credit
Facility Commitment.
Very truly yours,
IKON OFFICE SOLUTIONS, INC.
By:__________________________
Name:
Title:
_______________________
* Acceptance of each Bid Borrowing must be in a minimum aggregate principal
amount of $10,000,000 or in any multiple of $1,000,000 in excess thereof,
and acceptance of each Bid Loan must be in a minimum principal amount of
$10,000,000 or in any multiple of $1,000,000 in excess thereof.
<PAGE>
EXHIBIT 4.2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
-----------------------------------
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT dated as of ____________________, 1998
between IKON Office Solutions, Inc. (formerly Alco Standard Corporation) and
IKON Office Solutions Europe PLC, an English Company, IKON Office Solutions,
S.A., a French company, Deutsche Bank AG, acting through its New York and/or
Cayman Islands Branch, Istituto San Paolo di Torino, New York Branch, and
Deutsche Bank AG, acting through its New York Branch, as agent for the lenders.
WHEREAS:
A. The parties hereto are parties to a credit agreement dated as of August 30,
1996 (as amended by Amendment No. 1 to the Credit Agreement dated as of
April 1, 1997, the "CREDIT AGREEMENT"); and
-----------------
B. The parties hereto wish to amend the Credit Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants and agreements contained in this agreement and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE ONE
INTERPRETATION
Section 1.01 ONE AGREEMENT: This agreement amends the Credit Agreement. This
-------------
agreement and the Credit Agreement shall be read, interpreted, construed and
have effect as, and shall constitute, one agreement with the same effect as if
the amendments made by this agreement had been contained in the Credit Agreement
as of the date of this agreement.
SECTION 1.02 DEFINED TERMS: In this agreement,
-------------
(a) terms defined herein (including in the recitals hereto) have the
respective meanings given to them herein; and
(b) all other capitalized terms have the respective meanings given to them
in the Credit Agreement.
SECTION 1.03 HEADINGS: The headings of the Articles and Sections hereof are
--------
inserted for convenience of reference only and shall not affect the construction
or interpretation of this agreement or of the Credit Agreement, as amended
hereby.
ARTICLE TWO
AMENDMENTS
<PAGE>
SECTION 2.01 Section 1.01 of the Credit Agreement is hereby amended by inserting
the following definition in alphabetic order:
"1998 Credit Agreement" shall mean the amended and restated credit
agreement dated as of January 16, 1998 among the Company, such subsidiaries
of the Company as are or as may become parties thereto from time to time,
the various lending institutions as are or as may become parties thereto
from time to time (collectively, the "Banks"), and CoreStates Bank, N.A.,
as agent for the Banks, as such agreement may be amended, restated,
supplemented or replaced from time to time.
SECTION 2.02 Section 8.02 of the Credit Agreement is hereby amended by deleting
the figure "45%" in the second line and in its place substituting the figure
"50%".
SECTION 2.03 Section 8.03 of the Credit Agreement is hereby deleted in its
entirety, and the following new Section 8.03 is hereby substituted therefor:
"8.03 Subsidiaries' Debt. Such Borrower will not permit any of its
------------------
Subsidiaries directly or indirectly to create, incur, assume, suffer to
exist, guarantee or otherwise become, be or remain liable with respect to
any Debt (other than Excluded Debt, as defined below) in an aggregate
amount outstanding (as to all Subsidiaries) at any time in excess of 20% of
Consolidated Net Worth plus the amount of such Debt outstanding on the date
hereof (other than Excluded Debt outstanding on the date hereof). For the
purposes of this Agreement, Excluded Debt shall mean: (i) Debt owing
exclusively to the Company or any Subsidiary thereof, (ii) Debt of a
Subsidiary outstanding on the date that such Borrower acquires such
Subsidiary, (iii) Debt with respect to property to be used by such Borrower
or its Subsidiaries, the interest on which Debt is exempt from federal
income tax pursuant to Section 103 of the Internal Revenue Code of 1986, as
amended, (iv) Debt of any foreign Subsidiary of such Borrower that is not
guaranteed by the Company or any of its Subsidiaries, (v) Debt of Finance
Leasing Subsidiaries owing to the Company or any of its Consolidated
Subsidiaries, (vi) Debt of Finance Leasing Subsidiaries to a person or
persons other than the Company and its Consolidated Subsidiaries, provided
--------
that such Debt is not guaranteed by the Company or any of its Consolidated
Subsidiaries, and (vii) Debt hereunder or under the 1998 Credit Agreement."
SECTION 2.04 Section 8.04 of the Credit Agreement is hereby amended by deleting
the second sentence thereof in its entirety.
SECTION 2.05 Section 8.07 of the Credit Agreement is hereby deleted in its
entirety, and the following new Section 8.07 is hereby substituted therefor:
"8.07 Sale, Discount of Receivables; Sale, Leaseback Transactions. Such
-----------------------------------------------------------
Borrower will not, and will not permit its Consolidated Subsidiaries, with
the exception of the Finance Leasing Subsidiaries, to enter into any
Securitizations, or sell or discount receivables with recourse or sell and
lease back fixed assets the aggregate amount of which when added to all
liens permitted by Section 8.06(g) exceed 10% of Consolidated Net Worth.".
SECTION 2.06 The following new Section 8.15A is inserted immediately after the
existing Section 8.15 of the Credit Agreement:
<PAGE>
"8.15A Use of Proceeds. Each Borrower shall use the proceeds of its
---------------
Loans for working capital, acquisitions and general corporate purposes.".
SECTION 2.07 Section 8.16 of the Credit Agreement is hereby amended by deleting
the word "only" in the fourth line and in its place substituting the phrase "to
the Company's direct or indirect ownership of a Borrowing Subsidiary".
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01 CONFIRMATION OF REPRESENTATIONS: The Borrower and each of the
-------------------------------
Borrowing Subsidiaries represents and warrants that, as at the date of this
agreement and after giving effect thereto, such Borrower or Borrowing
Subsidiary, as the case may be, is not in default in the observance or
performance of any of its covenants or obligations under the Credit Agreement
and that the representations and warranties contained in Section 7 of the Credit
Agreement are true and correct on the date hereof.
ARTICLE FOUR
GENERAL
Section 4.01 EFFECTIVE DATE AND CONFIRMATION: This agreement and the
-------------------------------
amendments to the Credit Agreement contained in this agreement shall be
effective as of and from the date of this agreement. The Credit Agreement, as
amended by this agreement, shall continue in full force and effect.
SECTION 4.02 BINDING NATURE: This agreement shall enure to the benefit of and
--------------
be binding upon each of parties hereto and their successors and permitted
assigns and any other Person that may from time to time become a party to the
Credit Agreement.
SECTION 4.03 LAW OF CONTRACT: This agreement shall be governed by and
---------------
construed in accordance with the laws of the State of New York and of the laws
of the United States of America as applicable therein.
SECTION 4.04 EXECUTION: This agreement may be executed in counterparts, all of
---------
which when taken together shall constitute one document. The parties to this
agreement may rely on facsimile signatures provided by any of the parties
hereto, as if such facsimile signatures were original signatures.
IN WITNESS OF WHICH the parties have executed this agreement as of the
date first referred to above.
IKON OFFICE SOLUTIONS, INC.
By: ______________________
Name:
<PAGE>
Title:
IKON OFFICE SOLUTIONS EUROPE PLC
By: /s/ Signature
------------------------------
Name:
Title:
IKON OFFICE SOLUTIONS, S.A.
By: /s/ Signature
------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Agent
By: /s/ Signature
------------------------------
Name:
Title
By: /s/ Signature
------------------------------
Name:
Title
DEUTSCHE BANK AG, NEW YORK BRANCH
and CAYMAN ISLANDS BRANCH
By: /s/ Signature
------------------------------
Name:
Title
By: /s/ Signature
------------------------------
Name:
Title
ISTITUTO SAN PAOLO DI TORINO,
NEW YORK BRANCH
By: /s/ Signature
------------------------------
Name:
Title
<PAGE>
By: /s/ Signature
---------------------------
Name:
Title
<PAGE>
EXHIBIT 4.3
FIRST AMENDMENT TO GUARANTEE
----------------------------
THIS FIRST AMENDMENT TO GUARANTEE dated as of September 28, 1998 between IKON
Office Solutions, Inc. (formerly Alco Standard Corporation) (the "GUARANTOR")
----------
and Deutsche Bank Canada (the "AGENT"), as agent for certain lenders pursuant to
------
a credit agreement between such lenders, the Agent and Alco Office Systems-
Canada, Inc. (now IKON Office Solutions Inc.) dated as of October 13, 1995 and
amended as of March 31, 1996.
WHEREAS:
A. The Guarantor and the Agent are parties to a guarantee agreement dated as
of October 13, 1995 (the "GUARANTEE"); and
----------
B. The Guarantor and the Agent wish to amend the Guarantee.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants and agreements contained in this agreement and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE ONE
INTERPRETATION
Section 1.01 ONE AGREEMENT: This agreement amends the Guarantee. This
-------------
agreement and the Guarantee shall be read, interpreted, construed and have
effect as, and shall constitute, one agreement with the same effect as if the
amendments made by this agreement had been contained in the Guarantee as of the
date of this agreement.
SECTION 1.02 DEFINED TERMS: In this agreement,
-------------
(a) terms defined herein (including in the recitals hereto) have the
respective meanings given to them herein; and
(b) all other capitalized terms have the respective meanings given to them
in the Guarantee.
SECTION 1.03 HEADINGS: The headings of the Articles and Sections hereof are
--------
inserted for convenience of reference only and shall not affect the construction
or interpretation of this agreement or of the Guarantee, as amended hereby.
<PAGE>
ARTICLE TWO
AMENDMENTS
SECTION 2.01 Section 18 of the Guarantee is hereby amended by inserting the
following definitions in alphabetic order:
"1996 Credit Agreement" shall mean the credit agreement dated as of August
30, 1996 among the Guarantor, such Subsidiaries as are or as may become a
party thereto from time to time, Deutsche Bank AG, New York Branch and/or
Cayman Islands Branch and the various lending institutions as are or as may
become a party thereto from time to time (collectively, the "Banks"), and
Deutsche Bank AG, acting through its New York Branch as agent for the
Banks, as such agreement may be amended, restated, supplemented or replaced
from time to time.
"1998 Credit Agreement" shall mean the amended and restated credit
agreement dated as of January 16, 1998 among the Guarantor, such
subsidiaries of the Guarantor as are or as may become parties thereto from
time to time, the various lending institutions as are or as may become
parties thereto from time to time (collectively, the "Banks"), and
CoreStates Bank, N.A., as agent for the Banks, as such agreement may be
amended, restated, supplemented or replaced from time to time.
"Securitization" shall mean with respect to the Guarantor and its
Consolidated Subsidiaries the transfer or pledge of assets or interests in
assets to a trust, partnership, corporation or other entity, which transfer
or pledge is funded by such entity in whole or in part by the issuance of
instruments or securities that are paid principally from the cash flow
derived from such assets or interests in assets.
SECTION 2.02 Section 7.2 of the Guarantee is hereby deleted in its entirety,
and the following new Section 7.2 of the Guarantee is hereby substituted
therefor:
"7.2 Funded Debt to Total Capitalization Ratio. The Guarantor will not
-----------------------------------------
permit Funded Debt of the Guarantor and its Consolidated Subsidiaries to
exceed 50% of the sum of (1) Funded Debt of the Guarantor and its
Consolidated Subsidiaries plus (2) the consolidated minority interest
obligations shown on the consolidated balance sheet of the Guarantor and
its Consolidated Subsidiaries plus (3) the Consolidated Net Worth of the
Guarantor and its Consolidated Subsidiaries. For purposes of calculating
such ratio, Finance Leasing Subsidiaries shall be excluded from the
definition of "Consolidated Subsidiaries"."
SECTION 2.03 The text of Section 7.3 of the Guarantee is hereby deleted in its
entirety and replaced with the phrase "Intentionally deleted".
SECTION 2.04 Section 7.4 of the Guarantee is hereby deleted in its entirety and
the following new Section 7.4 is hereby substituted therefor:
"7.4 Subsidiaries' Debt. The Guarantor will not permit any of its
------------------
Subsidiaries directly or indirectly to create, incur, assume, suffer to
exist, guarantee or otherwise become, be
<PAGE>
or remain liable with respect to any Debt (other than Excluded Debt, as
defined below) in an aggregate amount outstanding (as to all Subsidiaries)
at any time in excess of 20% of Consolidated Net Worth plus the amount of
such Debt outstanding on the date hereof (other than Excluded Debt
outstanding on the date hereof). For the purposes of this Agreement,
Excluded Debt shall mean: (i) Debt owing exclusively to the Guarantor or
another Subsidiary, (ii) Debt of a Subsidiary outstanding on the date that
the Guarantor acquires such Subsidiary, (iii) Debt with respect to property
to be used by the Guarantor or its Subsidiaries, the interest on which Debt
is exempt from Federal income tax pursuant to Section 103 of the Internal
Revenue Code of 1986, as amended, (iv) Debt of any foreign Subsidiary that
is not guaranteed by the Guarantor or any other Subsidiary, (v) Debt of
Finance Leasing Subsidiaries owing to the Guarantor or any of its
Consolidated Subsidiaries, (vi) Debt of Finance Leasing Subsidiaries to a
person or persons other than the Guarantor and its Consolidated
Subsidiaries provided that such Debt is not guaranteed by the Guarantor or
any of its Consolidated Subsidiaries, and (vii) Debt under the 1996 Credit
Agreement and the 1998 Credit Agreement."
SECTION 2.05 The text of Section 7.5 of the Guarantee is hereby deleted in its
entirety and replaced with the phrase "Intentionally deleted".
SECTION 2.06 Section 7.8 of the Guarantee is hereby amended by:
(a) deleting the word "and" at the end of Section 7.8(g);
(b) deleting the "." at the end of Section 7.8(h), and in its place
substituting "; and"; and
(c) adding the following Section 7(8)(i):
"liens arising in connection with a Securitization permitted by
Section 7.9 hereof, limited in each case to the accounts therein or in
any trust or similar entity utilized to effect such Securitizations
and to any equipment giving rise to such accounts.".
SECTION 2.07 Section 7.9 of the Guarantee is hereby deleted in its entirety,
and the following new Section 7.9 is hereby substituted therefor:
"7.9 Sale, Discount of Receivables; Sale, Leaseback Transactions. The
-----------------------------------------------------------
Guarantor will not, and will not permit its Consolidated Subsidiaries, with
the exception of the Finance Leasing Subsidiaries, to enter into any
Securitizations, or sell or discount receivables with recourse or sell and
lease back fixed assets the aggregate amount of which when added to all
liens permitted by Section 7.8(g) exceed 10% of Consolidated Net Worth."
SECTION 2.08 Section 7.17 of the Guarantee is hereby amended by:
(a) deleting the reference to "ERISA section 4042" in the 14th line and in
its place substituting a reference to "ERISA section 4049"; and
(b) deleting the figure "U.S.$5,000,000" in the twenty-third line and in
its place substituting the figure "U.S.$10,000,000".
<PAGE>
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01 CONFIRMATION OF REPRESENTATIONS: The Guarantor represents and
-------------------------------
warrants that, as at the date of this agreement and after giving effect thereto,
the Guarantor is not in default in the observance or performance of any of its
covenants or obligations under the Guarantee and that the representations and
warranties contained in Section 6 of the Guarantee are true and correct as of
the date hereof.
ARTICLE FOUR
GENERAL
Section 4.01 EFFECTIVE DATE AND CONFIRMATION: This agreement and the
-------------------------------
amendments to the Guarantee contained in this agreement shall be effective as of
and from the date of this agreement. The Guarantee, as amended by this
agreement, shall continue in full force and effect.
SECTION 4.02 BINDING NATURE: This agreement shall enure to the benefit of and
--------------
be binding upon each of the Agent and the Guarantor and their successors and
permitted assigns.
SECTION 4.03 LAW OF CONTRACT: This agreement shall be governed by and
---------------
construed in accordance with the laws of the State of New York and of the laws
of the United States of America as applicable therein.
SECTION 4.04 EXECUTION: This agreement may be executed in counterparts, all of
---------
which when taken together shall constitute one document. The parties to this
agreement may rely on facsimile signatures by any of the parties hereto, as if
such facsimile signatures were original signatures.
IN WITNESS OF WHICH the parties have executed this agreement as of the
date first referred to above.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Signature
--------------------------
Name:
Title:
DEUTSCHE BANK CANADA
as Agent
By: /s/ Signature
--------------------------
Name:
Title
<PAGE>
By: _____________________________
Name:
Title
ACKNOWLEDGEMENT AND CONSENT
Each of the undersigned Banks under the Credit Agreement acknowledges and
consents to the terms and conditions of the above First Amendment to Guarantee.
This acknowledgment and consent may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same instrument. Delivery of an executed signature page
to this acknowledgement and confirmation by any party by facsimile transmission
shall be as effective as delivery of a manually executed copy of this
acknowledgment and consent by such party.
IN WITNESS OF WHICH the parties have executed this acknowledgment as of
the date first referred to above.
[signatures on the next following page]
DEUTSCHE BANK CANADA
as Bank
By: /s/ Signature
---------------------------
Name:
Title
By: /s/ Signature
---------------------------
Name:
Title
CHASE MANHATTAN BANK OF CANADA
as Bank
By: /s/ Signature
---------------------------
Name:
Title
By: /s/ Signature
---------------------------
Name:
Title
<PAGE>
EXHIBIT 10.7
AMENDMENT 1 TO RECEIVABLES TRANSFER AGREEMENT
AMENDMENT, dated as of November 7, 1997, to the Receivables Transfer
Agreement, dated as of September 30, 1996 (the "Receivables Agreement"), among
---------------------
IKON FUNDING INC., a Delaware corporation (the "Transferor"), IKON CAPITAL INC.,
----------
a Delaware corporation (the "Originator" and, in its capacity as Collection
----------
Agent, the "Collection Agent"), OLD LINE FUNDING CORP., a Delaware corporation
----------------
(the "Issuer"), and ROYAL BANK OF CANADA, a Canadian chartered bank acting
------
through its New York Branch, as agent (the "Agent") for the Transferees.
-----
RECITALS
WHEREAS, the Transferor, the Originator, the Issuer and the Agent have
agreed, subject to the terms and conditions of this Amendment, to amend the
Receivables Agreement as hereinafter set forth.
Terms used herein but not defined herein shall have the meaning assigned
thereto in the Receivables Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Amendment of Receivables Agreement. The Receivables Agreement
----------------------------------
shall be and is hereby amended, as of the date hereof, as follows:
(a) The definition of "Applicable Percentage" in Exhibit I to the
---------------------
Receivables Agreement shall be amended in its entirety to read as
follows:
"Applicable Percentage" means, with respect to the Consideration
---------------------
payable with respect to Receivables, a percentage equal to the product
of (a) four, (b) the weighted average life of such Receivables
expressed in years and fractions thereof and as reported in the most
<PAGE>
recent Transferor Report and (c) the Default Ratio as reported in the
most recent Transferor Report.
(b) The definition of "Default Ratio" in Exhibit I to the Receivables
-------------
Agreement shall be amended in its entirety to read as follows:
"Default Ratio" means the ratio (expressed as percentage)
-------------
computed as of the last day of each calendar month by dividing
(i) the total Periodic Payments due to the Transferor over the
remaining term of all Related Contracts having one or more
Receivables that were Defaulted Receivables during the twelve
months ending on such day by (ii) the total Periodic Payments due
to the Transferor over the remaining term of all Related
Contracts calculated as of the last day of such month.
(c) The definition of "Delinquency Ratio" in Exhibit I to the Receivables
-----------------
Agreement shall be amended by deleting the phrase "aggregate amount of
all" in clause (i) and replacing it with the phrase "total Periodic
Payments due to Transferor over the remaining term of all Related
Contracts having one or more" and by deleting the phrase "aggregate
Outstanding Balance" in clause (ii) and replacing it with the phrase
"the total Periodic Payments due to the Transferor over the remaining
term calculated as of the last day of such month."
(d) The definition of "Fixed Period" in Exhibit I to the Agreement is
------------
hereby amended by deleting the number "270" in clause (i) and
replacing it with the number "78."
(e) The definition of "Outstanding Balance" in Exhibit I to the Agreement
-------------------
is hereby amended by deleting the word "net" in the first line
thereof.
(f) The definition of "Parent" in Exhibit I to the Agreement shall be
------
amended in its entirety to read as follows: "Parent" means IKON Office
------
Solutions, Inc."
2. Execution in Counterparts, Etc. This Amendment may be executed in
------------------------------
any number of counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one
2
<PAGE>
and the same amendment. The delivery of a signed signature page to this
Amendment by telecopy transmission shall constitute due execution and delivery
of this Amendment for all purposes.
3. Receivables Agreement in Full Force and Effect. Except as amended
----------------------------------------------
by this Amendment, all of the provisions of the Receivables Agreement and all of
the provisions of all other documentation required to be delivered with respect
thereto shall remain in full force and effect from and after the date hereof.
4. References to Receivables Agreement. From and after the date
-----------------------------------
hereof, (a) all references in the Receivables Agreement to "this Agreement,"
"hereof," "herein," or similar terms and (b) all references to the Receivables
Agreement in each agreement, instrument and other document executed or delivered
in connection with the Receivables Agreement, shall mean and refer to the
Receivables Agreement, as amended by this Amendment.
5. Further Assurances. The parties hereto agree to execute and
------------------
deliver any and all further agreements, certificates and other documents
reasonably necessary to implement the provisions of this Amendment.
6. Governing Law. This Amendment shall be governed by, and construed
-------------
in accordance with, the law of the State of New York without giving effect to
the conflict of laws principles thereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
TRANSFEROR: IKON FUNDING INC.
By: /s/ Signature
------------------------------
Name:
Title:
ORIGINATOR: IKON CAPITAL INC.
By: /s/ Signature
------------------------------
Name:
Title:
AGENT: ROYAL BANK OF CANADA, as Agent for the Issuer
By: /s/ Signature
------------------------------
Name:
Title:
By: /s/ Signature
------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 10.8
AMENDMENT 1 TO TRANSFER AGREEMENT
AMENDMENT, dated as of November 7, 1997, to the Receivables Transfer
Agreement, dated as of September 30, 1996 (the "Transfer Agreement"), between
------------------
IKON CAPITAL INC., a Delaware corporation (the "Originator" and IKON FUNDING
----------
INC., a Delaware corporation (the "Transferee").
----------
RECITALS
WHEREAS, the Originator and the Transferee have agreed, subject to the
terms and conditions of this Amendment, to amend the Transfer Agreement as
hereinafter set forth.
Terms used herein but not defined herein shall have the meaning
assigned thereto in the Transfer Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Amendment of Transfer Agreement. The Transfer Agreement shall be
-------------------------------
and is hereby amended, as of the date hereof, as follows:
(a) The definition of "Applicable Percentage" in Section 1.01 of the
---------------------
Transfer Agreement shall be amended in its entirety to read as follows:
"Applicable Percentage" means, with respect to any Transfer
---------------------
Amount payable with respect to Receivables, a percentage
equal to the product of (a) four, (b) the weighted average
life of such Receivables expressed in years and fractions
thereof and as reported in the most recent Originator Report
and (c) the Default Ratio as reported in the most recent
Originator Report.
(b) The definition of "Default Ratio" in Section 1.01 of the Transfer
-------------
Agreement shall be amended in its entirety to read as follows:
<PAGE>
"Default Ratio" means the ratio (expressed as percentage) computed as
-------------
of the last day of each calendar month by dividing (i) the total
Periodic Payments due over the remaining term of all Related Contracts
having one or more Receivables that were Defaulted Receivables during
the twelve months ending on such day by (ii) the total Periodic
Payments due over the remaining term of all Related Contracts
calculated as of the last day of such month.
(c) The definition of "Outstanding Balance" in Section 1.01 of the
-------------------
Agreement is hereby amended by deleting the word "net" in the first line
thereof.
(d) The definition of "Parent" in Section 1.01 of the Agreement shall
------
be amended in its entirety to read as follows: "Parent" means IKON Office
------
Solutions, Inc."
2. Execution in Counterparts, Etc. This Amendment may be executed in
------------------------------
any number of counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one
and the same amendment. The delivery of a signed signature page to this
Amendment by telecopy transmission shall constitute due execution and
delivery of this Amendment for all purposes.
3. Transfer Agreement in Full Force and Effect. Except as amended by
-------------------------------------------
this Amendment, all of the provisions of the Transfer Agreement and all of
the provisions of all other documentation required to be delivered with
respect thereto shall remain in full force and effect from and after the
date hereof.
4. References to Transfer Agreement. From and after the date hereof,
--------------------------------
(a) all references in the Transfer Agreement to "this Agreement," "hereof,"
"herein," or similar terms and (b) all references to the Transfer Agreement
in each agreement, instrument and other document executed or delivered in
connection with the Transfer Agreement, shall mean and refer to the
Transfer Agreement, as amended by this Amendment.
2
<PAGE>
5. Further Assurances. The parties hereto agree to execute and
------------------
deliver any and all further agreements, certificates and other documents
reasonably necessary to implement the provisions of this Amendment.
6. Governing Law. This Amendment shall be governed by, and construed
-------------
in accordance with, the law of the State of New York without giving effect
to the conflict of laws principles thereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
ORIGINATOR: IKON CAPITAL INC.
By: /s/ Signature
-------------------------
Name:
Title:
TRANSFEREE: IKON FUNDING INC.
By: /s/ Signature
-------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 10.9
RECEIVABLES TRANSFER AGREEMENT
Dated As Of December 1, 1998
Among
IKON FUNDING-1, LLC,
As Transferor,
IOS CAPITAL, INC.,
As Originator and Collection Agent,
MARKET STREET FUNDING CORPORATION,
As Issuer,
PNC BANK, NATIONAL ASSOCIATION
As Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
AMOUNTS AND TERMS OF TRANSFER
SECTION 1.01. Facility 1
SECTION 1.02. Consideration and Terms 1
SECTION 1.03. Settlement Procedures 2
SECTION 1.04. Payment of Fees and Yield. 5
SECTION 1.05. Payments and Computations, Etc. 6
SECTION 1.06. Increased Costs 6
SECTION 1.07. Additional Yield on Receivables Bearing a Eurodollar Rate 7
SECTION 1.08. Requirements of Law 7
SECTION 1.09. Inability to Determine Eurodollar Rate 8
SECTION 1.10. Additional Yield for Liquidity and Credit Enhancement 8
SECTION 1.11. Breakage Costs 9
SECTION 1.12. Retransfer of Receivables 9
SECTION 1.13. Security Interest 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES;
COVENANTS; TRIGGER EVENTS 11
SECTION 2.01. Representations and Warranties; Covenants 11
SECTION 2.02. Trigger Events 11
ARTICLE III
INDEMNIFICATION, REPURCHASE, ETC. 11
SECTION 3.01. Indemnities by the Transferor 11
SECTION 3.02. Recourse for Yield 13
SECTION 3.03. Repurchase of Ineligible and Certain Other Receivables 13
ARTICLE IV
ADMINISTRATION AND COLLECTION
OF RECEIVABLES 14
SECTION 4.01. Designation of Collection Agent 14
SECTION 4.02. Duties of Collection Agent 14
SECTION 4.03. Certain Rights of the Agent 15
SECTION 4.04. Rights and Remedies 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.05. Further Actions Evidencing Transfers 16
SECTION 4.06. Covenants of the Collection Agent and the Originator 16
SECTION 4.07. Indemnities by the Collection Agent 17
ARTICLE V
MISCELLANEOUS 18
SECTION 5.01. Amendments, Etc. 18
SECTION 5.02. Notices, Etc 19
SECTION 5.03. Assignability 20
SECTION 5.04. Costs, Expenses and Taxes 21
SECTION 5.05. No Proceedings 21
SECTION 5.06. Confidentiality 22
SECTION 5.07. GOVERNING LAW 22
SECTION 5.08. Execution in Counterparts 22
SECTION 5.09. Termination 23
SECTION 5.10. Tax Treatment 23
</TABLE>
ii
<PAGE>
EXHIBITS
EXHIBIT I -- Definitions
EXHIBIT II -- Conditions of the Transfer
EXHIBIT III -- Representations and Warranties
EXHIBIT IV -- Covenants
EXHIBIT V -- Trigger Events
EXHIBIT VI -- List of Marketplaces
EXHIBIT VII -- Principal Place of Business and Location of Records
ANNEXES
ANNEX A -- Form of Contract
ANNEX B -- Form of Transferor Report
ANNEX C -- Form of Opinion
SCHEDULES
SCHEDULE I -- Credit and Collection Policy
SCHEDULE II -- Receivables||
iii
<PAGE>
RECEIVABLES TRANSFER AGREEMENT
Dated as of December 1, 1998
IKON FUNDING-1, LLC, a Delaware limited liability company (the
"Transferor"), IOS CAPITAL, INC., a Delaware corporation (the "Originator" and
---------- ----------
in its capacity as Collection Agent, the "Collection Agent"), MARKET STREET
----------------
FUNDING CORPORATION, a Delaware corporation (the "Issuer"), and PNC BANK,
------
NATIONAL ASSOCIATION ("PNC"), as agent (in such capacity, the "Agent") for the
--- -----
Transferees, agree as follows:
PRELIMINARY STATEMENTS. Certain terms that are capitalized and used
throughout this Agreement are defined in Exhibit I to this Agreement. References
in Exhibits to "the Agreement" refer to this Agreement, as amended, modified or
supplemented from time to time.
The Transferor has Receivables and Related Security that it wishes to
transfer to the Issuer, and the Issuer is prepared to accept such transfer of
Receivables and Related Security on the terms set forth herein. Accordingly, the
parties agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF TRANSFER
SECTION 1.01. Facility. (a) Upon the satisfaction of the terms and
--------
conditions hereinafter set forth, the Agent shall, on behalf of the Issuer,
accept Receivables from time to time (each, a "Transfer") during the period from
--------
the date hereof to the Facility Termination Date. Each Transfer of Receivables
shall include the transfer to the Agent of the Related Security and Collections
with respect thereto. Under no circumstances shall the Agent accept any Transfer
if, after giving effect to such Transfer, the aggregate outstanding Capital
would exceed the Transfer Limit.
(b) The Transferor may, upon at least 30 days' notice to the Agent,
terminate this facility in whole or, from time to time, reduce in part the
unused portion of the Transfer Limit; provided that each partial reduction shall
--------
be in the amount of at least $10,000,000 or an integral multiple thereof and
that, unless terminated in whole, the Transfer Limit shall in no event be
reduced below $50,000,000.
SECTION 1.02. Consideration and Terms. (a) The initial Transfer shall be
-----------------------
made on at least two Business Days' notice from the Transferor to the Agent in
an amount equal to the Transfer Limit. On each Settlement Date thereafter
occurring prior to the Facility Termination Date, unless the Transferor has
given written notice to the Agent to the contrary not less than two Business
Days prior to such Settlement Date (or, in the case of any notice to the
contrary which
1
<PAGE>
would result in the excess of the Transfer Limit over the Capital on the
applicable Settlement Date (after giving effect to all payments to be made on
such date) exceeding $10,000,000, ten Business Days' notice), the Transferor
shall be deemed to have requested a Transfer in an amount equal to the excess of
the Transfer Limit over the Capital as of such Settlement Date (after giving
effect to all payments to be made on such date). The amount to be paid by the
Issuer in respect of each Transfer shall be equal to the Aggregate Adjusted
Outstanding Balance of the Related Contracts for the Receivables included in
such Transfer (the "Consideration" for such Receivables); provided that with
-------------
respect to each Transfer other than the Initial Transfer, such amount shall not
exceed the amount of the Transfer requested in the preceding sentence. Not less
than two Business Days prior to the date of each Transfer (each, a "Transfer
--------
Date"), the Transferor shall deliver to the Agent a written notice specifying
- ----
detailed information regarding such Receivables, including an addendum to or
revised version of Schedule II hereto.
(b) Promptly upon receipt of such notice, the Agent shall deliver a
copy thereof to the Issuer. Each Transfer other than the initial Transfer shall
be made only on a Settlement Date or as otherwise mutually agreed by the
Transferor and the Agent. On each Transfer Date, upon satisfaction of the
applicable conditions set forth in Exhibit II hereto, (x) the Issuer shall make
available to the Agent the Consideration in respect of such Transfer by deposit
of such amount in same day funds to the Agent's Account and, after the receipt
by the Agent of such funds, the Agent will cause such Consideration to be paid
to the Transferor in immediately available funds prior to 2:00 P.M. (New York
City time) to the Transferor's account no. 5603258724 at PNC Bank, Delaware
(ABA#031100089); provided, however, that in the case of each Transfer other
-------- -------
than the initial Transfer, the applicable Consideration may be netted against
amounts to be deposited in the Agent's Account on such date by the Collection
Agent pursuant to Section 1.03 and (y) the Transferor does hereby (effective on
the date of each Transfer automatically and without any further documentation)
transfer to the Agent for the benefit of the Issuer and other Transferees all of
the related Receivables, the Related Contracts, the Related Security (other than
the Equipment) and the Collections in respect thereof. The Issuer shall on the
last day of each Settlement Period, notify the Agent, and the Agent shall notify
the Transferor, of the Yield accrued for such Settlement Period or portion
thereof.
SECTION 1.03. Settlement Procedures. (a) Collection of the
---------------------
Receivables shall be administered by the Collection Agent, in accordance with
the terms of this Agreement. The Transferor shall provide to the Collection
Agent on a timely basis all information needed for such administration.
(b) The Collection Agent shall, on each day on which Collections are
received by it, set aside and hold in trust for the Transferees such Collections
and shall deposit into the Agent's Account,
2
<PAGE>
(i) on each Settlement Date, from such Collections, an amount equal
to accrued and unpaid Yield and any other amounts then owed by the
Transferor to any Transferee or the Agent hereunder (including any fees
owed to the Agent pursuant to Section 1.04(a) but excluding any such
amounts owed in respect of Capital);
(ii) on each Settlement Date, an amount equal to the Collection
Agent Fee accrued but unpaid during the preceding Settlement Period; and
(iii) on each Settlement Date, from such Collections, an amount equal
to the portion of Collections received during the preceding Settlement
Period remaining after application pursuant to the preceding clauses (i)
and (ii); provided that prior to the Facility Termination Date, the amount
--------
to be deposited pursuant to this clause (iii) will not exceed the product
of (A) a fraction, the numerator of which is the Required Balance and the
denominator of which is the aggregate Outstanding Balance of the Related
Contracts and (B) the amount of such Collections;
provided, however, that the aggregate amount deposited pursuant to this
- -------- -------
subsection (b) shall not exceed the sum of the Capital of, and accrued Yield and
Collection Agent Fee on, the Receivables plus the aggregate of any other amounts
then owed by the Transferor to any Transferee or the Agent hereunder.
Notwithstanding the foregoing, unless a Special Event has occurred, for so
long as the Originator is the Collection Agent, the Collection Agent shall not
be required to set aside Collections, but may commingle the Collections with its
own funds and make the deposits required to the Agent's Account pursuant to this
paragraph (b) on the dates required. For so long as the Originator is the
Collection Agent, the Collection Agent shall not be required to deposit the
Collection Agent Fee to the Agent's Account as required by clause (ii) of this
paragraph (b) but may retain such fee from the Collections remaining after the
deposits required pursuant to clause (i) of this paragraph (b).
(c) (i) Upon receipt of funds deposited into the Agent's Account
pursuant to subsection (b)(i) or (b)(ii) above, the Agent shall distribute
such funds as follows: first, pro rata to each Transferee in payment of
-----
accrued but unpaid Yield on the Capital of such Transferee and to the Agent
in respect of any fees owed pursuant to Section 1.04(a), and second, to the
------
Agent for the account of the Transferees or the Agent in payment of any
other amounts owed by the Transferor hereunder.
(ii) Upon receipt of funds deposited into the Agent's Account
pursuant to subsection (b)(ii) above, the Agent shall distribute such
funds, in an amount equal to the accrued but unpaid Collection Agent Fee,
to the Collection Agent on account of the Collection Agent Fee.
3
<PAGE>
(iii) Upon receipt of funds deposited into the Agent's Account
pursuant to subsection (b)(iii) above, the Agent shall distribute such
funds as follows: first, to the Agent for pro rata distribution to each
-----
Transferee in reduction to zero of all Capital, second, to the Agent for
------
the account of the Transferees or the Agent in payment of any other amounts
owed by the Transferor hereunder, and third, to the Transferor for its own
-----
account.
(d) For the purposes of this Section 1.03:
(i) if on any day the amount of any Receivable is reduced or
adjusted as a result of (A) early termination of the related Contract, or
(B) any defective, rejected, returned, or repossessed Equipment or
services, or (C) any cash discount, customer concession, trade-in or other
adjustment made by the Transferor or the Originator, or (D) any set-off, or
(E) any loss or damage with respect to any Equipment, the Transferor shall
be deemed to have received on such day a Collection in full of such
Receivable and all other Receivables relating to the same Contract, in the
amount of the Outstanding Balance of such Contract plus Yield thereon to
the end of the then current Settlement Period, and the amount of each such
Collection shall be applied as provided in this Section 1.03;
(ii) if on any day any of the representations or warranties in
paragraph (h) of Exhibit III is no longer true with respect to any
Receivable or the Related Security, the Transferor shall be deemed to have
received on such day a Collection in full of such Receivable and all other
Receivables relating to the same Contract, in the amount of the Outstanding
Balance of such Contract plus Yield thereon to the end of the then current
Settlement Period, and the amount of each such Collection shall be applied
as provided in this Section 1.03; and
(iii) if and to the extent the Agent or any Transferee shall be
required for any reason to pay over to an Obligor any amount received on
its behalf hereunder, such amount shall be deemed not to have been so
received but rather to have been retained by the Transferor and,
accordingly, the Agent or such Transferee, as the case may be, shall have a
claim against the Transferor for such amount, payable when and to the
extent that any distribution from or on behalf of such Obligor is made in
respect thereof.
(e) Except as provided in paragraph (i) or (ii) of Section 1.03(d), or as
otherwise required by applicable law or the relevant Contract, all Collections
received from an Obligor of any Receivables shall be applied to the Receivables
of such Obligor in the order of the age of the due but unpaid amounts with
respect to such Receivables, starting with the oldest such due but unpaid
amount, unless such Obligor designates its payment for application to specific
Receivables.
4
<PAGE>
(f) The Transferor shall forthwith deliver to the Collection Agent an
amount equal to all Collections deemed received by the Transferor pursuant to
Section 1.03(d)(i) or (ii) above and the Collection Agent shall hold or
distribute such Collections in accordance with Section 1.03(b). If Collections
are then being paid to the Agent, the Collection Agent shall forthwith cause
such deemed Collections to be paid to the Agent. If a Special Event has
occurred, so long as the Transferor shall hold any Collections or deemed
Collections required to be paid to the Collection Agent or the Agent, it shall
hold such Collections in trust and separate and apart from its own funds and
shall clearly mark its records to reflect such trust.
SECTION 1.04. Payment of Fees and Yield. (a) Fees. The Transferor shall
------------------------- ----
pay to the Agent certain fees in the amounts and on the dates set forth in a
separate fee agreement of even date herewith (as amended, supplemented or
otherwise modified, the "Fee Letter") between the Transferor and the Agent.
----------
(b) Yield. Yield for any Transferee for any Settlement Period (or portion
-----
thereof) on that portion of the Capital which such Transferee will fund or
maintain through the issuance of commercial paper notes is calculated (pursuant
to a formula set forth in the definition of "Yield") based on the Transferee
-----
Rate for such Settlement Period. Yield for any Transferee for any Settlement
Period (or portion thereof) on that portion of the Capital which such Transferee
will not be funding or maintaining through the issuance of commercial paper
notes is calculated (pursuant to a formula set forth in the definition of
"Yield") based on the Assignee Rate for such Settlement Period, which (subject
-----
to the provisos set forth in the definition of "Assignee Rate") is equal to
-------------
1.50% per annum plus the Eurodollar Rate for such Settlement Period.
(c) Collection Agent Fee The Collection Agent shall be entitled to receive
--------------------
a fee (the "Collection Agent Fee") of 1.50% per annum on the average daily
--------------------
Capital from the date of the first Transfer of Receivables until the date on
which such Capital is reduced to zero, payable on each Settlement Date. With
the prior written consent of the Agent, the Collection Agent (if not the
Originator, the Transferor or its designee or an Affiliate of the Transferor)
may elect to be paid, as such fee, another percentage per annum on the average
daily Capital, but in no event in excess of 110% of the reasonable costs and
expenses of the Collection Agent in administering and collecting the
Receivables. The Collection Agent Fee shall be payable solely from Collections
pursuant to, and subject to the priority of payment set forth in, Section 1.03.
So long as the Originator is acting as the Collection Agent hereunder, amounts
paid as the Collection Agent Fee pursuant to this Section 1.04(c) shall reduce
on a dollar-for-dollar basis, the obligation of the Transferor to pay the
"Collection Agent Fee" pursuant to Section 6.03 of the Transfer Agreement;
provided that such obligation of the Transferor shall in no event be reduced
- --------
below zero.
SECTION 1.05. Payments and Computations, Etc. (a) All amounts to be paid
-------------------------------
or deposited by the Transferor or the Collection Agent hereunder to or for the
account of the Agent, the Issuer or any other Transferee shall be paid or
deposited no later than 11:00 A.M. (New York
5
<PAGE>
City time) on the day when due in same day funds to the Agent's Account. Upon
receipt of funds deposited into the Agent's Account, the Agent shall distribute
such funds to the Persons entitled thereto in accordance with the provisions of
this Agreement or retain such funds for its own account, as appropriate. Where
this Agreement provides for pro rata distribution of funds to the Transferees,
the Agent shall make such distribution in accordance with each Transferee's
percentage interest in the Receivables.
(b) The Transferor shall, to the extent permitted by law, pay interest on
any amount not paid or deposited by the Transferor (whether as Collection Agent
or otherwise) when due hereunder, at an interest rate per annum equal to 2% per
annum above the Alternate Base Rate, payable on demand.
(c) All computations of interest under subsection (b) above and all
computations of Yield, fees, and other amounts hereunder shall be made on the
basis of a year of 360 days for the actual number of days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
such payment or deposit.
SECTION 1.06. Increased Costs. (a) If PNC, the Agent, the Issuer, a
---------------
Transferee, any entity which enters into a commitment to acquire Receivables or
interests therein, any entity which provides credit enhancement or any of their
respective Affiliates (each an "Affected Person") determines that compliance
---------------
with any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by such
Affected Person and such Affected Person determines that the amount of such
capital is increased by or based upon the existence of any commitment to accept
transfers of or otherwise to maintain the investment in Receivables or interests
therein hereunder or under any commitments to a Transferee related to this
Agreement or to the funding thereof or any related liquidity facility or credit
enhancement facility (or any participation therein) and other commitments of the
same type, then, upon demand by such Affected Person (with a copy to the Agent),
the Transferor shall immediately pay to the Agent, for the account of such
Affected Person (as a third-party beneficiary), from time to time as specified
by such Affected Person, additional amounts sufficient to compensate such
Affected Person in the light of such circumstances, to the extent that such
Affected Person reasonably determines such increase in capital to be allocable
to the existence of any of such commitments. A certificate as to such amounts
submitted to the Transferor and the Agent by such Affected Person shall be
conclusive and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements) in or in
the interpretation of any law or regulation or (ii) compliance with any
guideline or request from any central bank or other
6
<PAGE>
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to a Transferee of agreeing to accept the Transfer of
or accepting such Transfers, or maintaining the ownership of the Receivables or
interests therein in respect of which Yield is computed by reference to the
Eurodollar Rate, then upon demand by such Transferee (with a copy to the Agent),
the Transferor shall immediately pay to the Agent, for the account of such
Transferee (as a third-party beneficiary), from time to time as specified by
such Transferee, additional amounts sufficient to compensate such Transferee for
such increased costs. A certificate as to such amounts submitted to the
Transferor and the Agent by a Transferee shall be conclusive and binding for all
purposes, absent manifest error.
SECTION 1.07. Additional Yield on Receivables Bearing a Eurodollar Rate.
---------------------------------------------------------
The Transferor shall pay to each Transferee, so long as such Transferee shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional Yield on the unpaid Capital of
such Transferee during each Settlement Period in respect of which Yield is
computed by reference to the Eurodollar Rate, for such Settlement Period, at a
rate per annum equal at all times during such Settlement Period to the remainder
obtained by subtracting (i) the Eurodollar Rate for such Settlement Period from
(ii) the rate obtained by dividing such Eurodollar Rate referred to in clause
(i) above by that percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage of such Transferee for such Settlement Period, payable on each date
on which Yield is payable on such Receivables. Such additional Yield shall be
determined by such Transferee and notice thereof given to the Transferor through
the Agent within 60 days after any Yield payment is made with respect to which
such additional Yield is requested. A certificate as to such additional Yield
submitted to the Transferor and the Agent by such Transferee shall be conclusive
and binding for all purposes, absent manifest error.
SECTION 1.08. Requirements of Law. In the event that any requirement of
-------------------
law or any change therein or in the interpretation or application thereof by the
relevant governmental authority to a Transferee after the date hereof or
compliance by a Transferee with any request or directive (whether or not having
the force of law) from any central bank or other governmental authority:
(i) does or shall subject such Transferee to any tax of any kind
whatsoever with respect to this Agreement or change the basis of taxation
of payments to such Transferee on account of Collections, Yield or any
other amounts payable hereunder (excluding taxes imposed on the income of
such Transferee, and franchise taxes imposed on such Transferee, by the
jurisdiction under the laws of which such Transferee is organized or a
political subdivision thereof); or
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, purchases,
advances or loans by, or other credit
7
<PAGE>
extended by, or any other acquisition of funds by, any office of such
Transferee which are not otherwise included in the determination of the
Eurodollar Rate or the Alternate Base Rate hereunder;
and the result of any of the foregoing is to increase the cost to such
Transferee of maintaining an interest in Receivables or to reduce any amount
receivable hereunder, then, in any such case, the Transferor shall pay such
Transferee, upon its demand, any additional amounts necessary to compensate such
Transferee for such additional cost or reduced amount receivable with regard to
such Transferee's Receivables. All such amounts shall be payable as incurred.
A certificate from such Transferee or the Agent, as the case may be, to the
Transferor certifying, in reasonably specific detail, the basis for, calculation
of, and amount of such additional costs shall be conclusive in the absence of
manifest error.
SECTION 1.09. Inability to Determine Eurodollar Rate. In the event that
--------------------------------------
the Agent shall have determined prior to the first day of any Settlement Period
(which determination shall be conclusive and binding upon the parties hereto) by
reason of circumstances affecting the interbank Eurodollar market, either (a)
dollar deposits in the relevant amounts and for the relevant Settlement Period
are not available, (b) adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Settlement Period or (c) the
Eurodollar Rate determined pursuant hereto does not accurately reflect the cost
to the Transferees (as conclusively determined by the Agent) of maintaining
Receivables during such Settlement Period, the Agent shall promptly give
telephonic notice of such determination, confirmed in writing, to the Transferor
prior to the first day of such Settlement Period. If such notice is given, the
Assignee Rate shall be determined without reference to the Eurodollar Rate.
SECTION 1.10. [Reserved]
SECTION 1.11. Breakage Costs. If (a) any payment of Capital as to which
--------------
Yield is computed by reference to the Eurodollar Rate or the Transferee Rate is
made by the Transferor to or for the account of any Transferee other than on the
last day of a Settlement Period, as a result of a payment pursuant to Sections
1.03, 1.12 or 3.03 or for any other reason, or (b) the Termination Date shall
occur during any Settlement Period, or (c) any payment of Capital is made by the
Transferor to a Transferee or an Affected Person other than on the last day of a
Settlement Period upon a purchase and assumption of rights and obligations under
this Agreement as a result of a demand by the Transferor, the Transferor shall,
upon demand by such Transferee or Affected Person (with a copy to the Agent),
immediately pay to the Agent for the account of such Transferee or Affected
Person (as a third-party beneficiary) any amounts required to compensate such
Transferee or Affected Person for any additional losses, costs or expenses which
it may reasonably incur as a result of such payment, including, without
limitation, any loss (including loss of anticipated profits), costs or expenses
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Transferee or Affected Person to fund or maintain its interest
in the Receivables. A certificate as to such
8
<PAGE>
amounts submitted to the Transferor and the Agent by such Transferee or Affected
Person shall be conclusive and binding for all purposes, absent manifest error.
SECTION 1.12. Retransfer of Receivables. At any time after Capital is
-------------------------
reduced to less than 10% of the highest amount of Capital outstanding on or
prior to the Facility Termination Date, the Transferor may, at its option, upon
not less than thirty days notice to the Agent, accept the retransfer from the
Agent on the Settlement Date next succeeding such thirty day period or on such
other date as shall be mutually agreed to by the Agent and the Transferor (the
"Retransfer Date"), of all of the Receivables and the Related Security then held
- ----------------
by the Agent for an amount equal to the Capital outstanding as at the Retransfer
Date (after application of all Collections received on or prior to such date)
plus any accrued and unpaid Yield as at such date plus any other amounts then
owed by the Transferor under this Agreement. The Transferor shall be entitled
to all Collections from the Receivables retransferred to the Transferor in
accordance with this Section 1.12 which are received after the Retransfer Date
and the Collection Agent shall set aside and hold in trust for, and shall pay
forthwith to, the Transferor all such Collections. The terms and provisions of
this Agreement shall continue to be effective or be reinstated, as the case may
be, if any such payment is rescinded or must otherwise be returned to the
Transferor upon the insolvency, bankruptcy or reorganization of the Transferor
or an Obligor or otherwise, all as though such payment had never been made. On
the Retransfer Date:
(i) all of the Receivables and Related Security shall be
retransferred to the Transferor without any representation or warranty
other than that they are free and clear of any Adverse Claims created by or
through the Transferees or the Agent, and
(ii) the Agent shall deliver to the Transferor executed UCC-3
Termination Statements, terminating the interest of the Agent in all such
Receivables and Related Security,
thereupon the Transferor shall be vested with all right, title and interest in
such Receivables and Related Security, and the Agent and the Transferees shall
no longer hold any interest in any of such Receivables or Related Security.
SECTION 1.13. Security Interest. As collateral security for the
-----------------
performance by the Transferor of all the terms, covenants and agreements on the
part of the Transferor (whether as Transferor or otherwise) to be performed
under this Agreement or any document delivered in connection with this Agreement
in accordance with the terms thereof, including the punctual payment when due of
all obligations of the Transferor hereunder or thereunder, whether for
indemnification payments, fees, expenses or otherwise, the Transferor hereby
assigns to the Agent for its benefit and the ratable benefit of the Transferees,
and hereby grants to the Agent for its benefit and the ratable benefit of the
Transferees, a security interest in, all of the Transferor's right, title and
interest in and to:
9
<PAGE>
(a) the Transfer Agreement, including, without limitation, (i) all rights
of the Transferor to receive moneys due or to become due under or pursuant to
the Transfer Agreement, (ii) all security interests and property subject thereto
from time to time purporting to secure payment of monies due or to become due
under or pursuant to the Transfer Agreement, (iii) all rights of the Transferor
to receive proceeds of any insurance, indemnity, warranty or guaranty with
respect to the Transfer Agreement (except any rights that might arise under the
Support Agreement), (iv) claims of the Transferor for damages arising out of or
for breach of or default under the Transfer Agreement, and (v) the right of the
Transferor to compel performance and otherwise exercise all remedies thereunder,
(b) all Receivables, the Related Security with respect thereto and the
Collections and all receivables originated by Dealers and owned by the
Transferor and not otherwise transferred or scheduled to be transferred under
this Agreement and all related collateral with respect thereto, and
(c) to the extent not included in the foregoing, all proceeds of any and
all of the foregoing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES;
COVENANTS; TRIGGER EVENTS
SECTION 2.01. Representations and Warranties; Covenants. The Transferor
-----------------------------------------
hereby makes the representations and warranties, and hereby agrees to perform
and observe the covenants, set forth in Exhibits III and IV, respectively,
hereto.
SECTION 2.02. Trigger Events. If any of the Trigger Events set forth in
--------------
Exhibit V hereto shall occur and be continuing, the Agent may, by notice to the
Transferor, take either or both of the following actions: (x) declare the
Termination Date to have occurred, and (y) designate another Person to succeed
the Originator as the Collection Agent; provided, that, automatically upon the
--------
occurrence of any event (without any requirement for the passage of time or the
giving of notice) described in paragraph (h) of Exhibit V, the Termination Date
shall occur, the Originator (if it is then serving as the Collection Agent)
shall cease to be the Collection Agent, and the Agent or its designee shall
become the Collection Agent. Upon any such declaration or designation or upon
any such automatic termination, the Transferees and the Agent shall have, in
addition to the rights and remedies which they may have under this Agreement,
all other rights and remedies provided after default under the UCC of the
appropriate
10
<PAGE>
jurisdiction or jurisdictions and under other applicable law, which rights and
remedies shall be cumulative.
ARTICLE III
INDEMNIFICATION, REPURCHASE, ETC.
SECTION 3.01. Indemnities by the Transferor. Without limiting any other
-----------------------------
rights that the Agent or any Transferee or any of their respective Affiliates or
its agents (each, an "Indemnified Party") may have hereunder or under applicable
-----------------
law, the Transferor hereby agrees to indemnify each Indemnified Party from and
against any and all claims, losses and liabilities (including reasonable
attorneys' fees) (all of the foregoing being collectively referred to as
"Indemnified Amounts") arising out of or resulting from this Agreement or the
- --------------------
use of proceeds of any Transfer or the acceptance of the transfer of the
Receivables or in respect of any Receivable, Related Contract or Related
Security, excluding, however, (a) Indemnified Amounts to the extent resulting
--------- -------
from gross negligence or willful misconduct on the part of such Indemnified
Party, (b) recourse (except as otherwise specifically provided in this
Agreement) for uncollectible Receivables or (c) any income taxes or franchise
taxes imposed on such Indemnified Party by the jurisdiction under the laws of
which such Indemnified Party is organized or any political subdivision thereof,
arising out of or as a result of this Agreement or the acceptance of the
transfer of the Receivables or in respect of any Receivable, Related Contract or
Related Security. Without limiting or being limited by the foregoing, the
Transferor shall pay on demand to each Indemnified Party any and all amounts
necessary to indemnify such Indemnified Party from and against any and all
Indemnified Amounts relating to or resulting from any of the following:
(i) any representation or warranty or statement made by the
Transferor (or any of its officers) under or in connection with this
Agreement and the other Transaction Documents which shall have been
incorrect in any material respect when made;
(ii) the failure by the Transferor to comply with any applicable
law, rule or regulation (including, without limitation, usury or consumer
law) with respect to any Receivable, the related Contract or the Related
Security; or the failure of any Receivable or the related Contract to
conform to any such applicable law, rule or regulation;
(iii) the failure of the Agent (for the benefit of the Transferees)
to acquire a valid and perfected security interest in the Receivables and
the Related Security and Collections in respect thereof under Article 9 of
the UCC of any applicable jurisdiction, free and clear of any Adverse
Claim;
11
<PAGE>
(iv) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables or the Related Security and Collections in respect thereof,
whether at the time of the transfer of an interest therein or at any
subsequent time;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
(including, without limitation, a defense based on such Receivable or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the lease or sale of the related Equipment or services
related to such Receivable or the furnishing or failure to furnish such
Equipment or other services or alleging violation by the Transferor of any
laws in connection with such lease or sale activities;
(vi) any failure of the Transferor to perform its duties or
obligations in accordance with the provisions hereof or to perform its
duties or obligations under the Related Contracts;
(vii) any products or personal liability claim arising out of or in
connection with any Equipment or other merchandise, services or activities
which are the subject of any Related Contract;
(viii) the commingling by the Transferor or any of its Affiliates
(including without limitation the Originator in its capacity as Collection
Agent) of Collections of Receivables at any time with other funds;
(ix) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of any Transfer or the acceptance of the
transfer of Receivables or in respect of any Receivable, Related Security
or Related Contract; or
(x) any fine, penalty, tax or other charge asserted against any
Indemnified Party by any governmental authority or agency or any other
Person resulting from any Obligor's use, possession or ownership of any
Equipment.
SECTION 3.02. Recourse for Yield. The Transferor hereby agrees to pay to
------------------
the Agent, for pro rata distribution to each Transferee, (a) on the last day of
each Settlement Period, any deficiency between (i) Collections applied to
payment of accrued but unpaid Yield on such last day pursuant to Section
1.03(b)(i), and (ii) the amount of accrued but unpaid Yield on such last day on
the Capital.
12
<PAGE>
SECTION 3.03. Repurchase of Ineligible and Certain Other Receivables.
------------------------------------------------------
(a) The Transferor shall, upon not less than two Business Days' notice from the
Agent, repurchase (at the repurchase price specified in Section 3.03(b) below)
on the next succeeding Settlement Date:
(i) any Receivable that was not an Eligible Receivable at the time
of the related Transfer;
(ii) any Receivable that ceases to be an Eligible Receivable (other
than by reason of having become a Chargeback Receivable) after the time of
the related Transfer; and
(iii) any Receivable as to which the Agent (for the benefit of the
Transferees) does not have a first priority perfected interest free and
clear of any Adverse Claim.
(b) Each repurchase of a Receivable under Section 3.03(a) above shall
include the repurchase of all other Receivables relating to the same Contract.
The repurchase price shall be an amount equal to the Outstanding Balance of the
related Contract plus accrued but unpaid Yield allocable thereto to the date of
repurchase. The proceeds of any such repurchase shall be deemed to be a
Collection in respect of such Receivables received during the Settlement Period
preceding such Settlement Date and the amount of each such Collection shall be
applied as provided in Section 1.03.
ARTICLE IV
ADMINISTRATION AND COLLECTION
OF RECEIVABLES
SECTION 4.01. Designation of Collection Agent. The servicing,
-------------------------------
administration and collection of the Receivables shall be conducted by the
Collection Agent so designated hereunder from time to time. Until the Agent
gives notice to the Transferor of the designation of a new Collection Agent, the
Originator is hereby designated as, and hereby agrees to perform the duties and
obligations of, the Collection Agent pursuant to the terms hereof. The Agent at
any time may designate as Collection Agent any Person (including itself) to
succeed the Originator or any successor Collection Agent, if such Person shall
consent and agree to the terms hereof. The Collection Agent may, with the prior
consent of the Agent, subcontract with any other Person for the servicing,
administration or collection of the Receivables. Any such subcontract shall not
affect the Collection Agent's liability for performance of its duties and
obligations pursuant to the terms hereof.
SECTION 4.02. Duties of Collection Agent. (a) The Collection Agent shall
--------------------------
take or cause to be taken all such actions as may be necessary or advisable to
collect each Receivable
13
<PAGE>
from time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy. The Transferor and the Agent hereby appoint the
Collection Agent, from time to time designated pursuant to Section 4.01, as
agent for themselves and for the Transferees to enforce their respective rights
and interests in the Receivables, the Related Security and the related
Contracts. In performing its duties as Collection Agent, the Collection Agent
shall exercise the same care and apply the same policies as it would exercise
and apply if it owned such Receivables and shall act in the best interests of
the Transferor and the Transferees.
(b) The Collection Agent shall administer the Collections in accordance
with the procedures described in Section 1.03.
(c) If no Special Event shall have occurred and be continuing, the
Originator, while it is the Collection Agent, may, in accordance with the Credit
and Collection Policy, extend the maturity or adjust the Outstanding Balance of
any Receivable as the Originator deems appropriate to maximize Collections
thereof.
(d) The Collection Agent shall hold in trust for the Transferor and each
Transferee, in accordance with their respective interests, all documents,
instruments and records (including, without limitation, computer tapes or disks)
which evidence or relate to Receivables.
(e) The Collection Agent shall, as soon as practicable following receipt,
turn over to the Transferor any cash collections or other cash proceeds received
with respect to receivables not transferred to the Agent and the Transferees
pursuant to this Agreement.
(f) The Collection Agent shall, from time to time at the request of the
Agent, furnish to the Agent (promptly after any such request) a calculation of
the amounts set aside for the Agent and the Transferees pursuant to Section
1.03.
(g) Prior to the 13th calendar day of each month, the Collection Agent
shall prepare and forward to the Agent a Transferor Report relating to the
Receivables outstanding on the last day of the immediately preceding month.
SECTION 4.03. Certain Rights of the Agent.
---------------------------
Following the occurrence of a Special Event,
(a) The Agent may direct the Obligors that all payments under the
Related Contracts be made directly to the Agent or its designee.
14
<PAGE>
(b) At the Agent's request and at the Transferor's expense, the
Transferor shall notify each Obligor of the interest of the Agent in the
Receivables under this Agreement and direct that payments be made directly
to the Agent or its designee.
(c) At the Agent's request and at the Transferor's expense, the
Transferor and the Collection Agent shall (A) assemble all of the
documents, instruments and other records (including, without limitation,
computer tapes and disks) that evidence or relate to the Receivables and
the Related Contracts and Related Security, or that are otherwise necessary
or desirable to collect the Receivables, and shall make the same available
to the Agent at a place selected by the Agent or its designee, and (B)
segregate all cash, checks and other instruments received by it from time
to time constituting Collections in a manner acceptable to the Agent and,
promptly upon receipt, remit all such cash, checks and instruments, duly
indorsed or with duly executed instruments of transfer, to the Agent or its
designee.
(d) The Transferor authorizes the Agent to take any and all steps in
the Transferor's name and on behalf of the Transferor that are necessary or
desirable, in the determination of the Agent, to collect amounts due under
the Receivables, including, without limitation, endorsing the Transferor's
name on checks and other instruments representing Collections and enforcing
the Receivables and the Related Security and related Contracts.
SECTION 4.04. Rights and Remedies. (a) If the Collection Agent fails to
-------------------
perform any of its obligations under this Agreement, the Agent may (but shall
not be required to) itself perform, or cause performance of, such obligation;
and the Agent's costs and expenses incurred in connection therewith shall be
payable by the Transferor (if the Collection Agent that fails to so perform is
the Transferor or its designee).
(b) The Transferor and the Originator shall perform their respective
obligations under the Related Contracts to the same extent as if the Receivables
had not been transferred and the exercise by the Agent on behalf of the
Transferees of their rights under this Agreement shall not release the
Collection Agent or the Transferor from any of their duties or obligations with
respect to any Receivables or Related Contracts. Neither the Agent nor the
Transferees shall have any obligation or liability with respect to any
Receivables or Related Contracts, nor shall any of them be obligated to perform
the obligations of the Transferor thereunder.
(c) In the event of any conflict between the provisions of Article IV of
this Agreement and Article VI of the Transfer Agreement, the provisions of this
Agreement shall control.
SECTION 4.05. Further Actions Evidencing Transfers. The Originator
------------------------------------
agrees from time to time, at its expense, to promptly execute and deliver all
further instruments and documents, and to take all further actions, that may be
reasonably necessary or desirable, or that
15
<PAGE>
the Agent may reasonably request, to perfect, protect or more fully evidence the
Receivables transferred hereunder, or to enable the Transferees or the Agent to
exercise and enforce their respective rights and remedies hereunder. Without
limiting the foregoing, the Originator will upon the request of the Agent (i)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments and documents, that may be reasonably
necessary or desirable, or that the Agent may reasonably request, to perfect,
protect or evidence such interests in Receivables; (ii) mark conspicuously each
invoice evidencing each Receivable and the Related Contract with a legend,
acceptable to the Agent, evidencing that such Receivables have been transferred;
and (iii) mark its master data processing records evidencing such Receivables
and the Related Contracts with such a legend.
SECTION 4.06. Covenants of the Collection Agent and the Originator. (a)
----------------------------------------------------
Audits. The Collection Agent will, from time to time during regular business
- ------
hours as requested by the Agent, permit the Agent, or its agents or
representatives (including independent public accountants, which may be the
Collection Agent's independent public accountants), (i) to conduct periodic
audits of the Receivables, the Related Security and the related books and
records and collections systems of the Collection Agent, (ii) to examine and
make copies of and abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the possession or under the
control of the Collection Agent relating to the Receivables and the Related
Security, including, without limitation, the Contracts, and (iii) to visit the
offices and properties of the Collection Agent for the purpose of examining such
materials described in clause (ii) above, and to discuss matters relating to the
Receivables and the Related Security or the Collection Agent's performance
hereunder with any of the officers or employees of the Collection Agent having
knowledge of such matters.
(b) Change in Credit and Collection Policy. The Originator will not make
--------------------------------------
any change in the Credit and Collection Policy that would impair the
collectibility of any Receivable or the ability of the Originator (if it is
acting as Collection Agent) to perform its obligations under this Agreement.
SECTION 4.07. Indemnities by the Collection Agent. Without limiting any
-----------------------------------
other rights that the Agent, any Transferee or any of their respective
Affiliates (each, a "Special Indemnified Party") may have hereunder or under
-------------------------
applicable law, and in consideration of its appointment as Collection Agent, the
Collection Agent hereby agrees to indemnify each Special Indemnified Party from
and against any and all claims, losses and liabilities (including reasonable
attorneys' fees) (all of the foregoing being collectively referred to as
"Special Indemnified Amounts") arising out of or resulting from any of the
- ----------------------------
following (excluding, however, (a) Special Indemnified Amounts to the extent
resulting from gross negligence or willful misconduct on the part of such
Special Indemnified Party, (b) recourse for uncollectible Receivables or (c) any
income taxes or any other tax or fee measured by income incurred by such Special
Indemnified Party arising out of or as a result of this Agreement or the
ownership of interests in the Receivables or in respect of any Receivable or any
Contract):
16
<PAGE>
(i) any representation or warranty or statement made or deemed made
by the Collection Agent under or in connection with this Agreement which
shall have been incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply with any
applicable law, rule or regulation with respect to any Receivable or
Contract; or the failure of any Receivable or Contract to conform to any
such applicable law, rule or regulation;
(iii) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Receivables, the Contracts and the Related Security and Collections in
respect thereof, whether at the time of any purchase or reinvestment or at
any subsequent time;
(iv) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement;
(v) the commingling of Collections at any time by the Collection
Agent with other funds;
(vi) any action or omission by the Collection Agent reducing or
impairing the rights of the Transferees with respect to any Receivable or
the value of any Receivable;
(vii) any Collection Agent Fees or other costs and expenses payable
to any replacement Collection Agent, to the extent in excess of the
Collection Agent Fees payable to the Collection Agent hereunder; or
(viii) any claim brought by any Person other than a Special
Indemnified Party arising from any activity by the Collection Agent or its
Affiliates in servicing, administering or collecting any Receivable.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement and no consent to any departure by the Transferor therefrom
shall be effective unless in a writing signed by the Agent, as agent for the
Transferees and, in the case of any amendment, also signed by the Transferor,
and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
--------
however,
- -------
17
<PAGE>
that no such material amendment shall be effective until both Moody's and S&P
have notified the Agent in writing that such action will not result in a
reduction or withdrawal of the rating of any of the Issuer's commercial paper
notes. No failure on the part of any Transferee or the Agent to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The Agent shall
provide each Rating Agency with a copy of each amendment to or waiver or consent
under this Agreement promptly following the effective date thereof.
SECTION 5.02. Notices, Etc. All notices, demands and other
------------
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (which shall include electronic transmission), shall be personally
delivered, express couriered, electronically transmitted (in which case a hard
copy shall also be sent by regular mail) or mailed by registered or certified
mail and shall, unless otherwise expressly provided herein, be effective when
received at the address specified below for the listed parties or at such other
address as shall be specified in a written notice furnished to the other parties
hereunder.
If to the Transferor:
IKON FUNDING-1, LLC
501 Silverside Road, Suite 28
Wilmington, Delaware 19809
Attention: Robert McLain
If to the Originator or Collection Agent:
IOS CAPITAL, INC.
1738 Bass Road
Macon, Georgia 31210
Attention: Harry G. Kozee
Tel. No.: (912) 471-2306
Facsimile No.: (912) 471-2388
with a copy to:
IKON OFFICE SOLUTIONS, INC.
70 Valley Stream Parkway
Malvern, Pennsylvania 19355
Attention: Jack Quinn
Tel. No.: (610) 408-7165
Facsimile No.: (610) 408-7022
18
<PAGE>
If to the Agent:
PNC BANK, NATIONAL ASSOCIATION
One PNC Plaza, 26th Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
Attention: John Smathers
Tel. No.: (412) 762-6440
Facsimile No.: (412) 762-9184
If to the Issuer:
MARKET STREET FUNDING CORPORATION
c/o AMACAR Group, L.L.C.
6707-D Fairview Road
Charlotte, North Carolina 28210
Attention: Julianna Johnson
Tel. No.: (704) 365-0569
Facsimile No.: (704) 365-1362
SECTION 5.03. Assignability. (a) This Agreement and each Transferee's
-------------
rights and obligations herein (including rights in the Receivables) shall be
assignable by each Transferee and its successors and assigns if the Agent shall
have received confirmation from each of Moody's and S&P that such assignment
will not result in the withdrawal or downgrade of the then-current ratings of
the Issuer's outstanding commercial paper notes; provided, that no such
--------
confirmation shall be required if such assignment is made by the Issuer to a
Transferee that is a party to a liquidity facility supporting the commercial
paper notes of the Issuer. Each assignor of Receivables or any interest therein
shall notify the Agent and the Transferor of any such assignment; provided, that
--------
no such notice shall be required if such assignment is made by the Issuer to a
Transferee that is a party to a liquidity facility supporting the commercial
paper notes of the Issuer. Each assignor of Receivables may, in connection with
the assignment or participation, disclose to the assignee or participant any
information, relating to the Transferor or the Receivables, which was furnished
to such assignor by or on behalf of the Transferor or by the Agent; provided
--------
that, prior to any such disclosure, the assignee or participant agrees to
preserve the confidentiality of any confidential information relating to the
Transferor received by it from any of the foregoing entities.
(b) This Agreement and the rights and obligations of the Agent herein shall
be assignable by the Agent and its successors and assigns; provided that any
--------
costs incurred by the Agent in connection with such assignment shall be for the
account of the Agent.
19
<PAGE>
(c) The Transferor may not assign its rights or obligations hereunder or
any interest herein without the prior written consent of the Agent, which
consent will not be unreasonably withheld.
(d) Without limiting any other rights that may be available under
applicable law, the rights of the Transferees may be enforced through them or by
their agents.
SECTION 5.04. Costs, Expenses and Taxes. (a) In addition to the rights of
-------------------------
indemnification granted under Section 3.01 hereof, the Transferor agrees to pay
on demand all costs and expenses of the Agent and the Issuer and their
respective Affiliates in connection with the preparation, execution, delivery,
amendment and administration (including periodic auditing of Receivables) of
this Agreement, any transfer agreement or similar agreement relating to the
transfer of interests in Receivables and the other documents and agreements to
be delivered hereunder and thereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent, the Issuer
and their respective Affiliates and agents with respect thereto and with respect
to advising the Agent, the Issuer and their respective Affiliates and agents as
to their rights and remedies under this Agreement and all costs and expenses, if
any (including reasonable counsel fees and expenses) of the Agent, the
Transferees and their respective Affiliates and agents, in connection with the
enforcement of this Agreement, and the other documents and agreements to be
delivered hereunder.
(b) The Transferor shall pay any and all stamp and other taxes and fees
payable in connection with the execution, delivery, filing and recording of this
Agreement or the other documents or agreements to be delivered hereunder. The
Transferor agrees to save each Indemnified Party harmless from and against any
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees, any and all stamp and other taxes and fees payable in
connection with the execution, delivery, filing and recording of this Agreement
or the other documents or agreements to be delivered hereunder. The Transferor
agrees to save each Indemnified Party harmless from and against any liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and fees.
SECTION 5.05. No Proceedings; Limitation on Payments. (a) Each of the
--------------------------------------
Originator, the Transferor, the Agent, each Transferee, each assignee of a
Receivable or any interest therein and each entity which enters into a
commitment to acquire Receivables or interests therein hereby agrees that it
will not institute against, or join any other person in instituting against, the
Issuer any proceeding of the type referred to in paragraph (h) of Exhibit V so
long as any commercial paper issued by the Issuer shall be outstanding and there
shall not have elapsed one year plus one day since the last day on which any
such commercial paper shall have been outstanding.
(b) Notwithstanding anything in this Agreement or any other Transaction
Document to the contrary, the Issuer shall have no obligation to pay any amount
required to be paid by it
20
<PAGE>
hereunder or thereunder in excess of any amount available to the Issuer after
paying or making provision for the payment of its commercial paper notes. All
payment obligations of the Issuer hereunder are contingent on the availability
of funds in excess of the amounts necessary to pay its commercial paper notes;
and each of the Transferor, the Collection Agent, the Agent and the Transferees
agree that they shall not have a claim under Section 101(5) of the Bankruptcy
Code if and to the extent that any such payment obligation exceeds the amount
available to the Issuer to pay such amount after paying or making provision for
the payment of its commercial paper notes.
(c) The provisions of this Section 5.05 shall survive any termination of
------------
this Agreement.
SECTION 5.06. Confidentiality. Unless otherwise required by applicable
---------------
law, the Transferor agrees to maintain the confidentiality of this Agreement
(and all drafts thereof) in communications with third parties and otherwise;
provided, that this Agreement may be disclosed to (a) third parties to the
- --------
extent such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to the Agent, and
(b) the Transferor's legal counsel and auditors if they agree to hold it
confidential.
SECTION 5.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF PENNSYLVANIA (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT
THAT THE PERFECTION OF THE INTERESTS OF THE TRANSFEREES IN THE RECEIVABLES OR
REMEDIES HEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF PENNSYLVANIA.
SECTION 5.08. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 5.09. Termination. (a) Except as provided in subsection (b)
-----------
below, this Agreement shall terminate on the Termination Date. Upon the
occurrence of the Termination Date, the Agent will, at the Transferor's cost and
expense, take such actions as are reasonably requested to terminate this
Agreement and the Transfer contemplated thereby (including, without limitation,
executing UCC termination statements).
(b) The provisions of Sections 1.06, 1.08, 1.09, 1.10, 1.11, 3.01, 4.07,
5.04, 5.05 and 5.06 shall survive any termination of this Agreement.
21
<PAGE>
SECTION 5.10. Tax Treatment. It is the intention of the Transferor and
-------------
the Agent that for federal, state and local income and franchise tax purposes,
the Capital will be treated as evidence of indebtedness of the Transferor
secured by the Receivables, the Related Security and Collections and other
proceeds thereof. The Transferor, the Agent and the Issuer, by entering into
this Agreement, intend to treat the Capital as indebtedness.
The provisions of this Agreement and all related Transaction Documents
shall be construed to further such intentions of the parties hereto.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
TRANSFEROR: IKON FUNDING-1, LLC
By: IKON FUNDING, INC.
By: /s/ Robert K., McLain
-------------------------------------
Name: Robert K., McLain
Title: President
1
<PAGE>
ORIGINATOR IOS CAPITAL, INC.
AND
COLLECTION
AGENT: By: /s/ Jack Quinn
--------------------------------
Name: Jack Quinn
Title:
2
<PAGE>
ISSUER: MARKET STREET FUNDING CORPORATION
By: /s/ Signature
--------------------------------
Name:
Title:
3
<PAGE>
AGENT: PNC BANK, NATIONAL ASSOCIATION
By: /s/ Signature
--------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT I
DEFINITIONS
As used in the Agreement (including its Exhibits), the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adverse Claim" means a lien, security interest or other charge or
-------------
encumbrance, or any other type of preferential arrangement.
"Affected Person" has the meaning set forth in Section 1.06.
---------------
"Affiliate" means, as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Agent's Account" means the special account (account number 1002-422-076;
---------------
ABA number 04300096) of the Agent.
"Aggregate Adjusted Outstanding Balance" means, with respect to any
--------------------------------------
Receivables to be transferred pursuant to Section 1.02, the aggregate
Outstanding Balance of the Contracts related to such Receivables less the
Discount with respect to such Receivables.
"Agreement" means this Receivables Transfer Agreement, as it may be
---------
amended, supplemented or otherwise modified from time to time.
"Alternate Base Rate" means a fluctuating interest rate per annum as shall
-------------------
be in effect from time to time, which rate shall be at all times equal to the
greater of:
(a) the rate of interest announced publicly by PNC from time to time
as its base commercial lending rate; and
(b) the Federal Funds Rate plus 0.50%.
"Applicable Percentage" means, with respect to the Consideration payable
---------------------
with respect to Receivables, a percentage equal to the greater of (i) 12.0% or
(ii) the product of (a) four, (b) the weighted average life of such Receivables
expressed in years and fractions thereof and as reported in the most recent
Transferor Report and (c) the product of (i) average of the Chargeback Ratios
for the twelve months preceding the related Transfer Date and (ii) 12.
1
<PAGE>
"Assignee Rate" for any Settlement Period means an interest rate per annum
-------------
equal to 1 1/2% per annum above the Eurodollar Rate for such Settlement Period;
provided, however, that in the case of
- -------- -------
(i) any Settlement Period on or prior to the first day of which any
Transferee shall have notified the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that
it is unlawful, for such Transferee to fund the Transfer or the maintenance
of its interest in the Receivables at the Assignee Rate set forth above
(and such Transferee shall not have subsequently notified the Agent that
such circumstances no longer exist),
(ii) any Settlement Period of one to (and including) 29 days,
(iii) any Settlement Period as to which the Agent does not receive
notice, by no later than 12:00 noon (New York City time) on the third
Business Day preceding the first day of such Settlement Period that the
Receivables will not be funded by issuance of commercial paper,
(iv) any Settlement Period for which any Transferee's interest in
the Capital allocated thereto is less than $250,000, or
(v) at any time when a Trigger Event has occurred and is
continuing,
the "Assignee Rate" for each such Settlement Period shall be an interest rate
-------------
per annum equal to 1 1/2% per annum above the Alternate Base Rate in effect on
the first day of such Settlement Period.
"BBA" means the British Bankers' Association.
---
"Business Day" means any day on which (i) banks are not authorized or
------------
required to close in New York City or Pittsburgh, Pennsylvania and (ii) if this
definition of "Business Day" is utilized in connection with the Eurodollar Rate,
dealings are carried out on the London interbank market.
"Capital" means the aggregate Consideration for all Transfers that have
-------
occurred on or prior to such date, reduced from time to time by Collections
distributed on account of Receivables and applied to reduce Capital pursuant to
Section 1.03(c)(iii) of the Agreement; provided, that if such Capital shall have
--------
been reduced by any distribution and thereafter all or a portion of such
distribution is rescinded or must otherwise be returned for any reason, such
Capital shall be increased by the amount of such rescinded or returned
distribution, as though it had not been made.
2
<PAGE>
"Chargeback Ratio" means the ratio (expressed as a percentage) computed as
----------------
of the last day of each calendar month by dividing (i) the aggregate amount of
all Related Contracts having one or more Receivables that were Chargeback
Receivables on such day or that would have been Chargeback Receivables on such
day had they not been written off the books of the Transferor during such month
by (ii) the aggregate amount of all Related Contracts on such day.
"Chargeback Receivable" means a Receivable:
---------------------
(i) as to which any payment, or part thereof, remains unpaid for
180 or more days from the original due date for such payment;
(ii) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in paragraph
(h) of Exhibit V; or
(iii) which, consistent with the Credit and Collection Policy, would
be retransferred to the related Dealer as uncollectible.
"Collection Agent" means at any time the Person then authorized pursuant to
----------------
Section 4.01 of the Agreement to administer and collect Receivables.
"Collection Agent Fee" has the meaning specified in Section 1.04(c) of the
--------------------
Agreement.
"Collections" means, with respect to any Receivable, (i) all cash
-----------
collections and other cash proceeds of such Receivable, including, without
limitation, any proceeds resulting from the repurchase of such Receivable by
IKON Office Solutions, Inc. and all cash proceeds of Related Security with
respect to such Receivable (including, without limitation, payments under the
related Contract due upon or in connection with (a) Obligor's default under the
Contract, (b) loss, theft or damage to the related Equipment, or (c) renewal of
the Contract), provided, that Collections shall not include collections which
--------
represent the payment of (x) maintenance charges or (y) insurance premiums, and
(ii) any Collection of such Receivable deemed to have been received pursuant to
the Agreement.
"Consideration" has the meaning set forth in Section 1.02(a) of the
-------------
Agreement.
"Contract" means a closed-end lease agreement between the Originator and an
--------
Obligor having an original lease/loan term not exceeding 72 months, in
substantially the form of one of the forms of written contract set forth in
Annex A hereto or otherwise approved by the Agent, which has been sold to
Transferor pursuant to the Transfer Agreement, pursuant to or under which such
Obligor shall be obligated to pay for the lease of Equipment.
3
<PAGE>
"Credit and Collection Policy" means those receivables collection policies
----------------------------
and practices of the Originator in effect on the date of the Agreement and
described in Schedule I hereto, as modified in compliance with the Agreement.
"Dealer " means any Person originating Receivables relating to Equipment
------
located in an Eligible Marketplace.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
----
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, (v) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
above, and (vi) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"Default Ratio" means the ratio (expressed as a percentage) computed as of
-------------
the last day of each calendar month by dividing (i) the aggregate amount of all
Related Contracts having one or more Receivables that were Defaulted Receivables
on such day or that would have been Defaulted Receivables on such day had they
not been written off the books of the Transferor during such month by (ii) the
aggregate amount of all Related Contracts on such day.
"Defaulted Receivable" means a Receivable as to which any payment, or part
--------------------
thereof, remains unpaid for more than 120 days and less than 179 days from the
original due date for such payment.
"Delinquency Ratio" means the ratio (expressed as a percentage) computed as
-----------------
of the last day of each calendar month by dividing (i) the aggregate amount of
all Related Contracts having one or more Receivables that were Delinquent
Receivables on such day by (ii) the aggregate amount of all Related Contracts on
such day.
"Delinquent Receivable" means a Receivable:
---------------------
(i) as to which any payment, or part thereof, remains unpaid for 30
or more days from the original due date for such payment; or
(ii) which, consistent with the Credit and Collection Policy, would
be classified as delinquent by the Originator or the Transferor.
4
<PAGE>
"Designated Account" means an account in the name of and owned by the
------------------
Agent, designated by the Agent in a writing delivered to the Transferor, for the
purpose of receiving Collections of Receivables.
"Discount" means, with respect to any group of Receivables, the product of
--------
(a) the aggregate Outstanding Balance of the Related Contracts relating to such
Receivables and (b) the Applicable Percentage in respect of such Receivables.
"Eligible Marketplace" means any of the marketplaces set forth on Exhibit
--------------------
VI hereto, as such Exhibit may be amended from time to time by the Transferor
with the consent of the Agent.
"Eligible Receivable" means, at any time, a Receivable:
-------------------
(i) the Obligor of which is (a) a United States resident, (b) is
not the Transferor or any Affiliate thereof, and (c) is not a Governmental
Obligor; provided, that Obligors with respect to Contracts having an
--------
aggregate Outstanding Balance of not greater than 5% of the aggregate
Outstanding Balance of all Eligible Receivables may be Governmental
Obligors;
(ii) the Obligor of which has not been disapproved by the Agent on
or prior to the date of the Transfer and which, at the time of the
Transfer, is not the Obligor of any Chargeback Receivables;
(iii) which is not a Chargeback Receivable;
(iv) (a) which arises under a Contract with a remaining term of not
more than 60 months; provided, that Contracts having an aggregate
--------
Outstanding Balance of not greater than 5% of the aggregate
Outstanding Balance of all Eligible Receivables may have a remaining
term of up to 72 months;
and
(b) which, according to such Contract, consists of
substantially equal monthly Periodic Payments which are required to be
paid within 30 days of the billing date therefor; provided, that
--------
Contracts having an aggregate Outstanding Balance of not greater than
4% of the aggregate Outstanding Balance of all Eligible Receivables
may have payments which are not substantially equal monthly payments;
(v) which arose pursuant to a Contract which is "chattel paper"
within the meaning of Section 9-105 of the UCC of the applicable
jurisdictions governing the perfection of the interest created in the
Receivables;
5
<PAGE>
(vi) which is denominated and payable in United States dollars in
the United States;
(vii) which arises under a Contract (a) which has been duly
authorized and which, together with such Receivable, is in full force and
effect and constitutes the legal, valid and binding obligation of the
Obligor of such Receivable enforceable against such Obligor in accordance
with its terms and is not subject to any dispute, offset, counterclaim or
defense whatsoever (except as limited by applicable bankruptcy law), (b) in
respect of which, prior to the date it is transferred hereunder, the
Equipment has been delivered and accepted, (c) which pursuant to its terms
is not cancellable by the lessee before the end of its stated term (other
than, in the case of Contracts related to Governmental Obligors, by reason
of nonrenewal of appropriations) and (d) which, if related to a
Governmental Obligor, has not been canceled before the end of its stated
term by reason of nonrenewal of appropriations;
(viii) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, consumer protection, truth in lending,
consumer leasing, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and with respect
to which none of the Transferor, the Originator or the related Obligor is
in violation of any such law, rule or regulation in any material respect;
(ix) with regard to which there exists only one executed original
Contract, which is in the possession of Transferor on the Transfer Date of
such Receivable;
(x) which represents payments due to the Originator and does not
represent any payments payable for the account of any Person other than the
Originator under the Contract relating to such Receivable or any sales or
use tax payable under such Contract;
(xi) which satisfies all applicable requirements of the Credit and
Collection Policy;
(xii) which, after giving effect to the acquisition thereof, would
not result in the aggregate Outstanding Balance of Related Contracts of any
single Obligor exceeding 2% of the aggregate Outstanding Balance of all
Related Contracts;
(xiii) as to which, at or prior to the time of the Transfer, the Agent
has not notified the Transferor that such Receivable (or class of
Receivables) is not acceptable for transfer to the Issuer hereunder;
6
<PAGE>
(xiv) the transfer or assignment of which does not contravene any
applicable law, rule or regulation;
(xv) which was originated in an Eligible Marketplace; and
(xvi) which, after giving effect to the acquisition thereof, would
not result in the aggregate Outstanding Balance of Related Contracts of
Obligors located in any single state exceeding 15% (or, in the case of
Indiana and Texas, 20%) of the aggregate Outstanding Balance of all Related
Contracts.
"Equipment" with respect to any Receivable means office, business or other
---------
equipment leased or sold to an Obligor by the Originator pursuant to a Contract
(including any modifications or substitutions of equipment pursuant to the
original Contract giving rise to such Receivable).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Settlement Period, the interest rate per
---------------
annum determined by the Agent by dividing (the resulting quotient rounded
upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of
interest determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank market offered rates for U.S. dollars quoted by the BBA as
set forth on Dow Jones Markets Service (formerly known as Telerate) (or
appropriate successor or its successor ceases to provide display page 3750 (or
such other display page on the Dow Jones Markets Service system as may replace
display page 3750) at or about 11:00 a.m. (London time) on the Business Day
which is two (2) Business Days prior to the first day of such Settlement Period
for an amount comparable to the Capital to be funded at the Assignee Rate and
based upon the Eurodollar Rate during such Settlement Period by (ii) a number
equal to 1.00 minus the Euro-Rate Reserve Percentage. The Eurodollar Rate may
also be expressed by the following formula:
Average of London interbank offered rates quoted by BBA
as shown on Dow Jones Markets Service display page 3750
or appropriate successor
Eurodollar Rate =
1.00 - Euro-Rate Reserve Percentage
7
<PAGE>
where "Euro-Rate Reserve Percentage" means, the maximum effective percentage in
effect on such day as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the reserve requirements
(including without limitation, supplemental, marginal, and emergency reserve
requirements) with respect to eurocurrency funding liabilities (currently
referred to as "Eurocurrency Liabilities"). The Eurodollar Rate shall be
adjusted with respect to any Capital funded at the Assignee Rate and based upon
the Eurodollar Rate that is outstanding on the effective date of any change in
the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give
prompt notice to the Transferor of the Eurodollar Rate as determined or adjusted
in accordance herewith (which determination shall be conclusive absent manifest
error).
"Facility Termination Date" means the earlier of the Scheduled Termination
-------------------------
Date, or the Termination Date.
"Federal Funds Rate" means, with respect to any day, the rate set forth in
------------------
H.15(519) for that day opposite the caption "Federal Funds (Effective)."
If on any date of determination, such rate is not published in H.15(519),
such rate will be the rate set forth in Composite 3:30 P.M. Quotations for U.S.
Government Securities for that day under the caption "Federal Funds/Effective
Rate". If on any date of determination, the appropriate rate is not published
in either H.15(519) or Composite 3:30 P.M. Quotations for U.S. Government
Securities, such rate will be the arithmetic mean of the rates for the last
transaction in overnight federal funds arranged by three leading brokers of
federal funds transactions in New York City prior to 9:00 a.m., New York City
time, on that day.
"Fee Letter" has the meaning set forth in Section 1.04.
----------
"Governmental Obligor" means an Obligor that is the federal government, the
--------------------
government of any state or governmental subdivision or any agency of the federal
government or the government of any state.
"IKON Group" means, collectively, the Transferor, the Originator and the
----------
Parent.
"Indemnified Amounts" has the meaning specified in Section 3.01 of the
-------------------
Agreement.
"Indemnified Party" has the meaning specified in Section 3.01 of the
-----------------
Agreement.
"Investment Grade" means, with respect to any entity's long-term public
----------------
senior debt securities, a rating of at least "BBB-" by S& P and of at least
"Baa3" by Moody's.
8
<PAGE>
"Issuer" means Market Street Funding Corporation and any successor or
------
assign of the Issuer that is a receivables investment company which in the
ordinary course of its business issues commercial paper or other securities to
fund its acquisition and maintenance of receivables.
"Liquidity Agreement" means the Liquidity Asset Purchase Agreement, dated
-------------------
as of December 1, 1998 between the purchasers from time to time party thereto,
the Issuer and PNC, as Administrator and liquidity agent, as the same may be
further amended, supplemented or otherwise modified from time to time.
"Material Adverse Change" means any set of circumstances or events which
-----------------------
(a) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of the Agreement or any other
Transaction Document, (b) is or could reasonably be expected to be material and
adverse to the business, properties, assets, financial condition, results of
operations or prospects of the Transferor, the Collection Agent or the
Originator or any of their successors or assigns (the "Seller Parties"), (c)
impairs materially or could reasonably be expected to impair materially the
ability of the Seller Parties to duly and punctually pay or perform their
respective obligations under the Agreement or any other Transaction Document, or
(d) impairs materially or could reasonably be expected to impair materially the
ability of the Agent or any Transferee, to the extent permitted, to enforce
their legal remedies pursuant to the Agreement or any other Transaction
Document.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto.
-------
"Obligor" means a Person obligated to make payments pursuant to a Contract;
-------
provided that in the event that any payments in respect of a Contract are made
- --------
by any other Person, such other Person shall be deemed to be an Obligor.
"Other Corporations" means the Parent, the Originator and all of the
------------------
Parent's Subsidiaries except the Transferor.
"Originator" means IOS Capital, Inc., a Delaware corporation, in its
----------
capacity as originator under the Transfer Agreement.
"Outstanding Balance" of any Contract or Receivables with respect thereto
-------------------
at any date means the net present value of the total Periodic Payments due to
Transferor over the remaining term of the Contract (net of any security deposits
or advance rental payments received by Transferor) and not yet paid by the
Collection Agent pursuant to the provisions of Section 1.03(b), discounted at
the implied interest rate used by the Originator or the applicable Dealer in
originating such Contract, as determined by subtracting all amounts representing
unearned interest from the aggregate amount of such Periodic Payments.
9
<PAGE>
"Parent" means IKON Office Solutions, Inc., an Ohio corporation.
------
"Periodic Payments" means the aggregate base rental amounts coming due on a
-----------------
periodic basis pursuant to the Contracts giving rise to Receivables, excluding
any maintenance charges or, with respect to Contracts covering photocopiers, any
per copy charges.
"Person" means an individual, partnership, corporation (including a
------
business trust), limited liability company, limited liability partnership, joint
stock company, trust, unincorporated association, joint venture or other entity,
or a government or any political subdivision or agency thereof.
"Program Fee" is defined in the Fee Letter.
-----------
"Qualified Hedge Agreement" means an interest rate cap or other hedging
-------------------------
arrangement the payments due from the counterparty of which are for the
exclusive benefit of the Agent, and which meets each of the following
qualifications: (i) such hedging arrangement has a notional amount at least
equal to the aggregate Outstanding Balance of the Related Contracts, (ii) such
hedging arrangement has a counterparty the long-term debt obligations of which
are rated at least "AA-" by S&P and "Aa3" by Moody's, (iii) such hedging
arrangement in satisfactory to the Agent in its sole discretion, and (iv) the
Agent shall have received confirmation from each of Moody's and S&P that entry
into such hedging agreement will not result in the withdrawal or downgrade of
the then-current ratings of the Issuer's outstanding commercial paper notes.
"Receivable" means the obligations of any Obligor under a Related Contract,
----------
and includes monies received subsequent to the related Transfer Date with
respect to (i) all Periodic Payments and (ii) all obligations of such Obligor
to pay interest or finance charges and other obligations of such Obligor (other
than obligations in respect of taxes or insurance or similar escrow arrangements
of any kind) with respect thereto, and all other payments (other than in respect
of taxes or insurance or similar escrow arrangements of any kind) received by
the Transferor pursuant to such Contract. A Receivable arising under a Related
Contract for which the Outstanding Balance has been collected shall no longer
constitute a "Receivable" outstanding hereunder.
"Related Contract" means a Contract included in the List of Contracts
----------------
delivered to the Agent pursuant to paragraph (j) of Exhibit IV hereof; provided,
--------
that after the Outstanding Balance of such Contract has been collected, it shall
no longer constitute a "Related Contract" hereunder.
"Related Security" means with respect to any Receivable:
----------------
(i) all other security interests or liens and property subject
thereto (other than Equipment) from time to time purporting to secure
payment of such Receivable, whether
10
<PAGE>
pursuant to the Contract related to such Receivable or otherwise, together
with all financing statements signed by an Obligor describing any
collateral securing such Receivable;
(ii) all guaranties (other than the Support Agreement), insurance
and other agreements or arrangements of whatever character from time to
time supporting or securing payment of such Receivable (or insuring for
loss or liability with respect to the related Equipment), whether pursuant
to the Contract related to such Receivable or otherwise and all of the
Transferor's rights (if any) to recourse, repurchase or indemnity against
any dealer, including any Dealer, or other Person with respect to such
Receivable; and
(iii) the related Contract and all other books, records and other
information (including, without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and
rights) relating to such Receivable and the related Obligor.
"Required Balance" means, with respect to any Settlement Date, an amount
----------------
equal to (a) the Capital on such Settlement Date divided by (b) (i) one minus
(ii) the Applicable Percentage.
"S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill
---
Companies, Inc. and any successor thereto.
"Scheduled Termination Date" shall mean November 30, 2001;
--------------------------
"Settlement Date" means the fifteenth day of each calendar month, or, if
---------------
such day is not a Business Day, the next succeeding Business Day.
"Settlement Period" means: (a) with respect to any Receivables funded by
-----------------
the issuance of commercial paper, (i) initially the period commencing on (and
including) the date of the initial purchase or funding of such Receivables and
ending on (and including) the next succeeding day that is the fourteenth day of
a calendar month, and (ii) thereafter, each period commencing on (and including)
the first day after the last day of the immediately preceding Settlement Period
and ending on (and including) the next succeeding day that is the fourteenth day
of a calendar month; and (b) with respect to any Receivables not funded by the
issuance of commercial paper, (i) initially the period commencing on (and
including) the date of the initial purchase or funding of such Receivables and
ending on (but excluding) the next following Settlement Date, and (ii)
thereafter, each period commencing on a Settlement Date and ending on (but
excluding) the next following Settlement Date; provided, that
--------
11
<PAGE>
(i) any Settlement Period (other than of one day) which would
otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day;
(ii) in the case of any Settlement Period which commences before
the Facility Termination Date and would otherwise end on a date
occurring after the Facility Termination Date, such Settlement Period
shall end on such Facility Termination Date and the duration of each
Settlement Period which commences on or after the Facility Termination
Date shall be of such duration as shall be selected by the Agent; and
(iii) any Settlement Period in respect of which Yield is
computed by reference to the Transferee Rate may be terminated at the
election of, and upon notice thereof to the Transferee, by the Agent
at any time, in which case the Receivables allocated to such
terminated Settlement Period shall be allocated to a new Settlement
Period commencing on (and including) the date of such termination and
ending on (but excluding) the next following Settlement Date, and
shall accrue Yield at the Assignee Rate.
"Special Event" means a Trigger Event or an event that but for notice or
-------------
lapse of time or both would constitute a Trigger Event.
"Special Indemnified Amounts" has the meaning specified in Section 5.07 of
---------------------------
the Agreement.
"Special Indemnified Party" has the meaning specified in Section 5.07 of
-------------------------
the Agreement.
"Subsidiary" means any corporation or other entity of which securities
----------
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Transferor, the Originator or the Parent, as the case
may be, or one or more Subsidiaries, or by the Transferor, the Originator or the
Parent, as the case may be, and one or more Subsidiaries.
"Support Agreement" means the operating agreement dated October 22, 1996
-----------------
between the Originator and the Parent, as such agreement may be amended or
supplemented from time to time.
"Termination Date" means the earliest of (a) the date specified pursuant to
----------------
Section 2.02 of the Agreement, (b) the date on which each Transferee receives an
amount equal to its pro rata portion of the Capital plus accrued Yield thereon
plus all other amounts due to it under the Agreement and the Agent receives all
amounts due to it under the Agreement and (c) the date the commitments of the
"Purchasers" under the Liquidity Agreement terminate.
12
<PAGE>
"Transaction Document" means any of the Agreement, the Transfer Agreement
--------------------
and all other agreements and documents delivered and/or related hereto or
thereto.
"Transfer" has the meaning specified in Section 1.01 of the Agreement.
--------
"Transfer Agreement" means the Transfer Agreement dated as of the date
------------------
hereof between the Transferor and the Originator, as such agreement may be
amended from time to time.
"Transfer Date" has the meaning specified in Section 1.02(a) of the
-------------
Agreement.
"Transfer Limit" means $250,000,000.
--------------
"Transferee" means the Issuer and all other owners by assignment or
----------
otherwise of Receivables or any interest therein and, to the extent of the
undivided interests so purchased, shall include any participants.
"Transferee Rate" for any Settlement Period means a rate calculated by the
---------------
Agent equal to (a) the rate (or if more than one rate, the weighted average of
the rates) of the commercial paper notes of the Issuer that are allocated, in
whole or in part, by the Administrator during such Settlement Period to fund the
Capital; provided, that if such rate(s) is a (are) discount rate(s), then the
--------
Transferee Rate shall be the rate (or if more than one rate, the weighted
average of the rates) resulting from converting such discount rate(s) to an
interest-bearing equivalent rate per annum plus (b) the commissions and charges
charged by any placement agent or commercial paper dealer with respect to such
commercial paper notes, expressed as a percentage of the face amount of such
commercial paper notes and converted to an interest-bearing equivalent rate per
annum.
"Transferor Report" means a report, in substantially the form of Annex B
-----------------
hereto, furnished by the Collection Agent to the Agent pursuant to Section 4.02
of the Agreement.
"Trigger Event" has the meaning specified in Exhibit V.
-------------
"UCC" means the Uniform Commercial Code as from time to time in effect in
---
the specified jurisdiction.
"Yield" means:
-----
(i) for any Settlement Period to the extent the Issuer will be
funding the Transfer or the maintenance of its interest in the Receivables
during such Settlement Period through the issuance of commercial paper,
13
<PAGE>
TR x C x ED
--
360
(ii) for any Settlement Period to the extent a Transferee will not be
funding the Transfer or the maintenance of its interest in the Receivables
during such Settlement Period through the issuance of commercial paper,
AR x C x ED
--
360
where:
AR = the Assignee Rate for such Settlement Period;
C = Capital during such Settlement Period;
TR = the Transferee Rate for the Issuer for such
Settlement Period;
ED = the actual number of days elapsed during such
Settlement Period;
provided, that no provision of the Agreement shall require the payment or permit
- --------
the collection of Yield in excess of the maximum permitted by applicable law;
and provided, further, that Yield shall not be considered paid by any
-------- -------
distribution to the extent that at any time all or a portion of such
distribution is rescinded or must otherwise be returned for any reason.
- - - - - -
Other Terms. All accounting terms not specifically defined herein shall be
-----------
construed in accordance with generally accepted accounting principles. All
terms used in Article 9 of the UCC in the State of Pennsylvania, and not
specifically defined herein, are used herein as defined in such Article 9.
14
<PAGE>
EXHIBIT II
CONDITIONS OF TRANSFERS
1. Conditions Precedent to the Initial Transfer. The initial Transfer is
--------------------------------------------
subject to the conditions precedent that the Agent shall have received on or
before the date of such Transfer the following, each (unless otherwise
indicated) dated such date, in form and substance satisfactory to the Agent:
(a) Certified copies of the resolutions of the Board of Directors of the
Transferor approving the Transaction Documents and all related actions, and
certified copies of all documents evidencing other necessary limited liability
company action and governmental approvals, if any, with respect to the
Transaction Documents and such actions.
(b) Certified copies of the resolutions of the Board of Directors of the
Originator approving the Transaction Documents and all related actions, and
certified copies of all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to the Transaction Documents
and such actions.
(c) A certificate of the Secretary or Assistant Secretary of the
Transferor certifying the names and true signatures of the officers of the
Transferor, authorized to sign the Transaction Documents and the other documents
to be delivered by it thereunder.
(d) A certificate of the Secretary or Assistant Secretary of the
Originator certifying the names and true signatures of the officers of the
Originator authorized to sign the Transaction Documents and the other documents
to be delivered by it thereunder.
(e) A copy of the organizational documents of the Transferor, and a
certificate as to the good standing of the Transferor from such Secretary of
State or other official, dated as of a recent date.
(f) Acknowledgment copies or time stamped receipt copies of proper
financing statements, duly filed on or before the Initial Transfer under the UCC
of all jurisdictions that the Agent may deem necessary or desirable in order to
perfect the interests contemplated by the Agreement.
(g) Acknowledgment copies or time stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the (i) Receivables, Related Contracts or Related
Security previously granted by the Transferor and the Originator and (ii) the
collateral security referred to in Section 1.13.
1
<PAGE>
(h) Completed requests for information, listing the financing statements
referred to in subsection (f) above and all other effective financing statements
filed in the jurisdictions referred to in subsection (f) above that name the
Transferor as debtor, together with copies of such other financing statements
(none of which shall cover any Receivables, Related Contracts, Related Security
or the collateral security referred to in Section 1.13).
(i) A favorable opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel
for the Transferor and the Originator, substantially in the form of Annex C
hereto and as to such other matters as the Agent may reasonably request.
(j) The Fee Letter duly executed by all parties thereto.
(k) The Transfer Agreement, duly executed by all parties thereto.
(l) Satisfactory results of a review and audit by the Agent of the
Originator's collection, operating and reporting systems, Credit and Collection
Policy, historical receivables data and accounts.
(m) A Pro Forma Transferor Report.
Payment of the Consideration for the initial Transfer hereunder shall
constitute acknowledgment by the Agent that all of the conditions set forth have
been fulfilled or waived.
2. Additional Conditions Precedent. Each Transfer shall be subject to
-------------------------------
the further conditions precedent that
(a) on or prior to the date of such Transfer, the Collection Agent shall
have delivered to the Agent, in form and substance satisfactory to the Agent, a
completed Transferor Report dated within 30 days prior to the date of the
Transfer together with a listing by Obligor of all Receivables and such
additional information as may reasonably be requested by the Agent;
(b) on the date of the Transfer the following statements shall be true
(and acceptance of the proceeds of the Transfer shall be deemed a representation
and warranty by the Transferor that such statements are then true):
(i) The representations and warranties of the Transferor contained
in Exhibit III are correct on and as of the date of the Transfer as though
made on and as of such date;
(ii) No event has occurred and is continuing, or would result from
the Transfer, that constitutes a Special Event;
2
<PAGE>
(iii) The representations and warranties of the Originator contained
in the Transaction Documents are correct on and as of the date of the
Transfer as though made on and as of such date; and
(iv) All of the Originator's long-term public senior debt securities
are rated Investment Grade;
(c) the Agent shall have received such other approvals, opinions or
documents as it may reasonably request; and
(d) the Agent shall have received the list of the Related Contracts to be
included in such Transfer that is required to be delivered pursuant to paragraph
(j) of Exhibit IV hereof.
3
<PAGE>
EXHIBIT III
REPRESENTATIONS AND WARRANTIES
The Transferor represents and warrants as follows:
(a) The Transferor is a limited liability company duly formed, validly
existing and in good standing under the laws of Delaware, and is duly qualified
to do business, and is in good standing, in every jurisdiction where the nature
of its business requires it to be so qualified.
(b) The execution, delivery and performance by the Transferor of the
Transaction Documents (i) are within the Transferor's limited liability company
powers, (ii) have been duly authorized by all necessary limited liability
company action, (iii) do not contravene (1) the Transferor's organizational
documents, (2) any law, rule or regulation applicable to the Transferor, (3) any
contractual restriction binding on or affecting the Transferor or its property
or (4) any order, writ, judgment, award, injunction or decree binding on or
affecting the Transferor or its property, and (iv) do not result in or require
the creation of any lien, security interest or other charge or encumbrance upon
or with respect to any of its properties (other than those created pursuant to
the Transaction Documents); and no transaction contemplated by the Agreement
requires compliance with any bulk sales act or similar law. Each of the
Transaction Documents has been duly executed and delivered by the Transferor.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Transferor of the Transaction
Documents, except for the filing of the UCC financing statements which are
referred to therein.
(d) Each of the Transaction Documents constitutes the legal, valid and
binding obligation of the Transferor enforceable against the Transferor in
accordance with its terms.
(e) The balance sheets of the Originator and its Subsidiaries as at
September 30, 1997 and June 30, 1998 and the related statements of income and
retained earnings of the Originator and its Subsidiaries for the fiscal year
then ended, copies of which have been furnished to the Agent, fairly present the
financial condition of the Originator and its Subsidiaries as at such date and
the results of the operations of Originator and its Subsidiaries for the period
ended on such date, all in accordance with generally accepted accounting
principles consistently applied, and since June 30, 1998 there has been no
material adverse change in the business, operations, property or financial or
other condition of the Originator. Since the date of its incorporation, there
has not been a material adverse change in the business, operations, property or
financial or other condition of the Transferor.
1
<PAGE>
(f) There is no pending or threatened action or proceeding affecting the
Originator or any of its Subsidiaries before any court, governmental agency or
arbitrator which may materially adversely affect the financial condition or
operations of the Originator or any of its Subsidiaries or the ability of the
Transferor or the Originator to perform their respective obligations under the
Transaction Documents, or which purports to affect the legality, validity or
enforceability of the Transaction Documents; neither the Originator nor any
Subsidiary is in default with respect to any order of any court, arbitration or
governmental body.
(g) No proceeds of any Transfer will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
(h) The Transferor has the right to transfer each Receivable and all
Related Security together with the Contract related thereto, free and clear of
any Adverse Claim, other than the effect of the Agreement and the transactions
contemplated hereby. Upon the Transfer, the Agent (for the benefit of the
Transferees) will acquire a valid and perfected first priority interest in each
Receivable and in the Related Security (except to the extent noted above) and
Collections with respect thereto. No effective financing statement or other
instrument similar in effect covering any Related Contract or any Receivable or
the Related Security or Collections with respect thereto is on file in any
recording office except for those filed in favor of the Agent relating to the
Agreement and those filed by the Transferor pursuant to the Transfer Agreement.
(i) Each Transferor Report (if prepared by the Originator or one of its
Affiliates, or to the extent that information contained therein is supplied by
the Transferor, the Originator or any Affiliate thereof), information, exhibit,
financial statement, document, book, record or report furnished or to be
furnished at any time by or on behalf of the Transferor or the Originator to the
Agent or any Transferee in connection with the Agreement is or will be accurate
in all material respects as of its date or (except as otherwise disclosed to the
Agent or the Transferees, as the case may be, at such time) as of the date so
furnished, and no such document contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(j) The principal place of business and chief executive office of the
Transferor and the office where the Transferor keeps its records concerning the
Receivables are located at the respective addresses identified on Exhibit VII.
(k) The Outstanding Balance with respect to each Receivable, as of the
date of Transfer of such Receivable, is correctly set forth on Schedule II (as
supplemented pursuant to Section 1.02(a)).
2
<PAGE>
(l) Schedule II (as supplemented pursuant to Section 1.02(a)) sets forth
accurately and completely in all material respects, as of the date of Transfer
of each Receivable, the information with respect to each such Receivable
transferred on such date.
(m) Each Contract giving rise to a Receivable provides for Periodic
Payments that will fully amortize such Receivable over the term of the Contract
related thereto and, except in accordance with the Credit and Collection Policy,
the Transferor has not extended or amended, modified or waived the terms of any
Receivable or any Contract relating to any Receivable.
(n) The Transferor is not known by and does not use any tradename or
doing-business-as name.
(o) The Transferor was formed on December 10, 1998. The Transferor has no
Subsidiaries.
(p) (i) The fair value of the property of the Transferor is greater than
the total amount of liabilities, including contingent liabilities, of the
Transferor, (ii) the present fair salable value of the assets of the Transferor
is not less than the amount that will be required to pay all probable
liabilities of the Transferor on its debts as they become absolute and matured,
(iii) the Transferor does not intend to, and does not believe that it will,
incur debts or liabilities beyond the Transferor's abilities to pay such debts
and liabilities as they mature and (iv) the Transferor is not engaged in a
business or a transaction, and is not about to engage in a business or a
transaction, for which the Transferor's property would constitute unreasonably
small capital.
(q) With respect to each Receivable, the Transferor shall have received
such Receivable from the Originator in exchange for payment (made by the
Transferor to the Originator in accordance with the provisions of the Transfer
Agreement) of cash in an amount which constitutes fair consideration and
reasonably equivalent value. Each such transfer referred to in the preceding
sentence shall not have been made for or on account of an antecedent debt owed
by the Originator to the Transferor and no such transfer is or may be voidable
or subject to avoidance under any section of the Federal Bankruptcy Code.
(r) With respect to each Receivable transferred hereunder, such
Receivable is representative of all of the Receivables owned by the Transferor.
(s) The Collection Agent has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis, the risk that certain
computer applications used by the Collection Agent may be unable to recognize
and perform properly date-sensitive functions involving dates prior to and after
December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not
result in any Material Adverse Change.
3
<PAGE>
EXHIBIT IV
COVENANTS
Until the Termination Date, unless the Agent shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. The Transferor will comply in all material
-------------------------
respects with all applicable laws, rules, regulations and orders and preserve
and maintain its limited liability company existence, rights, franchises,
qualifications and privileges except to the extent that the failure so to comply
with such laws, rules and regulations or the failure so to preserve and maintain
such existence, rights, franchises, qualifications and privileges would not
materially adversely affect the collectibility of the Receivables or the ability
of the Transferor to perform its obligations under the Transaction Documents.
(b) Offices, Records and Books of Account. The Transferor will keep its
-------------------------------------
principal place of business and chief executive office and the office where it
keeps its records concerning the Receivables (and all original documents
relating thereto) at the respective addresses set forth on Exhibit VII of the
Agreement or, upon 30 days' prior written notice to the Agent, at any other
locations in jurisdictions where all actions reasonably requested by the Agent
to protect and perfect the interest in the Receivables have been taken and
completed. The Transferor also will maintain and implement administrative and
operating procedures (including, without limitation, an ability to recreate
records evidencing the Receivables and Related Contracts in the event of the
destruction of the originals thereof), and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Receivables (including, without limitation, records adequate
to permit the daily identification of each Receivable and all Collections of and
adjustments to each Receivable).
(c) Performance and Compliance with Related Contracts and Credit and
----------------------------------------------------------------
Collection Policy. The Transferor will, at its expense, timely and fully
- -----------------
perform and comply with all material provisions, covenants and other promises
required to be observed by it under the Related Contracts, and timely and fully
comply in all material respects with the Credit and Collection Policy in regard
to each Receivable and the Related Contract.
(d) Sales, Liens, Etc. The Transferor will not sell, assign (by operation
-----------------
of law or otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to, its interest in any Receivable
transferred to the Agent or the Transferees under the Agreement or any Related
Security, Related Contract or Collections, or assign any right to receive income
in respect thereof.
(e) Extension or Amendment of the Receivables. Except as provided in
-----------------------------------------
Article IV of the Agreement, the Transferor will not, and will not permit the
Collection Agent to, extend the
1
<PAGE>
maturity or adjust the Outstanding Balance or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Related
Contract.
(f) Change in Business or Credit and Collection Policy. (i) The Transferor
--------------------------------------------------
will not make any change in the character of its business, and (ii) the
Transferor will not make, and will not permit the Originator to make, any change
in the Credit and Collection Policy that would, in either case, materially
adversely affect the collectibility of the Receivables or the ability of the
Transferor or the Originator to perform their respective obligations under the
Transaction Documents.
(g) Change in Payment Instructions to Obligors. The Transferor will not
------------------------------------------
make any change in its instructions to Obligors of Related Contracts regarding
payments to be made to the Transferor unless the Agent shall have received
notice of and agreed to such addition, termination or change.
(h) Further Action Evidencing the Transfer. The Transferor will from time
--------------------------------------
to time, execute and deliver all further instruments and documents and take all
further action that the Agent may reasonably request in order to perfect,
protect or more fully evidence the interest in the Receivables transferred to
the Agent (for the benefit of the Transferees) under the Agreement or to enable
the Agent or any Transferee to exercise or enforce any of its rights under the
Transaction Documents. Without limiting the generality of the foregoing, the
Transferor will, or will cause the Collection Agent to, (i) execute and file
such financing or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be necessary or
appropriate; and (ii) upon the occurrence of a Special Event, (x) mark
conspicuously each Related Contract with a legend, acceptable to the Agent,
evidencing that an interest in the Receivable has been transferred to the Agent
(for the benefit of the Transferees) under the Agreement; and (y) code the
Collection Agent's master data processing records evidencing Receivables and
Related Contracts to the foregoing effect. The Transferor hereby authorizes the
Agent to file one or more financing or continuation statements, and amendments
thereto and assignments thereof, relative to all or any of the Receivables and
the Related Security without the signature of the Transferor where permitted by
law. A photocopy or other reproduction of this Agreement shall be sufficient as
a financing statement where permitted by law. If the Transferor fails after
notice to perform any of its agreements or obligations under the Transaction
Documents, the Agent may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the expenses of the Agent
incurred in connection therewith shall be payable as provided in the Agreement.
(i) Assembly of Documents. The Transferor will, or will cause the
---------------------
Collection Agent to, at the Agent's request following the occurrence of a
Special Event, (A) assemble all documents, instruments and other records
(including, without limitation, computer tapes and disks) which evidence or
relate to the Receivables, and the Related Contracts and Related Security, or
which are otherwise necessary or desirable to collect the Receivables, and make
the same available to the Agent at a place selected by the Agent or its
designee, and (B) segregate all
2
<PAGE>
cash, checks and other instruments received by it or the Collection Agent from
time to time constituting Collections of Receivables in a manner acceptable to
the Agent and shall, promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer, to the
Agent or its designee.
(j) Delivery of List of Related Contracts. The Transferor will on or
-------------------------------------
prior to the date of each Transfer, deliver to the Agent a complete and accurate
list of each Related Contract, together with the contract number, the name of
the Obligor and the Outstanding Balance thereof.
(k) Reporting Requirements. The Transferor will provide to the Agent (in
----------------------
multiple copies, if requested by the Agent) the following:
(i) as soon as available and in any event within 60 days after the
end of the first three quarters of each fiscal year of the Originator,
balance sheets of the Originator and its Subsidiaries as of the end of such
quarter and statements of income and retained earnings of the Originator
and its Subsidiaries for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, certified by the chief
financial officer of the Originator;
(ii) as soon as available and in any event within 120 days after the
end of each fiscal year of the Originator, a copy of the annual report for
such year for the Parent and the Annual Report on Form 10-K for the
Originator and its Subsidiaries, containing financial statements for such
year audited by Ernst & Young, LLP, or other independent public accountants
acceptable to the Agent;
(iii) as soon as possible and in any event within five days after the
occurrence of each Special Event, a statement of the chief financial
officer of the Transferor setting forth details of such Special Event and
the action that the Transferor has taken and proposes to take with respect
thereto;
(iv) promptly after the sending or filing thereof, copies of all
reports that the Originator sends to any of its securityholders, and copies
of all reports and registration statements that the Originator or any
Subsidiary files with the Securities and Exchange Commission or any
national securities exchange;
(v) promptly after the filing or receiving thereof, copies of all
reports and notices that the Originator, the Transferor or any Affiliate of
either thereof files under ERISA with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation or the U.S. Department of Labor or
that the Originator, the Transferor or any Affiliate of either thereof
receives from any of the foregoing or from any multiemployer plan (within
the meaning of Section 4001(a)(3) of ERISA) to which the Originator, the
Transferor or any Affiliate of either thereof is or was, within the
preceding five years, a contributing employer, in each case in respect of
the assessment of withdrawal liability or an event or
3
<PAGE>
condition which could, in the aggregate, result in the imposition of
liability on the Originator, the Transferor and/or any such Affiliate in
excess of $5,000,000;
(vi) at least ten Business Days prior to any change in the
Transferor's or Originator's name, a notice setting forth the new name and
the effective date thereof;
(vii) promptly, from time to time, such other information, documents,
records or reports respecting the Receivables or the condition or
operations, financial or otherwise, of the Transferor, the Originator or
any of its subsidiaries as the Agent may from time to time reasonably
request;
(viii) promptly after the Transferor obtains knowledge thereof, notice
of any (a) litigation, investigation or proceeding which may exist at any
time between the Transferor or the Originator and any governmental
authority which, in either case, if not cured or if adversely determined,
as the case may be, would have a material adverse effect on the business,
operations, property or financial or other condition of the Transferor or
the Originator; (b) litigation or proceeding adversely affecting the
Transferor's ability to perform its obligations under the Transaction
Documents or the Originator's ability to perform their obligations under
the Transaction Documents or (c) litigation or proceeding adversely
affecting the Transferor or the Originator in which in the case of the
Originator, the amount involved is $10,000,000 or more and not covered by
insurance or in which injunctive or similar relief is sought;
(ix) promptly after the occurrence thereof, notice of a material
adverse change in the business, operations, property or financial or other
condition of the Transferor or the Originator;
(x) promptly after the Transferor obtains knowledge thereof, notice
of any "Event of Termination", "Incipient Event of Termination" or
"Facility Termination Date" under the Transfer Agreement;
(xi) so long as any Capital shall be outstanding, as soon as
possible and in any event no later than the day of occurrence thereof,
notice that the Originator has stopped selling or contributing to the
Transferor, pursuant to the Transfer Agreement, newly arising Receivables;
(xii) at the time of the delivery of the financial statements
provided for in clauses (i) and (ii) of this paragraph, a certificate of
the chief financial officer or the treasurer of the Transferor to the
effect that, to the best of such officer's knowledge, no Special Event has
occurred and is continuing or, if any such Special Event has occurred and
is continuing, specifying the nature and extent thereof; and
4
<PAGE>
(xiii) promptly after receipt thereof, copies of all notices received
by the Transferor from the Originator under the Transfer Agreement.
(l) Separateness. (i) The Transferor shall at all times be managed by an
------------
entity which has at least one independent director, who (x) is not currently
and has not been during the five years preceding the date of the Agreement an
officer, director or employee of an Affiliate of the Originator or any Other
Corporation, (y) is not a current or former officer or employee of the
Originator and (z) is not a stockholder of any Other Corporation or any of their
respective Affiliates.
(ii) The Transferor shall not direct or participate in the
management of any of the Other Corporations' operations.
(iii) The Transferor shall conduct its business from an office
separate from that of the Other Corporations (but which may be located in
the same facility as one or more of the Other Corporations). The Transferor
shall have stationery and other business forms and a mailing address and a
telephone number separate from that of the Other Corporations.
(iv) The Transferor shall at all times be adequately capitalized in
light of its contemplated business.
(v) The Transferor shall at all times provide for its own operating
expenses and liabilities from its own funds.
(vi) The Transferor shall maintain its assets and transactions
separately from those of the Other Corporations and reflect such assets and
transactions in financial statements separate and distinct from those of
the Other Corporations and evidence such assets and transactions by
appropriate entries in books and records separate and distinct from those
of the Other Corporations. The Transferor shall hold itself out to the
public under the Transferor's own name as a legal entity separate and
distinct from the Other Corporations. The Transferor shall not hold itself
out as having agreed to pay, or as being liable, primarily or secondarily,
for, any obligations of the Other Corporations.
(vii) The Transferor shall not become liable as a guarantor or
otherwise with respect to any Debt or contractual obligation of any Other
Corporation.
(viii) The Transferor shall not make any payment or distribution of
assets with respect to any obligation of any Other Corporation or grant an
Adverse Claim on any of its assets to secure any obligation of any Other
Corporation.
5
<PAGE>
(ix) The Transferor shall not make loans, advances or otherwise
extend credit to any of the Other Corporations.
(x) Each of the Transferor's sole member and manager shall hold
regular duly noticed meetings of its respective Board of Directors and make
and retain minutes of such meetings.
(xi) The Transferor shall have bills of sale (or similar instruments
of assignment) and, if appropriate, UCC-1 financing statements, with
respect to all assets purchased from any of the Other Corporations.
(xii) The Transferor shall not engage in any transaction with any of
the Other Corporations, except as permitted by its organizational
documents.
(m) Transfer Agreement. The Transferor will not amend, waive or modify
------------------
any provision of the Transfer Agreement or waive the occurrence of any "Event of
Termination" under the Transfer Agreement, without in each case the prior
written consent of the Agent. The Transferor will perform all of its obligations
under the Transfer Agreement in all material respects and will enforce the
Transfer Agreement in accordance with its terms in all material respects.
(n) Nature of Business. The Transferor will not engage in any business
------------------
other than the purchase of Receivables, Related Security and Collections from
the Originator and the transactions contemplated by this Agreement. The
Transferor will not create or form any Subsidiary.
(o) Mergers, Etc. The Transferor will not merge with or into or
------------
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions), all or
substantially all of its assets (whether now owned or hereafter acquired) to, or
acquire all or substantially all of the assets or capital stock or other
ownership interest of, or enter into any joint venture or partnership agreement
with, any Person, other than as contemplated by the Agreement and the Transfer
Agreement.
(p) Distributions, Etc. The Transferor will not declare or make any
------------------
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any membership interest in the
Transferor, or return any capital to its members as such, or purchase, retire,
defease, redeem or otherwise acquire for value or make any payment in respect of
any membership interest in the Transferor or any warrants, rights or options to
acquire any such shares, now or hereafter outstanding; provided, however, that
-------- -------
the Transferor may declare and pay cash distributions on its membership
interests to its members so long as (i) no Special Event shall then exist or
would occur as a result thereof, (ii) such distributions are in compliance with
all
6
<PAGE>
applicable law including the law of the state of Delaware, and (iii) such
distribution have been approved by all necessary and appropriate action of the
Transferor.
(q) Debt. The Transferor will not incur any Debt, other than any Debt
----
incurred pursuant to the Agreement and the Transfer Agreement.
(r) Limited Liability Company Agreement. The Transferor will not amend or
-----------------------------------
delete Section 5.1 or 5.5 of its Limited Liability Company Agreement.
(s) Covenant of the Transferor and the Originator. Until the latest of
---------------------------------------------
the Facility Termination Date, the date on which no Capital of or Yield on any
Receivable shall be outstanding or the date all other amounts owed by the
Transferor hereunder to the Transferees or the Agent are paid in full, each of
the Transferor and the Originator will, at their respective expense, from time
to time during regular business hours as requested by the Agent, permit the
Agent or its agents or representatives (including independent public
accountants, which may be the Transferor's or the Originator's independent
public accountants), (i) to conduct periodic audits of the Receivables, the
Related Security and the related books and records and collections systems of
the Transferor or the Originator, as the case may be, (ii) to examine and make
copies of and abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the possession or under the
control of the Transferor or the Originator, as the case may be, relating to
Receivables and the Related Security, including, without limitation, the
Contracts, and (iii) to visit the offices and properties of the Transferor or
the Originator, as the case may be, for the purpose of examining such materials
described in clause (ii) above, and to discuss matters relating to the
Receivables and the Related Security or the Transferor's or the Originator's
performance under the Transaction Documents or under the Contracts with any of
the officers or employees of the Transferor or the Originator, as the case may
be, having knowledge of such matters. In addition, upon the Agent's request at
least once per year, the Transferor will, at its expense, appoint independent
public accountants (which may, with the consent of the Agent, be the
Transferor's regular independent public accountants), or utilize the Agent's
representatives or auditors, to prepare and deliver to the Agent a written
report with respect to the Receivables and the Credit and Collection Policy
(including, in each case, the systems, procedures and records relating thereto)
on a scope and in a form reasonably requested by the Agent .
(t) Hedge Agreement. Within fifteen Business Days of the earlier of (i)
---------------
the date on which (a) Yield as of the most recent Settlement Period exceeds (b)
the implied interest rate used by the Originator in originating Contracts minus
the sum of the Program Fee and the Collection Agent Fee or (ii) the occurrence
of a Special Event, the Transferor shall obtain a Qualified Hedge Agreement.
7
<PAGE>
(u) Collections. At all times following the designation by the Agent of
-----------
any Designated Account, the Transferor will deposit, or cause to be deposited,
all Collections to such Designated Account.
(v) Deposits to Designated Accounts. The Transferor and the Collection
-------------------------------
Agent will not deposit or otherwise credit, or cause or permit to be so
deposited or credited, to any Designated Account cash or cash proceeds other
than Collections of Receivables.
(w) Changes in Implied Interest Rate. The Transferor shall notify the
--------------------------------
Agent promptly upon any change in the implied interest rate used by the
Originator or any Dealer in originating Contracts.
(x) Amendment of Transaction Documents. The Transferor agrees to amend
----------------------------------
the Transaction Documents or enter into additional agreements in connection with
the Transaction Documents in a manner reasonably satisfactory to the Agent, and
to deliver all opinions and other documents reasonably requested by the Agent in
connection therewith, by not later than June 1, 1999, such that either:
(i) the Originator will transfer ownership of the Equipment to the
Transferor pursuant to the Transfer Agreement, as amended; or
(ii) the Originator will transfer ownership of the Equipment to
another special-purpose, bankruptcy-remote Affiliate of the Originator,
which Affiliate will pledge the Equipment to the Transferor or the Issuer.
8
<PAGE>
EXHIBIT V
TRIGGER EVENTS
Each of the following, unless waived in writing by the Agent (other than as
set forth in clause (h) which cannot be waived), shall be a "Trigger Event":
-------------
(a) The Collection Agent (if the Originator or any of its Affiliates) (i)
shall fail to perform or observe any term, covenant or agreement under this
Agreement (other than as referred to in clause (ii) of this paragraph (a)) and
such failure shall remain unremedied for three Business Days or (ii) shall fail
to make when due any payment or deposit to be made by it under this Agreement;
or
(b) The Transferor or the Originator shall fail (i) to transfer to the
Agent when requested any rights pursuant to the Agreement which the Transferor
or the Originator then has as Collection Agent or otherwise or (ii) to make any
payment required under Section 1.03, 3.02, 3.03 or 3.04 of the Agreement; or
(c) Any representation or warranty made by the Transferor or the
Originator (or any of their respective officers) under the Transaction
Documents, or any information or report delivered by the Transferor or the
Originator pursuant to the Transaction Documents shall prove to have been
incorrect or untrue in any material respect when made or delivered; or
(d) The Transferor shall fail to perform or observe any other term,
covenant or agreement contained in the Transaction Documents on its part to be
performed or observed and any such failure shall remain unremedied for ten days
after written notice thereof shall have been given to the Transferor by the
Agent; or
(e) The Originator shall fail to perform or observe any term, covenant or
agreement contained in the Transaction Documents on its part to be performed or
observed and any such failure shall remain unremedied for ten days after written
notice thereof shall have been given to the Originator by the Agent (or, with
respect to a failure to deliver the Transferor Report pursuant to Section 4.02
of the Agreement such failure shall remain unremedied for three days, without a
requirement for notice); or
(f) Any member of the IKON Group or any Subsidiary thereof shall fail to
pay any principal of or premium or interest on any of its Debt which is
outstanding in a principal amount of at least $10,000,000 in the aggregate when
the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement
1
<PAGE>
or instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased, or an offer to repay, redeem,
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or
(g) The Transfer shall for any reason cease to create, or the interest of
the Agent (for the benefit of the Transferees) in any Receivable shall for any
reason cease to be, a valid and perfected first priority interest in each
Receivable and the Related Security and Collections with respect thereto; or the
security interest created pursuant to Section 1.13 shall for any reason cease to
be a valid first priority security interest in the collateral security referred
to in such Section; or
(h) Any member of the IKON Group or any Subsidiary thereof shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against any
such member or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 30 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur; or
any member of the IKON Group or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this paragraph (h); or
(i) As of the last day of any calendar month: (i) the Chargeback Ratio
averaged over the three-month period ending on such day exceeds 0.75%, (ii) the
Default Ratio averaged over the three-month period ending on such day exceeds
1.00% or (iii) the Delinquency Ratio averaged over the three-month period ending
on such day exceeds 18.00%; or
(j) There shall have occurred any material adverse change in the business,
operations, property or financial or other condition of the Originator since
June 30, 1998 or the Transferor since the date of its formation; or there shall
have occurred any event which may materially adversely affect the collectibility
of the Receivables, the ability of the Collection Agent or the Transferor to
collect the Receivables or the ability of the Originator or the Transferor to
perform its respective obligations under the Transaction Documents; or
2
<PAGE>
(k) Any rating of the long-term debt obligations of the Originator are
withdrawn or reduced below Investment Grade; or
(l) An "Event of Termination" or "Facility Termination Date" shall occur
under the Transfer Agreement, or the Transfer Agreement shall cease to be in
full force and effect; or
(m) All of the members' interests of the Transferor shall cease to be
owned, directly or indirectly, by the Originator; or
(n) On the last day of any calendar month, (a) the aggregate Outstanding
Balance of all Eligible Receivables is less than (b) the Required Balance.
(o) The Transferor shall fail to comply with the covenant contained in
clause (x) of Exhibit IV.
----------
3
<PAGE>
EXHIBIT VI
MARKETPLACES
4
<PAGE>
EXHIBIT VII
The principal place of business and chief executive offices of the
Transferor are located at:
IKON FUNDING-1, LLC
501 Silverside Road, Suite 28
Wilmington, Delaware 19809
The original records concerning the Receivables (and all original documents
related thereto) are located at the offices of the Collection Agent at:
IOS CAPITAL, INC.
1738 Bass Road
Macon, Georgia 31210
5
<PAGE>
EXHIBIT 10.10
TRANSFER AGREEMENT
Dated as of December 1, 1998
Between
IOS CAPITAL, INC.
as Originator
-------------
and
IKON FUNDING-1, LLC
as Transferee
-------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS 1
SECTION 1.01. Certain Defined Terms 1
---------------------
Adverse Claim 1
-------------------------------
Affiliate 1
-------------------------------
Alternate Base Rate 1
-------------------------------
Business Day 1
-------------------------------
Chargeback Ratio 2
-------------------------------
Chargeback Receivable 2
-------------------------------
Collection Agent 2
-------------------------------
Collection Agent Fee 2
-------------------------------
Collections 2
-------------------------------
Contract 2
-------------------------------
Credit and Collection Policy 2
-------------------------------
Dealer 3
-------------------------------
Debt 3
-------------------------------
Designated Obligor 3
-------------------------------
Dilution 3
-------------------------------
Eligible Marketplace 3
-------------------------------
Eligible Receivable 3
-------------------------------
Equipment 5
-------------------------------
ERISA 5
-------------------------------
Event of Termination 5
-------------------------------
Facility 5
-------------------------------
Facility Termination Date 5
-------------------------------
Federal Funds Rate 6
-------------------------------
General Trial Balance 6
-------------------------------
Government Obligor 6
-------------------------------
Incipient Event of Termination 6
-------------------------------
Indemnified Amounts 6
-------------------------------
Obligor 6
-------------------------------
Originator Report 6
-------------------------------
Outstanding Balance 6
-------------------------------
Parent 6
-------------------------------
Periodic Payments 7
-------------------------------
Person 7
-------------------------------
Purchase Price 7
-------------------------------
Receivable 7
-------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Receivables Transfer Agreement 7
--------------------------------------------------
Receivables Transfer Request 7
--------------------------------------------------
Related Contract 7
--------------------------------------------------
Related Security 7
--------------------------------------------------
Scheduled Termination Date 8
--------------------------------------------------
Settlement Date 8
--------------------------------------------------
Support Agreement 8
--------------------------------------------------
Transaction Document 8
--------------------------------------------------
Transfer 8
--------------------------------------------------
Transfer Date 8
--------------------------------------------------
Transferred Receivable 8
--------------------------------------------------
UCC 8
--------------------------------------------------
SECTION 1.02. Other Terms 8
----------------------------------------
ARTICLE II
AMOUNTS AND TERMS OF TRANSFERS AND CONTRIBUTIONS 9
SECTION 2.01. Facility 9
----------------------------------------
SECTION 2.02. Making Transfers 9
----------------------------------------
SECTION 2.03. Collections 10
----------------------------------------
SECTION 2.04. Settlement Procedures 10
----------------------------------------
SECTION 2.05. Payments and Computations, Etc. 11
----------------------------------------
SECTION 2.06. True Sales and/or Contributions. 11
----------------------------------------
ARTICLE III
CONDITIONS OF TRANSFERS 12
SECTION 3.01. Conditions Precedent to Initial Transfer
----------------------------------------
from the Originator 12
----------------------------------------
SECTION 3.02. Conditions Precedent to All Transfers 12
----------------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES 13
SECTION 4.01. A. Representations and Warranties of the
-------------------------------------
Originator 13
-------------------------------------
B. Representation and Warranty of the
-------------------------------------
Transferee 15
-------------------------------------
ARTICLE V
COVENANTS 16
SECTION 5.01. A. Covenants of the Originator 16
-------------------------------------
B. Covenants of the Transferee. 20
-------------------------------------
SECTION 5.02. Grant of Security Interest 21
----------------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
ADMINISTRATION AND COLLECTION 21
SECTION 6.01. Designation of Collection Agent 21
---------------------------------------
SECTION 6.02. Duties of Collection Agent 22
---------------------------------------
SECTION 6.03. Collection Agent Fee 23
---------------------------------------
SECTION 6.04. Certain Rights of the Transferee 23
---------------------------------------
SECTION 6.05. Rights and Remedies 23
---------------------------------------
SECTION 6.06. Transfer of Records to Transferee 24
---------------------------------------
ARTICLE VII
EVENTS OF TERMINATION 25
SECTION 7.01. Events of Termination 25
---------------------------------------
ARTICLE VIII
INDEMNIFICATION 27
SECTION 8.01. Indemnities by the Originator 27
---------------------------------------
ARTICLE IX
MISCELLANEOUS 27
SECTION 9.01. Amendments, Etc. 27
---------------------------------------
SECTION 9.02. Notices, Etc. 27
---------------------------------------
SECTION 9.03. Binding Effect: Assignability 28
---------------------------------------
SECTION 9.04. Costs, Expenses and Taxes 28
---------------------------------------
SECTION 9.05. No Proceedings 28
---------------------------------------
SECTION 9.06. Confidentiality 29
---------------------------------------
SECTION 9.07. GOVERNING LAW 29
---------------------------------------
SECTION 9.08. Third Party Beneficiary 29
---------------------------------------
SECTION 9.09. Tax Treatment 29
---------------------------------------
SECTION 9.10. Execution in Counterparts 29
---------------------------------------
</TABLE>
EXHIBIT A Credit and Collection Policy
EXHIBIT B List of Marketplaces
EXHIBIT C Principal Place of Business and Location of Records
iii
<PAGE>
TRANSFER AGREEMENT
Dated as of December 1, 1998
IOS CAPITAL, INC., a Delaware corporation (the "Originator"), and IKON
----------
FUNDING-1, LLC, a Delaware limited liability company (the "Transferee"), agree
----------
as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used
throughout this Agreement (in addition to those defined above) are defined in
Article I of this Agreement.
(2) The Originator has Receivables that it wishes to transfer to the
Transferee, and the Transferee is prepared to accept such Receivables on the
terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms . As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Adverse Claim" means a lien, security interest, or other charge or
-------------
encumbrance, or any other type of preferential arrangement.
"Affiliate" means, as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person.
"Alternate Base Rate" means a fluctuating interest rate per annum as shall
-------------------
be in effect from time to time, which rate shall be at all times equal to the
greater of:
(a) the rate of interest announced publicly by PNC Bank, National
Association in Pittsburgh, Pennsylvania, from time to time as its base
commercial lending rate; and
(b) the Federal Funds Rate plus 0.50%.
"Business Day" means any day on which banks are not authorized or
------------
required to close in New York City or Pittsburgh, Pennsylvania.
iv
<PAGE>
"Chargeback Ratio" means the ratio (expressed as a percentage) computed as
----------------
of the last day of each calendar month by dividing (i) the aggregate amount of
all Related Contracts having one or more Receivables that were Chargeback
Receivables on such day or that would have been Chargeback Receivables on such
day had they not been written off the books of the Transferor during such month
by (ii) the aggregate amount of all Related Contracts on such day.
"Chargeback Receivable" means a Receivable:
---------------------
(i) as to which any payment, or part thereof, remains unpaid for 180 or
more days from the original due date for such payment; or
(ii) as to which the Obligor thereof or any other Person obligated thereon
or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in
Section 7.01(g); or
(iii) which, consistent with the Credit and Collection Policy, would be
retransferred to the related Dealer as uncollectible.
"Collection Agent" means at any time the Person then authorized pursuant
----------------
to Section 6.01 to service, administer and collect Transferred Receivables.
"Collection Agent Fee" has the meaning specified in Section 6.03.
--------------------
"Collections" means, with respect to any Receivable, (a) all cash
-----------
collections and other cash proceeds of such Receivable, including, without
limitation, any proceeds resulting from the repurchase of such Receivable by
IKON Office Solutions, Inc. and all cash proceeds of Related Security with
respect to such Receivable (including, without limitation, payments under the
related Contract due upon or in connection with (i) Obligor's default under the
Contract, (ii) loss, theft or damage to the related Equipment, or (iii) renewal
of the Contract); provided, that Collections shall not include collections which
--------
represent the payment of (x) maintenance charges or (y) insurance premiums, (b)
all Collections deemed to have been received pursuant to Section 2.04 and (c)
all other proceeds of such Receivable.
"Contract" means a closed-end lease agreement between the Originator and
--------
an Obligor having an original lease term not exceeding 72 months, in
substantially the form of one of the forms of written contract set forth in
Annex A to the Receivables Transfer Agreement or otherwise approved by the
Transferee, pursuant to or under which such Obligor shall be obligated to pay
for the lease of equipment from time to time.
"Credit and Collection Policy" means those receivables credit and
----------------------------
collection policies and practices of the Originator in effect on the date of
this Agreement applicable to the Receivables and described in Exhibit A hereto,
as modified in compliance with this Agreement.
2
<PAGE>
"Dealer" means any Person originating Receivables relating to Equipment
------
located in an Eligible Marketplace.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
----
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, (v) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
above, and (vi) liabilities in respect of unfunded vested benefits under plans
covered by Title IV of ERISA.
"Designated Obligor" means, at any time, each Obligor; provided, however,
------------------ -------- -------
that any Obligor shall cease to be a Designated Obligor upon notice by the
Transferee to the Originator.
"Dilution" means, with respect to any Receivable, the aggregate amount of
--------
any reductions or adjustments in the Outstanding Balance of such Receivable as a
result of any defective, rejected, returned or repossessed Equipment or services
or any cash discount or other adjustment or setoff.
"Eligible Marketplace" means any of the marketplaces set forth on Exhibit
--------------------
B hereto, as such Exhibit may be amended from time to time by the Originator
with the consent of the Transferee.
"Eligible Receivable" means, at the relevant time of determination, a
-------------------
Receivable:
(i) the Obligor of which (a) is a United States resident, (b) is not the
Originator or any Affiliate thereof, and (c) is not a Governmental
Obligor; provided, that Obligors with respect to Contracts having an
--------
aggregate Outstanding Balance of not greater than 5% of the aggregate
Outstanding Balance of all Eligible Receivables may be Governmental
Obligors;
(ii) the Obligor of which has not been disapproved by the Transferee on or
prior to the date of the Transfer and which, at the time of the
Transfer, is not the Obligor of any Chargeback Receivables;
(iii) which at the time of the Transfer is not a Chargeback Receivable;
(iv) (a) which arises under a Contract with a remaining term of not more
than 60 months; provided, that Contracts having an aggregate
--------
Outstanding Balance of not greater than 5% of the aggregate
Outstanding Balance of all Eligible Receivables may have a remaining
term of up to 72 months;
3
<PAGE>
and
(b) which, according to such Contract, consists of substantially
equal monthly Periodic Payments which are required to be paid within
30 days of the billing date therefor; provided, that Contracts
--------
having an aggregate Outstanding Balance of not greater than 4% of
the aggregate Outstanding Balance of all Eligible Receivables may
have payments which are not substantially equal monthly payments;
(v) which arose pursuant to a Contract which is "chattel paper" within
the meaning of Section 9-105 of the UCC of the applicable
jurisdictions governing the perfection of the interest created in
the Receivables;
(vi) which is denominated and payable in United States dollars in the
United States;
(vii) which arises under a Contract (a) which has been duly authorized and
which, together with such Receivable, is in full force and effect
and constitutes the legal, valid and binding obligation of the
Obligor of such Receivable enforceable against such Obligor in
accordance with its terms and is not subject to any dispute, offset,
counterclaim or defense whatsoever (except as limited by applicable
bankruptcy law), (b) in respect of which, prior to the date it is
transferred hereunder, the Equipment has been delivered and
accepted, (c) which pursuant to its terms is not cancellable by the
lessee before the end of its stated term (other than, in the case of
Contracts related to Governmental Obligors, by reason of nonrenewal
of appropriations) and (d) which, if related to a Governmental
Obligor, has not been canceled before the end of its stated term by
reason of nonrenewal of appropriations;
(viii) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, consumer protection, truth in
lending, consumer leasing, fair credit billing, fair credit
reporting, equal credit opportunity, fair debt collection practices
and privacy) and with respect to which none of the Transferor, the
Originator or the related Obligor is in violation of any such law,
rule or regulation in any material respect;
(ix) with regard to which there exists only one executed original
Contract, which is in the possession of the Originator on the
Transfer Date of such Receivable;
(x) which represents payments due to the Originator and does not
represent any payments payable for the account of any Person other
than the Originator under the Contract relating to such Receivable
or any sales or use tax payable under such Contract;
4
<PAGE>
(xi) which satisfies all applicable requirements of the Credit and
Collection Policy;
(xii) which, after giving effect to the acquisition thereof, would not
result in the aggregate Outstanding Balance of Related Contracts of
any single Obligor exceeding 2% of the aggregate Outstanding Balance
of all Related Contracts;
(xiii) as to which, at or prior to the time of the Transfer, the Transferee
has not notified the Originator that such Receivable (or class of
Receivables) is not acceptable for transfer to the Transferee;
(xiv) the transfer or assignment of which does not contravene any
applicable law, rule or regulation;
(xv) which was originated in an Eligible Marketplace; and
(xvi) which, after giving effect to the acquisition thereof, would not
result in the Aggregate Outstanding Balance of Related Contracts of
Obligors located in any single state exceeding 15% (or, in the case
of Indiana and Texas, 20%) of the Aggregate Outstanding Balance of
all Related Contracts.
"Equipment" means, with respect to any Receivable, office, business or
---------
other equipment leased or sold to an Obligor by the Originator pursuant to a
Contract (including any modifications or substitutions of equipment pursuant to
the Original Contract giving rise to such Receivable).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Event of Termination" has the meaning specified in Section 7.01.
--------------------
"Facility" means the willingness of the Transferee to consider accepting
--------
Transfers of Receivables from the Originator from time to time pursuant to the
terms of this Agreement.
"Facility Termination Date" means the earliest of (i) the Scheduled
-------------------------
Termination Date, (ii) the date of termination of the Facility pursuant to
Section 7.01 and (iii) the date which the Originator designates by at least two
Business Days' notice to the Transferee.
"Federal Funds Rate" means, with respect to any day, the rate set forth in
------------------
H.15(519) for that day opposite the caption "Federal Funds (Effective)." If on
-------------------------
any date of determination, such rate is not published in H.15(519), such rate
will be the rate set forth in Composite 3:30 P.M. Quotations for U.S. Government
Securities for that day under the caption "Federal Funds/Effective Rate." If on
----------------------------
any date of determination, the appropriate rate is not published in
5
<PAGE>
either H.15(519) or Composite 3:30 P.M. Quotations for U.S. Government
Securities, such rate will be the arithmetic mean of the rates for the last
transaction in overnight federal funds arranged by three leading brokers of
federal funds transactions in New York City prior to 9:00 a.m., New York City
time, on that day.
"General Trial Balance" of the Originator on any date means the
---------------------
Originator's accounts receivable trial balance (whether in the form of a
computer printout, magnetic tape or diskette) on such date, listing Obligors and
the Receivables respectively owed by such Obligors on such date together with
the aged Outstanding Balances of such Receivables, in form and substance
satisfactory to the Transferee.
"Governmental Obligor" means an Obligor that is the federal government, the
--------------------
government of any state or governmental subdivision or any agency of the federal
government or the government of any state.
"Incipient Event of Termination" means an event that but for notice or
------------------------------
lapse of time or both would constitute an Event of Termination.
"Indemnified Amounts" has the meaning specified in Section 8.01.
-------------------
"Obligor" means a Person obligated to make payments to the Originator
-------
pursuant to a Contract; provided that in the event that any payments in respect
of a Contract are made by any other person, such other Person shall be deemed to
be an Obligor.
"Originator Report" means a report, in form and substance satisfactory to
-----------------
the Transferee, furnished by the Collection Agent to the Transferee pursuant to
Section 6.02(b).
"Outstanding Balance" of any Contract at any date means the net present
-------------------
value of the total Periodic Payments due to Originator over the remaining term
of the Contract (net of any security deposits or advance rental payments
received by Originator) and not yet paid by the Obligor, discounted at the
implied interest rate used by the Originator or the applicable Dealer in
originating such Contract, as determined by subtracting all amounts representing
unearned interest from the aggregate amount of such Periodic Payments.
"Parent" means Ikon Office Solutions, Inc., an Ohio corporation.
------
"Periodic Payments" means the aggregate base rental amounts coming due on a
-----------------
periodic basis pursuant to the Contracts giving rise to Receivables, excluding
any maintenance charges or, with respect to Contracts covering photocopiers, any
per copy charges.
"Person" means an individual, partnership, corporation (including a
------
business trust), limited liability company, limited liability partnership, joint
stock company, trust, unincorporated
6
<PAGE>
association, joint venture or other entity, or a government or any political
subdivision or agency thereof.
"Purchase Price" has the meaning set forth in Section 2.02(b).
-------------- ---------------
"Receivable" means the indebtedness of any Obligor under a Contract, and
----------
includes the right to payment of any interest or finance charges and other
obligations of such Obligor with respect thereto.
"Receivables Transfer Agreement" means that certain Receivables Transfer
------------------------------
Agreement, dated as of the date hereof, among the Transferee, as transferor,
Market Street Funding Corporation, as issuer, PNC Bank, National Association, as
agent, and the Originator, as originator and collection agent, as amended or
restated from time to time.
"Receivables Transfer Request" has the meaning specified in Section
----------------------------
2.02(a).
"Related Contract" means, with respect to a Transfer Date, any Contract
----------------
included in the Contracts transferred to the Transferee pursuant to Section 2.02
on such Transfer Date; provided, that after the Outstanding Balance of such
--------
Contract has been collected, it shall no longer constitute a "Related Contract"
hereunder.
"Related Security" means with respect to any Receivable:
----------------
(i) all other security interests or liens and property subject thereto
(other than Equipment) from time to time purporting to secure payment
of such Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements
signed by an Obligor describing any collateral securing such
Receivable;
(ii) all guaranties (other than the Support Agreement) insurance and other
agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable (or insuring for
loss or liability with respect to the related Equipment), whether
pursuant to the Contract related to such Receivable or otherwise and
all of the Transferor's rights (if any) to recourse, repurchase or
indemnity against any dealer, including any Dealer, or other Person,
with respect to such Receivable; and
(iii) the Related Contract and all other books, records and other
information (including, without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and
rights) relating to such Receivable and the related Obligor.
7
<PAGE>
"Scheduled Termination Date" shall mean November 30, 2001; provided that
-------------------------- --------
unless the Transferee notifies the Originator in writing not less than 30 days
prior to the then-current Scheduled Termination Date, the Scheduled Termination
Date shall be automatically extended to the date that is 364 days following such
Scheduled Termination Date.
"Settlement Date" means the fifteenth calendar day of each month (or if
---------------
such day is not a Business Day, the immediately succeeding Business Day);
provided, however, that following the occurrence of an Event of Termination,
- -------- -------
Settlement Dates shall occur on such days as are selected from time to time by
the Transferee or its designee in a written notice to the Collection Agent.
"Support Agreement" means the operating agreement, dated October 22, 1996
-----------------
between the Originator and the Parent.
"Transaction Document" means any of this Agreement, the Receivables
--------------------
Transfer Agreement and all other agreements and documents delivered and/or
related hereto or thereto.
"Transfer" means a transfer by the Originator of Receivables to the
--------
Transferee pursuant to Article II.
"Transfer Date" has the meaning specified in Section 2.02(a).
-------------
"Transferred Receivable" means any Receivable which, pursuant to the
----------------------
procedure described in Section 2.02(d), has been identified as a Transferred
Receivable.
"UCC" means the Uniform Commercial Code as from time to time in effect in
---
the specified jurisdiction.
SECTION 1.02. Other Terms. Capitalized terms used and not defined herein
-----------
shall have the meanings assigned to them in the Receivables Transfer Agreement.
All accounting terms not specifically defined herein shall be construed in
accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC in the State of Pennsylvania, and not specifically defined
herein, are used herein as defined in such Article 9.
ARTICLE II
AMOUNTS AND TERMS OF TRANSFERS AND CONTRIBUTIONS
SECTION 2.01. Facility. On the terms and conditions hereinafter set forth
--------
and without recourse (except to the extent as is specifically provided herein),
from time to time during the period from the date hereof to the Facility
Termination Date, the Originator shall transfer to the Transferee, and the
Transferee shall accept from the Originator, Receivables of the Originator that
were originated in an Eligible Marketplace. Each Transfer of such Receivables
shall include the transfer to the Transferee of the Related Security and
Collections with respect thereto.
8
<PAGE>
SECTION 2.02. Making Transfers.
----------------
(a) Transfers. Each Transfer from the Originator shall be made on notice
---------
from the Originator to the Transferee given no later than 10:00 A.M. (New York
City time) on the date of such Transfer. Each such request for a Transfer (each
a "Receivables Transfer Request") shall specify the date of such Transfer (which
----------------------------
shall be a Business Day) and the proposed Purchase Price (as determined pursuant
to Section 2.02(b)) for such Transfer. On the date of each Transfer (each a
"Transfer Date"), the Transferee shall, upon satisfaction of the applicable
-------------
conditions set forth in Article III, make available to the Originator the
Purchase Price for such Transfer in accordance with Section 2.02(c). The
Originator agrees that at least once a week, it shall request a Transfer in
accordance with the terms hereof, of all Receivables of the Originator
originated in an Eligible Marketplace that do not already constitute Transferred
Receivables, as identified in accordance with Section 2.02(d) below.
(b) Determination of Purchase Price. The "Purchase Price" for the
------------------------------- --------------
Receivables that are the subject of any Transfer hereunder shall be equal to the
aggregate Outstanding Balance of such Receivables.
(c) Payment of Purchase Price. On each Transfer Date, the Transferee shall
-------------------------
pay to the Originator the Purchase Price for the applicable Transfer in cash, to
the extent of funds obtained by the Transferee on such date under the
Receivables Transfer Agreement, after satisfying the Transferee's obligations
under the Receivables Transfer Agreement and after netting any amounts owed to
the Transferee by the Originator hereunder (including amounts owed under Section
2.04), and to the extent such Purchase Price remains unpaid, such remaining
portion of such Purchase Price shall be deemed to be a true contribution to
capital made by the Originator to the Transferee.
(d) Identification of Transferred Receivables. On each Transfer Date, each
-----------------------------------------
Receivable of the Originator originated in an Eligible Marketplace that does not
already constitute a Transferred Receivable shall be identified as Transferred
Receivables. Upon such identification, the Originator shall deliver to the
Transferee, on or prior to such Transfer Date, a list of Related Contracts for
the Receivables so identified, which list shall also be delivered to the Agent
in accordance with paragraph (j) of Exhibit IV of the Receivables Transfer
Agreement. Such list shall evidence the Transferred Receivables for such
Transfer Date.
SECTION 2.03. Collections. (a) Unless otherwise agreed, the Collection
-----------
Agent shall, on each Settlement Date, deposit into an account of the Transferee
or the Transferee's assignee all Collections of Transferred Receivables then
held by the Collection Agent.
(b) In the event that the Originator believes that Collections which are
not Collections of Transferred Receivables have been deposited into an account
of the Transferee or the Transferee's assignee, the Originator shall so advise
the Transferee and, on the Business Day
9
<PAGE>
following such identification, the Transferee shall remit, or shall cause to be
remitted, all Collections so deposited which are identified, to the Transferee's
satisfaction, to be Collections of Receivables which are not Transferred
Receivables to the Originator.
SECTION 2.04. Settlement Procedures. (a) If on any day the Outstanding
---------------------
Balance of any Transferred Receivable is reduced or adjusted as a result of any
defective, rejected, returned or repossessed Equipment or services or any cash
discount or other adjustment made by the Originator, or any setoff or dispute
between the Originator and an Obligor due to a claim arising out of the same or
any other transaction, the Originator shall be deemed to have received on such
day a Collection of such Transferred Receivable in the amount of such reduction
or adjustment. If the Originator is not the Collection Agent, the Originator
shall pay to the Collection Agent on or prior to the next Settlement Date all
amounts deemed to have been received pursuant to this subsection.
(b) Upon discovery by the Originator or the Transferee or the Agent of
a breach of any of the representations and warranties made or deemed made by the
Originator in Section 4.01(i) with respect to any Transferred Receivable, such
party shall give prompt written notice thereof to the other party, as soon as
practicable and in any event within three Business Days following such
discovery. The Originator shall be deemed to have received a Collection in full
of such Transferred Receivable, and all other Receivables relating to the same
Contract, and make available to the Transferee on the next succeeding Settlement
Date an amount equal to the Outstanding Balance of such Transferred Receivable.
Upon such amount being made available, the Transferee shall retransfer such
Transferred Receivables to the Originator. Each retransfer of a Transferred
Receivable shall include the Related Security with respect to such Transferred
Receivable. If the Originator is not the Collection Agent, the Originator shall
pay to the Collection Agent on or prior to the next Settlement Date the amount
required to be paid pursuant to this subsection.
(c) Except as stated in subsection (a) or (b) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Transferred Receivable shall be applied to the Receivables of
such Obligor in the order of the age of such Receivables, starting with the
oldest such Receivable, unless such Obligor designates its payment for
application to specific Receivables.
SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be paid or
------------------------------
deposited by the Originator or the Collection Agent hereunder shall be paid or
deposited no later than 11:00 A.M. (New York City time) on the day when due in
same day funds to an account designated in writing by the Transferee to the
Originator on or prior to the initial Transfer hereunder.
(b) The Originator shall, to the extent permitted by law, pay to the
Transferee interest on any amount not paid or deposited by the Originator
(whether as Collection Agent or
10
<PAGE>
otherwise) when due hereunder at an interest rate per annum equal to 2% per
annum above the Alternate Base Rate, payable on demand.
(c) All computations of interest and all computations of fees hereunder
shall be made on the basis of a year of 360 days for the actual number of days
elapsed. Whenever any payment or deposit to be made hereunder shall be due on a
day other than a Business Day, such payment or deposit shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of such payment or deposit.
SECTION 2.06. True Sales and/or Contributions. (a) Each of the Originator
-------------------------------
and the Transferee intend the transactions hereunder to constitute true sales
and/or true contributions of the Transferred Receivables, Related Security and
Collections with respect thereto by the Originator to the Transferee providing
the Transferee with all of the Originator's right, title and interest in and to
the Transferred Receivables, Related Security and Collections with respect
thereto, and no party hereto intends the transactions contemplated hereunder to
be, or for any purpose (other than for purposes of federal or state income or
franchise, sale and use or bulk sale taxes) to be characterized as, a loan from
the Transferee to the Originator.
(b) In the event (but only to the extent) that the conveyance of
Transferred Receivables, the Related Security and Collections with respect
thereto hereunder is characterized by a court, governmental authority or
regulatory body as a loan rather than a sale or contribution, the Originator
shall be deemed hereunder to have granted to the Transferee, and the Originator
hereby assigns and grants to Transferee, a security interest in all of the
Originator's right, title and interest now or hereafter existing in, to and
under all Transferred Receivables, the Related Security and all Collections with
respect thereto.
ARTICLE III
CONDITIONS OF TRANSFERS
SECTION 3.01. Conditions Precedent to Initial Transfer from the Originator.
------------------------------------------------------------
The initial Transfer of Receivables from the Originator hereunder is subject to
the conditions precedent that the Transferee shall have received on or before
the date of such Transfer the following, each (unless otherwise indicated) dated
such date, in form and substance satisfactory to the Transferee:
(a) Certified copies of the resolutions of the Board of Directors of the
Originator approving this Agreement and certified copies of all documents
evidencing other necessary corporate or limited liability company action and
governmental approvals, if any, with respect to this Agreement.
11
<PAGE>
(b) A certificate of the Secretary or Assistant Secretary of the
Originator certifying the names and true signatures of the officers of the
Originator authorized to sign this Agreement and the other documents to be
delivered by it hereunder.
(c) Acknowledgment copies or time stamped receipt copies of proper
financing statements, duly filed on or before the date of the initial Transfer,
naming the Originator as the debtor and the Transferee as the secured party, or
other similar instruments or documents, as the Transferee may deem necessary or
desirable under the UCC of all appropriate jurisdictions or other applicable law
to perfect the Transferee's security interest in the Transferred Receivables and
Related Security and Collections with respect thereto.
(d) Acknowledgment copies or time stamped receipt copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Transferred Receivables, Related Contracts or
Related Security previously granted by the Originator.
(e) Completed requests for information, dated on or before the date of
such initial Transfer, listing the financing statements referred to in
subsection (c) above and all other effective financing statements filed in the
jurisdictions referred to in subsection (c) above that name the Originator as
debtor, together with copies of such other financing statements (none of which
shall cover any Transferred Receivables, Related Contracts or Related Security).
(f) Payment by the Transferee to the Originator for the initial Transfer
hereunder will constitute acknowledgment that the conditions set forth above
have been satisfied or waived.
SECTION 3.02. Conditions Precedent to All Transfers. The obligation of the
-------------------------------------
Transferee to accept each Transfer (including the initial Transfer) hereunder
shall be subject to the further conditions precedent that:
(a) With respect to any such Transfer, on or prior to the date of such
Transfer, the Originator shall have delivered to the Transferee, (i) if
requested by the Transferee, the Originator's General Trial Balance (which if in
magnetic tape or diskette format shall be compatible with the Transferee's
computer equipment) as of a date not more than 31 days prior to the date of such
Transfer, and (ii) a written report identifying, among other things, the
Receivables to be included in such Transfer and the then outstanding Transferred
Receivables and the aged balance thereof, in each case correlated to Transfers;
(b) With respect to any such Transfer, on or prior to the date of such
Transfer, the Collection Agent shall have delivered to the Transferee, in form
and substance satisfactory to the Transferee, a completed Originator Report for
the most recently ended reporting period for which information is required
pursuant to Section 6.02(b) and containing such additional information as may
reasonably be requested by the Transferee;
12
<PAGE>
(c) At the request of the Transferee or its assignee, the
Originator will mark its master data processing records regarding the
Transferred Receivables and each Contract giving rise to Transferred Receivables
and all other relevant records evidencing the Receivables which are the subject
of such Transfer with a legend, acceptable to the Transferee, stating that such
Receivables, the Related Security and Collections with respect thereto, have
been transferred in accordance with this Agreement; and
(d) On the date of such Transfer the following statements shall be
true (and the Originator, by accepting the amount of such Transfer, shall be
deemed to have certified that):
(i) The representations and warranties contained in Section
4.01 are correct on and as of the date of such Transfer
as though made on and as of such date; and
(ii) No event has occurred and is continuing, or would result
from such Transfer, that constitutes an Event of
Termination or would constitute an Incipient Event of
Termination.
(e) The Transferee shall have received such other approvals, opinions
or documents as the Transferee may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. A. Representations and Warranties of the Originator.
------------------------------------------------
The Originator represents and warrants as follows:
(a) The Originator is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and is duly qualified
to do business, and is in good standing, in every jurisdiction where the nature
of its business requires it to be so qualified, unless the failure to so qualify
would not have a material adverse effect on (i) the interests of the Transferee
hereunder, (ii) the collectibility of the Transferred Receivables, or (iii) the
ability of the Originator or the Collection Agent to perform their respective
obligations hereunder.
(b) The execution, delivery and performance by the Originator of this
Agreement and the other documents to be delivered by it hereunder, including the
Originator's transfer of Receivables hereunder, (i) are within the Originator's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) do not contravene (1) the Originator's charter or by-laws, (2) any
law, rule or regulation applicable to the Originator, (3) any contractual
restriction binding on or affecting the Originator or its property or (4) any
order, writ, judgment, award, injunction or decree binding on or affecting the
Originator or its property, and (iv) do not result in or require the creation of
any lien, security interest or other charge or encumbrance upon
13
<PAGE>
or with respect to any of its properties (except for the transfer of the
Originator's interest in the Transferred Receivables pursuant to this
Agreement). This Agreement has been duly executed and delivered by the
Originator.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Originator of this Agreement
or any other document to be delivered thereunder.
(d) This Agreement constitutes the legal, valid and binding
obligation of the Originator enforceable against the Originator in accordance
with its terms.
(e) The balance sheets of the Originator and its subsidiaries as at
September 30, 1997 and June 30, 1998, and the related statements of income and
retained earnings of the Originator and its subsidiaries for the fiscal year
then ended, copies of which have been furnished to the Transferee, fairly
present the financial condition of the Originator and its subsidiaries as at
such date and the results of the operations of the Originator and its
subsidiaries for the period ended on such date, all in accordance with generally
accepted accounting principles consistently applied, and since June 30, 1998
there has been no material adverse change in the business, operations, property
or financial or other condition of the Originator.
(f) There is no pending or threatened action or proceeding affecting
the Originator or any of its subsidiaries before any court, governmental agency
or arbitrator which may materially adversely affect the financial condition or
operations of the Originator or any of its subsidiaries or the ability of the
Originator to perform its obligations under this Agreement, or which purports to
affect the legality, validity or enforceability of this Agreement.
(g) No proceeds of any Transfer will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
(h) No transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
(i) Each Receivable transferred by the Originator hereunder is an
Eligible Receivable on the date of the related Transfer except for those
Receivables identified by the Originator as not being Eligible Receivables in
the list of Receivables delivered to the Agent on the related Transfer Date in
accordance with paragraph (j) of Exhibit IV of the Receivables Purchase
Agreement, and the Originator owns and has the right to transfer each
Transferred Receivable, together with the Related Security and Collections with
respect thereto, free and clear of any Adverse Claim (other than any Adverse
Claim arising solely as the result of any action taken by the Transferee). When
the Transferee accepts a Transfer, it shall acquire a valid and perfected first
priority ownership interest in each Transferred Receivable and the Related
Security and Collections with respect thereto free and clear of any Adverse
Claim (other than any Adverse
14
<PAGE>
Claim arising solely as the result of any action taken by the Transferee), and
no effective financing statement or other instrument similar in effect covering
any Transferred Receivable, any interest therein, the Related Security or
Collections with respect thereto is on file in any recording office except for
those filed in favor of the Originator, as secured party, which cover only
Equipment, accessories, attachments and additions thereto (and substitutions and
proceeds thereof) and such as may be filed in favor of Transferee in accordance
with this Agreement or in connection with any Adverse Claim arising solely as
the result of any action taken by the Transferee.
(j) Each Originator Report (if prepared by the Originator, or to the
extent that information contained therein is supplied by the Originator),
information, exhibit, financial statement, document, book, record or report
furnished or to be furnished at any time by the Originator to the Transferee in
connection with this Agreement is or will be accurate in all material respects
as of its date or (except as otherwise disclosed to the Transferee at such time)
as of the date so furnished, and no such document contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.
(k) The principal place of business and chief executive office of the
Originator and the office where the Originator keeps its records concerning the
Receivables are located at the respective addresses set forth on Exhibit C
hereof.
(l) The Originator is not known by and does not use any trade name or
doing-business-as name.
(m) With respect to any programs used by the Originator in the
servicing of the Receivables, no sublicensing agreements are necessary in
connection with the designation of a new Collection Agent pursuant to Section
6.01(b) so that such new Collection Agent shall have the benefit of such
programs (it being understood that, however, the Collection Agent, if other than
-- ----- ---------- ----
the Originator, shall be required to be bound by a confidentiality agreement
reasonably acceptable to the Originator).
(n) The transfers of Receivables by the Originator to the Transferee
pursuant to this Agreement, and all other transactions between the Originator
and the Transferee, have been and will be made in good faith and without intent
to hinder, delay or defraud creditors of the Originator.
(o) If less than all of the Receivables of the Originator have been
transferred to the Transferee pursuant to this Agreement, no selection procedure
was utilized by the Originator in selecting the Transferred Receivables to be
transferred to the Transferee hereunder which is adverse to the interests of the
Transferee or would reasonably be expected to result in the Transferred
Receivables containing a higher percentage of Chargeback Receivables than the
15
<PAGE>
percentage of Chargeback Receivables in the Receivables retained by the
Originator. With respect to each Transferred Receivable, such Receivable is
representative of all of the Receivables owned by the Originator.
(p) Each Contract giving rise to a Receivable provides for Periodic
Payments that will fully amortize such Receivable over the term of the Contract
related thereto and, except in accordance with the Credit and Collection Policy,
the Originator has not extended or amended, modified or waived the terms of any
Receivable or any Contract relating to any Receivable.
b. Representation and Warranty of the Transferee. The Transferee is
---------------------------------------------
acquiring the Transferred Receivables, the Related Security and Collections with
respect thereto in good faith, without knowledge of any Adverse Claim against,
interest in, or defense to the payment of such assets (other than any Adverse
Claim arising solely as the result of any action taken by the Transferee)..
ARTICLE V
COVENANTS
SECTION 5.01. A. Covenants of the Originator. From the date hereof
---------------------------
until the first day following the Facility Termination Date on which all of the
Transferred Receivables are either collected in full or become Chargeback
Receivables:
(a) Compliance with Laws, Etc. The Originator will comply in all
-------------------------
material respects with all applicable laws, rules, regulations and orders and
preserve and maintain its corporate existence, rights, franchises,
qualifications and privileges except to the extent that ' the failure so to
comply with such laws, rules and regulations or the failure so to preserve and
maintain such existence, rights, franchises, qualifications, and privileges
would not materially adversely affect the collectibility of the Transferred
Receivables or the ability of the Originator to perform its obligations under
this Agreement.
(b) Offices, Records and Books of Account. The Originator will keep
-------------------------------------
its principal place of business and chief executive office and the office where
it keeps its records concerning the Transferred Receivables at the respective
addresses set forth on Exhibit D hereof or, upon 30 days' prior written notice
to the Transferee, at any other locations in jurisdictions where all actions
required by Section 5.01(i) shall have been taken and completed. The Originator
also will maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records evidencing
Transferred Receivables and related Contracts in the event of the destruction of
the originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for the collection of all
Transferred Receivables (including, without limitation, records adequate to
permit the daily identification of each new Transferred Receivable and all
Collections of and adjustments to each existing Transferred Receivable). The
Originator shall make a notation in its
16
<PAGE>
books and records, including its computer files, to indicate which Receivables
have been transferred to the Transferee hereunder.
(c) Performance and Compliance with Contracts and Credit and
--------------------------------------------------------
Collection Policy. The Originator will, at its expense, timely and fully perform
- -----------------
and comply with all material provisions, covenants and other promises required
to be observed by it under the Contracts related to the Transferred Receivables,
and timely and fully comply in all material respects with the Credit and
Collection Policy in regard to each Transferred Receivable and the related
Contract.
(d) Sales, Liens, Etc. Except for the transfers contemplated herein,
-----------------
the Originator will not sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, any Transferred Receivable, Related Security, related Contract
or Collections, or upon or with respect to any account to which any Collections
of any Transferred Receivables are sent, or assign any right to receive income
in respect thereof.
(e) Extension or Amendment of Transferred Receivables. Except as
-------------------------------------------------
provided in Section 6.02(c), the Originator will not extend, amend or otherwise
modify the terms of any Transferred Receivable, or amend, modify or waive any
term or condition of any Contract related thereto. The Originator shall notify
the Transferee promptly upon any change in the implied interest rate used by the
Originator or any Dealer in originating Contracts.
(f) Change in Business or Credit and Collection Policy. The
--------------------------------------------------
Originator will not make any change in the character of its business or in the
Credit and Collection Policy that would, in either case, materially adversely
affect the collectibility of the Transferred Receivables or the ability of the
Originator to perform its obligations under this Agreement.
(g) Audits. The Originator will, from time to time during regular
------
business hours as requested by the Transferee or its assigns, permit the
Transferee, or its agents, representatives or assigns, (i) to examine and make
copies of and abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the possession or under the
control of the Originator relating to Transferred Receivables and the Related
Security, including, without limitation, the related Contracts, and (ii) to
visit the offices and properties of the Originator for the purpose of examining
such materials described in clause (i) above, and to discuss matters relating to
Transferred Receivables and the Related Security or the Originator's performance
hereunder or under the Contracts with any of the officers or employees of the
Originator having knowledge of such matters.
(h) Change in Payment Instructions to Obligors. The Originator will
------------------------------------------
not make any change in its instructions to Obligors regarding payments to be
made by it unless the Transferee shall have received notice of such change.
17
<PAGE>
(i) Further Assurances.
------------------
(i) The Originator agrees from time to time, at its expense,
promptly to execute and deliver all further instruments
and documents, and to take all further actions, that may
be necessary or desirable, or that the Transferee or its
assignee may reasonably request, to perfect, protect or
more fully evidence the transfer of Receivables under this
Agreement, or to enable the Transferee or its assignee to
exercise and enforce its respective rights and remedies
under this Agreement. Without limiting the foregoing, the
Originator will, upon the request of the Transferee or its
assignee, (A) execute and file such financing or
continuation statements, or amendments thereto, and such
other instruments and documents, that may be necessary or
desirable to perfect, protect or evidence such Transferred
Receivables; and (B) deliver to the Transferee copies of
all Contracts relating to the Transferred Receivables and
all records relating to such Contracts and the Transferred
Receivables, whether in hard copy or in magnetic tape or
diskette format (which if in magnetic tape or diskette
format shall be compatible with the Transferee's computer
equipment).
(ii) The Originator authorizes the Transferee or its assignee
to file financing or continuation statements, and
amendments thereto and assignments thereof, relating to
the Transferred Receivables and the Related Security, the
related Contracts and the Collections with respect thereto
without the signature of the Originator where permitted by
law. A photocopy or other reproduction of this Agreement
shall be sufficient as a financing statement where
permitted by law.
(iii) The Originator shall perform its obligations under the
Contracts related to the Transferred Receivables to the
same extent as if the Transferred Receivables had not been
transferred.
(j) Reporting Requirements. The Originator will provide to the
----------------------
Transferee the following:
(i) as soon as available and in any event within 60 days after
the end of the first three quarters of each fiscal year of
the Originator, balance sheets of the Originator and its
subsidiaries as of the end of such quarter and statements
of income and retained earnings of the Originator and its
subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such
quarter, certified by the chief financial officer of the
Originator;
18
<PAGE>
(ii) as soon as available and in any event within 120 days
after the end of each fiscal year of the Originator, a
copy of the annual report for such year for Ikon Office
Solutions, Inc. and the Annual Report on Form 10-K for the
Originator and its subsidiaries, containing financial
statements for such year audited by Ernst & Young LLP or
other independent public accountants acceptable to the
Agent;
(iii) as soon as possible and in any event within five days
after the occurrence of each Event of Termination or
Incipient Event of Termination, a statement of the chief
financial officer of the Originator setting forth details
of such Event of Termination or Incipient Event of
Termination and the action that the Originator has taken
and proposes to take with respect thereto;
(iv) promptly after the sending or filing thereof, copies of
all reports that the Originator sends to any of its
securityholders, and copies of all reports and
registration statements that the Originator or any
subsidiary files with the Securities and Exchange
Commission or any national securities exchange;
(v) promptly after the filing or receiving thereof, copies of
all reports and notices that the Originator or any
Affiliate files under ERISA with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor or that the Originator or any
Affiliate receives from any of the foregoing or from any
multiemployer plan (within the meaning of Section
4001(a)(3) of ERISA) to which the Originator or any
Affiliate is or was, within the preceding five years, a
contributing employer, in each case in respect of the
assessment of withdrawal liability or an event or
condition which could, in the aggregate, result in the
imposition of liability on the Originator and/or any such
Affiliate in excess of $5,000,000;
(vi) at least ten Business Days prior to any change in the
Originator's name, a notice setting forth the new name and
the effective date thereof;
(vii) concurrently with the delivery of each Originator Report
by the Collection Agent, a statement as to whether or not
all of the Receivables under all Contracts arising during
the immediately preceding month have been transferred by
the Originator to the Transferee and, if less than all of
such Receivables have been transferred, a summary of those
Receivables not transferred; and
19
<PAGE>
(viii) such other information respecting the Transferred
Receivables or the condition or operations, financial or
otherwise, of the Originator as the Transferee may from
time to time reasonably request.
(k) Separate Conduct of Business. The Originator will:
----------------------------
(i) maintain separate corporate records and books of account
from those of the Transferee;
(ii) conduct its business from an office separate from that of
the Transferee;
(iii) ensure that all oral and written communications, including
without limitation, letters, invoices, purchase orders,
contracts, statements and applications, will be made
solely in its own name;
(iv) have stationery and other business forms and a mailing
address and a telephone number separate from those of the
Transferee;
(v) not hold itself out as having agreed to pay, or as being
liable for, the obligations of the Transferee;
(vi) not engage in any transaction with the Transferee except
as contemplated by this Agreement or as permitted by the
Receivables Transfer Agreement;
(vii) continuously maintain as official records the resolutions,
agreements and other instruments underlying the
transactions contemplated by this Agreement; and
(viii) disclose on its annual financial statements the effects of
the transactions contemplated by this Agreement in
accordance with generally accepted accounting principles.
B. Covenants of the Transferee. From the date hereof until the
---------------------------
termination of this Agreement, the Transferee will:
(a) maintain separate corporate records and books of account from
those of the Originator;
(b) conduct its business from an office separate from that of the
Originator;
20
<PAGE>
(c) ensure that all oral and written communications, including
without limitation, letters, invoices, purchase orders,
contracts, statements and applications, will be made solely in
its own name;
(d) have stationery and other business forms and a mailing address
and a telephone number separate from those of the Originator;
(e) not hold itself out as having agreed to pay, or as being liable
for, the obligations of the Originator; and
(f) continuously maintain as official records the resolutions,
agreements and other instruments underlying the transactions
contemplated by this Agreement.
SECTION 5.02. Grant of Security Interest. To secure all obligations of
--------------------------
the Originator arising in connection with this Agreement, and each other
agreement entered into in connection with this Agreement, including, without
limitation, Indemnified Amounts, payments on account of Collections received or
deemed to be received, and any other amounts due the Transferee hereunder, the
Originator hereby assigns and grants to Transferee, a security interest in all
of the Originator's right, title and interest now or hereafter existing in, to
and under all Receivables originated in Eligible Marketplaces, the Related
Security and all Collections with respect thereto which do not constitute
Transferred Receivables.
21
<PAGE>
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Collection Agent. The servicing,
-------------------------------
administration and collection of the Transferred Receivables shall be conducted
by such Person (the "Collection Agent") so designated hereunder from time to
----------------
time. Until the Transferee or its assignee gives notice to the Originator of the
designation of a new Collection Agent, the Originator is hereby designated as,
and hereby agrees to perform the duties and obligations of, the Collection Agent
pursuant to the terms hereof. The Originator agrees that such notice may be
given at any time in the Transferee's or assignee's discretion. Upon the
Originator's receipt of such notice, the Originator agrees that it will
terminate its activities as Collection Agent hereunder in a manner which the
Transferee (or its designee) believes will facilitate the transition of the
performance of such activities to the new Collection Agent, and the Originator
shall use its best efforts to assist the Transferee (or its designee) to take
over the servicing, administration and collection of the Transferred
Receivables, including, without limitation, providing access to and copies of
all computer tapes or disks and other documents or instruments that evidence or
relate to Transferred Receivables maintained in its capacity as Collection Agent
and access to all employees and officers of the Originator responsible with
respect thereto. The Transferee at any time after giving such notice may
designate as Collection Agent any Person (including itself) to succeed the
Originator or any successor Collection Agent, if such Person shall consent and
agree to the terms hereof. The Collection Agent may, with the prior consent of
the Transferee, subcontract with any other Person for the servicing,
administration or collection of Transferred Receivables. Any such subcontract
shall not affect the Collection Agent's liability for performance of its duties
and obligations pursuant to the terms hereof.
SECTION 6.02. Duties of Collection Agent. (a) The Collection Agent
--------------------------
shall take or cause to be taken all such actions as may be necessary or
advisable to collect each Transferred Receivable from time to time, all in
accordance with applicable laws, rules and regulations, with reasonable care and
diligence, and in accordance with the Credit and Collection Policy. The
Transferee hereby appoints the Collection Agent, from time to time designated
pursuant to Section 6.01, as agent to enforce its rights in the Transferred
Receivables, the Related Security and the Collections with respect thereto. In
performing its duties as Collection Agent, the Collection Agent shall exercise
the same care and apply the same policies as it would exercise and apply if it
owned the Transferred Receivables and shall act in the best interests of the
Transferee and its assignees.
(b) Prior to the 15th calendar day of each month, the Collection Agent
shall prepare and forward to the Transferee (i) an Originator Report, relating
to all then outstanding Transferred Receivables, and the Related Security and
Collections with respect thereto, in each case, as of the close of business of
the Collection Agent on the last day of the immediately preceding month, and
(ii) if requested by the Transferee, a listing by Obligor of all Transferred
22
<PAGE>
Receivables correlating Transferred Receivables and Transfers, together with an
aging report of such Transferred Receivables.
(c) If no Event of Termination or Incipient Event of Termination
shall have occurred and be continuing, the Originator, while it is the
Collection Agent, may, in accordance with the Credit and Collection Policy,
extend the maturity or adjust the Outstanding Balance of any Transferred
Receivable as the Originator deems appropriate to maximize Collections thereof.
(d) The Originator shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for the Originator and the Transferee in
accordance with their respective interests, all documents, instruments and
records (including, without limitation, computer tapes or disks) which evidence
or relate to Transferred Receivables.
(e) The Collection Agent shall as soon as practicable following
receipt turn over to the Originator any cash collections or other cash proceeds
received with respect to Receivables not constituting Transferred Receivables
less all reasonable and appropriate out-of-pocket costs and expenses of the
Collection Agent of servicing, collecting and administering the Receivables to
the extent not covered by the Collection Agent Fee received by it.
(f) The Collection Agent also shall perform the other obligations of
the "Collection Agent" set forth in this Agreement with respect to the
Transferred Receivables.
SECTION 6.03. Collection Agent Fee. The Transferee shall pay to the
--------------------
Collection Agent, so long as it is acting as the Collection Agent hereunder, a
periodic collection fee (the "Collection Agent Fee") of 1.50% per annum on the
--------------------
average daily outstanding Transferee's Interest with respect to the Transferred
Receivables, payable on the fifteenth calendar day of each month (or, if such
day is not a Business Day, the immediately succeeding Business Day) or such
other day during each calendar month as the Transferee and the Collection Agent
shall agree. The Collection Agent Fee shall be payable solely to the extent
Collections are available therefor in accordance with the priorities set forth
in the Receivables Transfer Agreement. So long as the Originator is acting as
the Collection Agent hereunder, amounts paid as the Collection Agent Fee
pursuant to this Section 6.03 shall reduce, on a dollar-for-dollar basis, the
obligation of the Transferee to pay the "Collection Agent Fee" pursuant to
--------------------
Section 1.04(c) of the Receivables Transfer Agreement, provided that such
obligation of the Transferee shall in no event be reduced below zero.
SECTION 6.04. Certain Rights of the Transferee. (a) The Transferee
--------------------------------
may, at any time, give notice of the transfer of Transferred Receivables and/or
direct the Obligors of Transferred Receivables and any Person obligated on any
Related Security, or any of them, that payment of all amounts payable under any
Transferred Receivable shall be made directly to the Transferee or its designee.
23
<PAGE>
(b) The Originator shall, at any time upon the Transferee's request
and at the Originator's expense, give notice of the transfer of Transferred
Receivables to each Obligor of Transferred Receivables and direct that payments
of all amounts payable under such Transferred Receivables be made directly to
the Transferee or its designee.
(c) At the Transferee's request and at the Originator's expense, the
Originator and the Collection Agent shall (i) assemble all of the documents,
instruments and other records (including, without limitation, computer tapes and
disks) that evidence or relate to the Transferred Receivables, and the related
Contracts and Related Security, or that are otherwise necessary or desirable to
collect the Transferred Receivables, and shall make the same available to the
Transferee at a place selected by the Transferee or its designee, and (ii)
segregate all cash, checks and other instruments received by it from time to
time constituting Collections of Transferred Receivables in a manner acceptable
to the Transferee and, promptly upon receipt, remit all such cash, checks and
instruments, duly indorsed or with duly executed instruments of transfer, to the
Transferee or its designee. The Transferee shall also have the right to make
copies of all such documents, instruments and other records at any time.
(d) The Originator authorizes the Transferee to take any and all steps
in the Originator's name and on behalf of the Originator that are necessary or
desirable, in the determination of the Transferee, to collect amounts due under
the Transferred Receivables.
SECTION 6.05. Rights and Remedies. (a) If the Originator or the
-------------------
Collection Agent fails to perform any of its obligations under this Agreement,
the Transferee may (but shall not be required to) itself perform, or cause
performance of, such obligation, and, if the Originator (as Collection Agent or
otherwise) fails to so perform, the costs and expenses of the Transferee
incurred in connection therewith shall be payable by the Originator as provided
in Section 8.01 or Section 9.04 as applicable.
(b) The Originator shall perform all of its obligations under the
Contracts related to the Transferred Receivables to the same extent as if the
Originator had not transferred Receivables hereunder and the exercise by the
Transferee of its rights hereunder shall not relieve the Originator from such
obligations or its obligations with respect to the Transferred Receivables. The
Transferee shall not have any obligation or liability with respect to any
Transferred Receivables or related Contracts, nor shall the Transferee be
obligated to perform any of the obligations of the Originator thereunder.
(c) The Originator shall cooperate with the Collection Agent in
collecting amounts due from Obligors in respect of the Transferred Receivables.
SECTION 6.06. Transfer of Records to Transferee . Each Transfer of
---------------------------------
Receivables hereunder shall include the transfer to the Transferee of all of the
Originator's right and title to and interest in the records relating to such
Receivables and shall include an irrevocable non-exclusive license to the use of
the Originator's computer software system to access and create
24
<PAGE>
such records. Such license shall be without royalty or payment of any kind, is
coupled with an interest, and shall be irrevocable until all of the Transferred
Receivables are either collected in full or become Chargeback Receivables.
The Originator shall take such action requested by the Transferee, from
time to time hereafter, that may be necessary or appropriate to ensure that the
Transferee has an enforceable interest in the records relating to the
Transferred Receivables and rights to the use of the Originator's computer
software system to access and create such records.
In recognition of the Originator's need to have access to the records
transferred to the Transferee hereunder, the Transferee hereby grants to the
Originator an irrevocable license to access such records in connection with any
activity arising in the ordinary course of the Originator's business or in
performance of its duties as Collection Agent, provided that (i) the Originator
shall not disrupt or otherwise interfere with the Transferee's use of and access
to such records during such license period and (ii) the Originator consents to
the assignment and delivery of the records (including any information contained
therein relating to the Originator or its operations) to any assignees or
transferees of the Transferee provided they agree to hold such records
confidential.
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination . If any of the following events
---------------------
("Events of Termination") shall occur and be continuing:
---------------------
(a) The Collection Agent (if the Originator or any of its Affiliates)
(i) shall fail to perform or observe any term, covenant or agreement under this
Agreement (other than as referred to in clause (ii) of this subsection (a)) and
such failure shall remain unremedied for three Business Days after the receipt
of notice or actual knowledge thereof or (ii) shall fail to make when due any
payment or deposit to be made by it under this Agreement; or
(b) The Originator shall fail (i) to transfer to the Transferee when
requested any rights, pursuant to this Agreement, which the Originator then has
as Collection Agent, or (ii) to make any payment required under Section 2.04(a)
or 2.04(b); or
(c) Any representation or warranty made or deemed made by the
Originator (or any of its officers) under or in connection with this Agreement
or any information or report delivered by the Originator pursuant to this
Agreement shall prove to have been incorrect or untrue in any material respect
when made or deemed made or delivered; or
(d) The Originator shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement on its part to be performed or
observed and any such
25
<PAGE>
failure shall remain unremedied for 10 days after written notice thereof shall
have been given to the Originator by the Transferee; or
(e) The Originator or any of its subsidiaries shall fail to pay any
principal of or premium or interest on any of its Debt which is outstanding in a
principal amount of at least $10,000,000 in the aggregate when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), redeemed, purchased or defeased, or an
offer to repay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof; or
(f) [Reserved]
(g) The Originator or any of its subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Originator or
any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 30 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or the Originator or
any of its subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (g); or
(h) A Trigger Event shall have occurred under the Receivables Transfer
Agreement; or
(i) There shall have occurred any material adverse change in the
financial condition or operations of the Originator since June 30, 1998; or
there shall have occurred any event which may materially adversely affect the
collectibility of the Transferred Receivables or the ability of the Originator
to collect Transferred Receivables or otherwise perform its obligations under
this Agreement;
26
<PAGE>
then, and in any such event, the Transferee may (with the consent of the Agent),
by notice to the Originator, take either or both of the following actions: (x)
declare the Facility Termination Date to have occurred (in which case the
Facility Termination Date shall be deemed to have occurred) and (y) without
limiting any right under this Agreement to replace the Collection Agent,
designate another Person to succeed the Originator as Collection Agent;
provided, that, automatically upon the occurrence of any event (without any
- --------
requirement for the passage of time or the giving of notice) described in
paragraph (g) of this Section 7.01, the Facility Termination Date shall occur,
the Originator (if it is then serving as the Collection Agent) shall cease to be
the Collection Agent, and the Transferee (or its assigns or designees) shall
become the Collection Agent. Upon any such declaration or designation or upon
such automatic termination, the Transferee shall have, in addition to the rights
and remedies under this Agreement, all other rights and remedies with respect to
the Receivables provided after default under the UCC and under other applicable
law, which rights and remedies shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities by the Originator. Without limiting any
-----------------------------
other rights which the Transferee may have hereunder or under applicable law,
the Originator hereby agrees to indemnify the Transferee and its assigns and
transferees (each, an "Indemnified Party") from and against any and all damages,
-----------------
claims, losses, liabilities and related costs and expenses, including reasonable
attorneys' fees and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts"), awarded against or incurred by any
-------------------
Indemnified Party in connection with the transactions contemplated by this
Agreement. It is expressly agreed and understood by the parties hereto (i) that
the foregoing indemnification is not intended to, and shall not, constitute a
guarantee of the collectibility or payment of the Transferred Receivables and
(ii) that nothing in this Section 8.01 shall require the Originator to indemnify
any Person (a) for Receivables which are not collected, not paid or
uncollectible on account of the insolvency, bankruptcy, or financial inability
to pay of the applicable Obligor, (b) for damages, losses, claims or liabilities
or related costs or expenses resulting from such Person's gross negligence or
willful misconduct, or (c) for any income taxes or franchise taxes incurred by
such Person arising out of or as a result of this Agreement or in respect of any
Transferred Receivable or any Contract.
27
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement or consent to any departure by the Originator therefrom shall
be effective unless in a writing signed by the Transferee and consented to by
the Agent (as defined in the Receivables Transfer Agreement) and, in the case of
any amendment, also signed by the Originator, and then such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such material amendment
-------- -------
shall be effective until both Moody's and S&P have notified the Agent in writing
that such action will not result in a reduction or withdrawal of the rating of
any of the Issuer's commercial paper notes. No failure on the part of the
Transferee to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right.
SECTION 9.02. Notices, Etc. All notices and other communications
------------
hereunder shall, unless otherwise stated herein, be in writing (which shall
include facsimile communication) and be faxed or delivered, to each party
hereto, at its address set forth under its name on the signature pages hereof or
at such other address as shall be designated by such party in a written notice
to the other parties hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by regular mail),
and notices and communications sent by other means shall be effective when
received.
SECTION 9.03. Binding Effect: Assignability . (a) This Agreement shall
-----------------------------
be binding upon and inure to the benefit of the Originator, the Transferee and
their respective successors and assigns; provided, however, that the Originator
-------- -------
may not assign its rights or obligations hereunder or any interest herein
without the prior written consent of the Transferee. In connection with any
assignment by the Transferee of all or a portion of the Transferred Receivables,
the assignee shall, to the extent of its assignment, have all rights of the
Transferee under this Agreement (as if such buyer or assignee, as the case may
be, were the Transferee hereunder) except to the extent specifically provided in
the agreement between the Transferee and such assignee.
(b) This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until such time, after the Facility Termination Date,
when all of the Transferred Receivables are either collected in full or become
Chargeback Receivables; provided, however, that rights and remedies with respect
-------- -------
to any breach of any representation and warranty made by the Originator pursuant
to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and
9.06 shall be continuing and shall survive any termination of this Agreement.
28
<PAGE>
SECTION 9.04. Costs, Expenses and Taxes . (a) In addition to the rights
-------------------------
of indemnification granted to the Transferee pursuant to Article VIII hereof,
the Originator agrees to pay on demand all costs and expenses in connection with
the preparation, execution and delivery of this Agreement and the other
documents and agreements to be delivered hereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Transferee (including the reasonable allocable fees of the Transferee's in-house
counsel) with respect thereto and with respect to advising the Transferee as to
its rights and remedies under this Agreement, and the Originator agrees to pay
all costs and expenses, if any (including reasonable counsel fees and expenses),
in connection with the enforcement of this Agreement and the other documents to
be delivered hereunder excluding, however, any costs of enforcement or
--------- -------
collection of Transferred Receivables.
(b) In addition, the Originator agrees to pay any and all stamp and
other taxes and fees payable in connection with the execution, delivery, filing
and recording of this Agreement or the other documents or agreements to be
delivered hereunder, and the Originator agrees to save each Indemnified Party
harmless from and against any liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
SECTION 9.05. No Proceedings . The Originator hereby agrees that it
--------------
will not institute against the Transferee any proceeding of the type referred to
in Section 7.01(g) so long as there shall not have elapsed one year plus one day
since the later of (i) the Facility Termination Date and (ii) the date on which
all of the Transferred Receivables are either collected in full or become
Chargeback Receivables.
SECTION 9.06. Confidentiality . Unless otherwise required by applicable
---------------
law, each party hereto agrees to maintain the confidentiality of this Agreement
in communications with third parties and otherwise; provided that this Agreement
may be disclosed to (i) third parties to the extent such disclosure is made
pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the other party hereto, and (ii) such party's legal
counsel and auditors and the Transferee's assignees, if they agree in each case
to hold it confidential.
SECTION 9.07. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF PENNSYLVANIA (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT
THAT THE PERFECTION OF THE TRANSFEREE'S INTEREST IN THE RECEIVABLES OR REMEDIES
HEREUNDER IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF PENNSYLVANIA.
SECTION 9.08. Third Party Beneficiary . Each of the parties hereto
-----------------------
hereby acknowledges that the Transferee may assign all or any portion of its
rights under this Agreement and that such assignees may (except as otherwise
agreed to by such assignees) further assign their rights under this Agreement,
and the Originator hereby consents to any such
29
<PAGE>
assignments. All such assignees, including parties to the Receivables Transfer
Agreement in the case of assignment to such parties, shall be third party
beneficiaries of, and shall be entitled to enforce the Transferee's rights and
remedies under, this Agreement to the same extent as if they were parties
thereto, except to the extent specifically limited under the terms of their
assignment.
SECTION 9.09. Tax Treatment. It is the intention of the Originator and
-------------
the Transferee that for federal, state and local income and franchise tax
purposes, the Transferee's Interest will be treated as evidence of indebtedness
of the Originator secured by the Receivables, the Related Security and
Collections and other proceeds thereof. The Originator and the Transferee, by
entering into this Agreement, intend to treat the Transferee's Interest as
indebtedness. The provisions of this Agreement and all related Transaction
Documents shall be construed to further such intentions of the parties hereto.
SECTION 9.10. Execution in Counterparts . This Agreement may be
-------------------------
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement.
30
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
ORIGINATOR: IOS CAPITAL, INC.
By: /s/ Jack Quinn
----------------------------
Name: Jack Quinn
Title:
for purposes of notices, with a copy to:
Ikon Office Solutions, Inc.
70 Valley Stream Pkwy.
Malvern, PA 19355
Attn: Jack Quinn
Facsimile No.: (610) 408-7022
1
<PAGE>
TRANSFEREE: IKON FUNDING-1, LLC
By: IKON FUNDING, INC.
By: /s/ Robert K. McLain
--------------------------
Name: Robert K. McLain
Title: President
2
<PAGE>
EXHIBIT A
---------
CREDIT AND COLLECTION POLICY
1
<PAGE>
EXHIBIT B
---------
LIST OF MARKETPLACES
1
<PAGE>
EXHIBIT C
---------
The principal place of business and chief executive offices of the
Transferor are located at:
IKON FUNDING-1, LLC
501 Silverside Road, Suite 28
Wilmington, Delaware 19809
The original records concerning the Receivables (and all original
documents related thereto) are located at the offices of the Collection Agent
at:
IOS CAPITAL, INC.
1738 Bass Road
Macon, Georgia 31210
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
ARTICLE 1 DEFINITIONS
<S> <C>
Section 1.01 Definitions........................................... 2
Section 1.02 Headings.............................................. 18
Section 1.03 Number................................................ 18
Section 1.04 Accounting Principles................................. 18
Section 1.05 Business Days......................................... 18
Section 1.06 Severability.......................................... 18
Section 1.07 Currency.............................................. 19
Section 1.08 Exhibits.............................................. 19
ARTICLE 2 TERMS OF CONCURRENT LEASE
Section 2.01 Concurrent Lease...................................... 19
Section 2.02 Rent for Concurrent Lease............................. 21
Section 2.03 Settlement Procedures................................. 22
Section 2.04 Deferred Rental Account............................... 25
Section 2.05 Concurrent Lessee's Capital........................... 26
Section 2.06 Clean-Up Provision.................................... 26
Section 2.07 Deemed Collections.................................... 27
Section 2.08 Payments and Computations, Etc........................ 28
Section 2.09 Allocation of Collections............................. 29
Section 2.10 Reporting............................................. 29
Section 2.11 Fees.................................................. 30
Section 2.12 Further Action to Protect Designated Eligible Leases.. 30
Section 2.13 Ineligible Leases..................................... 31
Section 2.14 Sales Taxes........................................... 32
Section 2.15 Termination of the Concurrent Lease................... 33
Section 2.16 Permitted Investments................................. 33
ARTICLE 3 CONDITIONS OF LEASE
Section 3.01 Conditions Precedent to Concurrent Lease under Initial
Equipment Schedule.................................... 33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3.02 Conditions Precedent to Concurrent Lease under Supplemental
Equipment Schedules........................................................... 36
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties of the Lessor.................................. 37
Section 4.02 Representations and Warranties of the Performance Guarantor and IKON Capital.. 41
Section 4.03 Representations and Warranties of the Concurrent Lessee....................... 43
ARTICLE 5 COVENANTS OF THE
LESSOR, PERFORMANCE GUARANTOR AND IKON CAPITAL
Section 5.01 Affirmative Covenants of the Lessor........................................... 43
Section 5.02 Negative Covenants of the Lessor.............................................. 48
Section 5.03 Covenants of the Performance Guarantor
and IKON Capital.............................................................. 48
ARTICLE 6 ADMINISTRATION AND COLLECTION
Section 6.01 Designation of Collector...................................................... 51
Section 6.02 Duties of Collector........................................................... 52
Section 6.03 Collector Fee................................................................. 53
Section 6.04 Responsibilities of the Lessor................................................ 53
ARTICLE 7 SIGNIFICANT EVENTS
Section 7.01 Meaning of Significant Event.................................................. 53
Section 7.02 Action Upon a Significant Event............................................... 55
Section 7.03 Waiver........................................................................ 56
ARTICLE 8THE ADMINISTRATIVE AGENT AND MATTERS RELATING TO LIABILITY
Section 8.01 Authorization and Action...................................................... 56
Section 8.02 Liability of Concurrent Lessee and Administrative Agent....................... 57
Section 8.03 Limitation of Liability....................................................... 57
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 9 INDEMNIFICATION
Section 9.01 Indemnities by the Lessor................................. 57
Section 9.02 Cooperation in Litigation and Proceedings................. 60
ARTICLE 10 MISCELLANEOUS
Section 10.01 Amendments, Etc........................................... 60
Section 10.02 Notices, Etc.............................................. 61
Section 10.03 No Waiver, Remedies....................................... 61
Section 10.04 Binding Effect; Assignability; Severability............... 61
Section 10.05 Costs, Expenses and Taxes................................. 62
Section 10.06 No Petition............................................... 62
Section 10.07 Set Off................................................... 62
Section 10.08 Confidentiality........................................... 63
Section 10.09 Change in Circumstance.................................... 63
Section 10.10 Governing Law............................................. 64
Section 10.11 Further Assurances........................................ 64
Section 10.12 Execution in Counterparts................................. 65
</TABLE>
<PAGE>
EXHIBIT 10.11
DRAFT: April 29, 1998
---------------------
MASTER CONCURRENT LEASE AGREEMENT
DATED AS OF APRIL 29, 1998
BETWEEN
IKON OFFICE SOLUTIONS, INC.
AS LESSOR AND A COLLECTOR
- AND -
IKON CAPITAL, INC.
AS A SUB-COLLECTOR
- AND -
PRIME TRUST
AS CONCURRENT LESSEE
- AND -
IKON OFFICE SOLUTIONS, INC. (U.S.)
AS PERFORMANCE GUARANTOR
- AND -
TD SECURITIES INC.
AS ADMINISTRATIVE AGENT
MCCARTHY TETRAULT
<PAGE>
This MASTER CONCURRENT LEASE AGREEMENT dated as of the 29th day of
April, 1998.
B E T W E E N:
IKON OFFICE SOLUTIONS, INC., a corporation incorporated under the laws
of the Province of Ontario
(hereinafter referred to as the "Lessor")
OF THE FIRST PART
- and -
IKON CAPITAL, INC., a corporation incorporated under the laws of
Canada
(hereinafter referred to as "IKON Capital")
OF THE SECOND PART
- and -
PRIME TRUST, a trust established under the laws of the Province of
Ontario
(hereinafter referred to as the "Concurrent Lessee")
OF THE THIRD PART
- and -
IKON OFFICE SOLUTIONS, INC., a corporation incorporated under the laws
of the State of Ohio
(hereinafter referred to as "IKON U.S." or "Performance Guarantor")
OF THE FOURTH PART
- and -
<PAGE>
-2-
TD SECURITIES INC., a corporation incorporated under the laws of
Province of Ontario
(hereinafter referred to as the "Administrative Agent")
OF THE FIFTH PART.
WHEREAS the Lessor now owns Equipment subject to certain leases which
qualify as Eligible Leases and may hereafter own Equipment which is subject to
leases which will qualify as Eligible Leases;
AND WHEREAS the Lessor intends to concurrently lease from time to time
such Equipment to the Concurrent Lessee;
AND WHEREAS the Concurrent Lessee desires to concurrently lease from
time to time such Equipment from the Lessor;
AND WHEREAS the Lessor has been requested and is willing to act as
collector hereunder;
AND WHEREAS IKON Capital has been requested and is willing to act as a
sub-collector hereunder;
AND WHEREAS IKON U.S. has been requested and is willing to act as a
performance guarantor as contemplated hereunder;
AND WHEREAS TD Securities Inc. has been requested and is willing to
act as Administrative Agent hereunder;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
respective covenants and agreements of the parties herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS
-----------
In this Agreement, the following terms shall have the following
meanings:
<PAGE>
-3-
"ADDITIONAL LEASE TERMINATION DATE" means the date of occurrence of the
earliest to occur of any of the following events:
(i) a Lock-Up Event;
(ii) the Termination Date;
(iii) the debt rating of the senior short term notes of the
Concurrent Lessee by DBRS falls below R-1(middle);
(iv) an "Event of Default" as defined under the Liquidity
Agreement;
(v) an "Event of Default" as defined under the Credit Enhancement
Agreement; or
(vi) an "Event of Default" as defined under the Trust Indenture.
"ADVERSE CLAIM" means a lien (other than a statutory lien or deemed trust
securing, or in respect of obligations which are not yet due and payable),
security interest, charge, encumbrance, hypothec, ownership interest, right
of set-off or other right or claim of any Person (other than the Concurrent
Lessee or Persons claiming through the Concurrent Lessee) where such right
or claim ranks ahead of or pari passu with the interests of the Concurrent
Lessee created hereunder.
"AFFILIATE" means, when used with respect to a Person, an affiliate of such
Person for purposes of the Business Corporations Act (Ontario).
"AFFILIATED LESSEE" means any Lessee which is an Affiliate of another
Lessee.
"AGGREGATE FINANCE BALANCE" means, at any time, the amount that is the
aggregate of the Finance Balance for all Designated Eligible Leases in the
Lease Portfolio, as at such time.
"ATLANTIC MARKETPLACE" means the geographical area encompassing the
provinces of Nova Scotia, New Brunswick, Prince Edward Island and
Newfoundland.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or public
holiday, on which banks are open for business in Toronto, Ontario, Calgary
and Edmonton, Alberta and Malvern, Pennsylvania.
"COLLECTIONS" means, with respect to any Designated Eligible Lease, all
cash collections and other cash proceeds of such Designated Eligible Lease
received (save and except insurance premiums or Sales Taxes), all cash
proceeds of Lease Rights
<PAGE>
-4-
relating to such Designated Eligible Lease and any Collections under such
Designated Eligible Lease deemed to have been received pursuant to Sections
2.07(a), (b) and (c) and 2.13 including the Concurrent Lessee's pro-rata
share of the Net Proceeds (determined in accordance with Section 2.08(d))
arising as a result of the disposition of Equipment which has been
repossessed from a Lessee who has defaulted under a Designated Eligible
Lease, but not any other Net Proceeds. For greater certainty "Collections"
shall, with respect to any Designated Eligible Lease, only include the
amounts referred to above which are received during the time such
Designated Eligible Lease is a Designated Eligible Lease.
"COLLECTOR" means, at any time, the Lessor or such other person or persons
then authorized pursuant to Section 6.01 to service and administer the
Designated Eligible Leases and to collect rents and other amounts owing
thereunder.
"COLLECTOR FEE" has the meaning assigned to that term in Section 6.03.
"CONCENTRATION LIMIT" means for any Lessee, together with all its
Affiliated Lessees:
(i) whose non-convertible unsecured debt is rated AAA by DBRS or
is rated with an equivalent rating from an equivalent rating
agency acceptable to the Concurrent Lessee, the greater of
100% of the aggregate of the Required Reserve and the
External Credit Enhancement and 200% of the Required Reserve;
(ii) whose non-convertible unsecured debt is rated AA or better
but less than AAA by DBRS or is rated with an equivalent
rating from an equivalent rating agency acceptable to the
Concurrent Lessee, the greater of 50% of the aggregate of the
Required Reserve and the External Credit Enhancement and 100%
of the Required Reserve;
(iii) whose non-convertible unsecured debt is rated A or better but
less than AA by DBRS or is rated with an equivalent rating
from an equivalent rating agency acceptable to the Concurrent
Lessee, the greater of 33.3% of the aggregate of the Required
Reserve and the External Credit Enhancement and 50% of the
Required Reserve;
(iv) whose non-convertible unsecured debt is rated BBB or better
but less than A by DBRS or is rated with an equivalent rating
from an equivalent rating agency acceptable to the Concurrent
Lessee, the greater of 25% of the aggregate of the Required
Reserve and the External Credit Enhancement and 33.3% of the
Required Reserve; and
<PAGE>
-5-
(v) whose non-convertible unsecured debt is rated BB or better
but less than BBB by DBRS or is rated with an equivalent
rating from an equivalent rating agency acceptable to the
Concurrent Lessee or whose debt does not carry a rating, the
greater of 16.7% of the aggregate of the Required Reserve and
the External Credit Enhancement and 33.3% of the Required
Reserve.
"CONCURRENT LESSEE" means Prime Trust.
"CONCURRENT LESSEE'S ACCOUNT" means the account maintained by the
Concurrent Lessee at The Toronto-Dominion Bank, Toronto Dominion Centre
branch, Toronto Ontario, (account no. 1068-0360503), or such other account
which is designated by the Concurrent Lessee in writing by notice to the
Collector as the Concurrent Lessee's Account for the purposes hereof.
"CONCURRENT LESSEE'S FUNDING COST" means, in respect of a Settlement
Period, the amount equal to (i) the product of the Discount Rate for the
period from but not including the last day of the previous Settlement
Period (or, in respect of the initial Settlement Period, from and including
the Initial Prepayment Date) to and including the last day of such
Settlement Period multiplied by the number of days in such period, (ii)
divided by 365 or 366, as the case may be, and (iii) multiplied by the
daily weighted average of the Program Amount during such Settlement Period.
"CONCURRENT LESSEE'S INDEBTEDNESS" means any obligation or liability
incurred by the Concurrent Lessee in connection with the funding of its
obligations hereunder.
"CREDIT AND COLLECTION POLICY" means the Lessor's credit, collection and
administration policies and procedures relating to Leases, Designated Lease
Receivables, Lease Rights and Equipment, as represented to and approved by
the Concurrent Lessee, as such administrative policies and procedures may
be amended in compliance with Section 5.02(ii). A copy of such
administrative policies and procedures is attached as Exhibit A.
"CREDIT ENHANCEMENT AGREEMENT" means the agreement to be entered into by
the Concurrent Lessee providing for a credit enhancement facility or
facilities in respect of the Designated Eligible Leases, as the same may be
amended, modified, restated or replaced from time to time.
"CUT-OFF DATE" has the meaning assigned to that term in Section 2.01(a).
"DBRS" means Dominion Bond Rating Service Limited or its successors.
"DEFAULTED LEASE" means a Lease in respect of which the following has
occurred:
<PAGE>
-6-
(i) any payment, or part thereof, whether on account of rent or
otherwise, remains unpaid for 121 days or more from the due
date for such payment,
(ii) the Lessee thereof has taken any action, or suffered any
event to occur, of the type described in Section 7.01(iv), or
(iii) has been, or which, in accordance with the Credit and
Collection Policy, should be, written off as uncollectible.
"DEFERRED RENT" means, in respect of a Lease Tranche with respect to any
Settlement Period, the further amounts payable to the Lessor as rent, in
respect of the Designated Eligible Leases included in such Lease Tranche in
an aggregate amount equal to the sum of:
(i) the positive difference, if any, between,
(a) the aggregate Finance Balance of the Designated Eligible
Leases included in such Lease Tranche as at the Relevant
Cut-off Date plus any portion of the Unearned Finance
attributed to such Designated Eligible Leases which was
earned prior to the Relevant Cut-off Date but not yet
received, and
(b) the Prepaid Rent in respect of such Lease Tranche,
and
(ii) the amount, if any, by which the aggregate amount of Unearned
Finance receivable by the Concurrent Lessee accruing in such
Settlement Period in respect of the Designated Eligible
Leases included in such Lease Tranche other than any portion
of such Unearned Finance included in the calculation in
(i)(a) above exceeds the Concurrent Lessee's Funding Cost
applicable to such Lease Tranche for such Settlement Period,
as increased, reduced, refunded or paid from time to time in accordance
with the terms hereof. For greater certainty, no Deferred Rent shall be
payable in respect of a Lease Tranche where the Concurrent Lessee has not
exercised its option to make a prepayment of periodic rent payable in
respect thereof pursuant to Section 2.02(b).
"DEFERRED RENTAL ACCOUNT" means the interest bearing account maintained by
the Concurrent Lessee in trust for the Lessor at The Toronto-Dominion Bank,
Toronto Dominion Centre branch, Toronto, Ontario (account no. 0435743-02)
or such other
<PAGE>
-7-
account which is designated by the Concurrent Lessee by notice in writing
to the Lessor as the Deferred Rental Account for the purposes hereof.
"DELINQUENCY RATIO" means, as at the last Business Day of each Settlement
Period, the average of the ratio (expressed as a percentage) for such
Settlement Period and each of the ratios for the three immediately
preceding Settlement Periods or if there are not three immediately
preceding Settlement Periods then, such number of immediately preceding
Settlement Periods as have occurred, calculated by dividing:
(i) the aggregate Finance Balance of all Designated Eligible
Leases in the Lease Portfolio that were Delinquent Leases as
at the last Business Day of the Settlement Period, by
(ii) the Aggregate Finance Balance as at the last Business Day of
the Settlement Period.
"DELINQUENT LEASE" means a Lease that is not a Defaulted Lease and in
respect of which any payment, or part thereof, whether on account of rent
or otherwise, remains unpaid for 61 days or more from the due date for such
payment.
"DESIGNATED ELIGIBLE LEASES" means all Eligible Leases which are, at any
time, set out on the Equipment Schedules delivered to and accepted by the
Concurrent Lessee from time to time pursuant hereto, in respect of which
the Equipment leased thereunder is concurrently leased to the Concurrent
Lessee pursuant to Section 2.01, provided that, any Eligible Lease set out
on such an Equipment Schedule shall be a Designated Eligible Lease as of
and from the day following the Cut-off Date in respect of the Initial
Equipment Schedule and as of and from the day following the relevant
Subsequent Cut-off Date in respect of a Supplemental Equipment Schedule
regardless of when such Equipment Schedule is accepted by the Concurrent
Lessee and, provided that, any Eligible Lease shall cease to be a
Designated Eligible Lease if:
(i) the Finance Balance of such Eligible Lease becomes zero; or
(ii) the concurrent lease of Equipment covered by such Designated
Eligible Lease is terminated pursuant to Sections 2.06, 2.07
(b) and (c) or 2.13.
"DESIGNATED LEASE RECEIVABLES" means all moneys payable with respect to any
Lease which is a Designated Eligible Lease (not including rentals, prepaid
rentals, security deposits or other amounts which have been paid to the
Lessor in respect of any period ending on or before such Lease became a
Designated Eligible Lease) including, without limitation, all rentals,
termination fees, mandatory purchase
<PAGE>
-8-
obligation amounts, purchase option amounts and guaranteed residual
amounts, if any, and other moneys payable by the Lessee under such Lease
(exclusive of costs, expenses, charges (except enforcement charges),
amounts payable by way of indemnity, Sales Taxes or other taxes payable
under such Lease) during the period such Lease is a Designated Eligible
Lease.
"DISCOUNT RATE" means for any Settlement Period the rate per annum
determined by the Concurrent Lessee in accordance with Section 2.05(b).
"ELIGIBLE LEASE" means a Lease which meets the following criteria:
(i) the Lessee thereunder is a Person who is resident in or
carrying on business in Canada;
(ii) the lease receivables in respect of the Lease are payable in
Canada only and are denominated in Canadian Dollars;
(iii) the Lessee thereunder is not the subject of any insolvency or
bankruptcy proceedings;
(iv) the Lessee thereunder is not the lessee under any Defaulted
Lease;
(v) the Lessee thereunder is not an Affiliate of the Lessor;
(vi) the Lease has been duly authorized, executed and delivered by
the parties thereto, which Lease together with all Lease
Rights relating thereto, (including, without limitation, any
guarantee, indemnity or agreement referred to in clause (vii)
of the definition of Lease Rights herein), is in full force
and effect and constitutes a legal, valid and binding
obligation of the Lessee thereof enforceable against such
Lessee in accordance with its terms subject to bankruptcy,
insolvency, reorganization, winding-up, moratorium and other
laws affecting the rights of creditors generally and by
general principles of equity;
(vii) the Lease is not subject to any dispute, set-off,
counterclaim or defence whatsoever by the Lessee against the
Lessor and the Lease and Equipment leased thereunder are free
of any Adverse Claim and the Lease has not been extended or
otherwise modified except in the ordinary course of business
and in accordance with the Credit and Collection Policy;
(viii) the Term of the Lease does not exceed 84 months;
<PAGE>
-9-
(ix) the provisions of the Lease do not contravene in any material
respect any laws, rules or regulations applicable thereto
(including, without limitation, laws, rules and regulations
relating to consumer protection, usury or interest rate
disclosure) and no party thereto is in violation of any such
law, rule or regulation in any material respect;
(x) the Lease is a lease and not a sale for purposes of the
Income Tax Act (Canada);
(xi) the Lease originated in the normal course of the Lessor's
business or was originated by a company with which the Lessor
amalgamated or which was wound up into the Lessor, is in
respect of Equipment, does not include a servicing component
and is in accordance with the Credit and Collection Policy
and in respect of which all registrations and filings have
been made in compliance with the Credit and Collection Policy
to perfect or preserve the Lessor's interest in the Equipment
which is subject to such Lease;
(xii) the Lease is not a Defaulted Lease;
(xiii) the Lease is not a Delinquent Lease;
(xiv) the Finance Balance of the Lease, when added to the aggregate
Finance Balance of all Leases within the Lease Portfolio with
the same Lessee and any of its Affiliated Lessees, does not
result in such Lessee exceeding its Concentration Limit;
(xv) rights under the Lease are permitted to be assigned in whole
or in part by the Lessor without notice to or the consent of
the Lessee;
(xvi) the Lease provides that the Lessee is required to insure the
Equipment which is the subject of such Lease;
(xvii) the Equipment leased thereunder has been delivered to and
accepted by the Lessee and is and will, at all times, be
located in Canada and under the terms of the Lease the Lessee
is required to maintain the Equipment in good operating
condition, reasonable wear and tear only excepted;
(xviii) the Lease was not originated out of any office of the Lessor
which is located in the Atlantic Marketplace;
<PAGE>
-10-
(xix) the Lessor has not been notified by the Concurrent Lessee
that the Lease has been excluded from the category of
Eligible Leases by the Concurrent Lessee; and
(xx) satisfies all further reasonable criteria which may be
specified by the Concurrent Lessee by notice in writing to
the Lessor.
"EQUIPMENT" means the office or business equipment, including all
attachments, replacement parts, accessories, intangibles, substitutions and
additions associated therewith, leased by the Lessor to Lessees pursuant to
Leases.
"EQUIPMENT SCHEDULE" means both the Initial Equipment Schedule and any
Supplemental Equipment Schedules delivered to and accepted by the
Concurrent Lessee pursuant hereto.
"EXTERNAL CREDIT ENHANCEMENT" means, at any time, an amount equal to 6% of
the Program Amount as at such time.
"FINAL COLLECTION DATE" means the earliest date on which (i) the Program
Amount has been reduced to zero in accordance with the terms hereof, (ii)
the Collector (if the Lessor is not the Collector) has received the accrued
Collector Fee and all other amounts payable to it hereunder, and (iii) all
amounts owing to the Administrative Agent and the Concurrent Lessee
hereunder and in respect of the Designated Eligible Leases and the Lease
Rights relating thereto have been paid in full.
"FINANCE BALANCE" means, with respect to a Lease, at any time, the amount
equal to the present value of all outstanding scheduled rental payments
discounted at the Lessor's Funding Rate.
"GENERAL ACCOUNT" means the account established in the name of the
Concurrent Lessee pursuant to Section 2.03(a).
"GROSS CONTRACT BALANCE" means, with respect to a Lease, at any time, the
aggregate amount of all regularly scheduled rental payments required to be
made during the Term of such Lease which remain outstanding at such time.
"GST" means the goods and services tax imposed under Part IX of the Excise
Tax Act (Canada), as amended.
"HEDGING AGREEMENT" means any interest rate exchange agreement, interest
rate cap, collar, floor or swap agreement, forward rate agreement or
similar agreement entered into between the Concurrent Lessee and a
counterparty in connection with a
<PAGE>
-11-
Lease Tranche and includes one or more of such agreements, as identified in
the related swap confirmation.
"HST" means the harmonized sales tax imposed under Part IX of the Excise
Tax Act (Canada).
"INDEMNIFICATION AGREEMENT" means the indemnification agreement entered
into by the Performance Guarantor and the Concurrent Lessee dated the date
hereof.
"INITIAL EQUIPMENT SCHEDULE" means the schedule, in the form attached
hereto as Exhibit B, that is delivered by the Lessor to the Concurrent
Lessee on or after the execution and delivery of this Agreement to effect
the concurrent lease of the first items of Equipment.
"INITIAL PREPAYMENT DATE" has the meaning assigned to that term in Section
2.02(b).
"LEASE" means a lease agreement, with or without an option to purchase,
with respect to Equipment that is owned by the Lessor under which at the
time such lease agreement was entered into the Lessor was the lessor and in
respect of which the Lessor continues to be the lessor or is a head lessor
or concurrent lessor, as such lease agreement may be amended, modified or
restated, and any replacement thereof, provided that the Equipment leased
thereunder and the Lessee thereunder are the same, but a "Lease" shall not
include this Agreement.
"LEASE PORTFOLIO" has the meaning assigned to that term in Section 2.01(a).
"LEASE PORTFOLIO AND COMPLIANCE REPORT" means a report substantially in the
form of Exhibit C.
"LEASE RIGHTS" means, in respect of any Equipment leased under a Lease, the
following:
(i) all rights and benefits accruing to the Lessor under the
Lease, including, without limitation, all right, title and
interest in and to the Designated Lease Receivables payable
in respect of the Equipment which is the subject of such
Lease;
(ii) all rights in or to payments (including, without limitation,
both proceeds and premium refunds) under any insurance
policies maintained by the Lessee pursuant to the terms of
such Lease, to the extent the same indemnify for loss or
damage to such Equipment;
<PAGE>
-12-
(iii) all rights in or to all payments made on account of any loss
of or damage to such Equipment whether under such Lease or
otherwise;
(iv) all claims, demands, actions, damages and indemnities owing
to the Lessor with respect to any patent and copyright
indemnity agreements or manufacturers' or sellers' warranties
relating to such Equipment, except to the extent that the
same indemnify against liability to others;
(v) the benefit of all covenants with respect to such Equipment
by the Lessee under such Lease, including all indemnities and
covenants with respect to maintenance and repair, use and
insurance obligations, except to the extent that the same
indemnify against liability to others;
(vi) the right of the Lessor to ask for, demand, sue for, collect,
receive and enforce any and all sums payable under such Lease
in respect of such Equipment and to enforce all other
covenants, obligations, rights and remedies thereunder with
respect thereto, except to the extent that such right relates
to indemnification against liability to others;
(vii) all of the right, title and interest of the Lessor in, to and
under all guarantees, indemnities (except to the extent that
the same indemnify against liability to others) and other
agreements or arrangements of whatsoever character (including
all security interests and all property subject thereto) from
time to time supporting or securing payment or performance of
the Lessee's obligations in respect of such Equipment subject
to such Lease, whether pursuant to such Lease or otherwise;
(viii) all Records pertaining to such Equipment under such Lease;
and
(ix) all proceeds of or relating to the foregoing.
"LEASE TRANCHE" has the meaning assigned to that term in Section 2.01(a).
"LESSEE" means a Person obligated under a Lease to pay the Designated Lease
Receivables in respect thereof including, where the context permits or
requires, any Person obligated to make such payments pursuant to any
guarantee, indemnity or agreement referred to in clause (vii) of the
definition of Lease Rights hereunder.
"LESSOR'S FUNDING RATE" means the amount (expressed as a percentage) which
is set out on the Lessor's lease info sheet for each Lease as the "System
Calculated Cost of Funds" or as the "Calculated Rate".
<PAGE>
-13-
"LIQUIDITY AGREEMENT" means the liquidity agreement, in respect of the
Lessor, to be entered into by the Concurrent Lessee, as the same may be
amended, modified, supplemented, restated or replaced from time to time.
"LOCK-UP EVENT" means any of the following events or circumstances:
(i) the occurrence of any Significant Event which has not been
waived by the Concurrent Lessee;
(ii) the average of the Loss Ratio for any particular Settlement
Period and each of the three immediately preceding Settlement
Periods, or if there are not three immediately preceding
Settlement Periods then, such number of immediately preceding
Settlement Periods as have occurred, is equal to or greater
than 4%;
(iii) the Delinquency Ratio is at any time equal to or greater than
12%; and
(iv) on any Settlement Date, after drawing from the Deferred
Rental Account, in accordance with Sections 2.03 and 2.04,
the amounts transferred to any other account of the
Concurrent Lessee pursuant to Sections 2.03(b) and 2.03(c)(v)
are less than the amounts required to be transferred in
accordance with such Sections.
"LOSS RATIO" means, as at the last Business Day of a Settlement Period, 12
times the ratio (expressed as a percentage), calculated by dividing,
(i) the Losses for such Settlement Period, by
(ii) the average of the Aggregate Finance Balance as at the last
Business Day of such Settlement Period and each of the eleven
immediately preceding Settlement Periods or, if there are not
eleven immediately preceding Settlement Periods then, such
number of immediately preceding Settlement Periods as have
occurred.
"LOSSES" means, with respect to a Settlement Period, the excess of (i) an
amount equal to the aggregate Finance Balance of all Designated Eligible
Leases that became Defaulted Leases in such Settlement Period, over (ii) an
amount equal to all Collections with respect to Defaulted Leases contained
in the Lease Portfolio which are received in such Settlement Period.
"MOODY'S" means Moody's Investors Service, Inc. or any successor thereof.
<PAGE>
-14-
"NET PROCEEDS" means the cash proceeds (other than amounts on account of
taxes) received by the Lessor from the disposition of Equipment or from
insurance proceeds in respect of Equipment, less all out-of-pocket costs
and expenses with respect to such disposition (including the refurbishing
of Equipment) or the collection of such insurance proceeds incurred by or
on behalf of the Lessor.
"NON-COMMINGLING EVENT" means any of the following events or circumstances:
(i) the Lessor is no longer the Collector;
(ii) IKON Capital or any other Subsidiary of the Performance
Guarantor is no longer the Sub-Collector unless the Lessor
has ceased to sub-contract its collection duties hereunder;
(iii) the Performance Guarantor fails to maintain a rating of at
least Baa3 or better from Moody's and at least BBB- or better
from S&P; or
(iv) the occurrence of a Significant Event which has not been
waived by the Concurrent Lessee and the Rating Agencies.
"PERMITTED INVESTMENTS" means
(i) negotiable instruments or securities in bearer or registered
form with a term to maturity of not more than 45 days, which
evidence:
(1) obligations of or guaranteed by the Government of Canada
as to both credit and timeliness;
(2) obligations of or guaranteed by a province or
municipality of Canada so long as they have the Required
Rating;
(3) deposits, bankers' acceptances or subordinated
debentures issued or accepted by any Canadian bank so
long as they have the Required Rating;
(4) commercial paper, secured bonds or senior unsecured
obligations of Canadian corporations or other Canadian
issuers so long as it has the Required Rating; or
(ii) demand deposits in any Canadian bank so long as they have the
Required Rating,
<PAGE>
-15-
provided that, the aggregate balance of all investments by
the Concurrent Lessee in securities of any one issuer, other
than securities referred to in (i)(1) above, will be limited
to 10% of the face amount of all Permitted Investments.
"PERSON" means an individual, partnership, corporation, charitable
organization, trust, unincorporated association, joint venture, Indian
band, government (or any agency or political subdivision thereof) or other
entity.
"PREPAID RENT" means an amount in respect of rent which is payable to the
Lessor by the Concurrent Lessee hereunder and which is prepaid on the
Initial Prepayment Date or a Subsequent Prepayment Date pursuant to Section
2.02(b).
"PRIME RATE" means a fluctuating annual interest rate which, on any day,
shall be equal to the rate of interest most recently established by The
Toronto-Dominion Bank at its head office in Toronto, Ontario as its
reference rate of interest for the purpose of determining interest rates it
will charge on that day for demand loans made in Canada in Canadian Dollars
to its Canadian commercial customers and which it refers to as its "Prime
Rate".
"PROGRAM AMOUNT" means an amount initially equal to the Prepaid Rent in
respect of the concurrent lease hereunder of Equipment listed in the
Initial Equipment Schedule, as such amount may be adjusted from time to
time as a consequence of the parties hereto entering into one or more
Supplemental Equipment Schedules, pursuant to the liquidation procedures
described herein or otherwise pursuant to the terms of this Agreement.
"PROGRAM FEE" has the meaning assigned to that term in Section 2.11(c).
"PST" means any retail sales tax imposed by any provincial taxing authority
(other than in the province of Quebec).
"QST" means the sales tax imposed under An Act Respecting Quebec Sales Tax,
as amended from time to time.
"RATING AGENCIES" means Dominion Bond Rating Service Limited and any other
rating organization which may be providing a rating in respect of the
senior short term notes of the Concurrent Lessee, and any successors
thereof.
"RECORDS" means all contracts, books, records, credit applications, credit
analysis and reports and other documents and information (including,
without limitation, to the extent obtainable by way of existing software
controlled by the Lessor, hard copies of all data maintained in databases
of the Lessor, tapes, disks and punch
<PAGE>
-16-
cards) maintained by the Lessor or the Collector with respect to the Leases
and the Equipment and Lessees relating thereto, including without
limitation, any agreement pursuant to which the Lessor acquired its right,
title and interest in and to the Leases for the Equipment under which it is
not the original lessor.
"RELEVANT CUT-OFF DATE" means (i) with respect to the Initial Equipment
Schedule, the Cut-off Date and (ii) with respect to any Supplemental
Equipment Schedule, the related Subsequent Cut-off Date.
"REQUIRED DEFERRED RENTAL ACCOUNT BALANCE" means, on a Settlement Date, the
greatest of:
(i) 2% of the Program Amount as at the last Business Day of the
most recently completed Settlement Period;
(ii) 1.5 times the Loss Ratio times the Program Amount as at the
last Business Day of the most recently completed Settlement
Period; and
(iii) $500,000,
except that where a Lock-Up Event has occurred, the Required Deferred
Rental Account Balance shall, at any time thereafter, be equal to the
Program Amount at such time.
"REQUIRED RATING" means, in respect of any Person, a rating of such
Person's short term indebtedness of R-1 (middle) or better from DBRS (or an
equivalent rating should such designation change) or such lower rating as
DBRS may permit for any particular purpose.
"REQUIRED RESERVE" means, at any time, an amount equal to the greater of
(i) the product of 9.85% multiplied by the Program Amount (the "Reserve"
for purposes of this definition), and (ii) 40% multiplied by the largest
Reserve to have occurred as at that time.
"RESIDUAL BALANCE" means, in respect of a Designated Eligible Lease, the
residual established by the Lessor in accordance with the Credit and
Collections Policy.
"S&P" means Standard & Poor's Rating Group, a division of The McGraw-Hill
Companies or any successor thereof.
"SALES TAXES" includes GST, HST, QST and PST.
"SETTLEMENT DATE" means, with respect to a Settlement Period, the last
Business Day of the month following such Settlement Period.
<PAGE>
-17-
"SETTLEMENT PERIOD" means initially, the period commencing on the day
following the Cut-off Date and ending on the last day of the month
following the month in which the Cut-off Date occurred and, thereafter,
each calendar month.
"SIGNIFICANT EVENT" has the meaning assigned to that term in Section 7.01.
"SUB-COLLECTOR" means, at any time, IKON Capital or such other person or
persons then authorized pursuant to Section 6.01 to be a sub-collector
hereunder.
"SUBSIDIARY" means, with respect to the Performance Guarantor, any
corporation of which the Performance Guarantor holds, directly or
indirectly, voting securities carrying more than 50% of the votes for the
election of directors (other than by way of security) and the votes carried
by such securities are sufficient, if exercised, to elect a majority of the
board of directors.
"SUBSEQUENT CUT-OFF DATE" has the meaning assigned to that term in Section
2.01(a).
"SUBSEQUENT PREPAYMENT DATE" has the meaning assigned to that term in
Section 2.02(b).
"SUPPLEMENTAL EQUIPMENT SCHEDULE" means each schedule, in substantially the
form attached hereto as Exhibit B, that is delivered by the Lessor to the
Concurrent Lessee from time to time pursuant to the terms hereof, following
delivery of the Initial Equipment Schedule, to effect the concurrent lease
of Equipment hereunder.
"TERM" means, in respect of a Lease, the period commencing on the
commencement date thereof and ending on the last day of the month in which
the last payment in respect of rental payments is due thereunder and, for
greater certainty, includes any extension of the period during which
payments are due in respect of rental payments.
"TERMINATION DATE" means April 29, 2003 or such other date agreed to in
writing by the parties hereto from time to time.
"TRUST INDENTURE" means an indenture of trust made as of December 3, 1997
between CIBC Mellon Trust Company and the Concurrent Lessee, as the same
may be amended, modified, supplemented, restated or replaced from time to
time.
"UNEARNED FINANCE" means with respect to a Lease, at any time, an amount
equal to the Gross Contract Balance of such Lease less the Finance Balance
of such Lease, each as at such time.
<PAGE>
-18-
SECTION 1.2 HEADINGS
--------
The division of this Agreement into Articles and Sections and the
insertion of an index and headings are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement. The
terms "this Agreement", "hereof", "hereunder" and similar expressions refer to
this Agreement and not to any particular Article, Section, Exhibit Schedule or
other portion hereof and include any agreement supplemental hereto. Unless
something in the subject matter or context is inconsistent therewith, reference
herein to Articles and Sections are to Articles and Sections of this Agreement.
SECTION 1.3 NUMBER
------
Words importing the singular number shall include the plural and vice
versa, words importing the masculine gender shall include the feminine and
neuter genders and vice versa and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa.
SECTION 1.4 ACCOUNTING PRINCIPLES
---------------------
Wherever in this Agreement reference is made to generally accepted
accounting principles, such reference shall be deemed to be to the generally
accepted accounting principles from time to time approved by the Canadian
Institute of Chartered Accountants, or any successor institute, applicable as at
the date on which such calculation is made or required to be made in accordance
with generally accepted accounting principles consistently applied by the Lessor
from year to year except for such changes as may be approved by the independent
auditors of the Lessor.
SECTION 1.5 BUSINESS DAYS
-------------
Whenever any payment to be made hereunder shall be stated to be due or
any action to be taken hereunder shall be stated to be required to be taken on a
day other than a Business Day, unless otherwise specifically provided for
herein, such payment shall be made or such action shall be taken on the next
succeeding Business Day and in the case of the payment of any monetary amount,
the extension of time shall be included for the purposes of computation of
interest.
<PAGE>
-19-
SECTION 1.6 SEVERABILITY
------------
In the event that one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality or enforceability of the remaining
provisions hereof shall not be affected or impaired thereby. Each of the
provisions of this Agreement is hereby declared to be separate and distinct.
SECTION 1.7 CURRENCY
--------
All amounts expressed herein in terms of money refer to lawful
currency of Canada and all payments to be made hereunder shall be made in such
currency.
SECTION 1.8 EXHIBITS
--------
Following are the Exhibits annexed hereto and incorporated by
reference and deemed to be part hereof:
Exhibit A Credit and Collection Policy
Exhibit B Form of Equipment Schedule
Exhibit C Lease Portfolio and Compliance Report
Exhibit D Forms of Opinions
Exhibit E Chief Executive and Branch Offices of Lessor
<PAGE>
-20-
ARTICLE 2
TERMS OF CONCURRENT LEASE
SECTION 2.1 CONCURRENT LEASE
----------------
(a) From time to time and upon the terms and subject to the conditions
contained in this Agreement, the Lessor may lease to the Concurrent Lessee and
the Concurrent Lessee may lease from the Lessor the Equipment which is the
subject of the Designated Eligible Leases listed on the Initial Equipment
Schedule and on each Supplemental Equipment Schedule (the Designated Eligible
Leases set out on the Initial Equipment Schedule and on each Supplemental
Equipment Schedule each being referred to herein as a "Lease Tranche" and
collectively as the "Lease Portfolio") which Equipment Schedules shall be
delivered by the Lessor to the Concurrent Lessee within 5 Business Days after
the date (the "Cut-off Date" in respect of the Initial Equipment Schedule and a
"Subsequent Cut-off Date" in respect of each Supplemental Equipment Schedule) on
which the information contained in the relevant Equipment Schedule is based.
The concurrent lease of Equipment pursuant hereto shall grant to the Concurrent
Lessee the right to use and possess such Equipment for the term of the
concurrent lease thereof subject to the Designated Eligible Lease relating to
such Equipment. It is hereby expressly acknowledged and agreed that the interest
of the Concurrent Lessee under the concurrent lease granted pursuant hereto in
and to the Equipment subject to Designated Eligible Leases is that of lessee
only and that title to such Equipment shall remain vested in the Lessor.
(b) Within five Business Days of receipt of an Equipment Schedule
delivered in accordance with Section 2.01(a), the Concurrent Lessee may execute
and deliver to the Lessor the Equipment Schedule received by it (with such
amendments as it in its discretion may require) which, upon such execution and
delivery, shall evidence the binding agreement between the Concurrent Lessee,
the Lessor, the Collector, the Sub-Collector and the Performance Guarantor with
respect to the concurrent lease hereunder of the Equipment set forth in such
Equipment Schedule. Failing such execution and delivery, the Equipment Schedule
shall be deemed to be refused by the Concurrent Lessee.
(c) The concurrent lease provided for in Section 2.01(a) shall:
(i) with respect to each item of Equipment included in the Initial
Equipment Schedule, commence on the day following the Cut-off
Date, and
(ii) with respect to each item of Equipment included in each
Supplemental Equipment Schedule, commence on the day following
the Subsequent Cut-off Date,
<PAGE>
-21-
and shall, with respect to each item of Equipment, terminate at 11:59 p.m. on
the day following the last day of the Term of the Designated Eligible Lease
relating to such Equipment unless otherwise terminated hereunder. On the day
following the Cut-off Date and on the day following each Subsequent Cut-off Date
beneficial ownership of all Lease Rights in respect of the Designated Eligible
Leases described in the Initial Equipment Schedule and in the related
Supplemental Equipment Schedule, respectively, shall automatically become vested
in the Concurrent Lessee and the Concurrent Lessee shall have the right to use
and possess the Equipment subject to the Designated Eligible Leases set out on
the relevant Equipment Schedule for the term of and pursuant to the concurrent
lease provided for in Section 2.01(a) without further action on the part of the
Lessor.
(d) The Lessor agrees that, until the Final Collection Date, it will hold
in trust for the benefit of the Concurrent Lessee the Lease Rights relating to
the Designated Eligible Leases, and the parties hereby confirm that beneficial
ownership of the Lease Rights relating to the Designated Eligible Leases shall
be vested in the Concurrent Lessee for the term of the concurrent lease of the
Equipment subject to the Designated Eligible Leases, such term to be determined
in accordance with Section 2.01(c), to be dealt with by the Concurrent Lessee in
accordance with the terms of this Agreement and each Designated Eligible Lease.
The Lessor hereby irrevocably appoints and constitutes any officer of the
Administrative Agent its true and lawful attorney, with full power of
substitution, after the Termination Date, to execute and deliver in the name of
the Lessor all such deeds, documents and other instruments that the
Administrative Agent considers necessary or expedient in the course of the
exercise or performance by the Concurrent Lessee of any of the Lease Rights
relating to Designated Eligible Leases.
(e) If at any time the Concurrent Lessee, the Administrative Agent or the
Lessor determines that as at the Cut-off Date in respect of the Initial
Equipment Schedule or as at the relevant Subsequent Cut-off Date with respect to
any Supplemental Equipment Schedule the aggregate Finance Balance of the
Designated Eligible Leases listed on the applicable Equipment Schedule was less
than the amount of the aggregate Finance Balance set out in such Equipment
Schedule (such difference being the "Deficiency"), the Lessor shall on the
second Business Day following the date of such determination pay to the
Concurrent Lessee, as a refund of a portion of the Prepaid Rent, an amount
equal to 1/1.0985 of the Deficiency, or, as a refund of any periodic rent paid
pursuant to Section 2.02(a), an amount equal to the amount of applicable
periodic rent paid in respect of the Deficiency (in either case, such amount
shall result in a corresponding deduction in the Program Amount). To the extent
that the aggregate Finance Balance of such Designated Eligible Leases was
greater than the aggregate Finance Balance set out in the applicable Equipment
Schedule (such difference being the "Excess"), the Concurrent Lessee shall have
the option of (i) on the first Settlement Date following the date of such
determination paying to the Lessor an amount equal to 1/1.0985 of the Excess on
account of Prepaid Rent for such Designated Eligible Leases, or, of paying the
applicable periodic rent payable in respect of the Excess or (ii) immediately
terminating the concurrent lease of sufficient items of Equipment which
<PAGE>
-22-
are subject to such Designated Eligible Leases so as to eliminate the need for a
payment in respect of all or a substantial portion of the Excess (any Excess not
completely eliminated would be dealt with in accordance with (i) above). For
greater certainty, upon termination of the concurrent lease of Equipment
pursuant to this Section 2.01(e), the Concurrent Lessee shall surrender, assign
and transfer to the Lessor and the Lessor shall accept the transfer of all
right, title and interest of the Concurrent Lessee in the Lease Rights under the
Designated Eligible Leases relating to such Equipment and the Lessor shall
release the Concurrent Lessee from all of its remaining obligations hereunder
with respect to such Equipment relating to such Leases.
SECTION 2.2 RENT FOR CONCURRENT LEASE
-------------------------
(a) The aggregate rent payable hereunder by the Concurrent Lessee to the
Lessor for Equipment included within a Lease Tranche and concurrently leased
hereunder shall be equal to the aggregate of all regularly scheduled rental
payments required to be made during the Term of all Designated Eligible Leases
relating to such Equipment included within the Lease Tranche and shall, subject
to Section 2.02(b), be payable at the same time as the regularly scheduled
rental payments are due under such Designated Eligible Leases.
(b) The Lessor acknowledges and agrees that the Concurrent Lessee may
satisfy its obligations to pay the periodic rental payments required under
Section 2.02(a) by: (i) prepaying a portion of such periodic rental payments,
which amount shall be determined separately with respect to the Equipment
included in each Lease Tranche, by making a prepayment of rent by way of
certified cheque or wire transfer (the "Prepaid Rent") to the Lessor on the 8th
Business Day (or such other day as may be agreed to by the Lessor and the
Concurrent Lessee) following receipt of the Initial Equipment Schedule (the
"Initial Prepayment Date") and on the 8th Business Day (or such other day as may
be agreed to by the Lessor and the Concurrent Lessee) following receipt of a
Supplemental Equipment Schedule (a "Subsequent Prepayment Date") equal to
1/1.0985 of the aggregate Finance Balance of the Designated Eligible Leases in
the applicable Lease Tranche; and (ii) paying Deferred Rent in the manner and at
the times required by Section 2.03 and 2.04.
SECTION 2.3 SETTLEMENT PROCEDURES
---------------------
<PAGE>
-23-
(a) Subject to the next following sentence, from and including the day
following the Relevant Cut-off Date, and on each day thereafter, the Collector
shall hold for the account of the Concurrent Lessee, the Collections of
Designated Eligible Leases received on each day. On the Business Day
immediately following the date on which a Non-Commingling Event occurs and is
continuing, the Concurrent Lessee or, at the direction of the Concurrent Lessee
and the Rating Agencies, the Collector shall establish an account in the name of
the Concurrent Lessee (the "General Account") and until such time as there is no
Non-Commingling Event continuing, the Collector shall deposit to, unless
otherwise agreed to by the Concurrent Lessee, the General Account within two
Business Days of receipt (or such other period as may be agreed to by the
Concurrent Lessee and the Rating Agencies) all Collections of Designated
Eligible Leases received by the Collector in respect of each Settlement Period
less an amount set forth in Section 2.03(b)(v) which amount shall forthwith be
paid to the Lessor.
(b) On each Settlement Date, the Collector is hereby authorized and
directed by the Concurrent Lessee to cause to be transferred from the General
Account or otherwise to the Concurrent Lessee's Account the amount, if any, by
which the sum of:
(i) the amount of the Collections received with respect to the Designated
Eligible Leases in the immediately preceding Settlement Period
(including, without limitation, any amount received pursuant to
Sections 2.06 and 2.07) and any other Collections received with
respect to the Designated Eligible Leases relating to any prior
Settlement Period;
(ii) any amounts payable to the Concurrent Lessee pursuant to Sections
2.08, 2.13, 7.02, 9.01, 9.02, 10.05 and 10.09 since the last
Settlement Date or, with respect to the first Settlement Date, since
the Cut-off Date;
(iii) any other amount received by the Collector since the last Settlement
Date or, with respect to the first Settlement Date, since the Cut-off
Date in payment of any other amount payable hereunder and not
otherwise referred to in (i) or (ii) above; and
(iv) any amount remaining in the General Account,
exceeds:
(v) any amount in respect of any asserted set-off, reduction or
cancellation by a Lessee received by the Collector from the Lessor or
deposited by the Lessor to the Concurrent Lessee's Account in
accordance with Section 2.07 for which the Lessee has been found,
during the immediately preceding Settlement Period, to be liable.
<PAGE>
-24-
For greater certainty, in no event shall the Collector transfer
amounts into the Concurrent Lessee's Account more than once in respect of the
same item of Collections or be permitted to deduct more than once amounts in
respect of any items of set-off referred to above.
(c) From the amounts available in the Concurrent Lessee's Account
(including any interest received on amounts held therein) following the deposits
thereto contemplated in Section 2.03(b), the Concurrent Lessee shall on each
Settlement Date, in the following order of priority:
(i) to the extent that the Collector has deposited any applicable amount
to the Concurrent Lessee's Account in respect of amounts payable by
the Lessor in accordance with Sections 9.01, and 10.05, pay such
amount to the applicable party;
(ii) pay any costs, fees, expenses or damages or other amounts incurred by
the Concurrent Lessee as a result of a default by the Lessor under
any Hedging Agreement entered into in connection with a Lease
Tranche;
(iii) pay the amount of any Collector Fee then payable;
(iv) pay to the Lessor in respect of Deferred Rent, if any, an amount
equal to the excess, if any, of:
(A) the positive difference if any between the aggregate Unearned
Finance determined on the last day of the Settlement Period prior
to such Settlement Period and the aggregate Unearned Finance
determined on the last day of such Settlement Period, in respect
of Designated Eligible Leases, over
(B) the Concurrent Lessee's Funding Cost during such Settlement
Period plus 1.95% of the Aggregate Finance Balance;
(v) transfer to any other account of the Concurrent Lessee an amount
equal to the Concurrent Lessee's Funding Cost for the then current
Settlement Period;
(vi) transfer to any other account of the Concurrent Lessee:
(1) on each Settlement Date prior to the first Settlement Date after
the occurrence of a Lock-Up Event, an amount equal to the amount
by which (X) the Program Amount (determined without reference to
this section) exceeds the positive difference, if any, between
(Y) the aggregate Finance Balance of the Lease Portfolio
(excluding
<PAGE>
-25-
Designated Eligible Leases that are Defaulted Leases) as at the
end of the immediately preceding Settlement Period, and (Z) the
Required Reserve at such time; and
<PAGE>
-26-
(2) on the first Settlement Date after the occurrence of a Lock-Up
Event and on each Settlement Date thereafter, an amount equal to
the lesser of (X) the Program Amount at such time, and (Y) the
aggregate of the remaining balance in the Concurrent Lessee's
Account and the available balance of the Deferred Rental Account
each as at such time,
and, in each case, the Program Amount shall be reduced by the amount
so transferred;
(vii) pay all expenses incurred by the Collector on behalf of the
Concurrent Lessee related to the enforcement of the Concurrent
Lessee's rights in respect of the Designated Eligible Leases or
advice with respect thereto;
(viii) pay the amount of any Adverse Claim upon Equipment subject to
Designated Eligible Leases or upon the interest of the Concurrent
Lessee in Designated Eligible Leases; and
(ix) transfer to any other account of the Concurrent Lessee an amount
equal to any other reasonable expenses incurred in respect of the
Lessor by the Concurrent Lessee or by the Administrative Agent on
behalf of the Concurrent Lessee;
provided that where the available balance in the Concurrent Lessee's Account on
any Settlement Date is less than the sum of the amounts referred to in (i)
through (ix) above, the Lessor hereby irrevocably directs that, as a refund of a
portion of Deferred Rent, if any, an amount equal to the lesser of:
(x) the amount of such shortfall; and
(y) the then available balance in the Deferred Rental Account;
shall be transferred by the Concurrent Lessee from the Deferred Rental Account
to the Concurrent Lessee's Account and shall be distributed in accordance with
this Section 2.03(c).
(d) Any amounts then remaining in the Concurrent Lessee's Account on
each Settlement Date following all transfers or payments made as herein above
provided in this Section 2.03 shall be paid to the Lessor by transfer to the
Deferred Rental Account and allocated in accordance with Section 2.04.
<PAGE>
-27-
SECTION 2.4 DEFERRED RENTAL ACCOUNT
-----------------------
(a) The Lessor hereby irrevocably directs that on each Settlement Date,
the then available balance in the Deferred Rental Account (including interest
received on amounts held therein), after making the transfers and adjustments
required by Sections 2.03(c) and 2.03(d), shall be held in trust by the
Concurrent Lessee for the benefit of the Lessor. The Lessor hereby grants in
favour of the Concurrent Lessee a security interest in the Deferred Rental
Account for the purposes of securing the obligations of the Lessor with respect
to the payments set forth herein. Such available balance shall be applied by the
Concurrent Lessee in the following priority:
(i) to transfer to any account of the Concurrent Lessee the amount by
which the Program Amount at such time exceeds the positive
difference, if any, between (X) the aggregate Finance Balance of the
Lease Portfolio (excluding any Designated Eligible Leases that are
Defaulted Leases) as at the end of the immediately preceding
Settlement Period and (Y) the Required Reserve at such time, and the
Program Amount shall be reduced by the amount so transferred with
such amount being paid as a refund of a portion of the Deferred Rent,
if any;
(ii) to ensure that there is held in the Deferred Rental Account an
aggregate amount equal to the Required Deferred Rental Account
Balance;
(iii) to make any payment otherwise due and unpaid from the Lessor
hereunder; and
(iv) to release to the Lessor as a payment in respect of Deferred Rent, if
any, any amount then available in the Deferred Rental Account after
giving effect to the applications described in (i) through (iii)
above.
(b) On the Final Collection Date, any balance remaining in the Deferred
Rental Account shall be released by the Concurrent Lessee to the Lessor in full
satisfaction of all amounts owing in respect of Deferred Rent, if any, and the
Concurrent Lessee shall have no further obligations in respect of Deferred Rent.
SECTION 2.5 CONCURRENT LESSEE'S CAPITAL
---------------------------
(a) The Concurrent Lessee shall finance Prepaid Rent by incurring
Concurrent Lessee's Indebtedness to raise capital.
(b) Prior to 12:00 noon (Toronto time) on the last Business Day of each
Settlement Period, the Administrative Agent shall notify the Lessor in writing
of the Discount Rate for the current Settlement Period for the purpose of
determining the
<PAGE>
-28-
Concurrent Lessee's Funding Cost. Such notified Discount Rate shall be equal to
the sum of (i) the Concurrent Lessee's estimate of the weighted average capital
cost (which capital cost shall, for greater certainty, take into account the
cost of the Concurrent Lessee's Indebtedness, drawings made under the Liquidity
Agreement and payments or receipts from Hedging Agreements entered into in
respect of the Lease Tranche) for such Settlement Period, together with any
adjustments determined by the Concurrent Lessee to be necessary by reason of the
difference between (x) the actual weighted average capital cost of the
Concurrent Lessee for the immediately preceding Settlement Period, and (y) the
estimated weighted average capital cost of the Concurrent Lessee for such
immediately preceding Settlement Period and (ii) the percentage specified in the
relevant Equipment Schedule as the "Program Fee Rate".
(c) The cost of borrowings under the Liquidity Agreement shall be equal to
the 30-day bankers' acceptance rate quoted from time to time by The Toronto-
Dominion Bank plus 0.50%.
(d) The Concurrent Lessee shall provide the Lessor with information with
respect to the Concurrent Lessee's Indebtedness as such information is available
in hard copy or that may be produced from available databases with existing
software of the Concurrent Lessee as the Lessor may reasonably request.
SECTION 2.6 CLEAN-UP PROVISION
------------------
The concurrent lease by the Lessor to the Concurrent Lessee under this
Agreement of the Equipment subject to an outstanding Designated Eligible Lease
may be terminated, at the election of either the Lessor or the Concurrent
Lessee, at any time when the Program Amount is less than or equal to 10% of the
largest Program Amount incurred up to such time, and the Lessor shall pay to the
Concurrent Lessee, as consideration for the economic loss sustained by the
Concurrent Lessee as a consequence of such termination, an amount equal to the
Aggregate Finance Balance and any amounts owing hereunder, which amount shall be
transferred to the Concurrent Lessee's Account to be disbursed in accordance
with Section 2.03. For greater certainty, on such termination, the Concurrent
Lessee shall surrender, assign and transfer to the Lessor and the Lessor shall
accept the transfer of all right, title and interest of the Concurrent Lessee in
the Lease Rights under the Designated Eligible Leases relating to such Equipment
and the Lessor shall release the Concurrent Lessee from all of its remaining
obligations hereunder.
SECTION 2.7 DEEMED COLLECTIONS
------------------
<PAGE>
-29-
(a) If on any day prior to the Final Collection Date, the balance of the
remaining Designated Lease Receivables of any Designated Eligible Lease is
either (a) reduced as a result of any adjustment by the Lessor or (b) reduced or
cancelled as a result of a set-off in respect of any claim by the Lessee thereof
against the Collector (whether such claim arises out of the same or a related
transaction or an unrelated transaction), the Lessor shall be deemed to have
received on such day a Collection under such Designated Eligible Lease in the
amount of such reduction or cancellation and shall, on or before the first
Settlement Date following such day, remit such amount to the Collector for
deposit to the General Account or the Concurrent Lessee's Account, as
applicable, for payment to the Concurrent Lessee in accordance with Section
2.03.
(b) If on any day prior to the Final Collection Date, any of the
representations or warranties in Section 4.01(xi) is no longer true with respect
to a Designated Eligible Lease or the Lessor or the Concurrent Lessee determines
that there is an Adverse Claim in respect of any Designated Eligible Lease or
the Equipment subject thereto which the Lessor does not cause to be removed
immediately, the Lessor shall be deemed to have received on such day a
Collection of such Designated Eligible Lease in full equal to the Finance
Balance plus an amount equal to the portion of the Unearned Finance attributed
to such Designated Eligible Lease for the Settlement Period in which such day
occurred, the concurrent lease of the Equipment subject to such Designated
Eligible Lease shall be terminated and the Lessor shall, on or before the first
Settlement Date following such day, remit such amount to the Collector for
deposit to the General Account or Concurrent Lessee's Account, as applicable,
for payment to the Concurrent Lessee in accordance with Section 2.03.
(c) Upon the termination of any Lease which is a Designated Eligible Lease
for any reason whatsoever, including default by the Lessee under such Lease or
in conjunction with the exercise by the Lessee of an option or other right to
purchase or otherwise acquire the Equipment subject thereto or in conjunction
with the trade in of Equipment and the leasing of new Equipment by a Lessee, the
Concurrent Lessee may elect to terminate the concurrent lease of such Equipment
pursuant hereto and the Lessor shall pay to the Concurrent Lessee, as
consideration for the economic loss sustained by the Concurrent Lessee as a
consequence of such termination on the first Settlement Date following such
termination, an amount equal to the lesser of (A) the Finance Balance of such
Designated Eligible Lease plus an amount equal to the amount of Unearned Finance
attributed to such Designated Eligible Lease for the Settlement Period in which
such termination occurred up to the date on which such termination occurred, and
(B) the aggregate of the Concurrent Lessee's pro rata share of Net Proceeds of
such Equipment as determined in accordance with Section 2.08(d) and any amounts
received or to be received by the Collector from or on behalf of the Lessee in
respect of such termination, provided that, if the amount in (B) has not yet
been determined, the Lessor shall, on or before the first Settlement Date
following such termination, remit the amount referred to in (A) to the Collector
for deposit to the General Account or the Concurrent Lessee's Account, as
applicable, for payment to the Concurrent Lessee in accordance with Section 2.03
and upon the determination by the
<PAGE>
-30-
Lessor of the amount referred to in (B) the appropriate adjustments shall be
made on the next Settlement Date following such determination. Effective upon
receipt of the prepaid rent referred to in Section 2.02, the Lessor grants to
the Concurrent Lessee a continuing security interest in the Equipment for the
purpose of securing the Lessor's obligations under this Section 2.07(c).
(d) For greater certainty, upon termination of the concurrent lease of
Equipment pursuant to Section 2.07(b) or (c), the Concurrent Lessee shall
surrender, assign and transfer to the Lessor and the Lessor shall accept the
transfer of all right, title and interest of the Concurrent Lessee in the Lease
Rights under the Designated Eligible Lease relating to such Equipment and the
Lessor shall release the Concurrent Lessee from all of its remaining obligations
hereunder with respect to such Equipment relating to such Lease. If the
concurrent lease of the Equipment pursuant hereto is terminated in conjunction
with the exercise by the Lessee of an option or other right to purchase or
otherwise acquire the Equipment and the Concurrent Lessee has surrendered its
rights hereunder in respect of the Equipment to the Lessor as aforesaid, the
Lessor shall assume all of the Concurrent Lessee's obligations under the related
Lease to sell the Equipment to the Lessee.
SECTION 2.8 PAYMENTS AND COMPUTATIONS, ETC.
-------------------------------
(a) All amounts to be paid or deposited by the Lessor, Sub-Collector, the
Performance Guarantor or the Collector to the Concurrent Lessee will be paid or
deposited no later than 2:00 p.m. (Toronto time) on the day when due in
accordance with the terms hereof in same day funds to the applicable account as
required hereunder.
(b) The Lessor shall pay to the Concurrent Lessee interest (both before and
after default and judgment, with interest on overdue interest at the same rate)
on all amounts not paid or deposited when due hereunder (whether owing by the
Lessor on its own behalf or in its capacity as Collector) at a rate equal to the
Prime Rate plus 1% per annum, payable on demand. Such interest shall be paid by
the Lessor to the Collector for deposit to the Concurrent Lessee's Account on
the next Settlement Date. The yearly rate of interest for any day to which the
Prime Rate is applicable is the rate so determined multiplied by the actual
number of days in that year and divided by 365 or 366, as the case may be.
Interest rate charges will be effective for interest computation periods from
the date on which the Prime Rate changes and the Lessor and the Concurrent
Lessee will be bound by any and all changes of the Prime Rate with or without
notice thereof.
(c) The Lessor shall, on its own behalf or in its capacity as Collector,
make all payments required to be made by it hereunder without deduction (other
than for applicable taxes or as otherwise authorized hereunder), regardless of
any defence or counterclaim (whether based on any law, rule or policy now or
hereafter issued or enacted by an government authority or regulatory body),
except as contemplated hereunder.
<PAGE>
-31-
(d) At any time the Concurrent Lessee is entitled under this Agreement to
Net Proceeds with respect to a Designated Eligible Lease, the Concurrent Lessee
shall be entitled to the portion of such Net Proceeds that the Finance Balance
of such Designated Eligible Lease represents of the aggregate of the Finance
Balance and the Residual Balance of such Designated Eligible Lease as at such
time, and the Lessor shall be entitled to the remainder of such Net Proceeds.
SECTION 2.9 ALLOCATION OF COLLECTIONS
-------------------------
Except as otherwise required by law, if the Collector, after using its
reasonable efforts, cannot determine the proper allocation of any non-directed
payments made by a Lessee in respect of any indebtedness owed by it to the
Lessor, such amounts shall be allocated by the Collector consistent with the
practices of the Lessor existing as at the Cut-off Date as set out in the Credit
and Collection Policy or as otherwise mutually agreed to by the Lessor and the
Concurrent Lessee.
SECTION 2.10 REPORTING
---------
(a) On or before the twelfth Business Day of each month, the Collector
shall, with all necessary co-operation of the Lessor, if the Lessor is not the
Collector, prepare and deliver to the Concurrent Lessee:
(i) a Lease Portfolio and Compliance Report relating to the
Designated Eligible Leases as of the close of business of the
Collector on the last day of the most recently completed
Settlement Period; and
(ii) if requested by the Administrative Agent, a listing by Lessee of
the Finance Balance of the Equipment as of such last day,
determined in accordance with the Lessor's customary practice.
(b) The Lessor shall provide the Concurrent Lessee with such other Records
that are available in hard copy or that may be produced from available databases
with existing software of the Lessor as the Concurrent Lessee may reasonably
request.
(c) The Concurrent Lessee shall on or before each Settlement Date provide
the Lessor with written notice detailing any expenses which are required to be
paid to the Concurrent Lessee pursuant to Sections
2.03(c)(ii),(iii),(vii),(viii) and (ix) and any interest earned on the Deferred
Rental Account.
<PAGE>
-32-
SECTION 2.11 FEES
----
(a) The Lessor shall, promptly after the Initial Prepayment Date, pay all
legal expenses (including fees, disbursements and taxes) incurred by TD
Securities Inc. on behalf of the Concurrent Lessee in connection with the
preparation and entering into of this Agreement by the Concurrent Lessee.
(b) The Lessor shall, promptly after each Subsequent Prepayment Date, pay
all legal expenses (including fees, disbursements and taxes) incurred by TD
Securities Inc. on behalf of the Concurrent Lessee in connection with the
preparation and entering into of the related Equipment Schedule.
(c) The Lessor shall pay to the Concurrent Lessee a fee (the "Program Fee")
in respect of each Settlement Period prior to the Final Collection Date in an
amount equal to (i) the product of the number of days in such Settlement Period
multiplied by a program fee rate agreed to by the parties for such Settlement
Period, (ii) divided by 365 or 366, as the case may be, and (iii) multiplied by
the daily weighted average of the Program Amount outstanding during such
Settlement Period. The Program Fee for a Settlement Period shall be
incorporated in the Concurrent Lessee's Funding Cost and shall be paid pursuant
to Section 2.03(c)(v).
(d) In the event that the Lessor is not the Collector, the Lessor shall pay
to the Concurrent Lessee, on the last day of each Settlement Period for such
Settlement Period for payment to the Concurrent Lessee in accordance with
Section 2.03(c)(iii), an amount equal to the Collector Fee required to be paid
by the Concurrent Lessee for such Settlement Period.
SECTION 2.12 FURTHER ACTION TO PROTECT DESIGNATED ELIGIBLE LEASES
----------------------------------------------------
(a) The Lessor shall, from time to time at its expense, promptly execute
and deliver all instruments and documents and take all action that the
Concurrent Lessee may reasonably request, in order to perfect, protect or more
fully evidence (i) the Concurrent Lessee's interest in, inter alia, the
Designated Eligible Leases and the Lease Rights relating thereto, and (ii) the
Concurrent Lessee's security interest in and to the Deferred Rental Account, or
to enable the Concurrent Lessee to exercise or enforce, inter alia, any of its
rights hereunder or thereunder (other than any registrations required to perfect
the Lessor's interest under particular Leases). Without limiting the generality
of the foregoing, and for greater certainty, the Lessor shall, at the request of
the Concurrent Lessee, hypothecate the Deferred Rental Account in favour of the
Concurrent Lessee.
(b) Upon any termination of the concurrent lease hereunder with respect to
Equipment and upon the occurrence of the Final Collection Date, the Concurrent
Lessee shall, from time to time at the Lessor's expense, promptly execute and
deliver all
<PAGE>
-33-
instruments and documents and take all action that the Lessor may reasonably
request, in order to perfect, protect or more fully evidence the Lessor's
interest in, inter alia, the Leases, and to enable the Lessor to exercise or
enforce, inter alia, any of its rights hereunder or thereunder (other than any
registrations required to perfect the Lessor's interest under particular
Leases). Without limiting the generality of the foregoing, and for greater
certainty, upon any such termination of the concurrent lease hereunder with
respect to Equipment, the Concurrent Lessee shall assign to the Lessor all
right, title and interest of the Concurrent Lessee in the related Designated
Eligible Leases and the Lease Rights relating thereto and upon the request of
and at the expense of the Lessor, cancel and discharge any of the security
constituted by this Agreement and execute such instruments as are reasonably
required by the Lessor for that purpose.
SECTION 2.13 INELIGIBLE LEASES
-----------------
If, at any time after any Relevant Cut-off Date, the Administrative
Agent, the Concurrent Lessee or the Lessor determines that, on such Relevant
Cut-off Date, any Lease designated as a Designated Eligible Lease was not an
Eligible Lease (for the purposes of this Section 2.13, an "Ineligible Lease"),
the Administrative Agent, the Concurrent Lessee or the Lessor, as the case may
be, shall forthwith notify the other parties of such ineligibility and within
two Business Days of receipt of such notice (or on the date of notification, if
a Significant Event has occurred and is continuing), the Concurrent Lessee shall
terminate the concurrent lease of the Equipment relating to such Designated
Eligible Lease and the Lessor shall pay to the Collector, for deposit to the
Concurrent Lessee's Account or the General Account, as applicable, to be paid to
the Concurrent Lessee in accordance with Section 2.03, as consideration for the
economic loss sustained by the Concurrent Lessee as a consequence of such
termination, an amount equal to the Finance Balance of such Ineligible Lease
plus the Unearned Finance attributed to such Ineligible Lease for the Settlement
Period in which the termination occurred. For greater certainty, upon such
termination of the concurrent lease of the Equipment relating to such Ineligible
Lease, the Concurrent Lessee shall surrender, assign and transfer to the Lessor
and the Lessor shall accept the transfer of all right, title and interest of the
Concurrent Lessee in the Ineligible Lease and Lease Rights relating thereto, the
Lessor shall assume all of the Concurrent Lessee's obligations under such
Ineligible Lease and the Lessor shall release the Concurrent Lessee from all of
its remaining obligations hereunder with respect to such Equipment relating to
such Ineligible Lease. It is also hereby acknowledged that a Lease shall cease
to be an Ineligible Lease by reference to paragraph (xiv) of the definition of
"Eligible Lease" if, after taking into account any transactions under this
Section 2.13, the outstanding Finance Balance of such Lease, when added to the
remaining outstanding Finance Balance of all other Leases to the same Lessee and
any Affiliated Lessee, no longer exceeds the Concentration Limit.
<PAGE>
-34-
SECTION 2.14 SALES TAXES
-----------
(a) Unless otherwise specified herein or in any other agreement between the
parties hereto, all amounts and payments referred to herein are exclusive of any
Sales Taxes, which are or may become exigible in connection with any
transactions performed in accordance with the terms of this Agreement.
(b) Subject to Section 2.14(c), the payor of any particular payment
hereunder (the "Particular Payment") shall be liable and shall pay to the payee
on the date on which the Particular Payment becomes payable, in addition to the
Particular Payment, any Sales Taxes properly payable by the payor and
collectible by the payee upon or in connection with the Particular Payment.
(c) The Lessor shall fund and remit to Revenue Canada (Customs and Excise),
or other applicable taxing authority, the amount of any tax payable by the
Concurrent Lessee under the Excise Tax Act (Canada) and any tax payable under
the An Act Respecting Quebec Sales Tax (Quebec) and any similar goods and
services or value added tax which may, now or in the future, be imposed by any
governmental authority in respect of any Prepaid Rent. The Concurrent Lessee
agrees to apply in a timely manner for the applicable GST, HST and QST input tax
credits or input tax reimbursements and to pay to the Lessor, forthwith upon
receipt thereof, such input tax credits or input tax reimbursements, in respect
of the GST, HST or QST, as applicable, payable by the Concurrent Lessee and
remitted by the Lessor.
(d) Any tax payable by the Concurrent Lessee to the Lessor under the Excise
Tax Act (Canada) or An Act Respecting Quebec Sales Tax (Quebec) in respect of
any Particular Payment, other than Prepaid Rent, shall be paid by the Collector,
on behalf of the Concurrent Lessee, to the Lessor.
(e) The Collector shall collect, account for and remit all taxes payable
under the Excise Tax Act (Canada) and An Act Respecting Quebec Sales Tax by
Lessees in respect of the Equipment. In connection therewith and to the extent
required, the Collector and the Concurrent Lessee agree to execute elections
under subsection 177(1.1) of the Excise Tax Act (Canada) and section 41.0.1 of
An Act Respecting Quebec Sales Tax. Any such election shall remain in effect
until terminated by the Lessor and the Concurrent Lessee.
(f) The Collector shall collect from Lessees all PST payable by the Lessees
in respect of the Equipment in any particular tax reporting period prescribed by
the relevant taxation authority. Except where a request is made under Section
5.01(xix), the Collector shall remit to the Concurrent Lessee all such taxes
required to be collected in respect of a particular tax reporting period no
later than five business days prior to the day on which such taxes must be
remitted to the relevant taxation authority.
<PAGE>
-35-
(g) The Collector shall prepare and issue to the Concurrent Lessee
certificates itemizing, and attesting to, all Sales Taxes collected and
accounted for in respect of the particular tax reporting period for each taxing
jurisdiction. In the case of PST, the certificates shall accompany the
remittance referred to in Section 2.14(f) above. In the case of GST, HST and
QST, the certificates shall be forwarded to the Concurrent Lessee no later than
fifteen days following the date on which returns itemizing the collection of
such taxes are forwarded to the Department of National Revenue or Revenue
Quebec, as applicable.
(h) The Concurrent Lessee may, at its option, appoint the Lessor as its
agent or mandatary for the purpose of making supplies of the Equipment to the
extent required to permit the Lessor to account for GST, HST and QST on such
supplies in the manner contemplated by subsection 177(1.1) of the Excise Tax Act
(Canada) and section 41.0.1 of An Act Respecting Quebec Sales Tax. Any such
appointment shall be made in writing and shall remain in force until revoked by
the Concurrent Lessee.
SECTION 2.15 TERMINATION OF THE CONCURRENT LEASE
------------------------------------
Except as provided herein, the Lessor shall not be entitled to
terminate this Agreement with respect to Equipment subject to any Designated
Eligible Leases.
SECTION 2.16 PERMITTED INVESTMENTS
---------------------
Subject to Section 2.04(a), the balance available in the Deferred
Rental Account shall be invested in Permitted Investments by the Concurrent
Lessee. If any General Account shall be established, the balance available in
such General Account shall be invested in Permitted Investments by the Collector
as may be directed by the Concurrent Lessee. The Concurrent Lessee shall
maintain and direct the Collector to maintain a portion of the aggregate
balances in such accounts equal to the amount due and payable by the Lessor on
the next following Settlement Date in Permitted Investments which mature no
later than such Settlement Date. The Concurrent Lessee shall, upon the request
of the Lessor, advise the Lessor of the Permitted Investments in which such
balances are invested.
<PAGE>
-36-
ARTICLE 3
CONDITIONS OF LEASE
SECTION 3.1 CONDITIONS PRECEDENT TO CONCURRENT LEASE UNDER INITIAL EQUIPMENT
----------------------------------------------------------------
SCHEDULE
--------
The concurrent leasing hereunder of Equipment subject to the
Designated Eligible Leases described in the Initial Equipment Schedule is
subject to the condition precedent that the Concurrent Lessee shall have
received on or before the Initial Prepayment Date the following, in form and
substance satisfactory to the Concurrent Lessee, unless any condition or
conditions are waived in writing by the Concurrent Lessee:
(i) certified copies of all necessary corporate authorizations of the
Lessor, IKON Capital and the Performance Guarantor to authorize
the execution, delivery and performance of this Agreement and of
the transactions contemplated hereby;
(ii) certificates of the Lessor, IKON Capital and the Performance
Guarantor as to the names and true signatures of the officers
authorized to sign this Agreement and all other documents to be
delivered hereunder on its behalf on which certificates the
Concurrent Lessee shall be entitled to conclusively rely in
respect of each Lease Tranche until such time as the Concurrent
Lessee receives from the Lessor, IKON Capital or the Performance
Guarantor, as the case may be, a replacement certificate meeting
the requirements of this Section 3.01(ii);
(iii) certified copies of the constating documents and by-laws of the
Lessor, IKON Capital and the Performance Guarantor;
(iv) a certificate of status, of good standing or of compliance, as
appropriate, with respect to each of the Lessor, IKON Capital and
the Performance Guarantor issued by their respective
jurisdictions of incorporation and in respect of the Lessor by
each jurisdiction in which the registrations referred to in
Section 3.01(v) have been made;
(v) copies of proper financing statements, with the registration
date, time and number stamped thereon dated a date on or prior to
the Initial Prepayment Date, naming the Lessor as debtor and the
Concurrent Lessee as secured party or other similar registration,
instruments or documents, as may be necessary or in the opinion
of the Concurrent Lessee desirable under all relevant personal
property security legislation or any comparable law in Canada to
reflect the Concurrent Lessee's interest in Equipment, subject to
<PAGE>
-37-
all Designated Eligible Leases, and leased hereunder and in all
other Lease Rights relating thereto;
(vi) executed copies of all discharges, releases or subordinations if
any, necessary to discharge, release or subordinate all security
interests and all other rights or interests of any person in the
Designated Eligible Leases or Equipment leased thereunder
previously granted by the Lessor and copies of the relevant
financing change statements or other appropriate discharge or
subordination instruments with the registration date, time and
number stamped thereon;
(vii) an executed copy of this Agreement;
(viii) an executed copy of the Initial Equipment Schedule which has been
accepted by the Concurrent Lessee pursuant to Section 2.01(b);
(ix) certificates of the Lessor, IKON Capital and the Performance
Guarantor (i) that the representations and warranties set out in
Section 4.01 or 4.02, as applicable, are true and correct, (ii)
that no event has occurred and is continuing which constitutes a
Lock-Up Event, (iii) that no event has occurred and is
continuing, or would result from the leasing of the Equipment set
out in the Initial Equipment Schedule, which would constitute a
Significant Event or would constitute a Significant Event but for
the requirement that notice be given or time elapse or both, and
(iv) as to such other matters as the Concurrent Lessee may
reasonably request;
(x) favourable opinions of counsel for the Lessor and IKON Capital
and counsel for the Performance Guarantor in substantially the
form of Schedules D and D-1, respectively, and as to such other
matters as the Concurrent Lessee may reasonably request;
(xi) a favourable opinion of Messrs. McCarthy Tetrault, counsel for
the Concurrent Lessee, as to such matters as the Concurrent
Lessee may reasonably request;
(xii) a certificate showing the Concurrent Lessee as an additional loss
payee and a named insured in respect of (i) all risk property
damage insurance held by the Lessor, if any, in respect of the
Equipment subject to Designated Eligible Leases in an amount not
less than the Finance Balance thereof and (ii) public liability
insurance in an amount of not less than $2,000,000 per
occurrence;
(xiii) an executed copy of the confirmation confirming any Hedging
Agreement entered into by the Concurrent Lessee and the Lessor
with respect to the Initial Equipment Schedule, together with any
fee payable by the Concurrent
<PAGE>
-38-
Lessee or the Lessor on the Initial Prepayment Date in connection
with such Hedging Agreement;
(xiv) an executed copy of the Indemnification Agreement; and
(xv) the written consent of the Rating Agencies to such concurrent
lease and such other approvals, opinions or documents as the
Concurrent Lessee may reasonably request.
SECTION 3.2 CONDITIONS PRECEDENT TO CONCURRENT LEASE UNDER SUPPLEMENTAL
-----------------------------------------------------------
EQUIPMENT SCHEDULES
-------------------
The concurrent leasing hereunder of Equipment subject to
Designated Eligible Leases described in all Supplemental Equipment Schedules, is
subject to the conditions precedent that the Concurrent Lessee shall have
received on or before the relevant Subsequent Prepayment Date with respect to
each such Supplemental Equipment Schedule the following, in form and substance
satisfactory to the Concurrent Lessee unless any condition or conditions are
waived in writing by the Concurrent Lessee and the Rating Agencies:
(i) an executed copy of the Supplemental Equipment Schedule which has
been accepted by the Concurrent Lessee pursuant to Section
2.01(b);
(ii) certificates of the Lessor, IKON Capital and the Performance
Guarantor (i) that the representations and warranties set out in
Section 4.01 or 4.02, as applicable, are true and correct, (ii)
that no event has occurred and is continuing which constitutes a
Lock-Up Event, (iii) that no event has occurred and is
continuing, or would result from the leasing of the Equipment set
out in the relevant Supplemental Equipment Schedule, which
constitutes a Significant Event or would constitute a Significant
Event but for the requirement that notice be given or time elapse
or both, (iv) there are no changes in its constating documents
(or disclosing same), and (v) as to such other matters as the
Concurrent Lessee may reasonably request;
(iii) such registrations, instruments or documents, as may be necessary
or, in the opinion of the Concurrent Lessee, desirable under all
personal property security legislation or comparable law in
Canada to reflect the Concurrent Lessee's interest in the
Equipment subject to all Designated Eligible Leases and
concurrently leased hereunder and in all other Lease Rights
relating thereto;
(iv) executed copies of all discharges, releases or subordinations, if
any, necessary to discharge, release or subordinate all security
interests and all
<PAGE>
-39-
other rights or interests of any person in the Designated
Eligible Leases or Equipment leased thereunder previously granted
by the Lessor and copies of the relevant financing change
statements or other appropriate discharge or subordination
instruments with the registration date, time and number stamped
thereon;
(v) all fees due and payable hereunder by the Lessor shall have been
paid;
(vi) confirmation that the Additional Lease Termination Date has not
occurred;
(vii) the written consent of the Rating Agencies to such concurrent
lease, if necessary; and
(viii) such other approvals, opinions or documents as the Concurrent
Lessee may reasonably request.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE LESSOR
--------------------------------------------
The Lessor hereby represents and warrants to the Concurrent
Lessee on a continuous basis (unless otherwise indicated in the applicable
representation and warranty to be made as at a particular point in time) as
follows:
(i) it is a corporation validly existing under the laws of its
jurisdiction of incorporation and is duly qualified to do
business in every jurisdiction where failure to be so qualified
would adversely affect the collectibility of the Designated Lease
Receivables and the other Lease Rights related to the Designated
Eligible Leases;
(ii) the execution, delivery and performance by it of this Agreement,
the Initial Equipment Schedule, or any Supplemental Equipment
Schedule and the other documents delivered by it hereunder and
the transactions contemplated hereby and thereby are within its
corporate powers, have been duly authorized by all necessary
corporate action, do not contravene:
(1) its constating documents or by-laws;
(2) any law, rule or regulation applicable to it;
<PAGE>
-40-
(3) any indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note or other agreement or
instrument binding upon it or affecting its property which
is of a material nature; or
(4) any order, writ, judgment, award, injunction or decree
binding on it or affecting its property which is of a
material nature;
and do not result in or require the creation of any lien,
security interest or other charge or encumbrance upon or with
respect to any of its properties other than with respect hereto;
(iii) as at the Cut-off Date with respect to the Initial Equipment
Schedule and as at the relevant Subsequent Cut-off Date with
respect to a Supplemental Equipment Schedule, no authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due
execution, delivery and performance by it of this Agreement, the
Initial Equipment Schedule or any Supplemental Equipment Schedule
or the other documents delivered by it hereunder, except for such
notices or filings that are required to reflect the Concurrent
Lessee's interest in the Equipment which is the subject of all
Designated Eligible Leases and concurrently leased hereunder and
in all other Lease Rights relating thereto;
(iv) as at the Cut-off Date with respect to the Initial Equipment
Schedule and as at the relevant Subsequent Cut-off Date with
respect to a Supplemental Equipment Schedule, this Agreement, the
Initial Equipment Schedule and each Supplemental Equipment
Schedule, as applicable, and all other documents delivered by it
hereunder have been duly executed and delivered by it or on its
behalf;
(v) this Agreement (including the Initial Equipment Schedule and any
Supplemental Equipment Schedule executed and delivered hereunder)
is the legal, valid and binding obligation of it enforceable
against it in accordance with its terms (assuming due and valid
execution and delivery thereof by the other parties thereto)
subject to applicable bankruptcy, insolvency, reorganization,
winding-up, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(vi) its consolidated balance sheet as at September 30, 1997 and the
related statements of income and retained earnings for the fiscal
year then ended, copies of which have been furnished to the
Concurrent Lessee together with a certificate of the senior
financial officer of the Performance Guarantor
<PAGE>
-41-
certifying the accuracy of such statements, fairly present in all
material respects its consolidated financial position as at such
date and the consolidated results of its operations for the
period ended on such date, all in accordance with generally
accepted accounting principles; and since September 30, 1997
there has been no material adverse change in any such position or
operations;
(vii) its unconsolidated balance sheet as at December 31, 1997 and the
related statements of income and retained earnings for the fiscal
quarter then ended, copies of which have been furnished to the
Concurrent Lessee together with a certificate of the senior
financial officer of the Performance Guarantor certifying the
accuracy of such statements, fairly present in all material
respects its financial position as at such date and the results
of its operations for the period ended on such date, all in
accordance with generally accepted accounting principles; and
since December 31, 1997 there has been no material adverse change
in such position or operations;
(viii) there are no actions, suits or proceedings of which it has not
advised the Concurrent Lessee in writing against or affecting it
or any of its subsidiaries or any of their respective property
before any court, governmental body or arbitrator (nor to its
knowledge, any such actions pending or threatened) which may
materially adversely affect its ability to perform its
obligations hereunder or under the other documents delivered by
it hereunder and it is not in default with respect to any order
of any court, governmental body or arbitrator which materially
adversely affects its ability to perform its obligations
hereunder or thereunder;
(ix) no event of default has occurred and is outstanding under any
agreement or instrument referred to in Section 4.01(ii)(3) which
would entitle the creditor, secured party or lessor thereunder,
without the requirement of having to give any further notice or
that a further specified period of time shall have elapsed, to
accelerate the payment by the Lessor of a material amount;
(x) all taxes, including, without limitation, sales, social services
and goods and services taxes relating to each Designated Eligible
Lease are the obligation of the Lessee thereunder;
(xi) each Designated Eligible Lease and the Equipment leased
thereunder is and will at all times be owned by the Lessor free
and clear of any Adverse Claims which, when added to the
aggregate of Adverse Claims in respect of all other Designated
Eligible Leases in the Lease Portfolio and the Equipment subject
thereto, would result in an amount exceeding $50,000; and no
effective financing statements or other instrument similar in
effect covering any
<PAGE>
-42-
Designated Eligible Lease, the Equipment leased thereunder or the
Lease Rights or Collections relating thereto is or will at any
time be on file in any recording office except such as may be
filed in favour of the Concurrent Lessee in accordance with this
Agreement, or in respect of which the secured party thereunder
has acknowledged that it claims no security interest or
subordinates its security interest in the Designated Eligible
Leases, the Equipment leased thereunder or the Lease Rights and
Collections relating thereto.
(xii) each Lease set out on an Equipment Schedule is, subject to
Section 4.01(xi), an Eligible Lease, and has been registered or
recorded, or a financing statement in respect thereof has been
registered, in accordance with the requirements of the Credit and
Collection Policy;
(xiii) no Lease Portfolio and Compliance Report (if prepared by the
Lessor, or to the extent that information contained therein is
supplied by the Lessor), Equipment Schedule, information,
exhibit, financial statement, document, book, record or report
furnished or to be furnished by the Lessor to the Concurrent
Lessee in connection with this Agreement is or will be inaccurate
in any material respect as of the date it is or will be dated or
(except as otherwise disclosed to the Concurrent Lessee at such
time) as of the date so furnished, or contains or will contain
any material misstatement of fact or omits or will omit to state
a material fact or any fact necessary to make the statements
contained therein not materially misleading;
(xiv) the chief executive office of the Lessor and the chief places of
business of the Lessor in each of the provinces and territories
are located at the addresses of the Lessor set out in Exhibit E
(or at such other locations as the Concurrent Lessee has been
notified of in any Equipment Schedule). The offices where the
Lessor keeps the books, records and documents relating to
Designated Eligible Leases and the Equipment leased thereunder
are located at the addresses of Lessor set out in Exhibit E (or
at such other locations as the Concurrent Lessee has been
notified of in any Equipment Schedule);
(xv) the offices of Lessor listed on Exhibit E (or such other
locations as the Concurrent Lessee has been notified of in any
Equipment Schedule) are all of the offices to which Lessees are
instructed to send Collections of Designated Eligible Leases;
(xvi) the Lessor has as of the date hereof fully complied with all of
its obligations under each Designated Eligible Lease and all
other agreements, including relevant maintenance contracts,
entered into by the Lessor in connection therewith;
<PAGE>
-43-
(xvii) information technology issues arising or which may arise from
matters related to the year 2000 and related risks will not have
a material adverse effect on the business or operations of the
Lessor or on the collectibility or enforceability of the
Designated Lease Receivables or the ability of the Lessor to
collect Designated Lease Receivables or the ability of the
Lessor, IKON Capital or the Performance Guarantor to perform its
obligations hereunder;
(xviii) the Lessor is not a non-resident as defined under the Income Tax
Act;
(xix) Lessor has treated and will continue to treat the Designated
Eligible Leases for income tax purposes as leases, and not sales,
and has prepared and filed and will continue to prepare and file
its tax returns under the Income Tax Act (Canada) and any
applicable corresponding provincial legislation with respect to
income tax in a manner consistent with the foregoing treatment;
(xx) the Lessor has delivered to the Concurrent Lessee true copies of
all forms of lease agreements now used by the Lessor in
connection with the entering into of a Lease;
(xxi) the Lessor is, as at the date hereof, registered under Part IX of
the Excise Tax Act (Canada) with registration no. R87300-8189-
RT0012 and that it is registered under An Act Respecting Quebec
Sales Tax (Quebec) with registration no. 142370535; and
(xxii) as at the Initial Prepayment Date and each Subsequent Prepayment
Date, no event has occurred and is continuing and no condition
exists which constitutes a Lock-Up Event.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF THE PERFORMANCE GUARANTOR AND
---------------------------------------------------------------
IKON CAPITAL
------------
Each of the Performance Guarantor and IKON Capital hereby
represents and warrants to the Concurrent Lessee on a continuous basis (unless
otherwise indicated in the applicable representation and warranty to be made as
at a particular point in time and/or by only one of the Performance Guarantor or
IKON Capital) as follows:
(i) it is a corporation validly existing under the laws of its
jurisdiction of incorporation;
(ii) the execution, delivery and performance by it of any of this
Agreement, the Initial Equipment Schedule and any Supplemental
Equipment Schedule to
<PAGE>
-44-
which it is a party, and the other documents to be delivered by
it hereunder or thereunder are within its corporate powers, have
been duly authorized by all necessary corporate action and do not
contravene:
(1) its charter documents or by-laws;
(2) any law, rule or regulation applicable to it;
(3) any indenture, loan or credit agreement, lease, mortgage,
security agreement, bond, note or other agreement or
instrument binding upon it or affecting its property which
is of a material nature; or
(4) any order, writ, judgment, award, injunction or decree
binding on it or affecting its property which is of a
material nature;
(iii) this Agreement, the Initial Equipment Schedule, all Supplemental
Equipment Schedules and all other documents delivered by it
hereunder or thereunder have been duly executed and delivered by
or on its behalf;
(iv) as at the Cut-off Date with respect to the Initial Equipment
Schedule and as at the relevant Subsequent Cut-off Date with
respect to any Supplemental Equipment Schedule, no authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for the due
execution, delivery and performance by it of this Agreement, the
Initial Equipment Schedule, any Supplemental Equipment Schedule
and any other documents delivered by it hereunder or thereunder;
(v) this Agreement (including the Initial Equipment Schedule and all
Supplemental Equipment Schedules) is its legal, valid and binding
obligation enforceable against it in accordance with its terms
(assuming due and valid execution and delivery thereof by the
other parties thereto) subject to applicable bankruptcy,
reorganization, insolvency, reorganization, winding-up,
moratorium or similar laws affecting creditors' rights generally
and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought
in a proceeding in equity or at law);
(vi) no material default has occurred and is outstanding under any
agreement or instrument referred to in Section 4.02(ii)(3) which
default would materially and adversely affect its ability to
perform its obligations hereunder or under the other documents
delivered by it hereunder;
<PAGE>
-45-
(vii) there are no actions, suits or proceedings of which it has not
advised the Concurrent Lessee in writing against or affecting it
or any of its property before any court, governmental body or
arbitrator (nor to its knowledge, any such actions pending or
threatened) which may materially adversely affect its ability to
perform its obligations hereunder or under the other documents
delivered by it hereunder and it is not in default with respect
to any order of any court, governmental body or arbitrator which
materially adversely affects its ability to perform its
obligations hereunder or thereunder;
(viii) in the case of the Performance Guarantor, its long term debt is
rated by Moody's at Baa3 or better and by S&P at BBB- or better;
and
(ix) in the case of the Performance Guarantor, no Equipment Schedule
or financial statement furnished or to be furnished by the Lessor
to the Concurrent Lessee is or will be inaccurate in any material
respect as of the date it is or will be dated or (except as
otherwise disclosed to the Concurrent Lessee at such time) as of
the date so furnished, or contains or will contain any material
misstatement of fact or omits or will omit to state a material
fact or any fact necessary to make the statements contained
therein not materially misleading.
SECTION 4.3 REPRESENTATIONS AND WARRANTIES OF THE CONCURRENT LESSEE
-------------------------------------------------------
The Concurrent Lessee hereby represents and warrants to the
Lessor on a continuous basis as follows:
(i) that it is a trust duly established and validly existing under
the laws of the Province of Ontario and the execution, delivery
and performance by it of this Agreement, the Initial Equipment
Schedule and any Supplemental Equipment Schedule and of the
transactions contemplated hereby are within its purposes and
powers and have been duly authorized by all necessary action; and
(ii) that it is duly licensed or has made the appropriate application
to become duly licensed to collect provincial sales tax in all
applicable Canadian provincial jurisdictions and is registered
under Part IX of the Excise Tax Act (Canada) with registration
no. 87390 0443.
<PAGE>
-46-
ARTICLE 5
COVENANTS OF THE LESSOR, PERFORMANCE GUARANTOR AND IKON CAPITAL
SECTION 5.1 AFFIRMATIVE COVENANTS OF THE LESSOR
-----------------------------------
From the date hereof until the Final Collection Date, each of the
Lessor and the Collector (if the Lessor is the Collector) shall, unless the
Concurrent Lessee otherwise consents in writing:
(i) comply with all laws, rules, regulations and orders applicable to
all or any of the Lessor, the Collector, their respective
businesses, and properties and the Lease Rights relating to the
Designated Eligible Leases, except where the failure to do so
would not materially adversely affect the Concurrent Lessee's
interests hereunder, the enforceability of Designated Eligible
Leases (including the collectibility of the Designated Lease
Receivables) or the ability of the Lessor or the Collector to
perform its obligations hereunder or thereunder;
(ii) preserve and maintain its corporate existence and qualify and
remain qualified as a foreign or extra-provincial corporation in
each jurisdiction in which the failure to do so would materially
adversely affect the interests of the Concurrent Lessee
hereunder, the enforceability of Designated Eligible Leases
(including the collectibility of the Designated Lease
Receivables) or the ability of the Lessor or the Collector to
perform its obligations thereunder or hereunder;
(iii) maintain and implement prudent and reasonable administrative and
operating procedures (including an ability to recreate records
evidencing the Designated Eligible Leases and the Lease Rights
relating thereto in the event of the destruction of the originals
thereof) and keep and maintain all books, records, documents and
other information reasonably necessary or advisable for the
collection of all Designated Lease Receivables (including,
without limitation, records adequate to permit all Collections of
and reductions or adjustments to the Designated Lease
Receivables);
(iv) (1) furnish to the Concurrent Lessee promptly, from time to
time, such documents, records, information or reports with
respect to the Designated Eligible Leases, the Equipment
subject thereto and the Lease Rights relating thereto or the
conditions or operations, financial or otherwise, of the
Lessor as may be in existence in written form or, if
available in databases maintained by the Lessor, may be
produced
<PAGE>
-47-
with existing software and which the Concurrent Lessee may from
time to time reasonably request; and
(2) at any time and from time to time during regular business hours,
permit the Concurrent Lessee, its agents or representatives upon
two Business Days' prior notice to (i) examine and make copies of
all Records relating to the Designated Eligible Leases, the
Equipment subject thereto and the Lease Rights relating thereto
in the possession (or under the control) of the Lessor, and (ii)
visit the offices and properties of the Lessor for the purpose of
examining such Records and discussing matters relating to the
Designated Eligible Leases, the Equipment subject thereto and the
Lease Rights relating thereto and the Lessor's performance under
the Designated Eligible Leases or hereunder with any of the
Lessor's officers or employees having knowledge of such matters;
(v) furnish to the Concurrent Lessee:
(1) as soon as available and in any event within 60 days after the
end of each of the first three quarters in each fiscal year of
the Lessor, the consolidated and unconsolidated balance sheet of
the Lessor as of the end of such quarter and the consolidated and
unconsolidated statements of income of the Lessor for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, certified by the senior financial
officer of the Performance Guarantor as to the accuracy of the
information contained therein; and
(2) as soon as available and in any event within 120 days after the
end of each fiscal year of the Lessor, a copy of the consolidated
and unconsolidated financial statements for such year for the
Lessor, such financial statements to contain at least a balance
sheet, an earnings statement, a statement of changes in financial
position and a statement of retained earnings and certified by
the senior financial officer of the Performance Guarantor as to
the accuracy of the information contained therein;
(vi) furnish to the Concurrent Lessee promptly after the sending or filing
thereof, copies of all reports which the Lessor sends to any holders
of securities which it has offered to the public, and copies of all
reports and documents which the Lessor files with any securities
commission or any similar regulatory body;
<PAGE>
-48-
(vii) furnish to the Concurrent Lessee as soon as possible, and in any
event within five Business Days after an officer of the Lessor
becomes aware or ought to have become aware of the occurrence of
each Significant Event and each event which, with the giving of
notice or lapse of time or both, would constitute a Significant
Event, a statement of the Lessor's V-P Finance setting forth details
as to such Significant Event or event and the action which the
Lessor has taken and/or is proposing to take with respect thereto;
(viii) promptly upon becoming aware thereof, advise the Concurrent Lessee
of any material adverse change in its business, operations or
financial condition which reasonably could adversely affect the
Concurrent Lessee's interest hereunder, the enforceability of the
Lease Rights relating to any Designated Eligible Lease (including
the collectibility of the Designated Lease Receivable related
thereto), or its ability to perform its obligations hereunder or
under any Designated Eligible Lease.
(ix) notify the Concurrent Lessee at least ten Business Days prior to
changing its corporate name;
(x) notify the Concurrent Lessee at least 30 Business Days prior to
changing its chief place of business or chief executive office;
(xi) direct and require its auditors, at the Lessor's expense, to assist
the Concurrent Lessee's auditors to the extent and in such manner as
is required for the Concurrent Lessee's auditors to report on the
status of the Designated Eligible Leases and the Lease Rights
relating thereto;
(xii) timely and fully perform and comply with all terms, covenants and
other provisions required to be performed and observed by it under
the Designated Eligible Leases;
(xiii) comply in all respects with the Credit and Collection Policy (as
such policy may be amended from time to time, subject to Section
5.02(ii)) in regard to each Designated Eligible Lease and the
Designated Lease Receivables and notify the Concurrent Lessee, on
each Settlement Date prior to the occurrence of a Significant Event,
or promptly, following the occurrence of a Significant Event, of any
amendments to a Designated Eligible Lease in accordance with the
Credit and Collection Policy which would result in the information
set out in any Equipment Schedule no longer being accurate;
(xiv) in accordance with the Credit and Collection Policy, in the case of
the Lessor, if the Lessor is the Collector, make all renewal and
other
<PAGE>
-49-
registrations necessary to maintain any registrations respecting
the Concurrent Lessee's interest hereunder as against third
parties;
(xv) in the case of the Lessor, if the Lessor is the Collector, take all
steps necessary to obtain the discharge or partial discharge, as
the case may be, of any financing statement, registration,
recording, filing or other document similar in effect relating to
any Designated Eligible Lease and the Lease Rights or Collections
relating thereto on file which are in respect of Adverse Claims;
(xvi) instruct all Lessees under Designated Eligible Leases to remit all
Collections to the Collector (provided that so long as the Lessor
shall remain the Collector, no special instruction need be given by
the Lessor to any Lessee which currently is instructed to remit
such Collections to the Lessor) and remit all such Collections
received by the Lessor to the Collector;
(xvii) use its best efforts to collect on behalf of the Concurrent Lessee,
in accordance with the provisions hereof and the Credit and
Collection Policy, all Designated Lease Receivables and to hold the
Collections of such Designated Lease Receivables in trust for the
Concurrent Lessee and to remit such Collections to the Concurrent
Lessee in accordance with the terms hereof;
(xviii) apply all amounts as promptly as practicable following receipt
thereof by the Lessor, if the Lessor is the Collector, in
accordance with Section 2.09;
(xix) make all payments payable by it when due to government agencies and
others where a statutory lien or deemed trust might arise having
priority over the Concurrent Lessee's interest in any Designated
Eligible Leases and the Lease Rights relating thereto and, where a
portion of the Collections received by it represents an amount
owing in respect of Sales Taxes, remit and account for such Sales
Taxes in accordance with Section 2.14 hereof;
(xx) maintain the Concurrent Lessee as a named insured, as its interest
may appear, under all policies of insurance, if any, carried by the
Lessor with respect to any of the Equipment;
(xxi) as soon as possible, and in any event within ten Business Days of
the Lessor's knowledge thereof, give the Concurrent Lessee notice
of any litigation, investigation or proceeding against the Lessor
which may exist at any time which, in the reasonable judgment of
the Lessor, could materially adversely affect the Concurrent
Lessee's interest hereunder, the enforceability of any Lease Rights
(including the collectibility of the Designated Lease
<PAGE>
-50-
Receivables) or the Lessor's ability to perform its obligations
hereunder or under the Designated Eligible Leases;
(xxii) promptly upon the occurrence thereof, advise the Concurrent
Lessee of any changes in the registration numbers set out in
Section 4.01(xxi); and
(xxiii) provide updated opinions of counsel for the Lessor and IKON
Capital and counsel for the Performance Guarantor to the
Concurrent Lessee (with such addressees as are set out in
Exhibits D and D-1, respectively) on every twelve month
anniversary of the Initial Prepayment Date provided that, if
there has not been a Supplemental Equipment Schedule delivered
since the last twelve month anniversary, no such opinions shall
be required to be provided to the Concurrent Lessee.
SECTION 5.2 NEGATIVE COVENANTS OF THE LESSOR
--------------------------------
From the date hereof until the Final Collection Date, the Lessor
shall not, without the Concurrent Lessee's written consent:
(i) except as otherwise provided or permitted herein or pursuant to
an amalgamation or wind-up, sell, assign (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist
any Adverse Claim upon or with respect to, any Designated
Eligible Lease and the Equipment and Lease Rights relating
thereto, including the Designated Lease Receivables and
Collections (if the sum of such Adverse Claim and any other
Adverse Claims upon or with respect to such Designated Lease
Receivables or any other Lease Rights relating to Designated
Eligible Leases would exceed $50,000) or any account to which any
such Collections are sent, or assign any right to receive income
in respect of such Designated Eligible Leases and Lease Rights or
do any other thing to derogate from its grant hereunder or
prejudice the rights of the Concurrent Lessee hereunder or
thereunder;
(ii) make any change in the Credit and Collection Policy, which change
would impair the collectibility of any Designated Lease
Receivable;
(iii) extend, amend or otherwise modify or waive any term or condition
of any Designated Eligible Lease unless otherwise permitted in
accordance with the terms of the Credit and Collection Policy;
(iv) consent or agree to any financing statement, registration,
recording, filing or other document similar in effect relating to
any Designated Eligible Lease and the Lease Rights or Collections
relating thereto to be on file which would constitute an Adverse
Claim; or
<PAGE>
-51-
(v) account for any Designated Eligible Lease other than in
accordance with generally accepted accounting principles or file
any tax return in which any Designated Eligible Lease is not
treated as a lease for purposes of the Income Tax Act (Canada).
SECTION 5.3 COVENANTS OF THE PERFORMANCE GUARANTOR AND IKON CAPITAL
-------------------------------------------------------
From the date hereof until the Final Collection Date the
Performance Guarantor covenants, and from the date hereof until such time as
IKON Capital ceases to be a Sub-Collector hereunder IKON Capital covenants, with
the Concurrent Lessee that it shall, unless the Concurrent Lessee otherwise
consents in writing:
(i) comply with all laws, rules, regulations and orders applicable to
it and all or any of its businesses and properties, except where
the failure to do so would not materially adversely affect its
ability to perform its obligations hereunder or the Concurrent
Lessee's interest hereunder;
(ii) preserve and maintain its corporate existence;
(iii) furnish to the Concurrent Lessee, unless the Lessor has
previously complied with Section 5.01(vii), as soon as possible
and in any event within five Business Days after an officer of
the Performance Guarantor or IKON Capital, as applicable, becomes
aware or ought to have become aware of the occurrence of each
Significant Event and each event which, with the giving of notice
or lapse of time or both, would constitute a Significant Event, a
statement of an officer of the Performance Guarantor or IKON
Capital, as applicable, setting forth details as to such
Significant Event and the action which the Performance Guarantor
or IKON Capital, as applicable, has taken or is proposing to take
with respect thereto;
(iv) (1) in the case of the Performance Guarantor, guarantee
unconditionally and irrevocably the due performance of all
of the obligations of the Lessor, including those arising in
its capacity as Collector, so long as the Lessor is
Collector, under this Agreement and any document delivered
in connection herewith to which the Lessor is a party,
including any Hedging Agreement, and, in the event of any
failure of the Lessor to perform such obligations, assume
all of the liabilities of the Lessor including those arising
in its capacity as Collector, so long as the Lessor is at
such time the Collector, under this Agreement and any
document delivered in connection herewith; and
<PAGE>
-52-
(2) in the case of IKON Capital comply in all respects with the
Credit and Collection Policy with respect to each of the
Designated Eligible Leases;
(v) make all payments to be made by it in the performance of its
obligations hereunder and, in the case of IKON Capital, in the
performance of its obligations as Sub-Collector, without set-off
or counterclaim and without deduction or withholding for or on
account of any present or future taxes, levies, imposts, duties,
charges, assessments or fees of any nature (including any
interest, penalties and additions thereto) unless such deduction
or withholding is required by any applicable treaty, law, rule or
regulation (as modified by the practice of any relevant
governmental revenue authority then in effect), in which case it
shall pay to the Concurrent Lessee, in addition to any payment to
which the Concurrent Lessee is otherwise entitled under this
Agreement or any document delivered in connection herewith, such
additional amount as is necessary to ensure that the net amount
actually received by the Concurrent Lessee will equal the full
amount the Concurrent Lessee would have received had no such
deduction or withholding been required; and
(vi) in the case of the Performance Guarantor, furnish to the
Concurrent Lessee:
(1) as soon as available and in any event within 60 days after
the end of each of the first three quarters in each fiscal
year of the Performance Guarantor the consolidated balance
sheet of the Performance Guarantor as of the end of such
quarter and any consolidated statements of income, retained
earnings and cash flows of the Performance Guarantor for the
period commencing at the end of the previous fiscal year
ending with the end of such quarter, certified by the senior
financial officer of the Performance Guarantor, to be
prepared to the best of his/her knowledge and belief in
accordance with generally accepted accounting principles in
the United States, subject to year-end audit and normal
year-end adjustments as applicable; and
(2) as soon as available and in any event within 120 days after
the end of each fiscal year of the Performance Guarantor, a
copy of the consolidated financial statements of the
Performance Guarantor for such year reported on by a
nationally recognized firm of North American certified
public accountants, such financial statements to contain at
least a balance sheet, an earning statement, a statement of
cash flows and a statement of retained earnings, and such
report to
<PAGE>
-53-
state that such financial statements have been prepared in
accordance with generally accepted accounting principles in
the United States.
(vii) in the case of IKON Capital, furnish to the Concurrent Lessee:
(1) as soon as available and in any event within 60 days after
the end of each of the first three quarters in each fiscal
year of IKON Capital the balance sheet of IKON Capital as of
the end of such quarter and any statements of income,
retained earnings and cash flows of IKON Capital for the
period commencing at the end of the previous fiscal year
ending with the end of such quarter, certified by the senior
financial officer of the Performance Guarantor as to the
accuracy of the information contained therein; and
(2) as soon as available and in any event within 120 days after
the end of each fiscal year of IKON Capital, a copy of the
financial statements of IKON Capital for such year, such
financial statements to contain at least a balance sheet, an
earning statement, a statement of cash flows and a statement
of retained earnings, and to be certified by the senior
financial officer of the Performance Guarantor as to the
accuracy of the information contained therein.
<PAGE>
-54-
ARTICLE 6
ADMINISTRATION AND COLLECTION
SECTION 6.1 DESIGNATION OF COLLECTOR
------------------------
The Designated Eligible Leases will be administered, and the
Designated Lease Receivables collected, by the Collector in trust for the
Concurrent Lessee. Until the Concurrent Lessee designates a new Collector in
accordance with this Section 6.01, the Lessor is hereby designated as, and
hereby agrees to perform the duties and obligations of, the Collector pursuant
to the terms hereof. The Concurrent Lessee may, upon notice to the Lessor at
any time after the occurrence of and during the continuation of a Significant
Event (other than a Significant Event described in Section 7.01(v) in which case
the Concurrent Lessee shall provide the Lessor with five Business Days notice),
designate as the Collector any Person with a permanent establishment in Canada
to succeed the Lessor or any successor Collector, on the condition in each case
that any such Person so designated shall agree to perform the duties and
obligations of the Collector pursuant to the terms hereof and agree to be bound
by the terms of this Agreement. The Collector, with the Concurrent Lessee's
prior written consent, may subcontract with any other Person for the
administration of the Designated Eligible Leases and the collecting of the
Designated Lease Receivables; provided, however, that the Collector will remain
liable for the performance of the duties and obligations so subcontracted and
all other duties and obligations of the Collector pursuant to the terms hereof.
So long as the Lessor is the Collector, IKON Capital or any of its Affiliates or
a third party with the approval of the Concurrent Lessee may be designated as a
Sub-Collector. In that regard, IKON Capital or any permitted successor is
hereby appointed the Sub-Collector and it shall continue to perform the duties
and obligations it has been delegated by the Collector on or prior to the Cut-
off Date, and may not resign from such position, unless and until (i) the Lessor
agrees to perform such duties and obligations itself, or (ii) the Concurrent
Lessee designates a new Collector in accordance with this Section 6.01 and
specifically determines to release IKON Capital or any permitted successor from
its designation as Sub-Collector, at which time, the Concurrent Lessee may or
may not appoint a new Sub-Collector.
<PAGE>
-55-
SECTION 6.2 DUTIES OF COLLECTOR
-------------------
(a) The Collector shall take or cause to be taken all such actions
as may be necessary or advisable to collect all Designated Lease Receivables
under each Designated Eligible Lease from time to time, all in accordance with
applicable laws, rules and regulations, with reasonable care and diligence, and
in accordance with the Credit and Collection Policy. The Collector shall
segregate all records relating to the Designated Eligible Leases and shall mark
on all relevant computer records to the effect that the Equipment covered by
such Designated Eligible Leases is subject to an interest of the Concurrent
Lessee. The Collector, at all times, will use commercially reasonable best
efforts to collect amounts owing under Designated Eligible Leases including,
where appropriate to repossess the collateral and enforce all of the rights of
the Lessor and/or the Concurrent Lessee under the related Lease Rights. Each of
the Lessor, the Concurrent Lessee and the Administrative Agent hereby appoints
as its agent the Collector, from time to time designated pursuant to Section
6.01, to enforce its respective rights and interests in and under the Designated
Eligible Leases and the Lease Rights relating thereto. The Collector shall remit
all Collections in accordance with Article 2. The Collector shall segregate and
hold in trust to be paid to the appropriate Person, all amounts received with
respect to the Designated Eligible Leases in respect of PST, GST, HST, QST and
insurance premiums, if any.
(b) The Collector, if other than the Lessor, shall as soon as
practicable upon demand, deliver to the Concurrent Lessee all documents,
instruments and records in its possession which evidence or relate to Designated
Eligible Leases.
(c) The Collector shall maintain and implement prudent and
reasonable administrative and operating procedures (including an ability to
recreate records evidencing the Designated Eligible Receivables) and keep and
maintain all books, records, documents and other information reasonably
necessary or advisable for the collection of all Designated Eligible Receivables
(including records adequate to permit all collections of and reductions or
adjustments to such Designated Eligible Receivables) all in accordance with the
Credit and Collection Policy.
(d) To the extent the Records consist in whole or in part of
computer programs which are leased by the Collector, the Collector shall, upon
the demand of the Concurrent Lessee, use its best efforts to arrange for the
license or sublicense of such programs to the Concurrent Lessee to the extent
permitted by the terms of such license for the sole use of the Concurrent Lessee
or its agent in facilitating the collection of the Designated Eligible
Receivables.
(e) The Collector shall, with respect to any amount not paid by
the Collector when required to be paid hereunder, pay interest to the Concurrent
Lessee (before and after default and judgment, with interest on overdue interest
at the same rate) at a rate per annum, calculated daily, equal to the Prime Rate
plus 1%, payable on demand, provided
<PAGE>
-56-
that nothing in this Section 6.02(e) shall be construed to require the payment
of interest on amounts for which interest is paid pursuant to Section 2.08(b)
above. Such interest will be for the account of the Concurrent Lessee and shall
be paid by the Collector free and clear of, and without deduction for, any taxes
of any kind whatsoever to the Concurrent Lessee's Account to be applied in
accordance with Article 2 on the next Settlement Date.
(f) The Collector's appointment as agent of the Concurrent Lessee
under this Agreement for the purposes set out herein shall terminate on the
Final Collection Date.
SECTION 6.3 COLLECTOR FEE
-------------
If the Collector is not the Lessor, the Collector shall be
paid, as a fee (the "Collector Fee"), such commercially reasonable amount as may
be negotiated between the Concurrent Lessee and such Collector from time to
time. Such Collector Fee shall be payable in arrears on each Settlement Date.
For greater certainty, any fee payable to a Sub-Collector or any other Person
acting on behalf of the Collector shall be paid by and shall be the sole
responsibility of the Collector.
SECTION 6.4 RESPONSIBILITIES OF THE LESSOR
------------------------------
Anything herein to the contrary notwithstanding:
(i) the Lessor shall perform all of the obligations of the Lessor
under the Designated Eligible Leases to the same extent as if
the Equipment covered by the Designated Eligible Leases had
not been concurrently leased hereunder and the exercise by the
Concurrent Lessee of its rights hereunder shall not relieve
the Lessor from such obligations; and
(ii) the Concurrent Lessee shall not have any obligation or
liability with respect to any Designated Eligible Leases, nor
shall it be obligated to perform any of the obligations of the
Lessor thereunder.
ARTICLE 7
SIGNIFICANT EVENTS
SECTION 7.1 MEANING OF SIGNIFICANT EVENT
----------------------------
The term "Significant Event" means any of the following events
or circumstances:
<PAGE>
-57-
(i) the Lessor, IKON Capital, the Collector (if the Lessor is not
the Collector) or Performance Guarantor fails to make any
payment or deposit to be made by it hereunder when due;
(ii) the Lessor, IKON Capital, the Collector (if the Lessor is not
the Collector) or the Performance Guarantor fails to perform
or observe any term, condition or covenant to be performed or
observed by it hereunder (other than as contemplated in
Section 7.01(i)), and such failure, remains unremedied for ten
Business Days after written notice thereof has been given to
the Lessor, Collector or Performance Guarantor (except with
respect to any failure on the part of the Lessor, IKON Capital
or Performance Guarantor to perform its obligations under
Section 5.01(vii) or Section 5.03(iii), as applicable, in
which case no notice shall be required and no cure period
shall apply);
(iii) any representation or warranty made by the Lessor, IKON
Capital or the Performance Guarantor or any of their
respective officers in or pursuant to this Agreement, any
Lease Portfolio and Compliance Report or any other document
delivered in connection herewith proves to have been false or
incorrect in any material respect when made and such
representation or warranty, if capable of being cured, is not
cured within 10 Business Days after written notice thereof has
been given to the Lessor, IKON Capital or the Performance
Guarantor, as applicable;
(iv) the Lessor, IKON Capital or the Performance Guarantor shall
not pay its debts generally as they become due, or shall admit
in writing its inability to pay its debts generally, or shall
make a general assignment for the benefit of creditors; or any
proceedings shall be instituted by or against the Lessor, IKON
Capital or the Performance Guarantor seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors,
or seeking the entry of an order for relief by the appointment
of a receiver, trustee or other similar official for it or for
any substantial part of its property and, if such proceeding
has been instituted against the Lessor, IKON Capital or the
Performance Guarantor, either such proceeding has not been
stayed or dismissed within 45 days or a receiver, trustee,
custodian or other similar official is appointed for it or any
substantial part of its property; or the Lessor, IKON Capital
or the Performance Guarantor takes any corporate action to
authorize any of the actions described in this Section
7.01(iv);
(v) there shall have been, in the opinion of the Concurrent
Lessee, any change in the financial condition or operations of
the Lessor, IKON Capital or the Performance Guarantor since
December 31, 1997 or there shall have
<PAGE>
-58-
occurred any other event, if such change or event would
materially adversely affect the collectibility or
enforceability of the Designated Lease Receivables or the
ability of the Lessor to collect Designated Lease Receivables
or the ability of the Lessor, IKON Capital or the Performance
Guarantor to perform its obligations hereunder;
(vi) the Performance Guarantor fails to maintain a rating of at
least BBB- or better from Moody's and Baa3 or better from S&P;
(vii) the Performance Guarantor fails to perform any of its
obligations under the Indemnification Agreement;
(viii) a default by the Lessor under a Hedging Agreement entered into
in respect of this Agreement if such default is not cured
within the applicable cure period provided for in such Hedging
Agreement;
(ix) if at any time the Delinquency Ratio exceeds 16%;
(x) if any time the average of the Loss Ratio for any particular
Settlement Period and each of the three immediately preceding
Settlement Periods, or if there are not three immediately
preceding Settlement Periods then, such number of immediately
preceding Settlement Periods as have occurred, is equal to or
greater than 8%; and
(xi) if either the Lessor or the Sub-Collector does not continue to
be a Subsidiary of the Performance Guarantor.
SECTION 7.2 ACTION UPON A SIGNIFICANT EVENT
-------------------------------
(a) If any Significant Event has occurred and is continuing, the
Concurrent Lessee shall have, in addition to the right to appoint a new
Collector pursuant to Section 6.01 and its other rights and remedies hereunder
and under any documents delivered in connection herewith, all other rights and
remedies under any applicable law and otherwise, which rights and remedies shall
be cumulative.
(b) From time to time following the applicable effective date of
appointment by the Concurrent Lessee of a Collector, other than the Lessor,
pursuant to Section 6.01:
(i) the Lessor shall, at the Concurrent Lessee's request and at
the Lessor's expense, notify all or any Lessees under
Designated Eligible Leases of the Concurrent Lessee's right
and interest in any or all of the Designated Eligible Leases
and direct that payments in respect thereof be made directly
to the Concurrent Lessee or its designee;
<PAGE>
-59-
(ii) the Lessor shall, at the Concurrent Lessee's request and at
the Lessor's expense, assemble all or any of the Designated
Eligible Leases and the guarantees, indemnities and other
agreements forming part of the Lease Rights relating thereto
and make the same available to the Concurrent Lessee at a
place selected by it or its designee, and segregate, in a
manner reasonably acceptable to the Concurrent Lessee, all
cash, cheques and other instruments constituting Collections,
Net Proceeds or Permitted Investments, relating to the
Designated Eligible Leases, received or held by the Lessor
from time to time, and, promptly upon receipt, remit same to
the Concurrent Lessee or its designee duly endorsed or with
duly executed instruments of transfer;
(iii) the Lessor shall, at the Concurrent Lessee's request, advise
the Concurrent Lessee, in writing, of any changes in the name
or address of any Lessee of Equipment subject to Designated
Eligible Leases which, prior to such request, came to the
attention of the officer of the Lessor responsible for
monitoring the status of the applicable Designated Eligible
Leases; and
(iv) the Concurrent Lessee may take any and all steps, as lessor
under the Designated Eligible Leases and in the Lessor's name
and on its behalf, necessary or desirable in the Concurrent
Lessee's opinion, to collect the Designated Lease Receivables
forming part of the Lease Rights under the Designated Eligible
Leases, including taking actions contemplated in Section
7.02(b)(i) where the Lessor has failed to do so, and to remit
the proceeds of such Designated Lease Receivables to the
Collector for deposit in the General Account.
SECTION 7.3 WAIVER
------
The Significant Events are inserted for the sole benefit of
the Concurrent Lessee and may be waived by the Concurrent Lessee in whole or in
part, with or without terms and conditions.
<PAGE>
-60-
ARTICLE 8
THE ADMINISTRATIVE AGENT AND MATTERS RELATING TO LIABILITY
SECTION 8.1 AUTHORIZATION AND ACTION
------------------------
The Concurrent Lessee may delegate to the Administrative Agent
all or any of its powers, rights and discretions hereunder and the
Administrative Agent may from time to time take such actions and exercise such
powers as are delegated to it by the Concurrent Lessee hereunder or contemplated
hereby and all such powers as are reasonably incidental thereto.
SECTION 8.2 LIABILITY OF CONCURRENT LESSEE AND ADMINISTRATIVE AGENT
-------------------------------------------------------
Neither the Concurrent Lessee, the Administrative Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them hereunder or in connection
with this Agreement except for its or their own gross negligence or wilful
misconduct. Notwithstanding any provision of this Agreement, other than the
preceding sentence, neither the Lessor, IKON Capital, the Performance Guarantor
nor any Person acting on their behalf shall have recourse against the Concurrent
Lessee or the Administrative Agent, at law or in equity, in respect of any of
the obligations of the Concurrent Lessee or the Administrative Agent under this
Agreement or any document delivered in connection therewith other than against
the interests of the Concurrent Lessee in the Designated Eligible Leases.
Without limiting the foregoing, the Administrative Agent: (i) may consult with
legal counsel (including counsel for the Lessor), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to the
Concurrent Lessee and shall not be responsible to the Concurrent Lessee for any
statements, warranties or representations made in or in connection with this
Agreement; (iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Lessor or to inspect the property (including the
books and records) of the Lessor except as otherwise agreed to by the Concurrent
Lessee and the Administrative Agent; (iv) shall not be responsible to the
Concurrent Lessee for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any instrument or
document furnished pursuant hereto; and (v) shall incur no liability under or in
respect of this Agreement by acting upon any notice (including notice by
telephone), consent, certificate or other instrument or writing (which may be by
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
<PAGE>
-61-
SECTION 8.3 LIMITATION OF LIABILITY
-----------------------
The obligations hereunder are not binding upon TD Trust
Company except in its capacity as trustee of the Concurrent Lessee, nor will
resort be had to the property of TD Trust Company except in its capacity as
trustee of the Concurrent Lessee, but the assets only of the Concurrent Lessee
will be bound hereby.
ARTICLE 9
INDEMNIFICATION
SECTION 9.1 INDEMNITIES BY THE LESSOR
-------------------------
(a) Without limiting any other rights which the Administrative
Agent, the Concurrent Lessee, any assignee of the Concurrent Lessee or any
Affiliate of any of them or their respective agents may have hereunder or under
applicable law, the Lessor hereby agrees to indemnify the Administrative Agent,
the Concurrent Lessee, any assignee of the Concurrent Lessee, and each of their
Affiliates and their respective agents from and against any and all damages,
losses, claims, liabilities and related costs and expenses, including reasonable
legal fees and disbursements awarded against or incurred by any of them
("losses") arising out of or as a result of:
(i) reliance on any written representation or warranty made by the
Lessor (or any of its officers) in or pursuant to this
Agreement, any Lease Portfolio and Compliance Report,
Equipment Schedule, information, exhibit, financial statement,
document, book, record or report furnished to the Concurrent
Lessee in connection with this Agreement which was incorrect
in any materially adverse respect when made or deemed made or
delivered;
(ii) the failure by the Lessor on its own behalf or in its capacity
as Collector, to comply with any applicable law, rule or
regulation with respect to any Designated Eligible Leases or
with respect to any Designated Lease Receivables or to perform
its obligations thereunder, or the non-conformity of any
applicable Designated Lease Receivable with any applicable
law, rule or regulation;
(iii) the failure to vest and maintain vested in the Concurrent
Lessee a beneficial interest in all Lease Rights relating to
Designated Eligible Leases free and clear of any Adverse Claim
whether existing at the time of the concurrent lease hereunder
or at any time thereafter;
(iv) any dispute, claim, offset or defence (other than discharge in
bankruptcy of the Lessee) of a Lessee to the payment of any
Designated Lease Receivable under, or purporting to be under,
a Designated Eligible Lease (including
<PAGE>
-62-
without limitation, a defence based on the Designated Eligible
Lease not being a legal, valid and binding obligation of such
Lessee enforceable against it in accordance with its terms);
(v) any failure of the Lessor, as Collector or otherwise, to
perform its duties or obligations in accordance with the
provisions of Article 6;
(vi) any product liability claim or personal injury or property
damage suit or other similar or related claim or action of
whatsoever sort arising out of or in connection with any
Equipment, including any losses attributable to the Lessee's
failure to insure any Equipment;
(vii) any Canadian, foreign, federal, provincial, state, municipal,
local or other tax of any kind or nature whatsoever, including
any capital, income, business, property tax or Sales Taxes,
any customs duty, and any penalty or interest in respect of
any thereof, which may be imposed on the Concurrent Lessee or
the Administrative Agent on account of any payment made by the
Lessor under this Section 9.01;
(viii) any claims, disputes, damages, penalties and losses arising in
respect of a Designated Eligible Receivable or from the Lease
Rights relating to the Designated Eligible Leases, other than
losses attributable to any Lessee's failure to discharge its
payment obligations or other default under the applicable
Designated Eligible Lease;
(ix) the return or transfer by the Concurrent Lessee in error of
any amount of Collections received pursuant to Article 2 to
the Lessor for any reason whatsoever other than pursuant
hereto;
(x) any failure of the Lessor to comply with any applicable law
regarding the filing or discharge of registrations required to
be made in respect of the Designated Eligible Leases in
accordance with the laws of the applicable province or
territory of Canada;
(xi) actual losses as a result of the failure of the Lessor or the
Concurrent Lessee to comply with the requirements of any
applicable bulk sales legislation;
(xii) the characterization by any relevant taxing authority of a
Designated Eligible Lease as other than a lease of the
Equipment subject thereto;
(xiii) any priority over the interest of the Concurrent Lessee in any
Designated Eligible Leases, the related lease agreement for
which may constitute "chattel paper" within the meaning of the
applicable Personal Property Security Act of the Provinces of
British Columbia, Alberta, Saskatchewan, Manitoba or
<PAGE>
-63-
Ontario that is gained by a purchaser or pledgee of such
chattel paper who takes possession of it in the ordinary
course of business, to the extent that such purchaser gives
new value, where the purchaser did not know that the chattel
paper was subject to the Concurrent Lessee's interest;
(xiv) any investigation, litigation or proceeding related to this
Agreement or the application of Collections or the ownership
of any Designated Eligible Leases and the Lease Rights
relating thereto; or
(xv) any claims by any governmental authority in respect of amounts
included in or collected under (or purported to be included in
or collected under) any Designated Lease Receivable as or on
account of any Sales Taxes;
other than losses attributed to the negligence or wilful misconduct of the
Concurrent Lessee or the Administrative Agent. Any amount owing under this
Section 9.01 shall be paid to the Collector for deposit to the General Account
or Concurrent Lessee's Account, as applicable, and shall be applied in
accordance with Section 2.03.
(b) Without limiting any other rights which the Administrative
Agent, the Concurrent Lessee, any assignee of the Concurrent Lessee or any
Affiliate of any of them or their respective agents may have hereunder or under
applicable law, the Lessor hereby indemnifies the Concurrent Lessee, the
Administrative Agent and each of their Affiliates and their respective agents
and agrees to save them harmless from and against any and all damages, losses,
claims, liabilities, costs and expenses (including reasonable legal fees and
disbursements on a solicitor and client basis) incurred in respect of a Lease
Tranche by or on behalf of the Concurrent Lessee or the Administrative Agent in
respect of any amounts payable by the Concurrent Lessee arising out of or as a
result of any breach of the terms hereof or of any document delivered in
connection herewith by the Lessor, IKON Capital or the Performance Guarantor and
not otherwise recoverable from the Lessor, IKON Capital or the Performance
Guarantor, provided that, notwithstanding any other provision of this Agreement,
the Lessor shall not be obligated to indemnify the Concurrent Lessee, the
Administrative Agent, each of their Affiliates nor their respective agents for
any claims, disputes, damages, penalties or losses which result directly from
the negligence or wilful misconduct of such parties.
SECTION 9.2 COOPERATION IN LITIGATION AND PROCEEDINGS
-----------------------------------------
Each of the Lessor and the Concurrent Lessee agrees to assist
the other party, at the request of such other party, and at such requesting
party's expense, in any action, suit or proceeding brought by or against, or any
investigation involving, such requesting party (including the Administrative
Agent, with respect to the Concurrent Lessee but not including actions against
each other) relating to any of the transactions contemplated hereby or to any of
the Designated Eligible Leases and the Lease Rights relating thereto. If the
Lessor may be liable under Section 9.01 in respect of any damages, losses,
claims,
<PAGE>
-64-
liabilities, costs or expenses as a result of or in connection with any
such action, suit, proceeding or investigation, the Lessor shall have the right,
on behalf of the Concurrent Lessee but at the Lessor's expense, to defend such
action, suit or proceeding, or participate in such investigation, with counsel
selected by it, and shall have sole discretion as to whether to litigate, appeal
or settle.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 AMENDMENTS, ETC.
----------------
No amendment or waiver of any provision of this Agreement nor
consent to any departure by the Lessor, IKON Capital or the Performance
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by (i) the Lessor, IKON Capital, the Performance Guarantor,
the Administrative Agent and the Concurrent Lessee (with respect to an
amendment) or (ii) the Administrative Agent and the Concurrent Lessee (with
respect to a waiver or consent by them) or the Lessor (with respect to a waiver
or consent by it), or by IKON Capital (with respect to a waiver or consent by
it), or the Performance Guarantor (with respect to a waiver or consent by it) as
the case may be, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. This Agreement
and the Equipment Schedules delivered in connection herewith contain a final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire agreement among the
parties hereto with respect to the subject matter hereof, superseding all prior
oral or written undertakings.
SECTION 10.2 NOTICES, ETC.
-------------
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including telecopied
communication) and telecopied or delivered, as to each party hereto, at its
address set forth under its name on the signature pages hereof or at such other
address as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall be effective, in the
case of notice by telecopy, when telecopied and addressed as aforesaid, except
that notices and communications pursuant to Article 2 shall not be effective
until received.
SECTION 10.3 NO WAIVER, REMEDIES
-------------------
No failure on the part of the Administrative Agent or the
Concurrent Lessee to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
<PAGE>
-65-
SECTION 10.4 BINDING EFFECT; ASSIGNABILITY; SEVERABILITY
-------------------------------------------
This Agreement shall be binding upon and inure to the benefit of
the Lessor, IKON Capital, the Performance Guarantor, the Administrative Agent,
the Concurrent Lessee and their respective successors and permitted assigns;
provided, however, that neither the Lessor, IKON Capital nor the Performance
Guarantor may assign its rights hereunder or any interest herein without the
prior written consent of the Administrative Agent, and the Concurrent Lessee may
not assign its rights hereunder or any interest herein to, and the Concurrent
Lessee represents and warrants to the Lessor that it is not, a non-resident
within the meaning of the Income Tax Act (Canada). This Agreement shall create
and constitute the continuing obligations of the parties hereto in accordance
with its terms, and shall remain in full force and effect until the Final
Collection Date; provided, however, that the rights and remedies with respect to
any breach of any representation and warranty made by the Lessor pursuant to
Article 4 and the provisions of Article 9 and of Section 10.05 shall be
continuing and shall survive any termination of this Agreement for a period of
six years.
SECTION 10.5 COSTS, EXPENSES AND TAXES
-------------------------
(a) In addition to the rights of indemnification granted to the
Administrative Agent and the Concurrent Lessee under Article 9 hereof and the
fees and expenses to be paid by the Lessor pursuant to Section 2.11, the Lessor
agrees to pay on demand all reasonable costs and expenses in connection with the
administration (including periodic auditing) of this Agreement and the other
documents to be delivered hereunder which arise out of or are necessitated by
any breach or threatened breach by the Lessor of any of the provisions of this
Agreement, including, without limitation, the reasonable fees and out-of-pocket
expenses of legal counsel for the Administrative Agent and the Concurrent
Lessee, with respect to advising the Administrative Agent and the Concurrent
Lessee as to their respective rights and remedies under this Agreement in the
event of a breach thereof, and all reasonable costs and expenses, if any
(including reasonable legal fees and expenses), in connection with the
enforcement of this Agreement and the other documents to be delivered hereunder.
The Lessor shall bear its own costs and expenses, including legal and accounting
fees, incurred in the preparation, negotiation and execution and delivery of
this Agreement.
(b) In addition, the Lessor shall pay any and all taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing and recording of this Agreement or the other documents to be delivered
hereunder, and any and all taxes (other than income taxes) payable by the
Concurrent Lessee as a result of its interest in and collection of payments
under Designated Eligible Leases and agrees to indemnify the Administrative
Agent and the Concurrent Lessee and their Affiliates against any liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and fees.
<PAGE>
-66-
SECTION 10.6 NO PETITION
-----------
Each of the Lessor and the Collector covenants and agrees, and any
successor Collector shall covenant and agree, that prior to the date which is
one year and one day after payment in full of all Concurrent Lessee's
Indebtedness, it will not institute against, or join any other person in
instituting against, the Concurrent Lessee, any bankruptcy, reorganization,
arrangement, insolvency, liquidation or other similar proceedings under federal
or provincial bankruptcy or similar law. This Section 10.06 shall survive the
termination of this Agreement.
SECTION 10.7 SET OFF
-------
(a) Each of the Lessor and the Collector hereby irrevocably and
unconditionally waives, and any Collector shall irrevocably and unconditionally
waive, all right of set-off that it may have under contract (including this
Agreement), applicable laws or otherwise, with respect to any funds or monies of
the Concurrent Lessee held by it or in its possession.
(b) Each of the Lessor and the Collector hereby irrevocably and
unconditionally waives any and all right to any counterclaim or other defence to
payment of amounts owing to the Concurrent Lessee in respect of this Agreement.
SECTION 10.8 CONFIDENTIALITY
---------------
The Concurrent Lessee and the Administrative Agent shall endeavour
to maintain confidential any information provided to any of them by the Lessor
relating to the Lessees, the Leases or any Eligible Leases and none of the
Concurrent Lessee nor the Administrative Agent will at any time use any such
confidential information for any purpose which is not related to the ownership
of and collection of amounts owing under Designated Eligible Leases and
Defaulted Leases, provided that the Concurrent Lessee and the Administrative
Agent may disclose such information to its professional advisors in connection
with the administration and enforcement of this Agreement and to any Collector
(other than the Lessor) designated pursuant to Section 6.01. Neither the Lessor,
IKON Capital, the Performance Guarantor, the Concurrent Lessee nor the
Administrative Agent shall disclose the terms of this Agreement except to their
respective professional advisors and bankers solely for the purposes of the
transaction contemplated hereby or as required by law or to a Collector (other
than the Lessor) designated pursuant to Section 6.01.
SECTION 10.9 CHANGE IN CIRCUMSTANCE
----------------------
If either:
(a) the introduction of or any change (including, without limitation,
any change by way of imposition of a capital or other tax) in or in
the interpretation of
<PAGE>
-67-
any law or regulation by any court or governmental authority
charged with the administration thereof; or
(b) the compliance by the Concurrent Lessee with any guideline or
request from any governmental authority (whether or not having the
force of law),
has the effect of
(i) increasing the cost to the Concurrent Lessee of making,
funding or maintaining a lease hereunder or agreeing to
make a lease hereunder, or reducing the rate of return to
the Concurrent Lessee in connection therewith; or
(ii) reducing the amount receivable with regard to any
Designated Eligible Lease in the Lease Portfolio;
the Lessor shall, from time to time, upon demand by the Concurrent Lessee and to
the extent not otherwise recovered pursuant to Section 2.04(a)(iii), pay to the
Concurrent Lessee that portion of such increased costs incurred, amounts not
received or receivable, or compensation for such reduction in rate of return
which is attributable to making, funding or maintaining such lease hereunder. In
addition, upon the occurrence of an event or events referred to above, the
Lessor shall have the option of terminating the concurrent lease of all
Equipment hereunder and the Lessor shall pay to the Concurrent Lessee, as
consideration for the economic loss sustained by the Concurrent Lessee as a
consequence of such termination, an amount equal to the Aggregate Finance
Balance plus an amount equal to the amount of Unearned Finance attributed to the
Lease Portfolio for the Settlement Period in which such termination occurred and
upon such termination the Concurrent Lessee shall surrender, assign and transfer
to the Lessor and the Lessor shall accept the transfer of all right, title and
interest of the Concurrent Lessee in the Lease Portfolio, the Lessor shall
assume all of the Concurrent Lessee's obligations under the relevant Leases and
the Lessor shall release the Concurrent Lessee from all of its remaining
obligations hereunder with respect to such Equipment relating to such Leases.
The Concurrent Lessee shall provide the Lessor with a certificate setting forth
its computation of such increased costs, amounts not received or receivable or
reduction in rate of return, which computation may utilize such averaging and
attribution methods the Concurrent Lessee believes to be reasonable. Such
certificate shall be prima facie evidence, absent manifest error, of the amount
payable to the Concurrent Lessee pursuant to this Section 10.09. The Concurrent
Lessee shall, upon becoming aware of an event or circumstance that is likely to,
with the passage of time or otherwise, entitle it to demand payment pursuant to
this Section 10.09, promptly notify the Lessor.
<PAGE>
-68-
SECTION 10.10 GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with, the
laws of the Province of Ontario, except to the extent that the validity or
perfection of the Concurrent Lessee's interests in any Designated Eligible
Leases or the Lease Rights relating thereto or its remedies hereunder in respect
thereof are governed by the laws of a different jurisdiction.
SECTION 10.11 FURTHER ASSURANCES
------------------
The parties hereto agree, from time to time, to enter into such further
agreements and to execute all such further instruments as may be reasonably
necessary or desirable to give full effect to the terms of this Agreement.
SECTION 10.12 EXECUTION IN COUNTERPARTS
-------------------------
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
IKON OFFICE SOLUTIONS, INC.
By: /s/ J.F. Quinn
---------------------------------
Name: J.F. Quinn
Title: Treasurer
Address for Notices:
Suite 810
715 5th Avenue S.W.
Calgary, Alberta
T2P 2X6
Attention: Controller
Facsimile No.: (403) 264-9963
<PAGE>
-69-
IKON CAPITAL, INC.
By: /s/ J.F. Quinn
----------------------------
Name: J.F. Quinn
Title: Treasurer
Address for Notices:
16007 - 116th Avenue
Edmonton, Alberta
T5M 3Y1
Attention: Controller
Facsimile No.: (403) 489-4411
IKON OFFICE SOLUTIONS, INC. as
Performance Guarantor
By: /s/ J.F. Quinn
----------------------------
Name: J.F. Quinn
Title: Treasurer
Address for Notices:
70 Valley Stream Parkway
P.O. Box 834
Malvern, PA 19355
U.S.A.
Attention: Treasurer
Facsimile No.: (610) 408-7022
<PAGE>
-70-
PRIME TRUST, by its administrative agent,
TD SECURITIES INC.
By: /s/ Signature
--------------------------------
Name:
Title:
By: /s/ Signature
--------------------------------
Name:
Title:
Address for Notices:
222 Bay Street
Ernst & Young Tower, 7th Floor
Toronto, Ontario
M5K 1A2
Attention: Asset Securitization Group
Facsimile No.: (416) 307-8840
TD SECURITIES INC. as
Administrative Agent
By: /s/ Signature
--------------------------------
Name:
Title:
By: /s/ Signature
--------------------------------
Name:
Title:
<PAGE>
-71-
Address for Notices:
222 Bay Street
Ernst & Young Tower, 7th Floor
Toronto, Ontario
M5K 1A2
Attention: Asset Securitization Group
Facsimile No.: (416) 307-8840
<PAGE>
EXHIBIT A
---------
CREDIT AND COLLECTION POLICY
<PAGE>
EXHIBIT B
---------
FORM OF EQUIPMENT SCHEDULE
- ATTACHED -
<PAGE>
[INITIAL] [SUPPLEMENTAL] EQUIPMENT SCHEDULE
(SCHEDULE TO MASTER CONCURRENT LEASE AGREEMENT ("MCLA")
DATED AS OF THE 29TH DAY OF APRIL, 1998
BETWEEN IKON OFFICE SOLUTIONS, INC., PRIME TRUST AND OTHERS)
1. This [INITIAL][SUPPLEMENTAL] Equipment Schedule is delivered pursuant to
Section 2.01 of the MCLA. Terms used herein and not otherwise defined
herein have the meaning ascribed thereto in the MCLA.
2. [INITIAL] [SUBSEQUENT] Prepayment Date: ___________________________.
3. Cut-off [SUBSEQUENT CUT-OFF] Date: ________________________________.
4. Program Fee Rate:__________________________________________________.
5. Aggregate Finance Balance for
Lease Tranche: _________________________________________________.
6. Prepaid Rent:______________________________________________________.
7. List of Designated Eligible Leases: See Exhibit A.
8. Additional Office Locations: See Exhibit B.
Dated.________________________________
IKON CAPITAL, INC. IKON OFFICE SOLUTIONS, INC.
By: _____________________________ By: _____________________________
Name: Name:
Title: Title:
Name:
Title:
IKON OFFICE SOLUTIONS, INC. (U.S.)
By: _____________________________
Name:
Title:
Acknowledged and Accepted [DATE]
PRIME TRUST, BY ITS
ADMINISTRATIVE AGENT, TD SECURITIES INC.
By: _____________________________
<PAGE>
Name:
Title:
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
LIST OF DESIGNATED ELIGIBLE LEASES
- -------------------------------------------------------------------------------
[EQUIPMENT Description Lessee Commencement Term Finance
IDENTIFICATION #] of (name/address) Date Balance
OR IF NONE Equipment
[CONTRACT
IDENTIFICATION #]
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________
</TABLE>
<PAGE>
EXHIBIT B
---------
ADDITIONAL OFFICE LOCATIONS
[NIL]
<PAGE>
EXHIBIT C
---------
LEASE PORTFOLIO AND COMPLIANCE REPORT
- Attached -
<PAGE>
EXHIBIT D
---------
FORMS OF OPINION OF COUNSEL FOR THE LESSOR, IKON CAPITAL AND PERFORMANCE
GUARANTOR
- Attached -
<PAGE>
EXHIBIT E
---------
CHIEF EXECUTIVE OFFICE AND BRANCH OFFICES OF LESSOR
- Attached -
<PAGE>
EXHIBIT 10.20
IKON OFFICE SOLUTIONS, INC.
AMENDMENT NO. 1
DATED 11/6/97
TO THE
LONG TERM INCENTIVE COMPENSATION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office Solutions,
Inc.) (the "Company") adopted the Long Term Incentive Compensation Plan (the
"Plan"), effective October 1, 1992; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. All references in the Plan to "Alco Standard Corporation" and "Alco"
shall be deemed to be references to "IKON Office Solutions, Inc." and
"IKON," respectively.
2. Section 4 of the Plan shall be amended to read in full as follows:
14. ADJUSTMENTS. In the event of any stock dividend, stock split,
combination of shares, merger, consolidation, reorganization, spin-off,
or recapitalization affecting the outstanding shares of Common Stock
(the "Event"), the maximum number and kind of shares that may be issued
under the Plan and the number and kind of shares or other securities
subject to then outstanding awards shall be appropriately and equitably
adjusted as necessary to maintain the same proportionate number of
shares as existed immediately prior to the Event.
3. A new Section 25 shall be added to the Plan, which shall read in full
as follows:
25. CHANGE IN CONTROL. Upon a Change in Control (as defined below),
all outstanding Awards shall be vested in an amount equal to the
greater of (i) the target level of the Award or (ii) the level of the
Award corresponding to the performance goals actually achieved at the
time of the Change in Control, and IKON shall pay such amount to the
employee, in cash, as soon as practicable following the Change in
Control, without regard to whether the employee's employment with IKON
terminated following the Change in Control.
For purposes of the Plan, the term "Change in Control" shall mean any of
the following events:
(A) any Person, together with its affiliates and associates (as such
terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), is or becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 15% or more of the then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
September 30, 1997, constituted the Board of Directors of IKON and any
new director whose appointment or election by the Board or nomination
for election by IKON's shareholders was approved by a vote of at least
a majority of the directors then still in office who either were
directors of IKON on September 30, 1997 or whose appointment, election
or nomination for election was previously so approved; or
(C) IKON consolidates with, or merges with or into, any other Person
(other than a wholly owned subsidiary of IKON), or any other Person
consolidates with, or merges with or into, IKON, and, in connection
therewith, all or part of the outstanding shares of common stock shall
be changed in any way or converted into or exchanged for stock or other
securities or cash or any other property; or
(D) a transaction or series of transactions in which, directly or
indirectly, IKON shall sell or otherwise transfer (or one or more of
its subsidiaries shall sell or otherwise transfer) assets (i)
aggregating more than 50% of the assets (measured by either book value
or fair market value) or (ii) generating more than 50% of the operating
income or cash flow of IKON and its subsidiaries (taken as a whole) to
any other Person or group of Persons.
1
<PAGE>
Notwithstanding the foregoing, no "Change in Control" shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common
stock immediately prior to such transaction or series of transactions own a
majority of the outstanding voting shares and in substantially the same
proportion in an entity which owns all or substantially all of the assets of
IKON immediately following such transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) IKON or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the shareholders of IKON in
substantially the same proportions as their ownership of IKON stock.
In no event will the provisions of this Section 25 be subject to amendment
or modification after a Change in Control has occurred.
Executed this 23rd day of December, 1998.
IKON OFFICE SOLUTIONS, INC.
/s/ Signature
By:__________________________________
2
<PAGE>
EXHIBIT 10.22
AMENDMENT DATED 11/6/97
TO THE
1986 STOCK OPTION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office
Solutions, Inc.) (the "Company") adopted the 1986 Stock Option Plan (the
"Plan"), effective February 21, 1986; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
All references in the Plan to "Alco Standard Corporation" and "Alco"
shall be deemed to be references to "IKON Office Solutions, Inc." and "IKON,"
respectively.
Section 14 of the Plan shall be amended to read in full as follows:
14. ADJUSTMENTS. In the event of any stock dividend, stock
-----------
split, combination of shares, merger, consolidation, reorganization, spin-off,
or recapitalization affecting the outstanding shares of Common Stock (the
"Event"), the maximum number and kind of shares that may be issued under the
Plan, the number and kind of shares subject to then outstanding options, and the
price for each shares subject to any then outstanding options shall be
appropriately and equitably adjusted as necessary to maintain the same
proportionate number of shares as existed immediately prior to the Event and the
same aggregate option price.
A new Section 18 shall be added to the Plan, which shall read in full
as follows:
18. CHANGE IN CONTROL. Upon a Change in Control (as defined
-----------------
below), all outstanding options shall automatically become fully exercisable.
For purposes of the Plan, the term "Change in Control" shall mean
any of the following events:
(A) any Person, together with its affiliates and associates (as
such terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of
the then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
September 30, 1997, constituted the Board of Directors of IKON and any new
director whose appointment or election by the Board or nomination for election
by IKON's shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors of IKON on September
30, 1997 or whose appointment, election or nomination for election was
previously so approved; or
<PAGE>
(C) IKON consolidates with, or merges with or into, any other
Person (other than a wholly owned subsidiary of IKON), or any other Person
consolidates with, or merges with or into, IKON, and, in connection therewith,
all or part of the outstanding shares of common stock shall be changed in any
way or converted into or exchanged for stock or other securities or cash or any
other property; or
(D) a transaction or series of transactions in which, directly
or indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion in an
entity which owns all or substantially all of the assets of IKON immediately
following such transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any
of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
In no event will the provisions of this Section 18 be subject to
amendment or modification after a Change in Control has occurred.
Executed this 29th day of June, 1998.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Kurt E. Dinkelacker
------------------------
<PAGE>
EXHIBIT 10.23
AMENDMENT DATED 11/6/97
TO THE
1995 STOCK OPTION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office
Solutions, Inc.) (the "Company") adopted the 1995 Stock Option Plan (the
"Plan"), effective November 10, 1994; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
All references in the Plan to "Alco Standard Corporation" and "Alco"
shall be deemed to be references to "IKON Office Solutions, Inc." and "IKON,"
respectively.
Section 4.3 of the Plan shall be amended to read in full as follows:
4.3. ADJUSTMENTS. In the event of any stock dividend, stock
-----------
split, combination of shares, merger, consolidation, reorganization, spin-off,
or recapitalization affecting the outstanding shares of Common Stock (the
"Event"), the maximum number and kind of shares that may be issued under the
Plan, the number and kind of shares subject to then outstanding options, and the
price for each shares subject to any then outstanding options shall be
appropriately and equitably adjusted as necessary to maintain the same
proportionate number of shares as existed immediately prior to the Event and the
same aggregate option price.
A new subsection (h) shall be added to Section 6.4 of the Plan, which
shall read in full as follows:
1.
(h) CHANGE IN CONTROL. Upon a Change in Control (as defined
-----------------
below), all outstanding options shall automatically become fully exercisable.
For purposes of the Plan, the term "Change in Control" shall mean
any of the following events:
(A) any Person, together with its affiliates and associates (as
such terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of
the then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
September 30, 1997, constituted the Board of Directors of IKON and any new
director whose appointment or election by the Board or nomination for election
by IKON's shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors of IKON on September
30, 1997 or whose appointment, election or nomination for election was
previously so
<PAGE>
approved; or
(C) IKON consolidates with, or merges with or into, any other
Person (other than a wholly owned subsidiary of IKON), or any other Person
consolidates with, or merges with or into, IKON, and, in connection therewith,
all or part of the outstanding shares of common stock shall be changed in any
way or converted into or exchanged for stock or other securities or cash or any
other property; or
(D) a transaction or series of transactions in which, directly
or indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion in an
entity which owns all or substantially all of the assets of IKON immediately
following such transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any
of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
In no event will the provisions of this Section 6.4(h) be subject to
amendment or modification after a Change in Control has occurred.
Executed this 29th day of June, 1998.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Kurt E. Dinkelacker
-----------------------
<PAGE>
EXHIBIT 10.25
EXECUTIVE EMPLOYMENT AGREEMENT
THIS IS A VERY IMPORTANT LEGAL DOCUMENT WHICH MAY AFFECT YOUR RIGHTS
TO FUTURE EMPLOYMENT. AS A RESULT, YOU SHOULD REVIEW THE DOCUMENT
CAREFULLY, AND FULLY UNDERSTAND ITS TERMS AND IMPLICATIONS, BEFORE SIGNING.
This Employment Agreement ("Agreement") effective April 1, 1997 is
entered into between IKON OFFICE SOLUTIONS, INC., an Ohio corporation ("IKON" or
the "Company"), with its principal place of business in Valley Forge,
Pennsylvania, and Lynn Graham ("Executive").
In consideration of the mutual promises contained in this Executive
Employment Agreement ("Agreement") including the following items, none of which
would be conferred upon Executive absent execution of this Agreement: (1) a
change in employment status from employment-at-will to employment for a fixed
period of time in a new executive position, subject to the terms and conditions
set forth below; and (2) additional good and valuable consideration including
but not limited to that set forth in Addendum B of this Agreement, the parties
to this Agreement ("Parties"), INTENDING TO BE LEGALLY BOUND, agree as follows:
ARTICLE I-TERMS OF EMPLOYMENT
- -----------------------------
1.1 DUTIES.
------
1.1.1 DUTIES OF POSITION. IKON shall employ Executive as President of its
------------------
Document Services division. The Parties expressly agree that the position of
President of the Document Services division of IKON Office Solutions is a key
position and an executive position in the Company. Executive shall comply with
his obligation set forth in this Employment Agreement and with all Company
policies, now currently in force, or as may from time to time be unilaterally
adopted and modified by the Company, whether or not reduced to writing. In
addition, Executive shall have the following duties set forth in Addendum A of
the Agreement which is hereby incorporated as if fully set forth herein.
Executive specifically recognizes and acknowledges that this position is one of
trust and confidence and that, as a result, he will have access to, and may be
given specialized education and confidential, proprietary information of the
Company.
1.1.2 DUTY OF LOYALTY. Executive will (1) devote substantially appropriate
---------------
time, attention, and energies to the business of the Company and diligently
perform all duties incident to his employment; (2) use his best efforts to
promote the interests and goodwill of the Company; and (3) perform such other
duties commensurate with his office as the President of IKON, or his assignees,
from time to time assign him. Further, during the term of employment, Executive
shall not engage in any activity to the detriment or embarrassment of the
Company. By way of illustration and not as a limitation, Executive shall not
discuss with any customer or potential customer of the Company, or any
competitor of the Company, any plans by Executive or any other employees of the
Company to leave the employment of the Company or to compete with the Company.
Executive shall at all times in performance of his duties work in concert with,
and take direction from the President of IKON.
1.2 TERM OF AGREEMENT. Unless terminated in accordance with Article 2, this
-----------------
Agreement shall remain in force for a term of two and one-half (2 1/2) years
from the effective date of this Agreement through September 30, 1999 ("Term").
1.3 COMPENSATION. During the Term of the Agreement, the Executive shall be
------------
compensated in accordance with the terms set forth in Addendum B of this
Agreement which is incorporated as if fully set forth herein ("Total
Compensation Package"). In the event the Company shall pay to Executive during
the Term any compensation in excess of the Total Compensation Package provided
for herein, the payment of such increased compensation shall not be deemed to be
an amendment to this Agreement, and may be discontinued at any time without
cause. Executive's Total Compensation Package shall be reviewed on a periodic
basis (most likely, yearly) and shall remain consistent with and commensurate to
those other executives of the Company in similar roles, always taking into
consideration the total responsibilities of Executive to the Company as well as
the overall revenue and operating income contributions of Executive's designated
marketplaces. The Company shall have the right to further adjust the
Executive's Total Compensation Package to reflect the actual performance of the
Executive.
1.4 ADDITIONAL OBLIGATIONS OF EXECUTIVE. Executive understands that the
-----------------------------------
obligations imposed under this Agreement are not exclusive, and that the Company
may unilaterally, from time to time, impose additional reasonable obligations
upon Executive consistent with his duties and position within the Company. If
Company promotes Executive, or changes Executive's areas of responsibilities
during the Term of this Agreement, Company, at its option, may require Executive
to execute an Addendum describing the Executive's promotion, or change of areas
of Executive's responsibilities.
1
<PAGE>
1.5 DISCOVERIES. Executive shall promptly disclose in writing to the Company
-----------
any and all information, ideas, conceptions, inventions, discoveries, processes,
methods, designs, and know-how, as well as all works of authorship (including
computer programs) which are within the subject matter of copyright, which are
conceived, originated, developed, made or acquired by Executive, either
individually or jointly with others, during the period of Executive's employment
with the Company or for one (1) year period thereafter and: (i) for which the
Company provided either equipment, supplies, facilities, or confidential
information; (ii) which were made or conceived on or partially on the Company's
time; or (iii) which relate to IKON's business or the business that IKON is in
the process of developing (collectively referred to as the "Vision Discoveries")
and shall assign or offer to assign to Company any and all of Executive's rights
in each Vision Discovery.
1.6 COPYRIGHTS. All Vision Discoveries which are within the subject matter of
----------
copyright shall be considered a "work for hire" granting the Company full
ownership to the work and components and all rights comprised therein. Should
any work or component thereof not fall within the definition of a "work for
hire" under copyright law, the Executive hereby transfers and assigns or, if
necessary, will transfer and assign to the Company full ownership of the
copyright to the work or component thereof and all rights comprised therein.
The Executive will sign all applications for registrations of such copyright,
and perform all other acts necessary or convenient to carry out the terms of
this Provision.
ARTICLE 2-TERMINATION OF AGREEMENT
- ----------------------------------
2.1 TERMINATION BY THE COMPANY -- ENUMERATED REASONS. Company may, in its sole
------------------------------------------------
discretion, terminate Executive's employment at any time during the Term of the
Agreement under the following circumstances:
(1) Executive fails to comply with any material Company Policy,
either currently in force, or as may from time to time be adopted and modified
by the company;
(2) the Executive's performance falls below 80% of the stated
mutually agreed-upon operational and financial goals specifically applicable to
Executive during any fiscal year time period;
(3) Executive breaches his obligations under the terms of this
Agreement;
(4) the Executive has committed an act of dishonesty, moral
turpitude; has exhibited material, gross, or substantial misfeasance or
negligence in the performance of his duties, waste of corporate assets, illegal
conduct, or conduct that is injurious to the Company, its reputation or goodwill
or theft or has breached his duties of loyalty to the Company, including any
duties specified under Article 1.1.2 hereunder or an act of insubordination to
any of his supervisors.
It is specifically understood that, during the Term of the Agreement,
Executive shall not be terminated pursuant to either 2.1 (1), (2) or (3) unless
and until (a) Executive has received reasonable written notice from the Company
of the applicable Company Policy, the operational and financial goals applicable
to the Executive or the breach of obligation, and (b) Executive has had
reasonable opportunity to comply with such Company Policy, contractual
obligation or perform up to the standards, expectations or applicable goals set
by Company. The Company may, however, immediately terminate Executive pursuant
to 2.1 (4) without notice.
In the event of the termination of Executive under this Article 2.1,
Executive's right to the compensation and benefits provided in Addendum B shall
immediately terminate and/or cease to accrue, provided, however, that Executive
shall receive (i) the unpaid portion, if any, of the Base Salary computed on a
pro-rata basis to the date of termination of employment and (ii) any unpaid
accrued benefits owed to the Executive in accordance with the terms of any Plan
or Program referenced in Addendum B.
2.2. TERMINATION BY THE COMPANY -- NOT ENUMERATED REASONS. The Company may
----------------------------------------------------
terminate the employment of Executive during the Term for reasons other than
those enumerated in Article 2.1. However, in such event, the Company shall be
liable to Executive for the Base Salary compensation (but not unrealized
bonuses) and other remaining benefits (as permitted for terminated employees
under Company policy) provided in Addendum B for the remainder of the Term, and,
to the extent not inconsistent with applicable law and/or the terms and
conditions of any Plan or Program, all other remaining benefits (excluding
bonuses) shall continue to accrue until the end of the Term, which shall
constitute the full liquidated damages to which Executive is entitled. As an
elaboration of the above, but in no event to be construed as a commitment, in
such circumstances, the President of IKON shall recommend to the Board of
Directors of IKON that Executive's remaining unvested stock options should be
fully vested. Executive agrees that he shall not be entitled to any other
remedy at law or in equity, including but not limited to general, special,
punitive or exemplary damages and/or injunctive relief.
2
<PAGE>
Notwithstanding the foregoing, the amounts otherwise due pursuant to this
Article 2.2 shall be reduced by the full amount of any and all income earned or
received by the Executive during the remainder of the Term. Executive is
obligated to report all such income to the Company.
2.3 DISABILITY AND DEATH
--------------------
2.3.1 DISABILITY. In the event that Executive is unable fully to
----------
perform his duties and responsibilities hereunder to the full extent required by
the Company by reason of illness, injury or incapacity for ninety (90)
consecutive days or ninety (90) working days during the Term, this Agreement may
be terminated by Company and Company shall have no further liability or
obligation to Executive for the compensation or benefits set forth in Addendum
B, provided however, that Executive will be entitled to receive (i) salary
continuation until the long-term disability benefit plan (if applicable) takes
effect, (ii) the payments prescribed under any disability benefit plan which may
be in effect for employees of the Company and in which he participated and (iii)
any unpaid accrued benefits owed to the Executive in accordance with the terms
of any Plan or Program referenced in Addendum B. For purposes of this paragraph
2.3.1, Executive's temporary inability to travel or maintain regular office
hours because of illness, injury or incapacity will not be considered a failure
or inability to perform his duties and responsibilities so long as Executive,
through Telecommuting and alternate arrangements, otherwise fulfills his duties
and responsibilities.
2.3.2. DEATH. In the event that Executive dies during the Term,
-----
Company shall pay to his executors, legal representatives or administrators an
amount equal to the installment of his Base Salary set forth in Addendum B for
the month in which he dies, and for an additional two (2) months thereafter, and
thereafter Company shall have no further liability or obligation pursuant to the
Agreement to his executors, legal representatives, administrators, heirs or
assigns or any other person claiming under or through him; provided however,
that Executive's estate or designated beneficiaries shall be entitled to receive
(i) the payment prescribed for such recipients under any death benefit plan
which may be in effect for employees of the Company and in which Executive
participated and (ii) any unpaid accrued benefits owed to the Executive in
accordance with the terms of any Plan or Program referenced in Addendum B.
ARTICLE 3-RESTRICTION ON THE USE OF CONFIDENTIAL INFORMATION
- ------------------------------------------------------------
3.1 SCOPE OF CONFIDENTIAL INFORMATION. Executive acknowledges that the Company
---------------------------------
is engaged in the business of sales, servicing, renting and leasing of copier
equipment, facsimiles, micrographic equipment, computers, shredders, offset
printing, typewriters, laser printers, word processing equipment and other
related office products, the business of facilities management and state-of-the-
art copying and/or scanning operations, the ongoing development and
implementation of additional business segments providing outsourcing and
networking sales and services, and the growth through acquisitions of entities
engaged in any or all of the aforementioned businesses ("Company's Business").
Executive further recognizes that the Company's Business and its continued
success depend upon the use and protection of a large body of confidential and
proprietary information. Executive further acknowledges that he holds a
position of trust and confidence by virtue of which he necessarily possesses,
has access to and, as a consequence of his signing this Agreement, will continue
to possess and have access to, highly valuable, confidential and proprietary
information not known to employees of the Company at large or the public in
general, and that it would be improper for him to make use of this information
for the benefit of himself or others. ALL OF SUCH CONFIDENTIAL AND PROPRIETARY
INFORMATION NOW EXISTING OR TO BE DEVELOPED IN THE FUTURE WILL BE REFERRED TO IN
THIS AGREEMENT AS "COMPANY SECRETS". Company and Executive intend that the
meaning of "Company Secrets" in this Agreement will be read as broadly as
possible to include all information of any sort (whether merely remembered or
embodied in a tangible medium) which (i) is related to Company's Business or
potential future business and (ii) is not generally and publicly known. This
includes, without specific limitation, information relating to the nature and
operation of the Company's Business, the persons, firms and corporations which
are customers or active prospects of the Company during Executive's employment
by the Company, the Company's development transition and transformation plans,
methodology and methods of doing business, strategic, acquisition, marketing and
expansion plans, including plans regarding planned and potential acquisitions
and sales, financial and business plans, employee lists, numbers and location of
sales representatives, new and existing programs and services, support and
those under development, prices and terms, customer service, integration
processes requirements, costs of providing service, support and equipment and
equipment maintenance costs.
3.2 EXECUTIVE'S DUTY NOT TO DISCLOSE CONFIDENTIAL INFORMATION. Executive will
---------------------------------------------------------
protect and preserve as confidential during his employment relationship with the
Company and at all times after the termination of the employment relationship,
all of the Company Secrets at any time known to Executive or at any time in
Executive's possession or control. Executive understands that this Agreement
includes an obligation not to disclose Company Secrets to employees within the
Company who do not have a right or need to know the Company Secrets.
3
<PAGE>
Executive will, during his employment relationship with the Company and at all
times after the termination of the employment relationship, neither disclose,
use, nor allow any other person or entity to use in any way, except for the
benefit of the Company and as directed by the Company, any of the Company
Secrets.
3.3 RETURN OF CONFIDENTIAL INFORMATION. Executive will, prior to or upon
----------------------------------
leaving employment with the Company, deliver to the Company any and all records,
items and media of any type (including, without limitation, all partial or
complete copies of duplicates) containing or otherwise relating to any of the
Company Secrets, whether prepared or acquired by, or provided to, Executive.
Executive acknowledges that all such records, items and media are and at all
times will be and remain the property of Company.
3.4 ADDITIONAL AGREEMENTS REQUIRED BY THIRD PARTIES. Executive will enter into
-----------------------------------------------
and comply fully with any agreement reasonably required by any of the Company's
affiliates, business partners, suppliers or contractors with respect to the
protection of the confidential and proprietary information of such entities.
3.5 SEVERABILITY. Executive understands that the obligations imposed under
------------
this Restriction on the Use of Confidential Information are in addition to, and
independent of, any Restriction on Post-Termination Employment imposed under
this Agreement or any previously executed agreement concerning post-termination
employment, impose separate and distinct obligations from the Restriction on
Post-Termination Employment, and may be valid even if the Restriction on Post-
Termination Employment is declared invalid, in whole or in part, in any judicial
or quasi-judicial forum.
ARTICLE 4-RESTRICTION ON POST-TERMINATION EMPLOYMENT
- ----------------------------------------------------
4.1 ACKNOWLEDGMENTS BY EXECUTIVE.
----------------------------
4.1.1. ACKNOWLEDGMENT OF PROTECTIBLE INTERESTS. Executive agrees that
---------------------------------------
the Company has a protectible interest in the Company Secrets, goodwill and
specialized knowledge acquired by Executive during the course of his employment
with Company.
4.1.2. ACKNOWLEDGMENT OF CONSIDERATION. Executive acknowledges that
-------------------------------
the provisions of this Article 4 are in consideration of (1) a change in
employment status from that of an at-will employee to employment for a fixed
period of time, subject to discharge only for the reasons and under the terms
and conditions set forth in this Agreement; and (2) additional good and valuable
consideration as set forth in Addendum B of this Agreement including but not
limited to the granting of specific stock options.
4.1.3. ABILITY TO EARN LIVELIHOOD. Executive expressly agrees and
---------------------------
acknowledges that the Restrictions contained in this Article 4 do not preclude
Executive from earning a livelihood, nor does it unreasonably impose limitations
on Executive's ability to earn a living. In addition, the Executive agrees and
acknowledges that the potential harm to the Company of its non-enforcement
outweighs any harm to the Executive of its enforcement by injunction or
otherwise.
4.1.4. EXECUTIVE'S GEOGRAPHIC AREA. Executive's Geographic Area for
---------------------------
purposes of this Agreement is defined as the designated geographic territory
(also referred to within the Company as marketplace(s)) that is or was under the
Executive's management, control and/or responsibility during the two (2) year
period immediately preceding the termination of Executive's employment. At
present, Executive is responsible for all of North America.
4.2 POST-EMPLOYMENT RESTRICTIONS. Executive agrees that if Executive's
----------------------------
employment with the Company is terminated for cause, by voluntary resignation on
the part of Executive, or without cause (whether by the Company, by Executive or
otherwise), the Executive will not, without the express written consent of the
Company, directly or indirectly, for a period of three (3) years from the date
of termination, in any capacity whatsoever, including either as an employee,
employer, officer, director, proprietor, partner, joint venturer, consultant,
stockholder (except for investments of no greater than 5% of the total
outstanding shares in any publicly funded company), on his behalf or on behalf
of any other entity:
(1) solicit, sell to, divert, serve, accept or receive business, which
is similar to, or competitive with, the Company's Outsourcing Business,
from any entity which was a customer of IKON, or an active prospect of IKON
within the Executive's Geographic Area, or
(2) start-up, engage or manage in any business which competes with the
Company's Outsourcing Business within the Executive's Geographic Area, or
4
<PAGE>
(3) acquire, purchase, or work in any capacity whatsoever for or on
behalf of, any entity which has been identified as an actual or potential
acquisition of IKON during the two (2) year period immediately preceding
the termination of Executive's employment, or
(4) solicit, entice, or encourage any employee of the Company to leave
the Company or hire or employ any such employee, or
(5) Manage or work for a business or a portion of the business, of any
entity within the Executive's Geographic Area, engaged in a business which
is similar to, or competitive with, the Company's Outsourcing Business, or
(6) Work in any capacity whatsoever for Xerox Corporation or Danka
Corporation, or any subsidiaries or affiliates thereof.
For purposes of this paragraph 4.2, Company's Outsourcing Business is
defined as the business of facilities management, business and litigation photo-
copying, scanning, imaging, backfile conversion, printing, graphic design and
fulfillment.
The foregoing restriction shall be in addition to (and to the extent
of any conflict, shall control) any post-employment restriction contained in any
Long-Term Incentive Plan applicable to Executive.
4.3 SEVERABILITY. Executive understands that the obligations imposed under
------------
this Restriction on Post-Termination Employment are in addition to, and
independent of, any Restriction on the Use of Confidential Information imposed
under this Agreement and any previously executed agreement concerning post-
terminated employment, impose separate and distinct obligations from the
Restriction on the Use of Confidential Information, and may be valid even if the
Restriction on the Use of Confidential Information is declared invalid, in whole
or in part, in any judicial or quasi-judicial forum.
ARTICLE 5-REMEDIES FOR BREACH
- -----------------------------
5.1 INJUNCTIONS. In the event of a breach or threatened breach of any
-----------
provision of Articles 3 or 4 of this Agreement, Executive acknowledges and
agrees that the Company will suffer irreparable harm and further acknowledges
and agrees that the Company's remedies at law are inadequate, and that the
Company shall be entitled to an immediate injunction restraining such breach or
potential breach as well as other equitable relief; but nothing herein shall be
construed as prohibiting the Company from pursuing any other remedy available
for such breach or threatened breach.
5.2 RESTITUTION. Notwithstanding anything in this Agreement or any other
-----------
agreement between the parties to the contrary and in addition to any other
rights or remedies the Company may have, if at any time Executive (whether
during the Employment period or thereafter as provided herein) has violated any
of his obligations contained in Articles 3 and 4 above, then the obligation of
the Company to pay salary, vacation pay, bonus, incentive compensation or other
form of pay or compensation, shall terminate, and from and after such
termination neither the Executive, his beneficiary nor any of their legal
representatives or distributee shall have any right to receive any payment(s) in
connection therewith.
ARTICLE 6 -MISCELLANEOUS
- ------------------------
6.1 ARBITRATION. Except as permitted or provided in the foregoing Article 5, in
------------
the event Executive's employment is terminated, and Executive contends that such
termination was wrongful or otherwise in violation of his rights or privileges,
express or implied, whether founded in fact or in law, or any other rights or
privileges, or was in violation of any express or implied condition, term, or
covenant, whether founded in law or in fact, including but not limited to the
covenant of good faith and fair dealing, or otherwise in violation of law,
Executive and Company agree to submit the above-described disputed matter to
binding arbitration. Executive and Company further expressly agree that in any
such arbitration, the exclusive maximum remedy which may be awarded by the
arbitrator(s) shall be limited to back pay owing up to and including the date
the arbitration award becomes final and reasonable attorney's fees and costs.
Notwithstanding the above remedy, the parties further agree that in the event
such arbitrator(s) determine that Executive was not terminated for cause, then
the arbitrator(s) shall have the additional ability in a termination situation
to award the remedy as described in Section 2.2 above. Executive agrees that he
shall not be entitled to any other remedy at law or in equity, including but not
limited to general, special, punitive or exemplary damages and/or injunctive
relief.
5
<PAGE>
6.2 REFORMATION. The provisions and covenants contained herein are intended to
-----------
be separate and divisible and if, for any reason, any one or more of such
provisions or covenants should be held to be invalid and unenforceable in whole
or in part, it is agreed that the same shall not be held to affect the validity
or enforceability of any other provisions and covenants of this Agreement. In
the event that any restriction set forth in this Agreement is determined by a
Court to be unenforceable with respect to scope, time or geographical coverage,
Executive agrees that such a restriction should be modified and narrowed so as
to provide the maximum protection of the Company's legally protectible interests
as described in this Agreement, and without negating or impairing any other
restrictions or agreements set forth herein.
6.3 REASONABLENESS. Executive acknowledges that he has carefully read this
--------------
Agreement and has given careful consideration to the restraints imposed upon the
Executive by this Agreement, and is in full accord as to their necessity for the
reasonable and proper protection of the Company's Secrets. The Executive
expressly acknowledges and agrees that each and every restraint imposed by this
Agreement is reasonable with respect to subject matter, time period and
geographical area, except for mutually agreed upon modifications to this
Agreement.
6.4 MODIFICATION. The Parties agree that the Agreement may not be modified
------------
except by the mutual written consent of the Parties. Notwithstanding the
foregoing, the parties further agree that if a judicial or quasi-judicial entity
declares the agreement invalid in whole or in part, it may modify the terms of
the Agreement to give affect to the Agreement as modified.
6.5 SUCCESSORS AND ASSIGNS OF THE COMPANY. This Agreement shall bind Company
--------------------------------------
and Executive and also all of their respective family members, heirs,
administrators, representatives, successors, assigns, officers, directors,
agents, employees, shareholders, affiliates, predecessors, and also all other
persons, firms, corporations, associations, partnerships, and entities in
privity with or related to or affiliated with any such person, firm,
corporation, association, partnership or entity; including without limitation,
any person, firm, corporation, association, partnership, limited liability
company and entity or combination thereof which shall acquire substantially all
of the assets, or direct or indirect control of a majority of the voting stock,
of the Company, or which shall in any other manner cause a majority of the
current members of the Board of Directors or the President to be replaced at any
time after the effective date of this Agreement (a "Change of Control"). Any
termination under Section 2.1 (2) within twelve (12) months of a Change of
Control or any material demotion or restriction of Executive's current duties at
the time of the Change of Control or within twelve (12) months of a Change of
Control, however effected, shall not be deemed a termination under Section 2.1
and Executive shall instead be entitled to receive the benefits he would be
entitled to receive under Section 2.2 of this Agreement. Notwithstanding
anything to the contrary herein, this Agreement (and the provisions herein)
shall be declared null and void in the event IKON goes into bankruptcy or
becomes insolvent.
6.6 SURVIVAL OF OBLIGATIONS AND PROVISIONS. Exercise of the Company's
--------------------------------------
termination rights according to the provisions of Articles 2.1, 2.2. and 2.3.1
shall not affect the Company's rights or the Executive's obligations under
Article 1.1.2 and Articles 3, 4, 5 or 6. The Parties acknowledge and agree that
the provisions within Article 1.1.2 and Articles 3, 4, 5 or 6 survive the
termination or expiration of this Agreement as well as the termination of
Executive's employment relationship with the Company.
6.7 AT-WILL PRESUMPTION. Upon completion of the Term of the Agreement, the
-------------------
Parties acknowledge and agree that any further employment with the Company shall
be in an at-will capacity and may be terminated at any time or the Agreement may
be renewed by mutual written agreement.
6.8 EXPENSES OF ENFORCEMENT. Executive shall be liable to, and will pay the
-----------------------
Company for all costs and expenses, including, but not limited to, reasonable
attorneys' fees, incurred by the Company in the successful enforcement in any
respect of any of its rights under this Agreement, whether in litigation or
otherwise. Likewise, in the event the Company is unsuccessful in enforcing its
rights under this Agreement, whether in litigation or otherwise, then the
Company shall pay all of Executive's costs and expenses, including, but not
limited to, reasonable attorneys' fees, incurred by Executive in defending the
Company's claims.
6.9 ENTIRE AGREEMENT. The Executive acknowledges and agrees that this
----------------
Agreement, including Addendums A and B which are incorporated herein and made a
part of the Agreement, together with the IKON Office Solutions' Confidentiality
and Patent Agreement executed by the Executive, which is incorporated herein and
made a part of the Agreement, constitute the entire agreement between the
Parties concerning the subject matter of this Agreement, and that together they
supersede and replace all prior agreements, whether written or oral except the
relevant benefit and compensation plans (including any Long-Term Incentive Plan
applicable to Executive) referred to elsewhere in the Agreement, which are
incorporated by reference; there are no other agreements, understandings,
restrictions, warranties, or representations between the parties relating to
this
6
<PAGE>
subject matter. Executive hereby represents that, in signing the Agreement, he
has not relied upon any promise, representation, or any other inducement that is
not expressed herein.
6.10 APPLICABLE LAW. This Agreement, the construction of its terms, and the
--------------
interpretation of the parties' rights and duties shall be governed by and
construed according to the laws of the Commonwealth of Pennsylvania (the state
of the principal place of business of Company) without regard to the choice of
law provisions of such law.
6.11 VENUE. The parties hereby agree that any lawsuit or proceeding instituted
-----
regarding this Agreement, its interpretation, enforcement or validity shall be
commenced in the Court of Common Pleas of Chester County, Pennsylvania, or in
the United States District Court for the Eastern District of Pennsylvania, and
the parties hereby consent to the personal jurisdiction over them of both
Courts.
6.12 NOTICES. All notices and other communications concerning this Agreement
-------
shall be in writing and must be given by postage prepaid, registered or
certified mail, as follows:
(a) If to the Company, to: (b) If to Executive, to:
IKON Office Solutions, Inc. Lynn Graham
P.O. Box 834 21 Waterford Lakes
Valley Forge, PA 19482 The Woodlands, TX 77381
Attn: Law Department
6.13 UNDERSTANDING OF TERMS. Executive acknowledges that he has carefully
----------------------
reviewed the contents of this Agreement, understands its import and intent,
including the restrictions on post-termination employment it imposes, and that
he agrees to its terms without duress and in full and complete knowledge of its
effect.
6.14 WAIVER. No omission or delay on the part of either Party of due and
------
punctual fulfillment of any obligation shall be deemed to constitute a waiver by
the other Party of any of its rights to require such due and punctual
fulfillment of any other obligation hereunder, whether similar or otherwise, or
a waiver of any remedy it may have.
(the remainder of this page intentionally left blank)
7
<PAGE>
IN WITNESS HEREOF, the Parties have affixed their signatures to this Agreement
to be effective ___________________.
WITNESS
/s/ Signature /s/ Lynn Graham
- ------------------------------- ----------------------------------
Lynn Graham
IKON OFFICE SOLUTIONS, INC.
/s/ John E. Stuart
----------------------------------
By: John E. Stuart
Title: Chief Executive Officer
8
<PAGE>
Addendum A
JOB TITLE: PRESIDENT - DOCUMENT SERVICES
IKON Office Solutions
JOB DESCRIPTION AND PRIMARY RESPONSIBILITIES:
REPORTS TO: CHIEF EXECUTIVE OFFICER OF IKON
GENERAL SCOPE:
The President of Document Services has full Profit and Loss ("P&L"), asset
management, logistics, marketplace strategy and implementation, customer
relations and employee relations responsibilities for the Document Services
division and all the districts and marketplaces serviced by such division in
North America.
SPECIFIC ACCOUNTABILITIES:
Manage the Document Services division in a cost effective and responsive manner
to effectively provide high quality and timely support and services to all IKON
marketplaces and customer base.
Assess, identify and develop appropriate business plans and maximize the total
growth opportunity for the division, effectively utilizing all of the products
and services which the division and IKON offers. Consistently achieve financial
and non-financial objectives.
Ensure that the resources and disciplines are in place in a timely fashion in
order to meet or exceed business plan commitments.
Keep immediate direct report informed on a regular basis regarding issues
related to financial, asset, organizational, employee, customer and vendor
objectives and relationships. Effectively implement IKON strategies and
marketing initiatives through the division as assigned.
Identify companies and actively participate in the acquisition process to
acquire quality companies that provide products and services consistent with
IKON's strategic objectives.
Participate in task forces and ad hoc projects as assigned.
Demonstrate broad leadership capability across all areas of the business,
maintaining the highest ethical standards.
9
<PAGE>
PAGE 2
AUTHORITY:
. Authority, subject to one-over-one approval, to hire, terminate, determine
compensation levels and criteria for direct reports and provide one-over-
one approval for the management level reporting to the division President's
direct reports.
. Authority to approve capital expenditures up to a limit of $100,000 within
the division.
. Authority as delegated from the CEO of IKON to make commitments on behalf
of IKON to customers and vendors.
. Authority to negotiate real estate leases including rates within the scope
of IKON policies and procedures as delegated by the CEO of IKON.
Initials: ________
________
10
<PAGE>
Addendum B
TITLE: PRESIDENT - DOCUMENT SERVICES
INITIAL TERM - COMPENSATIONS ITEMS:
BASE SALARY: 4/1/97-9/30/97 $225,000.00 per year ($112,500 over the 6
months)
10/1/97-9/30/98 $235,000.00 per year
10/1/98-9/30/99 $235,000.00 per year
BONUS OPPORTUNITY: Up to maximum of one hundred percent (100%) of Base
Salary/year based upon mutually agreeable objectives for the division as
follows:
.Fiscal 1997 -
--------------
1. Operating Income Target to earn 100% of performance bonus is
$25,500,000 plus any additional operating income dollars resulting from fiscal
1997 acquisitions and mergers (less the customary 90 day grace period).
2. Operating Income Pretax Cash Target to earn 100% of performance bonus
is $11,500,000 (45% of OI $) plus any additional pretax cash dollars resulting
from fiscal 1997 acquisitions and mergers (less the customary 90 day grace
period).
Note: The performance bonus calculation will be adjusted based on a
performance matrix that reflects a 1% underachievement to target resulting in a
5% decrease in bonus i.e. the minimum threshold that needs to be reached in each
target category is 90% of target.
Fiscal 1998 and 1999 -
--------------------
The performance bonus criteria will be agreed upon each year on or before
November 1st for the applicable fiscal year.
OTHER COMPENSATION BENEFITS:
. One-time discretionary grant of 3500 IKON Stock options (standard
vesting criteria) to be granted by Board of Directors in August , 1997
due to promotion and entering into this Executive Employment Agreement
and the post-employment restrictions contained herein.
STANDARD BENEFITS:
1. Executive shall be reimbursed travel and entertainment expenses related to
Company's business consistent with the policies of the Company
2. Executive shall be entitled to reasonable vacations, without cessation of
salary payments.
11
<PAGE>
3. Executive will continue eligibility under the NightRider Overnight Copy
Service Executive Long-Term Incentive Plan Agreement II and will be
provided with benefits under the terms and conditions of the IKON
Retirement and Pension Plan for Salaried Employees, the IKON Medical Plan
(disability, life, etc.) as those plans apply to the Document Services
division and as may be amended from time to time.
4. In the event of any conflict between this Addendum B and any relevant plan
("Plan") document or summary plan description ("SPD"), the relevant Plan or
SPD will govern.
Further, in the event of Executive's death, the special rules set forth in
the relevant Retirement Plan or SPD shall govern
Initials: _________
_________
12
<PAGE>
IKON OFFICE SOLUTIONS
CONFIDENTIALITY AND PATENT AGREEMENT
I, Lynn Graham, in consideration of my continued employment by IKON Office
Solutions, Inc., my change in employment status from employment-at-will to
employment for a fixed period of time in a new executive position, the
compensation paid or to be paid to me, and discretionary stock options being
granted to me, agree as follows:
1. Definitions. The term "IKON" as used in this Agreement includes IKON
-----------
Office Solutions, Inc. and all of its divisions, subsidiaries or affiliates.
2. Disclosure of Confidential Information. I shall not at any time during my
--------------------------------------
employment or thereafter, except as properly required in the course of my
employment, publish, disclose or authorize anyone else to publish or disclose
any Confidential Information belonging to IKON. Confidential Information
includes, but is not limited to, models, drawings, memoranda and other
materials, documents or records of a proprietary nature; information relating to
research, finance, accounting, sales, personnel, management and operations; and
information particularly relating to customer lists, price lists, customer
service requirements, costs of providing service and equipment, and equipment
maintenance costs; notwithstanding the foregoing or any contrary provision
hereof, the term "Confidential Information" shall not include any information
(i) which is or becomes public otherwise than through a breach of this
Agreement, (ii) which was known to me prior to disclosure thereof by IKON, or
(iii) which is disclosed to me by a non-Company employee third party not subject
to an obligation to maintain such information in confidence.
3. Use and Return of Company Property. I shall not, in the course of my
----------------------------------
employment or thereafter, use or permit others to use materials, equipment or
other company property for personal purposes. Further, I shall not make copies
of, resell or transfer any computer software owned or licensed by IKON. On
termination of my employment, I will deliver to IKON all property belonging to
IKON, and will not retain any copies or reproductions of correspondence,
reports, drawings, photographs or documents containing Confidential Information
or relating in any way to the business of IKON that is confidential or
proprietary in nature.
4. Patents, Copyrights and Trade Secrets. I will disclose and assign to IKON
-------------------------------------
any and all material of a proprietary nature, particularly including, but not
limited to, material subject to protection as trade secrets or as patentable or
copyrightable ideas which I may conceive, invent, or discover during the course
of my employment with IKON. Upon IKON's request, either during or at any time
after the termination of my employment with IKON, I shall execute and deliver
all papers, including applications for patents and do such other acts (entirely
at IKON's expense) as may be necessary for IKON to obtain and maintain
proprietary rights in any and all countries and to vest title thereto in IKON.
5. Term; Modifications. THE PROVISIONS OF THIS AGREEMENT SHALL SURVIVE
-------------------
TERMINATION OF MY EMPLOYMENT RELATIONSHIP WITH IKON. This Agreement may be
modified or waived only by a written instrument signed by me and an authorized
executive of IKON.
6. Severability. The provisions of this Agreement shall be deemed severable,
------------
and the invalidity or unenforceability of any provision shall not affect the
validity and enforceability of the other provisions hereof. If any provision of
this Agreement is unenforceable for any reason whatever, such provision shall be
appropriately limited and given effect to the extent that it may be enforceable.
I HAVE READ THIS AGREEMENT AND FULLY UNDERSTAND ITS TERMS.
Signed at Houston, TX, this 13th day of June, 1997.
Witness: _______________________________ /s/Lynn Graham
-------------------------
Lynn Graham
13
<PAGE>
EXHIBIT 10.25
EXECUTIVE EMPLOYMENT AGREEMENT
THIS IS A VERY IMPORTANT LEGAL DOCUMENT WHICH MAY AFFECT YOUR RIGHTS
TO FUTURE EMPLOYMENT. AS A RESULT, YOU SHOULD REVIEW THE DOCUMENT
CAREFULLY, AND FULLY UNDERSTAND ITS TERMS AND IMPLICATIONS, BEFORE SIGNING.
This Employment Agreement ("Agreement") effective October 1, 1995,
is entered into among ALCO OFFICE PRODUCTS, an operating division (including its
network of operating companies) of Alco Standard Corporation ("AOP") and ALCO
STANDARD CORPORATION ("Alco") (both entities AOP and Alco also collectively
referred to as the "Company"), an Ohio Corporation with its principal place of
business in Pennsylvania, and PETER W. SHOEMAKER ("Executive").
In consideration of the mutual promises contained in this Executive
Employment Agreement ("Agreement") including the following three items, none of
which would be conferred upon Executive absent execution of this Agreement: (1)
a change in employment status from employment-at-will to employment for a fixed
period of time in a new executive position, subject to the terms and conditions
set forth below; (2) eligibility to participate in the new 1995-1996 Long-Term
Incentive Compensation Program in accordance with the additional terms of that
Program; and (3) additional good and valuable consideration including but not
limited to that set forth in Addendum B of this Agreement the parties to this
Agreement ("Parties") INTENDING TO BE LEGALLY BOUND, Agree as follows:
ARTICLE I-TERMS OF EMPLOYMENT
- -----------------------------
1.1 DUTIES.
------
1.1.1 DUTIES OF POSITION. AOP shall employ Executive as a Regional
------------------
President of AOP. The Parties expressly agree that the position of Regional
President is a key position and an executive position in the Company. Executive
shall comply with his obligation set forth in this Employment Agreement and with
all Company policies, now currently in force, or as may from time to time be
unilaterally adopted and modified by the Company, whether or not reduced to
writing. In addition, Executive shall have the following duties set forth in
Addendum A of the Agreement which is hereby incorporated as if fully set forth
herein.
Executive specifically recognizes and acknowledges that this position is one of
trust and confidence and that, as a result, he will have access to, and may be
given specialized education and confidential, proprietary information of the
Company.
1.1.2 DUTY OF LOYALTY. Executive will (1) devote substantially all his
---------------
time, attention, and energies to the business of the Company and diligently
perform all duties incident to his employment; (2) use his best efforts to
promote the interests and goodwill of the Company; and (3) perform such other
duties commensurate with his office as either the President of AOP or the
President of Alco, or the assignees of either from time to time assign him.
Further, during the term of employment, Executive shall not engage in any
activity to the detriment or embarrassment of the Company. By way of
illustration and not as a limitation, Executive shall not discuss with any
customer or potential customer of the Company, or any competitor of the Company,
any plans by Executive or any other employees of the Company to leave the
employment of the Company or to compete with the Company.
1.2 TERM OF AGREEMENT. Unless terminated in accordance with Article 2, this
-----------------
Agreement shall remain in force for a term of three (3) years from the date of
execution of this Agreement ("Term").
1.3 COMPENSATION. During the Term of the Agreement, the Executive shall be
------------
compensated in accordance with the terms set forth in Addendum B of the
Agreement which is incorporated as if fully set forth herein ("Total
Compensation Package"). In the event the Company shall pay to Executive during
the Term any compensation in excess of the Total Compensation Package provided
for herein, the payment of such increased compensation shall not be deemed to be
an amendment to this Agreement, and may be discontinued at any time without
cause.
1.4 ADDITIONAL OBLIGATIONS OF EXECUTIVE. Executive understands that the
-----------------------------------
obligations imposed under this Agreement are not exclusive, and that the Company
may unilaterally, from time to time, impose additional reasonable obligations
upon Executive consistent with his duties and position within the Company. If
Company promotes Executive, or changes Executive's areas of responsibilities
during the Term of this Agreement, Company, at its option, may require Executive
to execute an Addendum describing the Executive's promotion, or change of areas
of Executive's responsibilities.
Page 1 of 7
<PAGE>
1.5 DISCOVERIES. Executive shall promptly disclose in writing to the Company
-----------
any and all information, ideas, conceptions, inventions, discoveries, processes,
methods, designs, and know-how, as well as all works of authorship (including
computer programs) which are within the subject matter of copyright, which are
conceived, originated, developed, made or acquired by Executive, either
individually or jointly with others, during the period of Executive's employment
with the Company or for one (1) year period thereafter and: (i) for which the
Company provided either equipment, supplies, facilities, or confidential
information; (ii) which were made or conceived on or partially on the Company's
time; or (iii) which relate to AOP's business or the business that AOP is in the
process of developing (collectively referred to as the "Vision Discoveries") and
shall assign or offer to assign to Company any and all of Executive's rights in
each Vision Discovery.
1.6 COPYRIGHTS. All Vision Discoveries which are within the subject matter of
----------
copyright shall be considered a "work for hire" granting the Company full
ownership to the work and components and all rights comprised therein. Should
any work or component thereof not fall within the definition of a "work for
hire" under copyright law, the Executive hereby transfers and assigns or, if
necessary, will transfer and assign to the Company full ownership of the
copyright to the work or component thereof and all rights comprised therein.
The Executive will sign all applications for registrations of such copyright,
and perform all other acts necessary or convenient to carry out the terms of
this Provision.
ARTICLE 2-TERMINATION OF AGREEMENT
- ----------------------------------
2.1 TERMINATION BY THE COMPANY -- ENUMERATED REASONS. Company may, in its sole
------------------------------------------------
discretion, terminate Executive's employment at any time during the Term of the
Agreement under the following circumstances:
(1) Executive fails to comply with any material Company Policy,
either currently in force, or as may from time to time be adopted and modified
by the company;
(2) the Executive's performance falls below 80% of the stated
operational and financial goals specifically applicable to Executive;
(3) Executive breaches his obligations under the terms of this
Agreement;
(4) the Executive has committed an act of dishonesty, moral
turpitude or theft or has breached his duties of loyalty to the Company,
including any duties specified under Article 1.1.2 hereunder.
It is specifically understood that, during the Term of the
Agreement, Executive shall not be terminated pursuant to either 2.1 (1), (2) or
(3) unless and until (a) Executive has received reasonable notice, written or
oral, from the Company of the applicable Company Policy, or the operational and
financial goals applicable to the Executive, and (b) Executive has had
reasonable opportunity to comply with such Company Policy or perform up to the
standards, expectations or applicable goals set by Company. The Company may,
however, immediately terminate Executive pursuant to 2.1 (4) without notice.
In the event of the termination of Executive under this Article 2.1,
Executive's right to the compensation and benefits provided in Addendum B shall
immediately terminate and/or cease to accrue, provided, however, that Executive
shall receive (i) the unpaid portion, if any, of the base salary computed on a
pro-rata basis to the date of termination of employment and (ii) any unpaid
accrued benefits owed to the Executive in accordance with the terms of any Plan
or Program referenced in Addendum B.
2.2. TERMINATION BY THE COMPANY -- NOT ENUMERATED REASONS. The Company may
----------------------------------------------------
terminate the employment of Executive during the Term for reasons other than
those enumerated in Article 2.1. However, in such event, the Company shall be
liable to Executive for the compensation and benefits provided in Addendum B for
the remainder of the Term, and, to the extent not inconsistent with ERISA and/or
the terms and conditions of any Plan or Program, all benefits shall continue to
accrue until the end of the Term, which shall constitute the full liquidated
damages to which Executive is entitled. Executive agrees that he shall not be
entitled to any other remedy at law or in equity, including but not limited to
general, special, punitive or exemplary damages and/or injunctive relief.
2.3 DISABILITY AND DEATH
--------------------
2.3.1 DISABILITY. In the event that Executive is unable fully to perform
----------
his duties and responsibilities hereunder to the full extent required by the
Company by reason of illness, injury or incapacity for ninety (90) consecutive
days or ninety (90) working days during the Term, this Agreement may be
terminated by Company and Company shall have no further liability or obligation
to Executive for the compensation or benefits set forth in Addendum B, provided
however, that
Page 2 of 7
<PAGE>
Executive will be entitled to receive (i) salary continuation until the long-
term disability benefit plan takes effect, (ii) the payments prescribed under
any disability benefit plan which may be in effect for employees of the Company
and in which he participated and (iii) any unpaid accrued benefits owed to the
Executive in accordance with the terms of any Plan or Program referenced in
Addendum B.
2.3.2. DEATH. In the event that Executive dies during the Term, Company
-----
shall pay to his executors, legal representatives or administrators an amount
equal to the installment of his base pay set forth in Addendum B for the month
in which he dies, and thereafter Company shall have no further liability or
obligation pursuant to the Agreement to his executors, legal representatives,
administrators, heirs or assigns or any other person claiming under or through
him; provided however, that Executive's estate or designated beneficiaries shall
be entitled to receive (i) the payment prescribed for such recipients under any
death benefit plan which may be in effect for employees of the Company and in
which Executive participated and (ii) any unpaid accrued benefits owed to the
Executive in accordance with the terms of any Plan or Program referenced in
Addendum B.
ARTICLE 3-RESTRICTION ON THE USE OF CONFIDENTIAL INFORMATION
- ------------------------------------------------------------
3.1 SCOPE OF CONFIDENTIAL INFORMATION. Executive acknowledges that the Company,
---------------------------------
through AOP is engaged in the business of sales, servicing, renting and leasing
of copier equipment, facsimiles, micrographic equipment, computers, shredders,
offset printing, typewriters, laser printers, word processing equipment and
other related office products, the business of facilities management and state-
of-the-art copying and/or scanning operations, the ongoing development and
implementation of additional business segments providing outsourcing and
networking sales and services, and the growth through acquisitions of entities
engaged in any or all of the aforementioned businesses ("OP Division business").
Executive further recognizes that the Company's OP Division business and its
continued success depend upon the use and protection of a large body of
confidential and proprietary information. Executive further acknowledges that
he holds a position of trust and confidence by virtue of which he necessarily
possesses, has access to and, as a consequence of his signing this Agreement,
will continue to possess and have access to, highly valuable, confidential and
proprietary information not known to employees of the Company at large or the
public in general, and that it would be improper for him to make use of this
information for the benefit of himself or others. ALL OF SUCH CONFIDENTIAL AND
PROPRIETARY INFORMATION NOW EXISTING OR TO BE DEVELOPED IN THE FUTURE WILL BE
REFERRED TO IN THIS AGREEMENT AS "COMPANY SECRETS". Company and Executive
intend that the meaning of "Company Secrets" in this Agreement will be read as
broadly as possible to include all information of any sort (whether merely
remembered or embodied in a tangible medium) which (i) is related to OP Division
business or potential future business and (ii) is not generally and publicly
known. This includes, without specific limitation, information relating to the
nature and operation of the OP Division business, the persons, firms and
corporations which are customers or active prospects of the Company during
Executive's employment by the Company, the Company's development transition and
transformation plans, methodology and methods of doing business, strategic,
acquisition, marketing and expansion plans, including plans regarding planned
and potential acquisitions and sales, financial and business plans, employee
lists, numbers and location of sales representatives, new and existing programs
and services, support and those under development, prices and terms, customer
service, integration processes requirements, costs of providing service, support
and equipment and equipment maintenance costs.
3.2 EXECUTIVE'S DUTY NOT TO DISCLOSE CONFIDENTIAL INFORMATION. Executive will
---------------------------------------------------------
protect and preserve as confidential during his employment relationship with the
Company and at all times after the termination of the employment relationship,
all of the Company Secrets at any time known to Executive or at any time in
Executive's possession or control. Executive understands that this Agreement
includes an obligation not to disclose Company Secrets to employees within the
Company who do not have a right or need to know the Company Secrets.
Executive will, during his employment relationship with the Company and at all
times after the termination of the employment relationship, neither disclose,
use, nor allow any other person or entity to use in any way, except for the
benefit of the Company and as directed by the Company, any of the Company
Secrets.
3.3 RETURN OF CONFIDENTIAL INFORMATION. Executive will, prior to or upon
----------------------------------
leaving employment with the Company, deliver to the Company any and all records,
items and media of any type (including, without limitation, all partial or
complete copies of duplicates) containing or otherwise relating to any of the
Company Secrets, whether prepared or acquired by, or provided to, Executive.
Executive acknowledges that all such records, items and media are and at all
times will be and remain the property of Company.
Page 3 of 7
<PAGE>
3.4 ADDITIONAL AGREEMENTS REQUIRED BY THIRD PARTIES. Executive will enter into
-----------------------------------------------
and comply fully with any agreement reasonably required by any of the Company's
affiliates, business partners, suppliers or contractors with respect to the
protection of the confidential and proprietary information of such entities.
3.5 SEVERABILITY. Executive understands that the obligations imposed under
------------
this Restriction on the Use of Confidential Information are in addition to, and
independent of, any Restriction on Post-Termination Employment imposed under
this Agreement or any previously executed agreement concerning post-termination
employment, impose separate and distinct obligations from the Restriction on
Post-Termination Employment, and may be valid even if the Restriction on Post-
Termination Employment is declared invalid, in whole or in part, in any judicial
or quasi-judicial forum.
ARTICLE 4-RESTRICTION ON POST-TERMINATION EMPLOYMENT
- ----------------------------------------------------
4.1 ACKNOWLEDGMENTS BY EXECUTIVE.
----------------------------
4.1.1. ACKNOWLEDGMENT OF PROTECTIBLE INTERESTS. Executive agrees that the
---------------------------------------
Company has a protectible interest in the Company Secrets, goodwill and
specialized knowledge acquired by Executive during the course of his employment
with Company.
4.1.2. ACKNOWLEDGMENT OF CONSIDERATION. Executive acknowledges that the
-------------------------------
provisions of this Article 4 are in consideration of the Company's change in his
employment status from that of an at-will employee to an employee subject to
discharge only for the reasons and under the terms and conditions set forth in
this Agreement, in consideration of: (1) a change in employment status from
employment-at-will to employment for a fixed period of time, subject to the
terms and conditions set forth below; (2) eligibility to participate in the
1995-1996 Long-Term Incentive Compensation Program in accordance with the
additional terms of that Program; and (3) additional good and valuable
consideration as set forth in Addendum B of this Agreement.
4.1.3. ABILITY TO EARN LIVELIHOOD. Executive expressly agrees and
---------------------------
acknowledges that the Restrictions contained in this Article 4 do not preclude
Executive from earning a livelihood, nor does it unreasonably impose limitations
on Executive's ability to earn a living. In addition, the Executive agrees and
acknowledges that the potential harm to the Company of its non-enforcement
outweighs any harm to the Executive of its enforcement by injunction or
otherwise.
4.2 POST-EMPLOYMENT RESTRICTIONS. Executive agrees that if Executive's
----------------------------
employment with the Company is terminated for any reason (whether by the
Company, by Executive or otherwise), the Executive will not, without the express
written consent of the Company, directly or indirectly, for a period of two (2)
years from the date of termination, in any capacity whatsoever, including either
as an employee, employer, officer, director, proprietor, partner, joint
venturer, consultant, stockholder (except for investments of no greater than 5%
of the total outstanding shares in any publicly funded company), on his behalf
or on behalf of any other entity:
(1) solicit, sell to, divert, serve, accept or receive business,
which is similar to, or competitive with, the OP Division Business, from
any entity which was a customer of AOP, or active prospect of AOP, during
the two (2) year period immediately preceding the termination of
Executive's employment, or
(2) engage or manage in any business which competes with the
Company's OP Division business in any geographical area in which Company
competes at the time of Executive's termination, or
(3) start-up, acquire, purchase, or work in any capacity whatsoever
for or on behalf of, any entity which has been identified as an actual or
potential acquisition of AOP during the two (2) year period immediately
preceding the termination of Executive's employment, or
(4) solicit, entice, or encourage any employee of the Company to
leave the Company or hire or employ any such employee, or
(5) Manage the business or a portion of the business, of any entity
engaged in a business which is similar to, or competitive with, the OP
Division business.
Page 4 of 7
<PAGE>
4.3 SEVERABILITY. Executive understands that the obligations imposed under
------------
this Restriction on Post-Termination Employment are in addition to, and
independent of, any Restriction on the Use of Confidential Information imposed
under this Agreement and any previously executed agreement concerning post-
terminated employment, impose separate and distinct obligations from the
Restriction on the Use of Confidential Information, and may be valid even if the
Restriction on the Use of Confidential Information is declared invalid, in whole
or in part, in any judicial or quasi-judicial forum.
ARTICLE 5-REMEDIES FOR BREACH
- -----------------------------
5.1 INJUNCTIONS. In the event of a breach or threatened breach of any
-----------
provision of Articles 3 or 4 of this Agreement, Executive acknowledges and
agrees that the Company will suffer irreparable harm and further acknowledges
and agrees that the Company's remedies at law are inadequate, and that the
Company shall be entitled to an immediate injunction restraining such breach or
potential breach as well as other equitable relief; but nothing herein shall be
construed as prohibiting the Company from pursuing any other remedy available
for such breach or threatened breach.
5.2 RESTITUTION. Notwithstanding anything in this Agreement or any other
-----------
agreement between the parties to the contrary and in addition to any other
rights or remedies the Company may have, if at any time Executive (whether
during the Employment period or thereafter as provided herein) has violated any
of his obligations contained in Articles 3 and 4 above, then the obligation of
the Company to pay salary, vacation pay, bonus, incentive compensation or other
form of pay or compensation, shall terminate, and from and after such
termination neither the Executive, his beneficiary nor any of their legal
representatives or distributees shall have any right to receive any payment(s)
in connection therewith. In addition, in the event of such violation by
Executive, Executive agrees to immediately pay back any sums already paid by the
Company subsequent to the execution of this Agreement under the 1995-1996 Long-
Term Incentive Compensation Program offered by the Company, or any subsequent
Long-Term Incentive Compensation Program offered by the Company.
ARTICLE 6 -MISCELLANEOUS
- ------------------------
6.1 ARBITRATION. Except as permitted or provided in the foregoing Article 5, in
------------
the event Executive's employment is terminated, and Executive contends that such
termination was wrongful or otherwise in violation of his rights or privileges,
express or implied, whether founded in fact or in law, or any other rights or
privileges, or was in violation of any express or implied condition, term, or
covenant, whether founded in law or in fact, including but not limited to the
covenant of good faith and fair dealing, or otherwise in violation of law,
Executive and Company agree to submit the above-described disputed matter to
binding arbitration. Executive and Company further expressly agree that in any
such arbitration, the exclusive remedy which may be awarded by the arbitrator(s)
shall be limited to back pay owing up to and including the date the arbitration
award becomes final, and Executive agrees that he shall not be entitled to any
other remedy at law or in equity, including but not limited to general, special,
punitive or exemplary damages and/or injunctive relief.
6.2 REFORMATION. The provisions and covenants contained herein are intended to
-----------
be separate and divisible and if, for any reason, any one or more of such
provisions or covenants should be held to be invalid and unenforceable in whole
or in part, it is agreed that the same shall not be held to affect the validity
or enforceability of any other provisions and covenants of this Agreement. In
the event that any restriction set forth in this Agreement is determined by a
Court to be unenforceable with respect to scope, time or geographical coverage,
Executive agrees that such a restriction should be modified and narrowed so as
to provide the maximum protection of the Company's legally protectible interests
as described in this Agreement, and without negating or impairing any other
restrictions or agreements set forth herein.
6.3 REASONABLENESS. Executive acknowledges that he has carefully read this
--------------
Agreement and has given careful consideration to the restraints imposed upon the
Executive by this Agreement, and is in full accord as to their necessity for the
reasonable and proper protection of the Company's Secrets. The Executive
expressly acknowledges and agrees that each and every restraint imposed by this
Agreement is reasonable with respect to subject matter, time period and
geographical area.
6.4 MODIFICATION. The Parties agree that the Agreement may not be modified
------------
except by the mutual written consent of the Parties. Notwithstanding the
foregoing, the parties further agree that if a judicial or quasi-judicial entity
declares the agreement invalid in whole or in part, it may modify the terms of
the Agreement to give affect to the Agreement as modified.
6.5 SUCCESSORS AND ASSIGNS OF THE COMPANY. This Agreement shall bind Company
--------------------------------------
and Executive, and also all of their respective family members, heirs,
administrators, representatives, successors, assigns, officers, directors,
agents employees, shareholders, affiliates, predecessors, and also all other
persons, firms, corporations, associations, partnerships, and entities in
privity with or related to or affiliated with any such person, firm,
corporation, association, partnership or entity.
Page 5 of 7
<PAGE>
6.6 SURVIVAL OF OBLIGATIONS AND PROVISIONS. Exercise of the Company's
--------------------------------------
termination rights according to the provisions of Articles 2.1, 2.2. and 2.3.1
shall not affect the Company's rights or the Executive's obligations under
Article 1.1.2 and Articles 3, 4, 5 or 6. The Parties acknowledge and agree that
the provisions within Article 1.1.2 and Articles 3, 4, 5 or 6 survive the
termination or expiration of this Agreement as well as the termination of
Executive's employment relationship with the Company.
6.7 AT-WILL PRESUMPTION. Upon completion of the Term of the Agreement, the
-------------------
Parties acknowledge and agree that any further employment with the Company shall
be in an at-will capacity and may be terminated at any time.
6.8 EXPENSES OF ENFORCEMENT. Executive shall be liable to, and will pay the
-----------------------
Company for all costs and expenses, including, but not limited to, reasonable
attorneys' fees, incurred by the Company in the successful enforcement in any
respect of any of its rights under this Agreement, whether in litigation or
otherwise.
6.9 ENTIRE AGREEMENT. The Executive acknowledges and agrees that this
----------------
Agreement, including Addendums A and B which are incorporated herein and made a
part of the Agreement, together with previously entered into specific agreements
entitled the Employment and Non-Competition Agreement dated September 30, 1983
executed by the Executive and the Alco Standard Corporation Confidentiality and
Patent Agreement executed by the Executive and constitute the entire agreement
between the Parties concerning the subject matter of this Agreement, and that
together they supersede and replace all prior agreements, whether written or
oral except the relevant benefit and compensation plans referred to elsewhere in
the Agreement, which are incorporated reference; there are no other agreements,
understandings, restrictions, warranties, or representations between the parties
relating to this subject matter. Executive hereby represents that, in signing
the Agreement, he has not relied upon any promise, representation, or any other
inducement that is not expressed herein.
6.10 APPLICABLE LAW. This Agreement, the construction of its terms, and the
--------------
interpretation of the parties' rights and duties shall be governed by and
construed according to the laws of the Commonwealth of Pennsylvania (the state
of the principal place of business of Alco) without regard to the choice of law
provisions of such law.
6.11 VENUE. The parties hereby agree that any lawsuit or proceeding instituted
-----
regarding this Agreement, its interpretation, enforcement or validity shall be
commenced in the Court of Common Pleas of Chester County, Pennsylvania, or in
the United States District Court for the Eastern District of Pennsylvania, and
the parties hereby consent to the personal jurisdiction over them of both
Courts.
6.12 NOTICES. All notices and other communications concerning this Agreement
-------
shall be in writing and must be given by postage prepaid, registered or
certified mail, as follows:
(a) If to the Company, to: (b) If to Executive, to:
P.O. Box 834 64 Ely Road
Valley Forge, PA 19482 Longmeadow, MA 01106
Attn: Law Department
6.13 UNDERSTANDING OF TERMS. Executive acknowledges that he has carefully
----------------------
reviewed the contents of this Agreement, understands its import and intent,
including the restrictions on post-termination employment it imposes, and that
he agrees to its terms without duress and in full and complete knowledge of its
effect.
6.14 WAIVER. No omission or delay on the part of either Party of due and
------
punctual fulfillment of any obligation shall be deemed to constitute a waiver by
the other Party of any of its rights to require such due and punctual
fulfillment of any other obligation hereunder, whether similar or otherwise, or
a waiver of any remedy it may have. Company's waiver of similar rights with
respect to any other employee shall not constitute a waiver of Company's rights
with respect to Executive.
Page 6 of 7
<PAGE>
IN WITNESS HEREOF, the Parties have affixed their signatures to this Agreement
to be effective October 1, 1995.
WITNESS
/s/Sandra S. Dougall /s/ Peter W. Shoemaker
- -------------------------------- -----------------------------------
PETER W. SHOEMAKER
Date
ALCO STANDARD CORPORATION
/s/ Kurt E. Dinkelakcer
-----------------------------------
By: Kurt E. Dinkelacker
Title: Executive Vice President
Date January 26, 1996
ALCO OFFICE PRODUCTS
/s/ Kurt E. Dinkelakcer
-----------------------------------
By: Kurt E. Dinkelacker
Title: President
Date January 25, 1996
Page 7 of 7
<PAGE>
EXHIBIT 10.25
AMENDMENT BETWEEN IKON OFFICE SOLUTIONS, INC.,
AS SUCCESSOR, AND PETER W. SHOEMAKER
TO 1995 EXECUTIVE EMPLOYMENT AGREEMENT
This is an amendment, effective February 1, 1998, to the Executive
Employment Agreement dated October 1, 1995 between ALCO STANDARD CORPORATION, an
Ohio corporation with its principal place of business in Pennsylvania, and its
operating division, Alco Office Products ("Predecessor Employer"), and PETER W.
SHOEMAKER ("Executive") ("the 1995 Agreement") with this amendment ("this
Amendment") having been entered into this 24th day of August, 1998.
The 1995 Agreement was assigned to and assumed by IKON OFFICE
SOLUTIONS, INC., an Ohio corporation ("IKON" or the "Company"), in connection
with the acquisition by IKON of certain property and assets of Predecessor
Employer.
In consideration of the mutual promises contained in this document and
intending to be legally bound hereto, the Parties agree that the 1995 Agreement
is amended as follows:
1. Duties of Position. IKON shall revise Executive's position
------------------
(Addendum A) and employ Executive as Senior Vice-President, IKON Business
Services, a division of IKON. The Parties expressly agree that the Executive's
revised duties and responsibilities are as set forth in the attached Addendum A,
which is incorporated as if fully set forth herein.
2. Term of Agreement. Fulltime employment of Executive under this
-----------------
Amendment shall extend through January 31, 2000 unless further extended by the
parties ("Extended Term"). The Initial Term and previously identified Extended
Term provisions set forth in the 1995 Agreement and Addendum B of the 1995
Agreement shall cease to have any force or effect, and shall be replaced and
superseded as follows:
<PAGE>
(a) Paragraph 4 of this Amendment sets forth the compensation of
Executive during the Extended Term.
(b) Upon completion of the Extended Term herein as Senior Vice-
President, IKON Business Services, IKON agrees thereafter to employ Executive
(in an employee/consulting capacity) for an additional two (2) year period
("Post-Extended Term") beginning February 1, 2000 or at a later date if the
Extended Term has been extended. During the Post-Extended Term, Executive shall
be compensated at his Base (no additional bonus), together with continuing
vesting and all normal employee-related benefits. LTIP Programs to which
Executive is already a party to will continue to mature; however, Executive will
no longer be eligible for any newly created LTIP Programs or additional stock
option grants. In the event of inconsistent corporate policies or procedures,
conflicting Plan documents or any other cause or reason which prevents Executive
from realizing such employee-related benefits, IKON agrees to make up any
benefit shortfall to Executive by contributing a comparable amount to
Executive's Supplemental Employment Retirement Plan.
(c) It is understood that the employment/consulting services to be
rendered by Executive to IKON during the Post-Extended term will be of minimal
magnitude and not inconsistent with Executive being regularly engaged in other
employment or business activities. Such services shall nevertheless be of
special, unique, unusual, extraordinary and intellectual character, which shall
give said services a peculiar value, the loss of which may not be reasonably or
adequately compensated in damages in an action of law; and shall be at the
reasonable direction and control of the CEO or COO of IKON, or their successors
or assigns, subject to the preceding sentence.
-2-
<PAGE>
3. Relocation Payment. As part of this Amendment, IKON further
------------------
agrees to pay Executive upon completion of the Extended Term a lump sum
relocation payment of Fifty Thousand Dollars ($50,000), reduced by required
withholding, if any, for relocation of his principal residence but only so long
as Executive (i) provides written notice to IKON of his intent to relocate
within sixty (60) days of his completion of the Extended Term and (ii) actually
moves within one (1) year of his completion of the Extended Term.
4. Compensation. Paragraph 1.3 and Addendum B of the 1995 Agreement
------------
are amended to provide (i) a Base Salary of Three Hundred Twenty-Five Thousand
Dollars ($325,000) per annum; and (ii) revised Bonus arrangements as set forth
in revised Addendum B which is attached to this Amendment.
5. Post-Employment Restrictions. The restrictions on Post-Employment
----------------------------
set forth in Paragraph 4.2 of Article 4 of the 1995 Agreement are amended to
substitute "IKON's North American Business" for the OP Division Business and
AOP, and such substitution shall be made for each reference in the 1995
Agreement to OP Division Business or AOP. Executive further agrees not to work
in any capacity whatsoever for Xerox Corporation, Canon or Danka Corporation.
6. Notices. All notices and other communications concerning the 1995
-------
Agreement or this Amendment shall be in writing and must be given postage
prepaid, registered or certified mail, by facsimile or by overnight delivery
service, as follows:
If to the Company, to: IKON Office Solutions, Inc.
70 Valley Stream Parkway
Malvern, PA 19355
Attention: CEO
If to the Executive, to: Peter W. Shoemaker
430 Inveraray Road
Villanova, PA 19085
-3-
<PAGE>
7. Change of Control. Even though he is not an executive officer of
-----------------
the parent Company, IKON hereby agrees that Executive shall have the benefit of
IKON's change of control commitment to senior officers, which confers rights and
benefits upon executive employees in the event that a defined Change of Control
of IKON has occurred, the same as if Executive were a senior officer of the
parent Company, and the same as if that policy were fully set forth in this
Agreement. This paragraph is subject to approval by the parent company's Board
of Directors.
8. Additional Changes to 1995 Agreement.
------------------------------------
(a) The second sentence of paragraph 2.2 of the 1995 Agreement is
amended to read as follows:
"However, in such event, the Company shall be liable to
Executive for the compensation and benefits provided in this
Agreement for the Extended Term and Post-Extended Term."
9. Interpretation of Agreements. All terms and conditions set forth
----------------------------
in the 1995 Agreement shall remain in full force and effect unless revised and
superseded herein. If there are any inconsistencies between this Amendment and
the 1995 Agreement, this Amendment shall prevail. Addenda A and C of the 1995
Agreement are without further force or effect.
(remainder of this page intentionally left blank)
-4-
<PAGE>
IN WITNESS WHEREOF, the Parties have affixed their signatures to this
Agreement this 24th day of August, 1998.
WITNESS:
- --------
/s/Anne Marie Fiumara /s/Peter W. Shoemaker
- --------------------- --------------------------------
Peter W. Shoemaker
IKON OFFICE SOLUTIONS, INC.
By:/s/James J. Forese
--------------------
Title: President and Chief Executive Officer
-------------------------------------
-5-
<PAGE>
Revised Addendum A
[Beth Sexton to Finalize]
JOB TITLE: Senior Vice-President, IKON Business Services
JOB DESCRIPTION AND PRIMARY RESPONSIBILITIES:
REPORTS TO: CEO
SPECIFIC ACCOUNTABILITIES:
. Performance Responsibility for the thirteen (13) U.S. Districts of
Business Services.
. Responsibility for the marketing functions which relate to Business
Services.
. Responsibility for the re-manufacturing function which relate to
Business Services.
Initials: /s/PWS
--------
/s/JJF
--------
-6-
<PAGE>
Revised Addendum B
Peter W. Shoemaker
TITLE: Senior Vice-President, Business Services
TERM - COMPENSATIONS ITEMS:
BASE SALARY: $325,000 per fiscal year
BONUS OPPORTUNITY: Up to maximum of 100% of Base Salary/fiscal year based
upon following:
. Up to a maximum of 25% based upon achievement of IKON's fiscal year
business objectives, pro rata.
. Up to a maximum of 25% based upon achievement of Business Services'
most recently revised fiscal year business plan objectives, pro
rata.
Note: For fiscal year 1998 only, the Transformation Bonus incentive
under Executive's former position (at former Base Salary level) was
earned and is therefore 100% guaranteed for the period October 1, 1997
through January 31, 1998, pro rata, totaling $83,334. The remainder
of Executive's fiscal year 1998 bonus opportunity (for the period
February 1, 1998 through September 30, 1998) pro rata, will be based
upon the following IKON Business Services business objectives:
. 25% of the eight (8) month's Bonus Opportunity (at
Executive's new Base Salary level) for the February 1, 1998
through September 30, 1998, time period, pro rata, will be
guaranteed, totaling $54,167.
. a the remaining $162,500 partial fiscal year bonus
opportunity (at Executive's new Base Salary level) will be
at risk and based upon Executive achieving the Business
Services' revised business plan objectives, copy of which is
attached.
[Kurt Dinkelacker to finalize and provide Business Services'
revised business plan objectives]
* Subsequent fiscal year(s) BONUS opportunity and objectives are to be
discussed and determined on a yearly basis.
OTHER COMPENSATION BENEFITS:
. CEO to recommend to Board of Directors at the July, 1998 Board
Meeting that Executive be included in the Change-of-Control program
that has previously been afforded to Corporate Officers.
-7-
<PAGE>
Revised Addendum B
Peter W. Shoemaker
Page 2
EXTENDED TERM - COMPENSATION ITEMS
. THE EXTENDED TERM-COMPENSATION ITEMS HAVE BEEN SUPERSEDED AND
REPLACED WITH THE TERMS AND CONDITIONS MORE FULLY DESCRIBED IN
SECTION *1.2 OF THIS AMENDMENT.
*2 Initials /s/PWS
------
Initials: /s/PWS
------
/s/JJF
------
-8-
<PAGE>
EXHIBIT 10.28
AMENDMENT DATED 11/6/97
TO THE
1980 DEFERRED COMPENSATION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office Solutions,
Inc.) (the "Company") adopted the Deferred Compensation Plan (the "Plan"),
effective July 1, 1980; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
All references in the Plan to "Alco Standard Corporation" and "Alco" shall
be deemed to be references to "IKON Office Solutions, Inc." and "IKON,"
respectively.
A new Section 21 shall be added to the Plan, which shall read in full as
follows:
21. CHANGE IN CONTROL. In the event of a Change in Control (as
-----------------
defined below), the Vesting Percentage of each Participant whose employment with
an Affiliated Employer has not terminated shall become 100% and IKON shall, as
soon as possible, but in no event longer than 5 days following the Change in
Control, make an irrevocable contribution to a "rabbi trust" in an amount
sufficient to pay each Participant or beneficiary the benefits to which he or
she would be entitled pursuant to the terms of the Plan as of the date on which
the Change in Control occurred.
Within 5 days following the end of the first two full Plan years
ending after a Change in Control, IKON shall make an additional irrevocable
contribution to the "rabbi trust" in an amount sufficient to pay each
Participant or beneficiary the benefits payable pursuant to the terms of the
Plan as of the close of such Plan year.
For purposes of the Plan, the term "Change in Control" shall mean any
of the following events:
(A) any Person, together with its affiliates and associates (as such
terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the
then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on September
30, 1997, constituted the Board of Directors of IKON and any new director whose
appointment or election by the Board or nomination for election by IKON's
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors of IKON on September 30, 1997 or whose
appointment, election or nomination for election was previously so approved; or
<PAGE>
(C) IKON consolidates with, or merges with or into, any other Person
(other than a wholly owned subsidiary of IKON), or any other Person consolidates
with, or merges with or into, IKON, and, in connection therewith, all or part of
the outstanding shares of common stock shall be changed in any way or converted
into or exchanged for stock or other securities or cash or any other property;
or
(D) a transaction or series of transactions in which, directly or
indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion in an
entity which owns all or substantially all of the assets of IKON immediately
following such transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) IKON or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
In no event will the provisions of this Section 21 be subject to amendment
or modification after a Change in Control has occurred.
The existing Section 21 of the Plan shall be renumbered Section 22.
Executed this 29th day of June, 1998.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Kurt E. Dinkelacker
------------------------
<PAGE>
EXHIBIT 10.29
AMENDMENT DATED 11/6/97
TO THE
1985 DEFERRED COMPENSATION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office Solutions,
Inc.) (the "Company") adopted the 1985 Deferred Compensation Plan (the "Plan"),
effective October 1, 1985; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
All references in the Plan to "Alco Standard Corporation" and "Alco" shall
be deemed to be references to "IKON Office Solutions, Inc." and "IKON,"
respectively.
A new Section 22 shall be added to the Plan, which shall read in full as
follows:
22. CHANGE IN CONTROL. In the event of a Change in Control (as
-----------------
defined below), the Vesting Percentage of each Participant whose employment with
an Employer has not terminated shall become 100%, and IKON shall, as soon as
possible, but in no event longer than 5 days following the Change in Control,
make an irrevocable contribution to a "rabbi trust" in an amount sufficient to
pay each Participant or beneficiary the benefits to which he or she would be
entitled pursuant to the terms of the Plan as of the date on which the Change in
Control occurred.
Within 5 days following the end of the first two full Plan years
ending after a Change in Control, IKON shall make an additional irrevocable
contribution to the "rabbi trust" in an amount sufficient to pay each
Participant or beneficiary the benefits payable pursuant to the terms of the
Plan as of the close of such Plan year.
For purposes of the Plan, the term "Change in Control" shall mean any
of the following events:
(A) any Person, together with its affiliates and associates (as such
terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the
then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on September
30, 1997, constituted the Board of Directors of IKON and any new director whose
appointment or election by the Board or nomination for election by IKON's
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors of IKON on September 30, 1997 or whose
appointment, election or nomination for election was previously so approved; or
<PAGE>
(C) IKON consolidates with, or merges with or into, any other Person
(other than a wholly owned subsidiary of IKON), or any other Person consolidates
with, or merges with or into, IKON, and, in connection therewith, all or part of
the outstanding shares of common stock shall be changed in any way or converted
into or exchanged for stock or other securities or cash or any other property;
or
(D) a transaction or series of transactions in which, directly or
indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion in an
entity which owns all or substantially all of the assets of IKON immediately
following such transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) IKON or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
In no event will the provisions of this Section 22 be subject to amendment
or modification after a Change in Control has occurred.
The existing Sections 22 and 23 of the Plan shall be renumbered Sections 23
and 24, respectively.
Executed this 29th day of June, 1998.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Kurt E. Dinkelacker
-----------------------
<PAGE>
EXHIBIT 10.30
AMENDMENT DATED 11/6/97
TO THE
1991 DEFERRED COMPENSATION PLAN
WHEREAS, Alco Standard Corporation (now known as IKON Office Solutions,
Inc.) (the "Company") adopted the 1991 Deferred Compensation Plan (the "Plan"),
effective January 1, 1991; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
All references in the Plan to "Alco Standard Corporation" and "Alco" shall
be deemed to be references to "IKON Office Solutions, Inc." and "IKON,"
respectively.
The term "Change in Control" as used in Section 21 of the Plan shall mean
any of the following events:
(A) any Person, together with its affiliates and associates (as such
terms are used in Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), is or becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the
then outstanding shares of IKON common stock; or
(B) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on September
30, 1997, constituted the Board of Directors of IKON and any new director whose
appointment or election by the Board or nomination for election by IKON's
shareholders was approved by a vote of at least a majority of the directors then
still in office who either were directors of IKON on September 30, 1997 or whose
appointment, election or nomination for election was previously so approved; or
(C) IKON consolidates with, or merges with or into, any other Person
(other than a wholly owned subsidiary of IKON), or any other Person consolidates
with, or merges with or into, IKON, and, in connection therewith, all or part of
the outstanding shares of common stock shall be changed in any way or converted
into or exchanged for stock or other securities or cash or any other property;
or
(D) a transaction or series of transactions in which, directly or
indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such
<PAGE>
transaction or series of transactions own a majority of the outstanding voting
shares and in substantially the same proportion in an entity which owns all or
substantially all of the assets of IKON immediately following such transaction
or series of transactions.
The term "Person" in the foregoing definition shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) IKON or any of
its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
Executed this 29th day of June, 1998.
IKON OFFICE SOLUTIONS, INC.
By: /s/ Kurt E. Dinkelacker
-----------------------
2
<PAGE>
EXHIBIT 10.32
January 1, 1998
IKON OFFICE SOLUTIONS, INC.
1994 DEFERRED COMPENSATION PLAN
THE PLAN
IKON Office Solutions, Inc. ("IKON") (formerly known as Alco Standard
Corporation) is offering to certain employees of its divisions and subsidiaries
("Employer(s)") the opportunity to participate in the IKON Office Solutions,
Inc. 1994 Deferred Compensation Plan (the "Plan"), pursuant to which
participants may defer a portion of their compensation and receive certain
benefits upon retirement or other termination of employment. The Plan initially
became effective for certain employees on May 1, 1994. It was amended and
restated as of January 1, 1995 and as of July 1, 1995. It was further amended,
effective January 1, 1997, and restated effective January 1, 1998, for all
current and new participants.
The full text of the amended and restated Plan is set forth beginning on
page 10 of this document. This document sets forth information about the Plan,
but should be read in conjunction with the text of the Plan itself.
IKON's principal office is located at 70 Valley Stream Parkway, Malvern,
Pennsylvania 19355. Its telephone number is (610) 296-8000. IKON's federal tax
identification number is 23-0334400.
ELIGIBILITY
You are eligible to participate in the Plan if you are:
--A full-time employee of IKON or an Employer;
--A "highly compensated" employee (employees who had, or who reasonably
expect to have, compensation from IKON or an Employer in excess of
$110,000 in the calendar year immediately preceding the date on which
they begin to participate in the Plan will be considered "highly
compensated" for purposes of the Plan) or a "Partner" or have been
selected for participation by the Chief Executive Officer or Chief
Financial Officer of IKON; and
--A U.S. taxpayer.
<PAGE>
ELECTION TO PARTICIPATE
Participation in the Plan is voluntary. If you do not already participate
in the Plan, you may begin participation as of January 1, 1998 (or the beginning
of any subsequent calendar year) by signing an agreement ("Participation
Agreement") which expresses your commitment to participate in the Plan for five
years (or until your employment terminates, if earlier) and sets forth your
deferral election for the first year. You may also be required to sign any
other forms required by the Plan Administrator.
DEFERRALS
In your Participation Agreement, you may elect to defer receipt of a
portion of your salary and/or annual bonus. If you elect to defer receipt of a
portion of your annual bonus, you may specify either a dollar amount or a
percentage to be deferred. The amount of your salary deferrals must be at least
$3,000 and the aggregate amount of your deferrals from your salary and annual
bonus may not exceed $100,000 for each of the five plan years. The amounts you
defer may vary from year to year, subject to these minimum and maximum limits,
and you will be given the opportunity, before the beginning of each year, to
change the amount of your deferrals. A participant who does not elect a
----------------------------------
specific amount for any year will be deemed to have elected to defer $3,000 of
- ------------------------------------------------------------------------------
salary for such year. If you terminate employment during the deferral period,
- --------------------
your deferral of income will immediately cease.
The amounts you elect to defer will generally be deducted from your salary
through payroll deduction in substantially equal installments during each
deferral period and from your annual bonus in a lump sum.
INVESTMENT ACCOUNTS
Amounts that you defer under the Plan will be credited to an account
established by IKON in your name. Your account will be "indexed," or credited
with earnings based on the performance of various investment index alternatives
selected by you. In other words, IKON will measure the performance of these
funds, and will credit your account accordingly. IKON may, but is not obligated
to, use participant deferrals to invest in the investment funds described below.
You will at all times remain a general unsecured creditor of IKON.
You may allocate your account balance among one or more of the following
alternatives (or such other alternatives as IKON may designate from time to
time), in any combination of whole percentages adding up to 100%:
LARGE CAP VALUE
- ---------------
1. VALUE EQUITY (NB) ALTERNATIVE - Seeks to provide above-average long-term
total return relative to the broad equity market and other value-oriented funds.
Common stocks are selected via a combination of systematic valuation processes
and individual security analysis. This
2
<PAGE>
Alternative's objective is to identify equity issues that are inexpensively
priced based upon measures such as price/earnings, price/book or price/cash
flow. (Adviser: Neuberger & Berman)
2. VALUE EQUITY (MS) ALTERNATIVE - Common stocks are selected through
quantitative analysis. Screens rank stocks based upon price/earnings ratios
with least expensive issues determining portfolio holdings. (This Alternative
is new to IKON as of 1/1/98. Adviser: Morgan Stanley)
LARGE CAP GROWTH
- ----------------
3. GROWTH ALTERNATIVE - Seeks capital growth through investment in common
stocks of financially sound companies believed to have above average earnings or
otherwise provide above average potential for capital appreciation. Stocks with
greater than average market growth but undervalued by the market are candidates
for purchase. (Adviser: Neuberger & Berman)
4. S&P 500 ALTERNATIVE (previously labeled Quality Equity Portfolio
Alternative) - Seeks a return consistent with the Standard & Poor 500.
Portfolio duplicates the holdings and sector weights of the S&P 500 Index.
(This Alternative is new to IKON as of 1/1/98. Adviser: Fidelity Group)
5. CAPITAL APPRECIATION ALTERNATIVE - Seeks long-term capital appreciation by
investing in equity securities of companies generally with a market
capitalization in excess of $1 billion that demonstrate above average growth in
unit volume. (Adviser: The Alger Group)
MID-CAP GROWTH
- --------------
6. MID-CAP GROWTH ALTERNATIVE - Seeks, primarily through capital appreciation,
an above average long-term rate of return relative to broad market indices and
similar mid-cap funds. Positive revisions to earnings estimates are the key
factor in identifying possible holdings. (Adviser: Morgan Stanley as of
1/1/98)
SMALL CAP GROWTH
- ----------------
7. SMALL-CAP ALTERNATIVE (previously labeled Equity Growth Portfolio
Alternative) - Seeks long-term capital growth through investment in small,
growth companies. This Alternative's objective is to identify companies with
the potential to expand market share in rapidly growing industries. (Adviser:
Bankers Trust as of 1/1/98)
INTERNATIONAL EQUITY
- --------------------
8. GLOBAL EQUITY ALTERNATIVE - Seeks an attractive long-term rate of return
principally through equity securities of companies listed on U.S. and
international stock exchanges. Primary criteria for stock selection is an
inexpensive valuation based on price/earnings, price/book or price/cash flow
ratios. (This Alternative is new to IKON as of 1/1/98. Adviser: Morgan
Stanley)
3
<PAGE>
9. INTERNATIONAL EQUITY ALTERNATIVE - Seeks long-term capital appreciation
primarily from non-U.S. equities and other securities with characteristics
similar to equities. This Alternative's investment approach is to identify
countries or regions with attractive growth prospects. Once identified,
equities with the potential to benefit from such trends are considered for
purchase. (Adviser: Bankers Trust as of 1/1/98)
10. EMERGING MARKET ALTERNATIVE - Seeks long-term capital appreciation in
markets other than the U.S., Canada, Japan, Australia, New Zealand and Western
Europe through aggressive positions in countries with the potential for rapid
growth. (This Alternative is new to IKON as of 1/1/98. Adviser: Morgan
Stanley)
BALANCED FUND
- -------------
11. ASSET MANAGER ALTERNATIVE (previously labeled Balanced Portfolio
Alternative) - Seeks to provide high total return with reduced risk through
long-term asset allocation in larger companies. Manager uses a broad range of
global investment alternatives while maintaining an overall asset mix
approximating 50% equities, 40% fixed income and 10% cash. (Adviser: Fidelity
Group as of 1/1/98)
BONDS
- -----
12. LIMITED MATURITY BOND ALTERNATIVE - Seeks to achieve the highest current
income consistent with low risk to principal and liquidity through investment in
a diversified group of short to intermediate term debt securities with average
maturity of less than five years. (Adviser: Neuberger & Berman)
13. FIXED INCOME ALTERNATIVE (previously labeled Government Income Portfolio
Alternative) - Seeks to provide investors with an above average total return
relative to the intermediate maturity fixed income market via strategic shifts
in portfolio duration and value investing. (Adviser: Morgan Stanley as of
1/1/98)
14. HIGH YIELD ALTERNATIVE (previously labeled High Current Income Portfolio
Alternative) - Seeks above average long-term return relative to the high yield
fixed income market through diversified investments primarily in below-
investment grade corporate bonds selected based on the credit worthiness of the
underlying companies. (Adviser: Morgan Stanley as of 1/1/98)
SHORT TERM
- ----------
15. MONEY MARKET ALTERNATIVE (previously labeled Short Term Portfolio
Alternative) - Seeks maximum current income consistent with liquidity and
preservation of capital via money market securities. (Adviser: Fidelity Group
as of 1/1/98)
You will receive additional information for each of the above Alternatives from
the Plan Administrator. The above descriptions are qualified in their entirety
by reference to such information.
4
<PAGE>
You may change your allocation among the various alternatives once during
any calendar month. Any change you request by the 25th day of a month will
become effective as of the first day of the next calendar month.
THE VALUE OF THE BENEFIT YOU ULTIMATELY RECEIVE UNDER THE PLAN DEPENDS ON
THE RETURNS CREDITED TO YOUR ACCOUNT, BASED ON YOUR SELECTION OF ALTERNATIVES.
THERE IS NO GUARANTEED RATE OF RETURN ON YOUR ACCOUNT UNDER THE PLAN.
VESTING
You will become vested in your account (i) on the fifth anniversary of the
date on which you began participating in the Plan (or, in the case of employees
who began participating in the Plan as of July 1, 1995, on December 31, 1999),
(ii) on the date of your retirement from IKON or an Employer or from Unisource
Worldwide, Inc. ("Unisource") at or after age 60, or (iii) on the date you reach
age 65, whichever occurs first, provided that you have remained a full-time
employee of IKON, an Employer or Unisource continuously throughout that period.
If you leave employment (for any reason other than death or total disability)
before you are vested in your account, you will not receive any retirement
benefits, but you will receive a lump sum payment equal to the lesser of the
balance in your account or the total amount of your deferrals.
DISABILITY BENEFITS
If your employment with IKON, an Employer or Unisource terminates because
of total disability before your benefits have vested, you will automatically
become vested as of such date. Your retirement benefits will not begin until
the January after you reach age 60, except that you may, in the case of
financial hardship, apply to the Committee for an earlier commencement of
benefits.
DEATH BENEFITS
If you die (whether before or after you begin to receive your retirement
benefits), your beneficiary will be entitled to receive, in a lump sum, the
balance in your account as of the last day of the month following your date of
death.
RETIREMENT BENEFITS
Your retirement benefits will be paid to you in ten annual payments,
beginning in January of the year after you reach age 60 or retire from the
employ of IKON, an Employer or Unisource, whichever is later. Your retirement
benefits will be paid to you as follows:
* 1/10 of your account balance in year 1,
* 1/9 of your account balance in year 2,
* 1/8 of your account balance in year 3,
5
<PAGE>
* 1/7 of your account balance in year 4,
* 1/6 of your account balance in year 5,
* 1/5 of your account balance in year 6,
* 1/4 of your account balance in year 7,
* 1/3 of your account balance in year 8,
* 1/2 of your account balance in year 9, and
* the balance in year 10.
You may elect to defer commencement of your benefits to a later date, or to
receive your benefits in five or fifteen annual payments (rather than ten), by
providing written notice to the Administrator by December 31 of the second year
prior to the earliest date on which your benefits would otherwise commence.
CHANGE IN CONTROL
Upon a Change in Control (as defined in the Plan), the Plan will
terminate, and you will receive in a lump sum, the balance in your account as of
the last day of the month in which the Change in Control occurs.
USE OF PARTICIPANT PAYMENTS
IKON currently intends (but is not obligated) to use participant deferrals
to purchase life insurance on the lives of participating employees. The
obligations of IKON and/or the Employers under the Plan will not be secured in
any manner, however, nor will specific assets or funds be set aside for the
payment of benefits. A Participant's interest in the Plan or a Participation
Agreement may not be assigned, transferred, pledged, encumbered, alienated or
charged.
OTHER EMPLOYEE BENEFIT PLANS
Participation in this Plan does not in any way affect your right to
participate in any pension, profit-sharing, incentive, thrift, group health
insurance, stock option, termination pay, or similar plan of IKON or an
Employer, except that the deferrals will not be included in determining your
benefits under any retirement plans qualified under section 401(a) of the
Internal Revenue Code. Deferrals under this Plan will be included as
compensation for purposes of calculating the level of contributions under IKON's
Partners' Stock Purchase Plan.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
6
<PAGE>
The Plan is a "pension plan" as defined in the Employee Retirement Income
Security Act of 1974 ("ERISA") and is subject to certain provisions of ERISA,
including certain requirements relating to reporting, disclosure, enforcement
and claims. The Plan is unfunded for purposes of ERISA. The Plan is not
subject to eligibility, participation, vesting, benefit accrual, or plan
termination insurance provisions of ERISA.
ADMINISTRATION
The Plan provides that authority for the administration and interpretation
of the Plan will be vested in a Committee selected by the Board of Directors of
IKON (the "Committee"). The Board of Directors may at any time change the
membership of the Committee.
The Committee will from time to time appoint a Plan Administrator who will
be responsible for the general administration of the Plan under the policy
guidance of the Committee. Walter J. Hope, Jr., Director-Risk Management of
IKON, P.O. Box 834, Valley Forge, PA 19482-0834 has been selected as the Plan
Administrator, and the agent for service of process under the Plan. A new
Administrator may be appointed by the Committee at any time.
The Plan's fiscal year is January 1 - December 31. Its Plan number is 301.
All expenses incurred in administering the Plan will be paid by IKON and
none will be paid by the Plan participants.
CLAIMS PROCEDURE
If at any time the Plan Administrator denies your written claim for any
benefit to which you believe you are entitled under the Plan, the Plan
Administrator will send you written notice within 90 days (or 180 days under
special circumstances) of the date on which you filed your claim. This notice
will (a) explain the specific reason or reasons for the denial of your claim,
(b) refer to the specific Plan provision on which the denial is based, (c)
describe any additional information required in order to obtain a favorable
determination of your claim and explain why this information is necessary, and
(d) explain the steps to be taken if you wish to submit your claim for review.
If you wish to appeal a denied claim, you must, within 60 days of receiving
your notice of denial, petition the Committee for a review. All petitions for
review must be made in writing on forms supplied by IKON. The Committee will
render a written decision within 60 days (or 120 days under special
circumstances) after receiving your petition.
You must follow the claims procedure described above before you can
consider legal action against IKON. Naturally, both you and IKON will want to
avoid legal action. Should you feel legal action is necessary, however, any
summons or other legal process should be served on the agent named on page 6.
7
<PAGE>
TAX CONSEQUENCES
The following discussion is intended to provide general information under
current federal law concerning the tax consequences of the Plan to the Plan
participants and to IKON and its Employers. It does not provide information
about the tax consequences under any state or local law which may be applicable
to the transactions described herein. Because the consequences under federal,
state and local law may vary with each employee and may materially affect an
employee's decisions with respect to the Plan, you should seek competent advice
from legal or other counsel. There may also be changes in the law subsequent to
the date hereof which affect the tax consequences of the Plan or which cause
IKON to terminate the Plan in accordance with its terms.
The Plan is not a qualified Plan under section 401(a) of the Internal
Revenue Code of 1986, as amended.
1. YEARS OF DEFERRAL
An effective election to defer compensation otherwise payable in a taxable
year will remove the amount so deferred from the taxable income of the
participant for such year for federal income tax purposes. Neither IKON nor an
Employer will be permitted a current federal income tax deduction for any
amounts deferred under the Plan.
Amounts deferred will generally be subject to taxes imposed under the
Federal Insurance Contributions Act ("FICA") or the Federal Unemployment Tax Act
("FUTA") in the year of deferral.
2. YEARS OF PAYMENT
Retirement benefits (or lump sum payments) will be taxable income to the
participant or a beneficiary in the year in which such benefits (or lump sum
payments) are received. Such benefits will generally not be subject to taxes
imposed under FICA or FUTA, but are subject to federal income tax withholding
requirements. IKON or an Employer will generally be permitted a federal income
tax deduction for the year in which such benefits are paid.
8
<PAGE>
IKON OFFICE SOLUTIONS, INC.
1994 DEFERRED COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1998)
A. PURPOSE. The purpose of the IKON Office Solutions, Inc. 1994 Deferred
Compensation Plan is to permit certain eligible employees of IKON Office
Solutions, Inc. and its affiliated companies to defer a portion of their
compensation and to participate in a program under which they are provided
supplemental income after their retirement. The program is intended to
constitute an unfunded deferred compensation arrangement for a select group of
management or highly compensated employees.
2. DEFINITION. Unless the context otherwise requires, the following
words as used herein shall have the following meanings:
(a) "Administrator" shall mean the person or persons so designated
and acting under Paragraph 16 hereof.
(b) "Affiliated Employer" shall mean any domestic corporation of
which IKON (directly or through any subsidiary) owns 80% or more of the
outstanding voting stock.
(c) "Compensation" shall mean all salaries, bonuses, commissions and
incentive compensation from IKON or an Affiliated Employer, but shall not
include company contributions under IKON's Partners' Stock Purchase Plan or the
IKON Retirement Savings Plan or any fringe benefits.
(d) "Effective Date" shall mean January 1, 1998, the effective date
of this amended and restated Plan. The rights of a Participant whose
participation in the Plan commenced prior to the Effective Date and who remains
a Participant on the Effective Date shall be governed by the terms of the
amended and restated Plan as set forth herein.
(e) "Employer" shall mean IKON or an Affiliated Employer or Unisource
Worldwide, Inc.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(g) "IKON" shall mean IKON Office Solutions, Inc., an Ohio
corporation, formerly known as Alco Standard Corporation.
(h) "Participant" shall mean any person employed by an Employer who
is eligible, and who has elected, to participate in the Plan.
9
<PAGE>
(i) "Participation Agreement" shall mean the agreement executed by
each Participant and IKON or an Affiliated Employer, as the case may be, setting
forth certain information relating to the Participant's participation in the
Plan.
(j) "Plan" shall mean the IKON Office Solutions, Inc. 1994 Deferred
Compensation Plan, as amended from time to time.
(k) "Plan Year" shall mean the period beginning on January 1 and
ending on December 31 of each year.
(l) "Total Disability" shall mean a total disability as defined in
the long term disability plan adopted by the Participant's Employer (or, if the
Participant's Employer does not have such a plan, the long term disability plan
of IKON).
3. PARTICIPATION. Any person who (a) is employed by IKON or an
Affiliated Employer on a full-time basis, (b) is "highly compensated" (employees
who received, or who reasonably expect to receive, Compensation from IKON or an
Affiliated Employer in excess of $110,000 in the calendar year immediately
preceding the date on which the Participant begins to participate in the Plan
are considered "highly compensated" for purposes of the Plan) or has been
designated by IKON as a "Partner" and (c) is a United States taxpayer, shall be
eligible to participate herein. In addition, other persons who satisfy
conditions (a) and (c) of the foregoing sentence shall be eligible to
participate in the Plan if selected by the Chief Executive Officer or Chief
Financial Officer of IKON. A person eligible under this Paragraph 3 shall
become a Participant by executing a Participation Agreement and such other forms
as may be required by the Administrator.
4. DEFERRAL OF COMPENSATION. Prior to the Effective Date and prior to
the beginning of each Plan Year during the term of the Plan, an employee of IKON
or an Affiliated Employer who meets the eligibility requirements of Paragraph 3
may irrevocably elect to defer or forgo a portion of his Compensation for each
of the next five Plan Years (or, if less, for each of the Plan Years while he is
an active employee of IKON or an Affiliated Employer). The amount of the
deferral for each Plan Year may vary, subject to the minimum and maximum
limitations set forth below.
The amount of salary and/or annual bonus (stated as a dollar amount or
as a percentage in the case of deferrals from a Participant's annual bonus) to
be deferred for the first Plan Year shall be designated on the Participant's
Participation Agreement, subject to the minimum and maximum limitations set
forth below. For each of the next four Plan Years after a Participant's initial
deferral election (or, if less, for each Plan Year while he is an active
employee of IKON or an Affiliated Employer), the Participant will be given the
opportunity, prior to the beginning of each Plan Year, to elect the amount of
Compensation to be deferred, subject to the minimum and maximum limitations set
forth below. For each Plan Year, the amount of a Participant's deferrals from
salary may be no less than $3,000 and the aggregate amount of a Participant's
deferrals from salary and annual bonus may be no more than $100,000. In the
event that a Participant fails to specify the amount to be deferred in any Plan
Year, he shall be deemed to have elected to defer $3,000 of salary for such Plan
Year. The Administrator shall
10
<PAGE>
have the right to waive the future deferral obligation for a Participant who has
suffered an unforseeable emergency.
The amount to be deferred for a Plan Year will be deducted from the
Participant's Compensation otherwise payable by IKON or an Affiliated Employer,
in substantially equal installments during the applicable deferral period in the
case of deferrals from salary, and in a lump sum in the case of deferrals from
annual bonuses.
5. INVESTMENT ACCOUNTS. Amounts deferred by a Participant pursuant to
Paragraph 4 will be credited to an account established by IKON in the name of
the Participant. A Participant's account will be credited with earnings based
on the performance of various investment alternatives selected by the
Participant from among those made available by IKON from time to time.
A Participant may request a change in his allocation among the various
investment alternatives once during any calendar month. Any such changes
requested by the 25th day of the month will become effective as of the first day
of the next calendar month.
6. VESTING. A Participant shall vest in the benefits to be provided
hereunder (i) on the fifth anniversary of the date of his initial participation
in the Plan (or, in the case of Participants whose participation in the Plan
began as of July 1, 1995, on December 31, 1999), (ii) on the date of his
retirement from an Employer at or after age 60, or (iii) on the date that he
attains age 65, whichever shall first occur, provided the Participant has been a
full-time employee of an Employer for the entire period.
A Participant who incurs a Total Disability while still employed by an
Employer shall become immediately vested in the benefits to be provided
hereunder (as described in Paragraph 8, below).
Each other Participant whose employment with an Employer terminates prior
to vesting (other than on account of death, as described in Paragraph 7, below)
shall be entitled to receive, in a lump sum payment, an amount equal to the
lesser of (i) the Participant's deferrals to the date of termination, without
interest, or (ii) the value of the Participant's account as of the last day of
the calendar month coincident with or next following the date of termination.
No other benefits shall be payable under the Plan to such Participant.
7. DEATH BENEFITS. If a Participant dies (whether before or after he
begins to receive benefit payments), his beneficiary shall be entitled to
receive, in a lump sum payment, the value of the Participant's account as of the
last day of the calendar month coincident with or next following the
Participant's date of death.
8. DISABILITY BENEFITS. If a Participant incurs a Total Disability while
still employed by an Employer, he shall be entitled to receive the benefits
described in Paragraph 9, which shall commence in the January following the year
in which he attains age 60. A Participant who has incurred a Total Disability
may begin to receive benefits before reaching age 60 if the Committee (as
defined in Paragraph 16) determines, upon application by the Participant, that
the
11
<PAGE>
Participant has a financial hardship that cannot reasonably be relieved by use
of other resources available to him.
9. AMOUNT AND TIMING OF BENEFIT PAYMENTS. Except as otherwise provided
in Paragraphs 6, 7 and 8, payment of benefits under the Plan shall be paid in
ten annual payments and shall commence in the January following the later of the
Participant's attaining age 60 or the Participant's retirement from the employ
of an Employer, unless the Participant has notified the Administrator, in
writing, by December 31 of the second year prior to such date, of his election
to defer commencement of such benefits until a later date or his election to
receive benefits in five or fifteen annual payments.
A. TEN PAYMENTS. If the Participant's benefits are to be paid to
------------
him in ten annual payments, such payments shall be made as follows:
(a) 1/10 of the value of his account as of the preceding December 31
in the first year.
(b) 1/9 of the value of his account as of the preceding December 31
in the second year .
(c) 1/8 of the value of his account as of the preceding December 31
in the third year.
(d) 1/7 of the value of his account as of the preceding December 31
in the fourth year.
(e) 1/6 of the value of his account as of the preceding December 31
in the fifth year.
(f) 1/5 of the value of his account as of the preceding December 31
in the sixth year.
(g) 1/4 of the value of his account as of the preceding December 31
in the seventh year.
(h) 1/3 of the value of his account as of the preceding December 31
in the eighth year.
(i) 1/2 of the value of his account as of the preceding December 31
in the ninth year.
(j) All amounts remaining in his account in the tenth year.
B. FIVE PAYMENTS. If the Participant elects (in accordance with the
-------------
procedure specified herein) to have his benefits paid in five annual payments,
such payments shall be made as follows:
12
<PAGE>
(a) 1/5 of the value of his account as of the preceding December 31
in the first year.
(b) 1/4 of the value of his account as of the preceding December 31
in the second year .
(c) 1/3 of the value of his account as of the preceding December 31
in the third year.
(d) 1/2 of the value of his account as of the preceding December 31
in the fourth year .
(e) All amounts remaining in his account in the fifth year.
C. FIFTEEN PAYMENTS. If the Participant elects (in accordance with
----------------
the procedure specified herein) to have his benefits paid in fifteen annual
payments, such payments shall be made as follows:
(a) 1/15 of the value of his account as of the preceding December 31
in the first year.
(b) 1/14 of the value of his account as of the preceding December 31
in the second year.
(c) 1/13 of the value of his account as of the preceding December 31
in the third year.
(d) 1/12 of the value of his account as of the preceding December 31
in the fourth year.
(e) 1/11 of the value of his account as of the preceding December 31
in the fifth year.
(f) 1/10 of the value of his account as of the preceding December 31
in the sixth year.
(g) 1/9 of the value of his account as of the preceding December 31
in the seventh year.
(h) 1/8 of the value of his account as of the preceding December 31
in the eighth year.
(i) 1/7 of the value of his account as of the preceding December 31
in the ninth year.
13
<PAGE>
(j) 1/6 of the value of his account as of the preceding December 31
in the tenth year.
(k) 1/5 of the value of his account as of the preceding December 31
in the eleventh year.
(l) 1/4 of the value of his account as of the preceding December 31
in the twelfth year.
(m) 1/3 of the value of his account as of the preceding December 31
in the thirteenth year.
(n) 1/2 of the value of his account as of the preceding December 31
in the fourteenth year.
(o) All amounts remaining in his account in the fifteenth year.
10. BENEFICIARY DESIGNATION. A Participant shall designate in his
Participation Agreement the beneficiary or beneficiaries who shall, in the event
of his death, receive the benefits payable in accordance with Paragraph 7. This
designation may be amended in writing and filed with the Administrator from time
to time by the Participant. In the event that there is no effective beneficiary
designation when such benefits are payable, payments shall be made to the
members of the first surviving class of the Participant in the following
priority:
(a) spouse;
(b) the living children (including adopted children) in equal
amounts;
(c) estate.
11. INCAPACITY OF RECIPIENT. Any payment required to be made under the
Plan to a person who is under a legal disability may be made to or for the
benefit of such person in such of the following ways as the Administrator shall
determine:
(a) to such person;
(b) to the legal representatives of such person;
(c) to a near relative of such person to be used for his benefit; or
(d) to pay the expenses of support, maintenance or education of such
person.
The Administrator shall not be required to see to the application by any
third party of payments made pursuant to this Paragraph 11.
14
<PAGE>
12. RESPONSIBILITY FOR PAYMENT. All benefits under the Plan shall be paid
by IKON. IKON may, in its sole discretion, determine the manner in which it
shall finance its obligation to pay such benefits.
13. NON-ASSIGNMENT. Except as hereinafter provided with respect to
marital or family support disputes, no amount payable under the Plan shall be
subject to assignment, transfer, sale, pledge, encumbrance, alienation or charge
by the Participant or any beneficiary. Any attempt to assign, transfer, sell,
pledge, encumber, alienate or charge any amount hereunder shall be without
effect. In cases of marital or family support disputes, the Administrator will
observe the terms of the Plan unless and until ordered to do otherwise by a
state or federal court. As a condition of participation in the Plan, the
Participant shall agree to hold the Employer harmless from any claim that arises
out of obeying an order of any state or federal court with respect to marital or
family support disputes, whether such order effects a judgment of such court or
is issued to enforce a judgment or order of another court.
14. NO FUNDING. IKON shall not segregate or physically set aside any
funds or assets as a result of this Plan. Neither a Participant, nor his
beneficiary, nor any other person shall be deemed to have, pursuant to this
Plan, any property interest, legal or equitable, in any specific asset of IKON
or an Employer. To the extent that any person acquires any right to receive
benefits under this Plan or a Participation Agreement, such right shall be no
greater than, nor shall it have any preference or priority over, the rights of
any unsecured general creditor of IKON or an Affiliated Employer.
15. OWNERSHIP OF LIFE INSURANCE POLICIES. IKON may, but is not obligated
to, purchase life insurance policies to assist it in meeting its obligation to
pay benefits under the Plan. IKON will retain all incidents of ownership in
such policies.
As a condition of participation in the Plan, the Participant shall agree
that IKON or an Affiliated Employer may, at their expense, purchase life
insurance on the life of the Participant.
16. ADMINISTRATION. The Plan shall be administered by a Committee
selected from time to time by the Board of Directors of IKON (the "Committee").
The Committee shall select an Administrator from time to time to administer the
Plan under the general policy guidance of the Committee. The Administrator
shall be one or more persons who shall be responsible for:
(a) maintaining any records necessary in connection with the Plan;
(b) making calculations under the Plan;
(c) interpreting the provisions of the Plan; and
(d) otherwise administering the Plan in accordance with its terms.
17. CLAIMS PROCEDURES. At any time the Administrator makes a
determination adverse to a Participant or beneficiary with respect to a claim
for benefits or participation under
15
<PAGE>
the Plan, the Administrator shall notify the claimant in writing of such
determination, setting forth:
(a) the specific reason for such determination;
(b) a reference to the specific provision or provisions of the Plan
on which such determination is based;
(c) a description of any additional material or information necessary
to perfect the claim, and an explanation of the reason that such material is
required; and
(d) an explanation of the rights and procedures set forth in this
Paragraph 17.
A person who receives notice of an adverse determination by the
Administrator with respect to a claim may request, within 60 days of receipt of
such notice, that the Committee review the Administrator's determination. This
request may be made on behalf of a claimant by a duly authorized representative.
The claimant or representative may review pertinent documents and submit issues
and comments with respect to the controversy to the Committee. The Committee
shall render a decision within 60 days of a request for review (or within 120
days under special circumstances), which decision shall be in writing and shall
set forth the specific reasons for the decision reached and the specific
provisions of the Plan on which the decision is based. A copy of the ruling
shall be forwarded to the claimant.
18. EMPLOYEE BENEFIT PLANS. This Plan shall not in any way affect a
Participant's right to participate in any pension, profit-sharing, incentive,
thrift, group health insurance, stock option, termination pay or similar plan of
an Employer, which is now in effect or may hereafter be adopted, to the extent
that the Participant is entitled to participate under the applicable terms and
provisions of such plan, except that the amounts deferred herein shall not be
included in determining a Participant's benefits under any retirement plans
qualified under section 401(a) of the Internal Revenue Code. Deferrals under
this Plan will be included as compensation for purposes of calculating the level
of contributions under IKON's Partners' Stock Purchase Plan.
19. AMENDMENT. The Board of Directors of IKON shall have the power to
amend this Plan at any time; provided, however, that, except as set forth in
Paragraph 20 and/or Paragraph 21, no amendment or termination of the Plan shall
have a material adverse effect upon a Participant unless he consents to such
amendment or termination in writing.
20. TERMINATION. This Plan shall remain in effect until termination by
the Board of Directors of IKON. The Board of Directors of IKON shall have the
right to terminate the Plan in its entirety, and not in part, at any time it
determines that proposed or pending tax law changes or other events cause, or
are likely in the future to cause, the Plan to have an adverse financial impact
upon IKON. In such event, IKON shall have no liability or obligation under the
Plan or the Participant's Participation Agreement (or any other document),
provided that IKON distributes to each Participant, in a lump sum payment, the
value of his account, valued as of the end of the month in which such
termination occurs.
16
<PAGE>
21. ACCELERATION. IKON shall have the right at any time to (a) accelerate
the vesting of benefits to be provided under the Plan or (b) cause the payment
of all amounts thereafter due to a Participant to be paid in a single lump sum
or in such other accelerated manner as IKON shall deem appropriate. The amount
of any lump sum payment shall be the value of a Participant's account, valued as
of the end of the month following IKON's determination to accelerate benefits.
If IKON accelerates the payment of benefits to more than 70% of all Participants
pursuant to this provision, it must accelerate the payment of benefits to all
Participants under the Plan in a comparable manner.
22. CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), the Plan shall terminate, and the Participant shall receive, in a lump
sum payment, the value of his account, valued as of the end of the month in
which such Change in Control occurs.
For purposes of this Plan, the term "Change in Control" shall mean any
of the following events:
(A) any Person, together with its affiliates and associates (as
such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 15% or more of the then outstanding shares of IKON common stock;
or
(B) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
September 30, 1997, constituted the Board and any new director whose appointment
or election by the Board or nomination for election by IKON's shareholders was
approved by a vote of at least a majority of the directors then still in office
who either were directors on September 30, 1997 or whose appointment, election
or nomination for election was previously so approved; or
(C) IKON consolidates with, or merges with or into, any other
Person (other than a wholly owned subsidiary of IKON), or any other Person
consolidates with, or merges with or into, IKON, and, in connection therewith,
all or part of the outstanding shares of common stock shall be changed in any
way or converted into or exchanged for stock or other securities or cash or any
other property; or
(D) a transaction or series of transactions in which, directly
or indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of IKON common stock
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion in an
entity which owns all or substantially all of the assets of IKON immediately
following such transaction or series of transactions.
17
<PAGE>
The term "Person" in the foregoing definition shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any
of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
23. MISCELLANEOUS.
(a) The existence of this Plan and the Participation Agreements
hereunder, and any actions undertaken pursuant hereto, shall not confer upon the
Participant any right to continued employment by any Employer.
(b) This Plan shall be administered under and in accordance with the
laws of the Commonwealth of Pennsylvania, in which IKON's principal place of
business is located.
(c) The terms of this Plan and the Participation Agreements and other
documents executed in accordance herewith shall be binding upon IKON, its
successors and assigns, and each Participant, his heirs and legal
representatives.
(d) Any taxes imposed on a Participant shall be the sole
responsibility of the Participant. Employers shall have the right to deduct
from any benefits payable under the Plan any federal, state or local taxes
required to be deducted or withheld from such benefits.
(e) No expenses of administering the Plan shall be charged against
the Participants or their benefits hereunder.
(f) As used herein, the singular shall include the plural, the
masculine shall include the feminine, and vice versa.
18
<PAGE>
EXHIBIT 10.33
January 1, 1998
IKON OFFICE SOLUTIONS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
THE PLAN
IKON Office Solutions, Inc. ("IKON") (formerly known as Alco Standard
Corporation) is offering to certain of its employees the opportunity to
participate in the IKON Office Solutions, Inc. Executive Deferred Compensation
Plan (the "Plan"), pursuant to which participants may defer a portion of their
compensation and receive payment on a future date specified by them.
The full text of the Plan is set forth beginning on page 11 of this
document. This document sets forth information about the Plan, but should be
read in conjunction with the text of the Plan itself.
IKON's principal office is located at 70 Valley Stream Parkway, Malvern,
Pennsylvania 19355. Its telephone number is (610) 296-8000. IKON's federal tax
identification number is 23-0334400.
ELIGIBILITY
You are eligible to participate in the Plan if you are:
--An employee of IKON;
--Holding an unvested award under IKON's Long Term Incentive Compensation
Plan ("LTIP"); and
--A U.S. taxpayer.
ELECTION TO PARTICIPATE
Participation in the Plan is voluntary. To participate, you must sign an
election form ("Election Form") which expresses your commitment to participate
in the Plan for the following calendar year and sets forth (a) the amount and
type of compensation you want to defer (e.g., salary, bonus, LTIP payout), (b)
how such deferred compensation should be "invested", (c) when the deferred
compensation should be paid to you and (d) a beneficiary to whom payments should
be made in the event of your death. You may also be required to sign additional
forms, if requested by the Plan Administrator.
DEFERRAL AMOUNT
In your Election Form, you may elect to defer receipt of all or a portion
of your salary
<PAGE>
and/or annual bonus to be earned during the following calendar year and all or a
portion of any shares of IKON common stock or cash that you earn as an LTIP
payout during the following calendar year. If you elect to defer cash
compensation, the amount you elect to defer must be projected to be at least
$5,000. There is no maximum limit on your deferrals.
Deferrals from salary will generally be deducted through payroll deduction
in substantially equal installments. If you terminate employment with IKON,
your deferral of salary will immediately cease.
DEFERRAL ELECTION
Before the end of each calendar year during which you meet the eligibility
requirements for participating in the Plan, you will receive an Election Form
and will have the opportunity to elect to defer compensation to be earned in the
following calendar year until such future date (or dates) as you may specify in
your Election Form. Amounts must be deferred until at least January of the year
following the year in which the compensation would have been paid but for the
election to defer. You may defer receipt of your compensation to any date (or
dates) thereafter that is not later than January following the year in which you
reach age 60, or, if later, January following the year in which you retire from
IKON.
All distributions will be made in a lump sum in January of the year
specified in your Election Form, valued as of the preceding December 31. If you
prefer, you may elect to receive distributions in substantially equal annual
installments over a period not to exceed ten years, beginning in January of the
year specified in your Election Form. You may elect to defer the distribution
of your benefits to a later date by providing written notice to the
Administrator by December 31 of the second year prior to the date specified in
your Election Form, but such election may be made only once with respect to the
deferral pursuant to any Election Form.
INVESTMENT ACCOUNTS
CASH ACCOUNT. Cash amounts that you defer under the Plan will be credited
------------
to a cash deferral account ("Cash Account") established by IKON in your name.
Your Cash Account will be "indexed," or credited with earnings based on the
performance of various investment alternatives selected by you. In other words,
IKON will measure the performance of these funds, and will credit your account
accordingly. IKON may, but is not obligated to, use participant deferrals to
invest in the investment funds described below (IKON's current intention is to
use participant deferrals to purchase life insurance on the lives of employees
participating in the Plan). You will at all times remain a general unsecured
creditor of IKON.
In your Election Form, you may allocate your Cash Account balance among one
or more of the following alternatives (or such other alternatives as IKON may
designate from time to time), in any combination of whole percentages adding up
to 100%. No amounts in your Cash Account may be allocated to IKON common stock.
LARGE CAP VALUE
- ---------------
2
<PAGE>
1. VALUE EQUITY (NB) ALTERNATIVE - Seeks to provide above-average long-term
total return relative to the broad equity market and other value-oriented funds.
Common stocks are selected via a combination of systematic valuation processes
and individual security analysis. This Alternative's objective is to identify
equity issues that are inexpensively priced based upon measures such as
price/earnings, price/book or price/cash flow. (Adviser: Neuberger & Berman)
2. VALUE EQUITY (MS) ALTERNATIVE - Common stocks are selected through
quantitative analysis. Screens rank stocks based upon price/earnings ratios
with least expensive issues determining portfolio holdings. (This Alternative
is new to IKON as of 1/1/98. Adviser: Morgan Stanley)
LARGE CAP GROWTH
- ----------------
3. GROWTH ALTERNATIVE - Seeks capital growth through investment in common
stocks of financially sound companies believed to have above average earnings or
otherwise provide above average potential for capital appreciation. Stocks with
greater than average market growth but undervalued by the market are candidates
for purchase. (Adviser: Neuberger & Berman)
4. S&P 500 ALTERNATIVE (previously labeled Quality Equity Portfolio
Alternative) - Seeks a return consistent with the Standard & Poor 500.
Portfolio duplicates the holdings and sector weights of the S&P 500 Index.
(This Alternative is new to IKON as of 1/1/98. Adviser: Fidelity Group)
5. CAPITAL APPRECIATION ALTERNATIVE - Seeks long-term capital appreciation by
investing in equity securities of companies generally with a market
capitalization in excess of $1 billion that demonstrate above average growth in
unit volume. (Adviser: The Alger Group)
MID-CAP GROWTH
- --------------
6. MID-CAP GROWTH ALTERNATIVE - Seeks, primarily through capital appreciation,
an above average long-term rate of return relative to broad market indices and
similar mid-cap funds. Positive revisions to earnings estimates are the key
factor in identifying possible holdings. (Adviser: Morgan Stanley as of
1/1/98)
SMALL CAP GROWTH
- ----------------
7. SMALL-CAP ALTERNATIVE (previously labeled Equity Growth Portfolio
Alternative) - Seeks long-term capital growth through investment in small,
growth companies. This Alternative's objective is to identify companies with
the potential to expand market share in rapidly growing industries. (Adviser:
Bankers Trust as of 1/1/98)
INTERNATIONAL EQUITY
- --------------------
3
<PAGE>
8. GLOBAL EQUITY ALTERNATIVE - Seeks an attractive long-term rate of return
principally through equity securities of companies listed on U.S. and
international stock exchanges. Primary criteria for stock selection is an
inexpensive valuation based on price/earnings, price/book or price/cash flow
ratios. (This Alternative is new to IKON as of 1/1/98. Adviser: Morgan
Stanley)
9. INTERNATIONAL EQUITY ALTERNATIVE - Seeks long-term capital appreciation
primarily from non-U.S. equities and other securities with characteristics
similar to equities. This Alternative's investment approach is to identify
countries or regions with attractive growth prospects. Once identified,
equities with the potential to benefit from such trends are considered for
purchase. (Adviser: Bankers Trust as of 1/1/98)
10. EMERGING MARKET ALTERNATIVE - Seeks long-term capital appreciation in
markets other than the U.S., Canada, Japan, Australia, New Zealand and Western
Europe through aggressive positions in countries with the potential for rapid
growth. (This Alternative is new to IKON as of 1/1/98. Adviser: Morgan
Stanley)
BALANCED FUND
- -------------
11. ASSET MANAGER ALTERNATIVE (previously labeled Balanced Portfolio
Alternative) - Seeks to provide high total return with reduced risk through
long-term asset allocation in larger companies. Manager uses a broad range of
global investment alternatives while maintaining an overall asset mix
approximating 50% equities, 40% fixed income and 10% cash. (Adviser: Fidelity
Group as of 1/1/98)
BONDS
- -----
12. LIMITED MATURITY BOND ALTERNATIVE - Seeks to achieve the highest current
income consistent with low risk to principal and liquidity through investment in
a diversified group of short to intermediate term debt securities with average
maturity of less than five years. (Adviser: Neuberger & Berman)
13. FIXED INCOME ALTERNATIVE (previously labeled Government Income Portfolio
Alternative) - Seeks to provide investors with an above average total return
relative to the intermediate maturity fixed income market via strategic shifts
in portfolio duration and value investing. (Adviser: Morgan Stanley as of
1/1/98)
14. HIGH YIELD ALTERNATIVE (previously labeled High Current Income Portfolio
Alternative) - Seeks above average long-term return relative to the high yield
fixed income market through diversified investments primarily in below-
investment grade corporate bonds selected based on the credit worthiness of the
underlying companies. (Adviser: Morgan Stanley as of 1/1/98)
SHORT TERM
- ----------
15. MONEY MARKET ALTERNATIVE (previously labeled Short Term Portfolio
Alternative) - Seeks maximum current income consistent with liquidity and
preservation of capital via money market
4
<PAGE>
securities. (Adviser: Fidelity Group as of 1/1/98)
You will receive additional information for each of the above Alternatives from
the Plan Administrator. The above descriptions are qualified in their entirety
by reference to such information.
You may change your allocation among the various alternatives once during
any calendar month. Any change you request by the 25th day of a month will
become effective as of the first day of the next calendar month.
THE VALUE OF THE BENEFIT YOU ULTIMATELY RECEIVE UNDER THE PLAN DEPENDS ON
THE RETURNS CREDITED TO YOUR ACCOUNT, BASED ON YOUR SELECTION OF ALTERNATIVES.
THERE IS NO GUARANTEED RATE OF RETURN ON YOUR ACCOUNT UNDER THE PLAN.
STOCK ACCOUNT. Shares of IKON common stock that you defer under the Plan
-------------
will be credited to a stock deferral account ("Stock Account") established by
IKON in your name. The Stock Account will be denominated in share units
(representing the right to receive an equivalent number of shares of IKON common
stock). Whenever cash dividends are paid in respect of IKON common stock, the
amount of such dividends will be credited to your Stock Account in the form of
additional share units.
IKON intends to contribute all shares of IKON common stock deferred
pursuant to the Plan to a so-called rabbi trust. The rabbi trust will be deemed
to be the owner of such shares for corporate law purposes (but if you are an
officer of IKON, you may continue to report such shares on your Form 4 filings).
The trustee of the rabbi trust will have all of the rights of ownership of the
shares, including the right to vote and to receive dividends in respect of such
shares. The trustee is expected (but not obligated) to reinvest cash dividends
paid in respect of shares held in the trust to purchase additional shares of
IKON common stock. Shares held in the trust will be subject to the claims of
IKON's creditors.
Shares of IKON common stock that you defer into your Stock Account on or
after January 1, 1997 will be denominated in share units in your Stock Account
until you receive a distribution.
With respect to shares of IKON common stock that you deferred into your
Stock Account prior to January 1, 1997 (and the shares of Unisource Worldwide,
Inc. ("Unisource") common stock that were credited to your Stock Account in
connection with the December 31, 1996 distribution), you may elect to "sell"
some or all of the share units credited to your Stock Account and your Stock
Account will thereafter be credited with a cash amount, based on the value of
IKON common stock or Unisource common stock, as the case may be. If you are
subject to IKON's Confidential Information and Security Trading Policy, you may
make such an election only during a trading window and your Stock Account will
be credited with a cash amount based on the value of IKON common stock or
Unisource common stock, as the case may be, as of the following business day.
If you are not subject to IKON's Confidential Information and Security Trading
Policy, you may make such an election on or before the 25th of any month and
your Stock Account will be credited with a cash amount based on the value of
IKON
5
<PAGE>
common stock or Unisource common stock, as the case may be, as of the last
business day of that month.
Any cash amounts credited to your Stock Account will be "indexed," or
credited with earnings based on the performance of various investment index
alternatives selected by you. In other words, IKON will measure the performance
of these funds, and will credit your account accordingly. The trustee of the
rabbi trust may, but is not obligated to, sell shares of IKON common stock or
Unisource common stock held in the rabbi trust when you make an election to
"sell" your share units, and the trustee may, but is not obligated to, invest
the sale proceeds in investment funds that match your selection of index
alternatives. You may allocate the dollar value credited to your Stock Account
among one or more of the following alternatives (or such other alternatives as
IKON may designate from time to time), in any combination of whole percentages
adding up to 100%.
Any mutual fund available through the Vanguard family of funds
CoreStates Cash Reserve Y
Selected Neuberger & Berman Funds (available only for elections
made prior to July 1, 1997)
You may change your allocation among the various alternatives once during any
calendar month. Any change you request by the 25th day of a month will become
effective as of the first day of the next calendar month.
Distributions from your Stock Account will be made as follows: (i) share
units credited to your Stock Account will be distributed in the form of shares
of IKON common stock or Unisource common stock, as the case may be (and cash in
lieu of fractional shares), unless you elect, subject to the approval of the
Plan Administrator, to receive your distribution in cash and (ii) all other
items credited to your Stock Account will be distributed in the form of cash.
If you are an officer of IKON, any transfers out of your Stock Account and
any conversions of stock units within your Stock Account will be deemed a "sale"
of IKON common stock for purposes of Section 16(b) of the Securities Exchange
Act of 1934.
VESTING
You will be fully vested in your account at all times.
6
<PAGE>
DEATH BENEFITS
If you die before you have received full payment of amounts to which you
are entitled under the Plan, your beneficiary will receive the balance in your
Cash Account and your Stock Account (valued as of the end of the calendar month
in which you die) in a lump sum as soon as administratively practicable
following your date of death, notwithstanding any contrary election in your
Election Form. Distributions from your Stock Account will be made (i) in shares
of stock (and cash in lieu of fractional shares) for share units credited to
your account, unless your beneficiary elects, subject to the approval of the
Plan Administrator, to receive the distribution in cash, and (ii) in cash for
any other items credited to your account.
TERMINATION OF EMPLOYMENT
If your employment with IKON terminates prior to age 60 (for any reason,
including disability), you will receive the balance in your Cash Account and
your Stock Account (valued as of the end of the calendar year in which you
terminate employment) in a lump sum in January of the year following your date
of termination, notwithstanding any contrary election in your Election Form.
Distributions from your Stock Account will be made (i) in shares of stock (and
cash in lieu of fractional shares) for share units credited to your account,
unless you elect, subject to the approval of the Plan Administrator, to receive
your distribution in cash and (ii) in cash for any other items credited to your
account. For purposes of this provision, you will not be treated as having
terminated your employment with IKON if you continue to be an employee of
Unisource Worldwide, Inc.
CHANGE IN CONTROL
Upon a Change in Control (as defined in the Plan), the Plan will
terminate, and you will receive, in a lump sum payment, the balance in your Cash
Account and your Stock Account (valued as of the end of the month in which such
Change in Control occurs). Distributions from your Stock Account will be made
(i) in shares of stock (and cash in lieu of fractional shares) for share units
credited to your account, unless you elect, subject to the approval of the Plan
Administrator, to receive your distribution in cash and (ii) in cash for any
other items credited to your account.
UNSECURED OBLIGATION
Other than the assets held in the rabbi trust, no specific assets or funds
will be set aside for the payment of amounts to which you may be entitled under
the Plan. The obligations of IKON under the Plan will not be secured in any
manner and will, at all times, be subject to the claims of IKON's creditors.
Your interest in the Plan or an Election Form may not be assigned, transferred,
pledged, encumbered, alienated or charged.
7
<PAGE>
OTHER EMPLOYEE BENEFIT PLANS
Participation in the Plan does not in any way affect your right to
participate in any pension, profit-sharing, incentive, thrift, group health
insurance, stock option, termination pay, or similar plan of IKON except that
the deferrals will not be included in determining your benefits under any
retirement plans qualified under section 401(a) of the Internal Revenue Code.
Deferrals under this Plan will be included as compensation for purposes of
calculating the level of contributions under IKON's Partners' Stock Purchase
Plan.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The Plan is a "pension plan" as defined in the Employee Retirement Income
Security Act of 1974 ("ERISA") and is subject to certain provisions of ERISA,
including certain requirements relating to reporting, disclosure, enforcement
and claims. The Plan is unfunded for purposes of ERISA. The Plan is not subject
to eligibility, participation, vesting, benefit accrual, or plan termination
insurance provisions of ERISA.
ADMINISTRATION
The Plan provides that authority for the administration and interpretation
of the Plan will be vested in a Committee selected by the Board of Directors of
IKON (the "Committee"). The Board of Directors may at any time change the
membership of the Committee.
The Committee will from time to time appoint a Plan Administrator who will
be responsible for the general administration of the Plan under the policy
guidance of the Committee. Walter J. Hope, Jr., Director-Risk Management of
IKON, P.O. Box 834, Valley Forge, PA 19482-0834 has been selected as the Plan
Administrator and the agent for service of process under the Plan. A new
Administrator may be appointed by the Committee at any time.
The Plan's fiscal year is January 1 - December 31. Its Plan number is 302.
All expenses incurred in administering the Plan (other than certain taxes
which IKON may, in its discretion, allocate to the accounts of Plan
participants) will be paid by IKON.
CLAIMS PROCEDURE
If at any time the Plan Administrator denies your written claim for any
payment to which you believe you are entitled under the Plan, the Plan
Administrator will send you written notice within 90 days (or 180 days under
special circumstances) of the date on which you filed your claim. This notice
will (a) explain the specific reason or reasons for the denial of your claim,
(b) refer to the specific Plan provision on which the denial is based, (c)
describe any additional information required in order to obtain a favorable
determination of your claim and explain why this information is necessary, and
(d) explain the steps to be taken if you wish to submit your claim for review.
8
<PAGE>
If you wish to appeal a denied claim, you must, within 60 days of receiving
your notice of denial, petition the Committee for a review. All petitions for
review must be made in writing on forms supplied by IKON. The Committee will
render a written decision within 60 days (or 120 days under special
circumstances) after receiving your petition.
You must follow the claims procedure described above before you can
consider legal action against IKON. Naturally, both you and IKON will want to
avoid legal action. Should you feel legal action is necessary, however, any
summons or other legal process should be served on the agent named above.
TAX CONSEQUENCES
The following discussion is intended to provide general information under
current federal law concerning the tax consequences of the Plan to the Plan
participants and to IKON. It does not provide information about the tax
consequences under any state or local law which may be applicable to the
transactions described herein. Because the consequences under federal, state
and local law may vary with each employee and may materially affect an
employee's decisions with respect to the Plan, you should seek competent advice
from legal or other counsel. There may also be changes in the law subsequent to
the date hereof which affect the tax consequences of the Plan or which cause
IKON to terminate the Plan in accordance with its terms.
The Plan is not a qualified Plan under section 401(a) of the Internal
Revenue Code of 1986, as amended.
1. YEARS OF DEFERRAL
An effective election under the Plan to defer compensation otherwise
payable in a taxable year will remove the amount so deferred from the taxable
income of the participant for such year for federal income tax purposes. IKON
will not be permitted a current federal income tax deduction for any amounts
deferred under the Plan.
Amounts deferred will generally be subject to taxes imposed under the
Federal Insurance Contributions Act ("FICA") or the Federal Unemployment Tax Act
("FUTA") in the year of deferral.
2. YEARS OF PAYMENT
Lump sum payments (or installment payments) will be taxable income to the
participant or a beneficiary in the year in which such payments are received.
Payments made in IKON common stock will be taxable to the participant based on
the value of such shares at the time of distribution. Amounts paid under the
Plan will generally not be subject to taxes imposed under FICA or FUTA, but are
subject to federal income tax withholding requirements. IKON will generally be
permitted a federal income tax deduction for the year in which such benefits are
paid.
9
<PAGE>
IKON OFFICE SOLUTIONS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(as amended and restated effective January 1, 1998)
A. PURPOSE. The purpose of the IKON Office Solutions, Inc. Executive
Deferred Compensation Plan is to permit certain eligible employees of IKON
Office Solutions, Inc. to defer a portion of their compensation and to
participate in a program under which they are provided income at a specified
time in the future. The program is intended to constitute an unfunded deferred
compensation arrangement for a select group of management or highly compensated
employees.
2. DEFINITION. Unless the context otherwise requires, the following
words as used herein shall have the following meanings:
(a) "Administrator" shall mean the person or persons so designated and
acting under Paragraph 16 hereof.
(b) "Compensation" shall mean all salaries and bonuses payable by IKON
and all shares of IKON common stock or cash payable pursuant to awards under the
LTIP, but shall not include company contributions under IKON's Partners' Stock
Purchase Plan or the IKON Retirement Savings Plan or any fringe benefits.
(c) "Effective Date" shall mean January 1, 1998, the effective date of
this amended and restated Plan. The rights of a Participant whose participation
in the Plan commenced prior to the Effective Date and who remains a Participant
on the Effective Date shall be governed by the terms of the amended and restated
Plan as set forth herein.
(d) "Election Form" shall mean the election form executed by each
Participant and IKON setting forth certain information relating to the
Participant's participation in the Plan.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(f) "IKON" shall mean IKON Office Solutions, Inc., an Ohio
corporation, formerly known as Alco Standard Corporation.
(g) "LTIP" shall mean IKON's Long Term Incentive Compensation Plan, as
amended from time to time.
(h) "Participant" shall mean any person employed by IKON who is
eligible, and who has elected, to participate in the Plan.
(i) "Plan" shall mean the IKON Office Solutions, Inc. Executive
Deferred Compensation Plan, as amended from time to time.
10
<PAGE>
(j) "Plan Year" shall mean the period beginning on January 1 and
ending on December 31 of each year.
3. PARTICIPATION. Any person who (a) is employed by IKON, (b) is holding
an unvested award under the LTIP and (c) is a United States taxpayer shall be
eligible to participate herein. A person eligible under this Paragraph 3 shall
become a Participant by executing an Election Form and such other forms as may
be required by the Administrator.
4. DEFERRAL OF COMPENSATION. Prior to the Effective Date and prior to
the beginning of each Plan Year during the term of the Plan, an employee who
meets the eligibility requirements of Paragraph 3 may irrevocably elect to defer
or forgo a portion of his Compensation for the following Plan Year.
The amount of the deferral for each Plan Year may vary, but cash deferrals
must be projected to be no less than $5,000 for any Plan Year. The amount to be
deferred for a Plan Year will be deducted from the Participant's Compensation
otherwise payable by IKON. In the case of deferrals from salary, such deferrals
will be made in substantially equal installments.
A Participant may specify the length of time for which receipt of cash
and/or shares of IKON common stock may be deferred, provided that (i) the
deferral period must extend at least until the January following the end of the
calendar year in which the Compensation would otherwise have been paid but for
the election to defer and (ii) distributions must commence no later than the
January following the year in which the Participant attains age 60 or the
January following the year in which the Participant retires or otherwise
terminates employment with IKON, whichever is later. A Participant may elect to
defer the distribution of benefits to a later date by providing written notice
of such election to the Administrator by December 31 of the second year prior to
the date on which benefits would otherwise have been paid; provided, however,
that such election may be made only once with respect to the deferral pursuant
to any Election Form.
5. INVESTMENT ACCOUNTS. Amounts deferred by a Participant pursuant to
Paragraph 4 will be credited to a cash deferral account and/or a stock deferral
account established by IKON in the name of the Participant. A Participant's
cash deferral account will be denominated in dollars and will be credited with
earnings based on the performance of various investment alternatives selected by
the Participant from among those made available by IKON from time to time. A
Participant's stock deferral account will initially be denominated solely in
share units (representing the right to receive an equivalent number of shares of
IKON common stock) and will be credited with additional share units to reflect
cash dividends paid by IKON in respect of its common stock.
With respect to shares deferred into a Participant's stock deferral account
prior to January 1, 1997 (including shares of Unisource Worldwide, Inc.
("Unisource") common stock that were credited to the Participant's stock
deferral account in connection with the December 31, 1996 spin-off
distribution), a Participant may elect to convert some or all of the share units
so that they will thereafter be denominated in dollars. To the extent that a
Participant makes such an election,
11
<PAGE>
his stock deferral account will thereafter contain a separate sub-account,
denominated in dollars. A Participant subject to IKON's Confidential Information
and Security Trading Policy may make such a conversion election only during a
trading window and the sub-account in the Participant's stock deferral account
will be credited with an amount based on the value of IKON common stock or
Unisource common stock, as the case may be, as of the following business day. A
Participant who is not subject to IKON's Confidential Information and Security
Trading Policy may make such a conversion election on or before the 25th of any
month and the sub-account in the Participant's stock deferral account will be
credited with an amount based on the value of IKON common stock or Unisource
common stock, as the case may be, as of the last business day of such month. The
sub-account in the Participant's stock deferral account will be credited with
earnings based on the performance of various investment index alternatives
selected by the Participant from among those made available by IKON from time to
time.
All amounts deferred into in a Participant's stock deferral account on or
after January 1, 1997 must remain denominated in stock units and may not be
converted to dollars at any time.
A Participant may request a change in the allocation of his cash deferral
account or the sub-account in his stock deferral account from among the various
available alternatives once during any calendar month. Any such change
requested by the 25th day of a month will become effective as of the first day
of the next calendar month.
6. RABBI TRUST. IKON intends to contribute all Participant deferrals of
IKON common stock to a "rabbi trust" (the "Trust") to be established for this
purpose. Assets held in the Trust will be subject to the claims of creditors of
IKON.
The Trust shall be deemed to be the owner of all shares held in the
Trust for corporate law purposes. The trustee of the Trust (the "Trustee")
shall retain all incidents of ownership in any shares held in the Trust,
including the right to vote such shares and to receive dividends paid in respect
of such shares. The Trustee may, but is not obligated to, reinvest any cash
dividends received in respect of shares of IKON common stock held in the Trust
to purchase additional shares of IKON common stock.
7. VESTING. A Participant shall be immediately vested in all amounts
deferred hereunder.
8. AMOUNT AND TIMING OF PAYMENTS. Except as otherwise provided in
Paragraphs 9 and 10, amounts to which a Participant is entitled under the Plan
shall be paid to him in a lump sum in January of the year specified in his
Election Form, valued as of the end of the preceding Plan Year. Alternatively,
if the Participant so elects, distributions may be made in substantially equal
annual installments over a period not to exceed ten years, beginning in January
of the year specified in the Participant's Election Form. All distributions
from the Trust shall be made (i) in shares of IKON common stock (or Unisource
common stock, as the case may be) for the stock units credited to the account,
unless the Participant elects, subject to the approval of the Plan
Administrator, to receive such distribution(s) in cash, and (ii) in cash for all
other items credited to the account.
12
<PAGE>
9. DEATH. Notwithstanding any contrary election in a Participant's
Election Form, if a Participant dies before receiving full payment of all
amounts to which he is entitled under the Plan, the beneficiary or beneficiaries
designated by the Participant in his Election Form shall receive the balance in
the Participant's cash deferral account and stock deferral account (valued as of
the end of the calendar month in which the Participant dies), in a lump sum
payment, as soon as administratively practicable following the Participant's
date of death. Distributions from a Participant's stock deferral account will
be made (i) in shares of stock (and cash in lieu of fractional shares) for the
stock units credited to the account, unless the beneficiary elects, subject to
the approval of the Administrator, to have the distribution paid in cash, and
(ii) in cash for all other items credited to the account.
10. TERMINATION OF EMPLOYMENT. Notwithstanding any contrary election in a
Participant's Election Form, if a Participant terminates employment with IKON,
he shall receive the balance in his cash deferral account and stock deferral
account (valued as of the end of the Plan Year in which the Participant's
employment terminates), in a lump sum payment, in January of the year following
his employment termination date. Distributions from a participant's stock
deferral account will be made (i) in shares of stock (and cash in lieu of
fractional shares) for the stock units credited to the account, unless the
Participant elects, subject to the approval of the Administrator, to have the
distribution paid in cash, and (ii) in cash for all other items credited to the
account. For purposes of this Paragraph 10, a Participant will not be treated
as having terminated employment with IKON if he continues to be an employee of
Unisource.
11. BENEFICIARY DESIGNATION. A Participant shall designate in his
Election Form the beneficiary or beneficiaries, who shall, in the event of his
death, receive the payments to which the Participant would otherwise have been
entitled. This designation may be amended in writing and filed with the
Administrator from time to time by the Participant. In the event that there is
no effective beneficiary designation when such amounts are payable, payment
shall be made to the members of the first surviving class of the Participant in
the following priority:
(a) spouse;
(b) the living children (including adopted children) in equal amounts;
(c) estate.
12. INCAPACITY OF RECIPIENT. Any payment required to be made under the
Plan to a person who is under a legal disability may be made to or for the
benefit of such person in such of the following ways as the Administrator shall
determine:
(a) to such person;
(b) to the legal representatives of such person;
(c) to a near relative of such person to be used for his benefit; or
(d) to pay the expenses of support, maintenance or education of such
person.
13
<PAGE>
The Administrator shall not be required to see to the application by any
third party of payments made pursuant to this Paragraph 12.
13. RESPONSIBILITY FOR PAYMENT. All amounts payable under the Plan shall
be paid by IKON. IKON may, in its sole discretion, determine the manner in
which it shall finance its obligation to pay such amounts.
14. NON-ASSIGNMENT. Except as hereinafter provided with respect to
marital or family support disputes, no amount payable under the Plan shall be
subject to assignment, transfer, sale, pledge, encumbrance, alienation or charge
by the Participant or any beneficiary. Any attempt to assign, transfer, sell,
pledge, encumber, alienate or charge any amount hereunder shall be without
effect. In cases of marital or family support disputes, the Administrator will
observe the terms of the Plan unless and until ordered to do otherwise by a
state or federal court. As a condition of participation in the Plan, the
Participant shall agree to hold IKON harmless from any claim that arises out of
obeying an order of any state or federal court with respect to marital or family
support disputes, whether such order effects a judgment of such court or is
issued to enforce a judgment or order of another court.
15. UNSECURED OBLIGATION. Other than the assets contributed to the Trust
pursuant to Paragraph 6, IKON shall not segregate or physically set aside any
funds or assets as a result of this Plan. Neither a Participant, nor his
beneficiary, nor any other person shall be deemed to have, pursuant to this
Plan, any property interest, legal or equitable, in any specific asset of IKON
or any specific asset in the Trust. To the extent that any person acquires any
right to receive payments under this Plan or an Election Form, such right shall
be no greater than, nor shall it have any preference or priority over, the
rights of any unsecured general creditor of IKON.
16. ADMINISTRATION. The Plan shall be administered by a Committee
selected from time to time by the Board of Directors of IKON (the "Committee").
The Committee shall select an Administrator from time to time to administer the
Plan under the general policy guidance of the Committee. The Administrator
shall be one or more persons who shall be responsible for:
(a) maintaining any records necessary in connection with the Plan;
(b) making calculations under the Plan;
(c) interpreting the provisions of the Plan; and
(d) otherwise administering the Plan in accordance with its terms.
17. CLAIMS PROCEDURES. At any time the Administrator makes a
determination adverse to a Participant or beneficiary with respect to a claim
for payment or participation under the Plan, the Administrator shall notify the
claimant in writing of such determination, setting forth:
14
<PAGE>
(a) the specific reason for such determination;
(b) a reference to the specific provision or provisions of the Plan on
which such determination is based;
(c) a description of any additional material or information necessary
to perfect the claim, and an explanation of the reason that such material is
required; and
(d) an explanation of the rights and procedures set forth in this
Paragraph 17.
A person who receives notice of an adverse determination by the
Administrator with respect to a claim may request, within 60 days of receipt of
such notice, that the Committee review the Administrator's determination. This
request may be made on behalf of a claimant by a duly authorized representative.
The claimant or representative may review pertinent documents and submit issues
and comments with respect to the controversy to the Committee. The Committee
shall render a decision within 60 days of a request for review (or within 120
days under special circumstances), which decision shall be in writing and shall
set forth the specific reasons for the decision reached and the specific
provisions of the Plan on which the decision is based. A copy of the ruling
shall be forwarded to the claimant.
18. EMPLOYEE BENEFIT PLANS. This Plan shall not in any way affect a
Participant's right to participate in any pension, profit-sharing, incentive,
thrift, group health insurance, stock option, termination pay or similar plan of
IKON, which is now in effect or may hereafter be adopted, to the extent that the
Participant is entitled to participate under the applicable terms and provisions
of such plan, except that the amounts deferred herein shall not be included in
determining a Participant's benefits under any retirement plans qualified under
section 401(a) of the Internal Revenue Code. Deferrals under this Plan will be
included as compensation for purposes of calculating the level of contributions
under IKON's Partners' Stock Purchase Plan.
19. AMENDMENT. The Board of Directors of IKON shall have the power to
amend this Plan at any time; provided, however, that, except as set forth in
Paragraphs 20, 21 and 22, no amendment or termination of the Plan shall have a
material adverse effect upon a Participant unless he consents to such amendment
or termination in writing.
20. TERMINATION. This Plan shall remain in effect until terminated by the
Board of Directors of IKON. The Board of Directors of IKON shall have the right
to terminate the Plan in whole or in part, for any reason, including pursuant to
a determination that proposed or pending tax law changes or other events cause,
or are likely in the future to cause, the Plan to have an adverse financial
impact upon IKON. In such event, IKON shall have no liability or obligation
under the Plan or the Participant's Election Form (or any other document),
provided that IKON distributes to each Participant, in a lump sum payment, the
balance in his cash deferral account and stock deferral account, valued as of
the end of the month in which such termination occurs. Distributions from a
Participant's stock deferral account will be made (i) in shares of IKON common
stock (and cash in lieu of fractional shares) for stock units credited to the
account, unless the Participant elects, subject to the approval of the Plan
Administrator, to receive such distribution in cash, and (ii) in cash for all
other items credited to the account.
15
<PAGE>
21. ACCELERATION. IKON shall have the right at any time to cause the
payment of all amounts thereafter due to a Participant to be paid in a single
lump sum or in such other accelerated manner as IKON shall deem appropriate.
The amount of any lump sum payment shall be the value of a Participant's cash
deferral account and stock deferral account, valued as of the end of the month
following IKON's determination to accelerate payments. If IKON accelerates
payment to more than 70% of all Participants pursuant to this provision, it must
accelerate payment to all Participants under the Plan in a comparable manner.
22. CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), the Plan shall terminate, and the Participant shall receive, in a lump
sum payment, the balance in his cash deferral account and stock deferral
account, valued as of the end of the month in which such Change in Control
occurs. Distributions from a Participant's stock deferral account will be made
in (i) shares of stock (and cash in lieu of fractional shares) for stock units
credited to the account, unless the Participant elects, subject to the approval
of the Plan Administrator, to receive such distribution in cash, and (ii) in
cash for all other items credited to the account.
For purposes of this Plan, the term "Change in Control" shall mean any
of the following events:
(A) any Person, together with its affiliates and associates (as
such terms are used in Rule 12b-2 of the Exchange Act), is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 15% or more of the then outstanding shares of IKON common stock;
or
(B) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
September 30, 1997, constituted the Board and any new director whose appointment
or election by the Board or nomination for election by IKON's shareholders was
approved by a vote of at least a majority of the directors then still in office
who either were directors on September 30, 1997 or whose appointment, election
or nomination for election was previously so approved; or
(C) IKON consolidates with, or merges with or into, any other
Person (other than a wholly owned subsidiary of IKON), or any other Person
consolidates with, or merges with or into, IKON, and, in connection therewith,
all or part of the outstanding shares of common stock shall be changed in any
way or converted into or exchanged for stock or other securities or cash or any
other property; or
(D) a transaction or series of transactions in which, directly or
indirectly, IKON shall sell or otherwise transfer (or one or more of its
subsidiaries shall sell or otherwise transfer) assets (i) aggregating more than
50% of the assets (measured by either book value or fair market value) or (ii)
generating more than 50% of the operating income or cash flow of IKON and its
subsidiaries (taken as a whole) to any other Person or group of Persons.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately
16
<PAGE>
following which the record holders of IKON common stock immediately prior to
such transaction or series of transactions own a majority of the outstanding
voting shares and in substantially the same proportion in an entity which owns
all or substantially all of the assets of IKON immediately following such
transaction or series of transactions.
The term "Person" in the foregoing definition shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) IKON or any
of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act),
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of IKON or any of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of IKON in substantially the
same proportions as their ownership of IKON stock.
23. MISCELLANEOUS.
(a) The existence of this Plan and the Elections Forms hereunder, and
any actions undertaken pursuant hereto, shall not confer upon the Participant
any right to continued employment by IKON.
(b) This Plan shall be administered under and in accordance with the
laws of the Commonwealth of Pennsylvania, in which IKON's principal place of
business is located.
(c) The terms of this Plan and the Election Forms and other documents
executed in accordance herewith shall be binding upon IKON, its successors and
assigns, and each Participant, his heirs and legal representatives.
(d) Any taxes imposed on a Participant shall be the sole
responsibility of the Participant. IKON shall have the right to deduct from any
amounts payable under the Plan any federal, state or local taxes required to be
deducted or withheld from such payments.
(e) No expenses of administering the Plan shall be charged against the
Participants or any payments made hereunder, except that IKON may, in its
discretion, allocate certain taxes to the accounts of Participants.
(f) As used herein, the singular shall include the plural, the
masculine shall include the feminine, and vice versa.
17
<PAGE>
EXHIBIT 12.1
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ (83,050) $ 122,362 $ 164,893 $ 115,011 $ 1,996
Add:
Loss from unconsolidated affiliate 117,158
Provision for income taxes 8,863 90,751 107,984 75,501 41,315
Fixed charges 228,365 192,021 127,970 82,672 60,481
--------- --------- --------- --------- ---------
Earnings, as adjusted (A) $ 154,178 $ 405,134 $ 400,847 $ 273,184 $ 220,950
========= ========= ========= ========= =========
Fixed charges
Other interest expense, including
interest on capital leases $ 199,816 $ 146,117 $ 105,222 $ 61,888 $ 44,096
Estimated interest component of
rental expense 28,549 27,203 22,748 20,784 16,385
Prepayment penalties on early
extinguishment of debt 18,701
--------- --------- --------- --------- ---------
Total fixed charges (B) $ 228,365 $ 192,021 $ 127,970 $ 82,672 $ 60,481
========= ========= ========= ========= =========
Ratio of earnings to fixed charges
(A) divided by (B) 0.7 (1) 2.1 (2) 3.1 (3) 3.3 3.7
=== === === === ===
</TABLE>
(1) Excluding the effect of transformation costs and the loss from asset
impairment, the ratio of earnings to fixed charges for the fiscal year
ended September 30, 1998 is 1.1.
(2) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1997 is 2.8.
(3) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1996 is 3.3.
<PAGE>
EXHIBIT 12.2
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES (EXCLUDING CAPTIVE FINANCE SUBSIDIARIES)
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing
operations $ (140,552) $ 85,897 $ 140,656 $ 100,539 $ (11,351)
Add:
Loss from unconsolidated affiliate 117,158
Provision for income taxes (33,291) 65,931 85,512 63,938 32,904
Fixed charges 98,544 92,738 59,514 42,138 32,389
---------- --------- --------- --------- ---------
Earnings, as adjusted (A) $ (75,299) $ 244,566 $ 285,682 $ 206,615 $ 171,100
========== ========= ========= ========= =========
Fixed charges
Other interest expense, including
interest on capital leas $ 70,668 $ 47,453 $ 37,179 $ 21,672 $ 16,118
Estimated interest component of
rental expense 27,876 26,584 22,335 20,466 16,271
Prepayment penalties on early
extinguishment of debt 18,701
---------- --------- --------- --------- ---------
Total fixed charges (B) $ 98,544 $ 92,738 $ 59,514 $ 42,138 $ 32,389
========== ========= ========= ========= =========
Ratio of earnings to fixed charges
(A) divided by (B) (0.8)(1) 2.6(2) 4.8(3) 4.9 5.3
==== ==== ==== ==== ====
(1) Excluding the effect of transformation costs and the loss from asset impairment, the ratio of earnings to fixed charges
(excluding finance subsidiaries) for the fiscal year ended September 30, 1998 is .2.
(2) Excluding the effects of the transformation costs, the ratio of earnings to fixed charges (excluding finance subsidiaries)
for the fiscal year ended September 30, 1997 is 4.0.
(3) Excluding the effects of the transformation costs, the ratio of earnings to fixed charges (excluding finance subsidiaries)
for the fiscal year ended September 30, 1996 is 5.2.
</TABLE>
<PAGE>
EXHIBIT 12.3
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ (83,050) $ 122,362 $ 164,893 $ 115,011 $ 1,996
Add:
Loss from unconsolidated affiliate 117,158
Provision for income taxes 8,863 90,751 107,984 75,501 41,315
Fixed charges 228,365 192,021 127,970 82,672 60,481
--------- --------- --------- --------- ---------
Earnings, as adjusted (A) $ 154,178 $ 405,134 $ 400,847 $ 273,184 $ 220,950
========= ========= ========= ========= =========
Fixed charges
Other interest expense, including
interest on capital leases $ 199,816 $ 146,117 $ 105,222 $ 61,888 $ 44,096
Estimated interest component of
rental expense 28,549 27,203 22,748 20,784 16,385
Prepayment penalties on early
extinguishment of debt 0 18,701
--------- --------- --------- --------- ---------
Total fixed charges 228,365 192,021 127,970 82,672 60,481
Preferred stock dividends, as adjusted 31,798 32,458 36,709 25,180 18,908
--------- --------- --------- --------- ---------
Total fixed charges and preferred
stock dividends (B) $ 260,163 $ 224,479 $ 164,679 $ 107,852 $ 79,389
========= ========= ========= ========= =========
Ratio of earnings to fixed charges and
preferred stock dividends (A) divided
by (B) 0.6(1) 1.8(2) 2.4(3) 2.5 2.8
==== ==== ==== ==== ====
(1) Excluding the effect of transformation costs and the loss from asset impairment, the ratio of earnings to fixed
charges and preferred stock dividends for the fiscal year ended September 30, 1998 is 1.0.
(2) Excluding the effect of transformation costs, the ratio of earnings to fixed charges and preferred stock dividends for the
fiscal year ended September 30, 1997 is 2.4.
(3) Excluding the effect of transformation costs, the ratio of earnings to fixed charges and preferred stock dividends for the
fiscal year ended September 30, 1996 is 2.6.
</TABLE>
<PAGE>
EXHIBIT 12.4
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(EXCLUDING CAPTIVE FINANCE SUBSIDIARIES)
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
---------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ (140,552) $ 85,897 $ 140,656 $ 100,539 $ (11,351)
Add:
Loss from unconsolidated affiliate 117,158
Provision for income taxes (33,291) 65,931 85,512 63,938 32,904
Fixed charges 98,544 92,738 59,514 42,138 32,389
--------- -------- -------- -------- --------
Earnings, as adjusted (A) $ (75,299) $ 244,566 $ 285,682 $ 206,615 $ 171,100
========= ======== ======== ======== ========
Fixed charges
Other interest expense, including
interest on capital leases $ 70,668 $ 47,453 $ 37,179 $ 21,672 $ 16,118
Estimated interest component of
rental expense 27,876 26,584 22,335 20,466 16,271
Prepayment penalties on early
extinguishment of debt 18,701
--------- -------- -------- -------- --------
Total fixed charges 98,544 92,738 59,514 42,138 32,389
Preferred stock dividends, as adjusted 31,798 32,351 35,768 24,892 18,908
--------- -------- -------- -------- --------
Total fixed charges and preferred
stock dividends (B) $ 130,342 $ 125,089 $ 95,282 $ 67,030 $ 51,297
========= ======== ======== ======== ========
Ratio of earnings to fixed charges and
preferred stock dividends (A) divided
by (B) (0.6) (1) 2.0 (2) 3.0 (3) 3.1 3.3
==== === === === ===
(1) Excluding the effect of transformation costs and the loss from asset impairment, the ratio of earnings to fixed charges
(excluding finance subsidiaries) for the fiscal year ended September 30, 1998 is .2.
(2) Excluding the effect of transformation costs, the ratio of earnings to fixed charges and preferred stock dividends (excluding
finance subsidiaries) for the fiscal year ended September 30, 1997 is 3.0.
(3) Excluding the effect of transformation costs, the ratio of earnings to fixed charges and preferred stock dividends (excluding
finance subsidiaries) for the fiscal year ended September 30, 1996 is 3.2.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Financial Report
- --------------------------------------------------------------------------------
Table of Contents
-----------------------------------------------------------------------------
28 Management's Responsibility for Financial Reporting
28 Report of Ernst & Young LLP, Independent Auditors
29 Financial Review
34 Consolidated Financial Statements
49 Quarterly Financial Summary
50 Corporate Financial Summary
-----------------------------------------------------------------------------
twenty seven.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Management's Responsibility
for Financial Reporting
The management of IKON Office Solutions, Inc. is responsible for the preparation
and presentation of the financial statements and related financial information
included in this annual report. The financial statements include amounts that
are based on management's best estimates and judgments. These statements have
been prepared in conformity with generally accepted accounting principles
consistently applied and have been audited by Ernst & Young LLP, independent
auditors.
Management is also responsible for maintaining systems of internal accounting
controls that are designed to provide reasonable assurance as to the integrity
of the financial records and the protection of corporate assets. IKON Office
Solutions, Inc. supports and manages an active program of auditing to monitor
the proper functioning of its systems. The reports issued under this program, as
well as comment letters from Ernst & Young LLP, are reviewed regularly by the
Audit Committee of the Board of Directors, which is composed of seven directors
who are not employees of the Company. The Audit Committee meets periodically
with Ernst & Young LLP and management to review audit scope, timing and results.
FPO
/s/ James J. Forese
James J. Forese
President and Chief Executive Officer
FPO
/s/ Kurt E. Dinkelacker
Kurt E. Dinkelacker
Executive Vice President and
Chief Financial Officer
Report of Ernst & Young LLP,
Independent Auditors
To the Board of Directors and Shareholders, IKON Office Solutions, Inc.
We have audited the accompanying consolidated balance sheets of IKON Office
Solutions, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IKON Office Solutions, Inc. and subsidiaries at September 30, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
FPO
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 3, 1998
twenty eight.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Financial Review
On June 19, 1996, the Company announced that it would split its two operating
units into independent companies by spinning off Unisource, its paper products
and supply systems distribution group, as a separate publicly owned company. The
Company accomplished the transaction through a U.S. tax-free distribution of
Unisource stock to Company shareholders on December 31, 1996. As a result of the
spin-off of Unisource, the Company has accounted for Unisource as a discontinued
operation. Continuing operations of the Company sell, rent and lease
photocopiers, digital printers and other automated office equipment for use in
both traditional and integrated office environments. The Company also provides
outsourcing and imaging services and offers consulting, design, computer
networking and technology training for the networked office environment.
Results of Operations
Revenues and income (loss) before taxes from continuing operations for fiscal
years ended September 30, 1998, 1997, and 1996 and the percentage change for
1998 versus 1997 and 1997 versus 1996 were:
<TABLE>
<CAPTION>
(in millions) 1998 1997 % Change 1997 1996 % Change
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $5,629 $5,128 9.8% $5,128 $4,100 25.1%
===========================================================================================================================
Income (loss) before taxes:
Operating income, excluding
transformation costs $ 74.5 $ 387.5 (80.8)% $ 387.5 $ 331.5 16.9%
Transformation costs (78.0) (126.9) (126.9) (21.4)
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (3.5) 260.6 (101.3)% 260.6 310.1 (16.0%)
Interest expense (70.7) (47.5) (47.5) (37.2)
- ---------------------------------------------------------------------------------------------------------------------------
$(74.2) $ 213.1 (134.8)% $ 213.1 $ 272.9 (21.9%)
===========================================================================================================================
</TABLE>
Fiscal 1998 Compared to Fiscal 1997
The Company's fiscal 1998 revenues increased $501 million, or 9.8% over fiscal
1997. Net sales, which includes equipment revenue, increased $171 million or 6%.
Equipment revenues have been impacted by increasing competition, which is
driving sales prices down, although the Company continues to maintain its market
share. As a result of the acceleration of the shift from black and white analog
product to digital product during fiscal 1998, prices are falling for black and
white analog sales. Service and rental revenue increased $247 million or 12%.
This increase resulted from increases in equipment service revenue, outsourcing
and systems integration consulting. Finance income increased $83 million, or
37%, due to the growth in the lease portfolio.
Revenues from the Company's operations outside the U.S. were $735 million for
fiscal 1998 compared to $661 million for the prior fiscal year. The Company's
European operations accounted for $53 million of the increase, while Canadian
revenues increased $10 million and other foreign operations revenues increased
$11 million in fiscal 1998 compared to fiscal 1997. In fiscal 1998, the Company
completed 34 acquisitions with trailing year revenues of $231 million. Of the 34
companies acquired this fiscal year, 10 were outsourcing and imaging companies,
11 were technology services companies and 13 were traditional copier companies.
Acquisition activity has been put on hold for at least six months in North
America as management concentrates on improving operations.
The Company's operating income decreased by $264.1 million compared to the
prior year. Excluding transformation costs, operating income decreased $313
million to $74.5 million in fiscal 1998 compared to $387.5 million in the prior
year. The Company completed an in-depth review of its operations during August
1998 and determined that it was necessary and appropriate to take charges to
earnings totaling $110 million on a pretax basis. These adjustments relate to
the following four areas: (1) Increases to accounting estimates for lease
default reserves of $28 million and accounts receivable reserves of $20 million.
The increase in lease default reserves is a result of recent trends in customer
defaults, especially in the print-for-pay customer segment of the business. The
increase in the accounts receivable reserve relates primarily to certain
business units which are experiencing billing and collection issues relating to
systems conversion and consolidation of operating locations, (2) A $20 million
loss from an asset impairment in a technology services company involved in
high-end software development, (3) $35 million of adjustments related to the
breakdown in the execution of internal controls at four operating units, and (4)
$7 million of adjustments at other operating units. In addition, operating
income includes $40.4 million of charges relating to the closing of
underperforming branches, executive severance packages, and the settlement of
lawsuits. Gross margins in fiscal 1998 were 36.9% of revenues, compared to 39.2%
in the prior year. Gross margins are lower this year due to increasing price
competition in the high-end black and white and new digital products, increased
lease default provisions and because the lower margin outsourcing and technology
services businesses have become a larger part of the revenue mix. The Company
expects gross margins to continue to be impacted by increased price competition
and the shift in revenue mix. Selling and administrative expense as a percent of
revenue was
twenty nine.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
35.2% in fiscal 1998 compared to 31.6% in fiscal 1997. The percentage increase
was due to fiscal 1998 revenues that were below planned amounts without
corresponding reductions in selling and administrative costs, and the charges of
$40.4 million. The Company intends to reduce the selling and administrative
expense to revenue relationship by focusing on increased sales productivity and
implementation of an expense reduction program.
Operating income from foreign operations was $12.1 million in fiscal 1998, a
decrease of $15.1 million from $27.2 million in fiscal 1997. European operating
income increased by $5.5 million, while Canadian operating income decreased
$25.6 million. Other foreign operations increased $5 million in fiscal 1998.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations in fiscal 1998 compared to fiscal 1997.
Costs associated with the Company's transformation program decreased $49
million in fiscal 1998 compared to fiscal 1997. Severance and other employee
costs, including temporary labor, decreased $7 million, facility consolidation
costs, including lease buyouts and write-off of leasehold improvements,
increased $1 million, technology conversion costs decreased $32 million,
primarily resulting from the fiscal 1997 write-off of costs associated with the
SAP computer platform that was abandoned ($30 million) and there were no
significant costs incurred in fiscal 1998 with the adoption of the IKON name
which were $11 million in fiscal 1997.
Interest expense increased $23.2 million in fiscal 1998 due to higher debt
levels from investment in fixed assets, acquisitions and the share repurchase
program which began in the third quarter of fiscal 1997. Income before taxes
decreased by $287.3 million in fiscal 1998 compared to fiscal 1997, as a result
of the unusual charges, decreasing gross margins and increasing selling and
administrative expenses and interest expense, offset by lower transformation
expenses in fiscal 1998. Tax expense for fiscal 1998 was $8.9 million on the
loss before taxes of $74.2 million. The unusual relationship between income tax
expense and income (loss) before taxes is the result of the impact of
non-tax-deductible items (primarily goodwill amortization and loss from asset
impairment) combined with a loss before income taxes.
Earnings per common share from continuing operations, assuming dilution,
decreased from $.77 per share in fiscal 1997 to a loss of $.76 per share in
fiscal 1998. Excluding transformation costs, earnings per common share from
continuing operations, assuming dilution, decreased from $1.38 per share in
fiscal 1997 to a loss of $.38 per share in fiscal 1998. Including earnings per
share from discontinued operations and the extraordinary loss on the
extinguishment of debt, earnings per share, assuming dilution, of the Company
were $.83 in fiscal 1997. There was no significant change in the weighted
average shares, assuming dilution, in fiscal 1998 compared to fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
The Company's revenues increased approximately $1 billion, or 25.1% in fiscal
1997 compared to fiscal 1996, of which $554 million relates to current and
prior-year acquisitions and $474 million to base companies' internal growth.
Revenues from the Company's operations outside the U.S. were $661 million in
fiscal 1997 compared to $540 million in fiscal 1996. The Company's European
operations accounted for $15 million of the increase, while Canadian revenues
increased $93 million as a result of acquisitions and internal growth in base
companies. Other foreign operations added $13 million of revenue in fiscal 1997.
The Company's worldwide internal revenue growth was 12% in fiscal 1997 compared
to 14% in fiscal 1996. The internal revenue growth has been negatively impacted
by short-term issues related to the acceleration of the Company's transformation
initiative and its impact on operations both in the U.S. and U.K. In fiscal
1997, IKON completed 89 acquisitions with annualized trailing revenues of $528
million. Of the companies acquired, 27 were outsourcing and imaging companies,
28 were technology services companies and 34 were traditional copier companies.
In fiscal 1997, as part of its total solutions strategy, IKON emphasized the
acquisition of technology services and outsourcing companies to build its
capabilities in these areas.
The Company's operating income decreased by $49.5 million compared to the
prior year. However, excluding transformation costs, operating income increased
$56 million, or 16.9% over the prior year. Operating income from foreign
operations was $27.2 million for fiscal 1997 compared to $59 million in the
prior year. European operations posted a $28.3 million decline in operating
income in fiscal 1997, relating primarily to revenue declines in the U.K. and
transformation costs. Canadian operating income decreased $3.1 million and other
foreign operations decreased $.4 million. These declines are also primarily the
result of transformation costs. There was no material effect of foreign currency
exchange rate fluctuations on the results of operations in fiscal 1997 compared
to fiscal 1996. Finance subsidiaries contributed 23.5% of IKON's operating
income in fiscal 1997 compared to 15.1% in fiscal 1996. The Company's operating
margins were 5.1% in fiscal 1997 compared to 7.6% in fiscal 1996. Excluding
transformation costs, the Company's operating margins were 7.6% in fiscal 1997,
compared to 8.1% in fiscal 1996.
Costs associated with the Company's transformation program increased $105
million in fiscal 1997 compared to fiscal 1996, primarily relating to the
write-off of costs associated with the SAP computer platform that was abandoned
during the second quarter and technology conversion costs ($36 million),
severance and other employee-related costs, including temporary labor and costs
related to consultants assisting with the transformation ($35 million), facility
consolidations costs, including lease buyouts and write-offs of leasehold
improvements ($23 million) and costs incurred in connection with the adoption of
the IKON name worldwide ($11 million).
thirty.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Interest expense increased $10.3 million in fiscal 1997, primarily the result
of increased borrowing levels when adjusted for the Unisource intercompany debt
repayment made in December 1996. Income from continuing operations before taxes
decreased by $59.8 million from the prior year, primarily reflecting the
combined result of internal growth from base companies along with earnings
contributed by acquisitions, net of increased transformation and interest costs.
The effective income tax rate is 42.6% in fiscal 1997 compared to 39.6% in
fiscal 1996. The Company used the proceeds of a December 2, 1996 $553.5 million
intercompany debt repayment from its discontinued operation, Unisource, to
prepay $514 million of corporate debt. The Company recorded an extraordinary
charge of $12.2 million after tax ($18.7 million pretax) in the first quarter of
fiscal 1997 primarily for prepayment penalties relating to its early
extinguishment of certain corporate debt.
Earnings per share, assuming dilution, from continuing operations, excluding
the extraordinary charge, decreased from $1.12 per share in fiscal 1996 to $.77
per share in fiscal 1997. Excluding transformation costs, earnings per share,
assuming dilution, from continuing operations would have increased 13.1% from
$1.22 per share in fiscal 1996 to $1.38 per share in fiscal 1997. Including the
loss per share of $.09 on the extraordinary charge and the earnings per share of
$.15 on discontinued operations, earnings per share, assuming dilution, were
$.83 for fiscal 1997 compared to $1.47 (which includes $.35 for discontinued
operations) for fiscal 1996. Weighted average shares, assuming dilution, of
134.6 million in fiscal 1997 were 4.2 million shares greater than the 130.4
million weighted average shares in fiscal 1996, primarily the result of stock
issued for acquisitions (5.8 million weighted shares), net of treasury share
repurchases (2.4 million weighted shares).
Discontinued Operations
The Company spun off Unisource, its paper products and supply systems
distribution group, at the end of the first quarter of fiscal 1997. Revenues of
Unisource increased $13 million or .7% in the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996. This change was due to increases
associated with current and prior-year acquisitions of $152 million, which were
offset by revenue declines of $139 million in base operations. The decline in
base operations was principally due to an estimated decrease in average paper
prices of 17% compared to the same period in fiscal 1996. The price deflation
was partially offset by volume gains in the base operations. Income before
income taxes decreased $8.5 million to $34.7 million for the first quarter of
fiscal 1997 compared to $43.3 million in the first quarter of fiscal 1996. This
decrease is primarily related to price decreases, net of volume increases in
base operations and operating income contributed by acquisitions, plus
additional interest expense of $3.5 million in the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996.
Impact of Year 2000
State of Readiness. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs or hardware that have date-sensitive software or
embedded technology (non-IT systems) may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The potential for a problem exists with
all computer hardware and software, as well as in products with embedded
technology: copiers and fax machines; security and HVAC systems; voice/telephony
systems; elevators, etc.
The Company has appointed a Year 2000 Corporate Compliance Team, which has
prepared an international compliance program for the Company and is responsible
for coordinating and inspecting compliance activities in all business units. The
compliance program requires all business units and locations in every country to
inventory potentially affected systems and products, assess risk, take any
required corrective actions, test and certify compliance. The Company's Year
2000 Testing and Certification Guidelines delineate the Year 2000 compliance
process, testing and quality assurance guidelines, certification and reporting
processes and contingency planning. An independent consulting company has
reviewed the compliance program and any appropriate recommendations have been
implemented. All internal IT systems and non-IT systems have been inventoried.
The Company has completed the assessment phase of its Year 2000 project.
Remediation and testing phases have begun at all locations and are complete on
systems at business units covering approximately 10% of the Company's
consolidated revenue. The Company anticipates completing the Year 2000 project
no later than October 31, 1999, which is prior to any anticipated material
impact on its operating systems.
Product warranties and certification are being sought from vendors and
suppliers. The Company has obtained product "Year 2000 Statements" from national
vendors including Canon, Oce, Ricoh and Sharp.
Costs. The Company will use both internal and external resources to reprogram
or replace, test and implement its IT and non-IT systems for Year 2000
modifications. The Company does not separately track the internal costs incurred
on the Year 2000 project. Such costs are principally payroll and related costs
for its internal IT personnel. The total cost of the Year 2000 project,
excluding these internal costs, is estimated at $11.4 million and is being
funded through operating cash flows. Of the total estimated project cost,
approximately $2.4 million is attributable to the purchase of new software which
will be capitalized. The remaining $9.0 million will be expensed as incurred. To
date, the Company has incurred approximately $1.1 million ($971,000 expensed and
$157,000 capitalized) related to its Year 2000 project.
thirty one.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Risks. Management believes, based on the information currently available to
it, that the most reasonably likely worst case scenario that could be caused by
technology failures relating to Year 2000 could pose a significant threat not
only to IKON, its customers and suppliers, but to all businesses. Risks include:
.Legal risks, including customer, supplier, employee or shareholder lawsuits
over failure to deliver contracted services, product failure, or health and
safety issues.
.Loss of sales due to failure to meet customer quality expectations or
inability to ship products.
.Increased operational costs due to manual processing, data corruption or
disaster recovery.
.Inability to bill or invoice.
The Company has taken steps to limit the scope of product and service
warranties to customers to June 30, 2000 and to either the replacement of
noncompliant products or to reimbursement of the cost of the product or service
provided. With respect to products sold by the Company prior to the inclusion of
such limited warranties, differing interpretations of the warranties included
with such products will likely result in litigation against the Company. The
Company is not able to assess the impact of such litigation at this time.
The Company is engaged in the provision of certain Year 2000 services to
customers, whereby the Company evaluates the Year 2000 compliance of customers'
software and hardware, and works with customers to find solutions to Year 2000
problems. The Company has taken steps to limit its warranties with respect to
the Company's provision of such services.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived using numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Contingency Plans. The Company's Guidelines require that contingency plans be
developed and validated in the event that any critical system cannot be
corrected and certified before the system's failure date. The Company expects to
have its contingency plans in place by October 31, 1999. In addition, the
Company is forming a rapid response team as part of its IT group that will
respond to any operational problems during the Year 2000 date change period.
Financial Condition and Liquidity
Net cash provided by operating activities for fiscal 1998 was $269 million.
During the same period, the Company used $896 million in cash for investing
activities, which included net finance subsidiary activity of $638 million,
acquisition activity at a cash cost of $83 million, capital expenditures for
property and equipment of $120 million and capital expenditures for equipment on
operating leases of $92 million. Cash provided by financing activities was
primarily the result of debt issuances by finance subsidiaries.
Debt, excluding finance subsidiaries, was $856 million at
September 30, 1998, an increase of $38 million from the debt balance at
September 30, 1997 of $818 million. At September 30, 1998, debt as a percentage
of capitalization, excluding finance subsidiaries, was 37.5%, compared to 35.6%
in the prior year, while the current ratio was 1.3 to 1. The Company has
established goals to reduce working capital and related debt levels. At the end
of fiscal 1998, the Company's commitments for capital expenditures were
approximately $8.3 million, most of which are expected to be expended during
fiscal 1999 and relate to IT initiatives.
On January 16, 1998, the Company amended its December 16, 1996 credit
agreement to increase the borrowing limit from $400 million to $600 million and
to extend the termination to January 16, 2003. As of September 30, 1998,
short-term borrowings supported by the agreement totaled $64 million. In October
1997, the Company completed a $250 million two tranche underwritten public
offering consisting of $125 million 6.75% notes due November 1, 2004 and $125
million 7.3% notes due November 1, 2027. The 6.75% notes were sold at a discount
to yield 6.794% and carry a make-whole call provision with a five basis-points
premium. The 7.3% notes were also sold at a discount to yield 7.344% and carry a
make-whole call provision with a 15 basis-points premium. The proceeds of the
offering were used to repay short-term borrowings. The Company has $700 million
available at September 30, 1998 for either stock or debt offerings under its
shelf registration statement.
Finance subsidiaries' debt grew by $355 million from September 30, 1997, a
result of increased leasing activity. During fiscal 1998, the U.S. finance
subsidiary issued an additional $308 million under its medium term notes
program, net of repayments. At September 30, 1998, $1.8 billion of medium term
notes were outstanding with a weighted average interest rate of 6.5%, while $1.1
billion remains available under this program. Under its $275 million asset
securitization programs, the U.S. finance subsidiary sold $106 million in direct
financing leases during fiscal 1998, replacing those leases liquidated and
leaving the amount of contracts sold unchanged. On April 30, 1998, the Company
entered into a CN$175 million asset securitization agreement for direct
financing lease receivables of its Canadian finance subsidiary. CN$172 million
(approximately $135 million) of direct financing leases were sold under this
agreement in fiscal 1998.
The Company filed shelf registrations for 10 million shares of common stock in
April 1997 and 5 million shares of common stock in March 1996. Shares issued
under these registration statements are being used for acquisitions.
Approximately 7 million shares have been issued under these shelf registrations
through September 30, 1998, leaving 8 million shares available for issuance.
On April 17, 1997, the Company announced that it may repurchase from time to
time as much as 5% of the outstanding IKON common stock in open market
transactions. Through September 30, 1997, the Company repurchased 4.4 million
common shares for $109.7 million. An additional 150,000 shares were repurchased
under this program in fiscal 1998 for $3.4 million.
thirty two.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
The Company and certain principal officers and directors were named as
defendants in fourteen purported class action complaints filed on behalf of
purchasers of the Company's common stock during the class period from October
15, 1997 through August 13, 1998. The complaints allege violations of securities
laws during the class period. Management believes the lawsuits are without merit
and that the outcome will not have a material adverse effect on the financial
position or overall trends in the results of operations of the Company. However,
due to the inherent uncertainties of litigation, the Company cannot accurately
predict the ultimate outcome of litigation. An unfavorable outcome of litigation
could have an adverse impact on the Company's financial condition and results of
operations.
The Company believes that its operating cash flow together with unused bank
credit facilities and other financing arrangements will be sufficient to finance
current operating requirements including capital expenditures, acquisitions,
dividends and stock repurchases.
Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's long-term debt. The Company
has no cash flow exposure due to interest rate changes for long-term debt
obligations. The Company primarily enters into debt obligations to support
general corporate purposes, including acquisitions, capital expenditures and
working capital needs. Finance subsidiaries' long-term debt is used to fund the
lease receivables portfolio. For interest rate swaps, the table presents
notional amounts and weighted average interest rates by contractual maturity
dates using September 30, 1998 variable rates. The carrying amounts for cash,
accounts receivable, long-term receivables and notes payable reported in the
consolidated balance sheets approximate fair value.
The table below presents principal amounts and related average interest rates by
year of maturity for the Company's long-term debt obligations:
<TABLE>
<CAPTION>
(in thousands) 1999 2000 2001 2002 2003 Thereafter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed rate $56,358 $ 7,865 $ 52,308 $ 4,835 $2,065 $600,190
Average interest rate 8.0% 10.7% 8.8% 8.0% 7.9% 7.0%
Variable rate $ 45,121
Average interest rate 4.8%
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, finance subsidiaries
Fixed rate $726,159 $474,893 $533,374 $111,396 $29,815
Average interest rate 6.3% 6.7% 6.7% 6.6% 7.6%
Variable rate $225,000
Average interest rate 5.4%
- ---------------------------------------------------------------------------------------------------------------------------
Interest rate derivative financial
instruments related to debt
Interest rate swaps:
Pay fixed/receive variable $270,121
Average pay rate 6.4%
Average receive rate 5.3%
===========================================================================================================================
</TABLE>
Foreign Exchange Risk. The Company does not have significant foreign exchange
risk. Foreign denominated intercompany debt borrowed in one currency and repaid
in another is fixed via currency swap agreements. Gains and losses resulting
from the remeasurement of foreign financial statements into U.S. dollars did not
have a significant effect on the results of operations for fiscal years 1998,
1997 or 1996.
thirty three.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $3,012,006 $2,841,561 $ 2,381,151
Service and rentals 2,310,114 2,063,186 1,560,915
Finance income 306,543 223,686 157,707
- ---------------------------------------------------------------------------------------------------------------------------
5,628,663 5,128,433 4,099,773
- ---------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 2,038,682 1,828,883 1,552,183
Service and rental costs 1,385,780 1,190,277 915,032
Finance interest expense 129,148 98,664 68,043
Selling and administrative 1,980,539 1,623,135 1,233,036
Loss from asset impairment 20,000
Transformation costs 78,033 126,908 21,423
- ---------------------------------------------------------------------------------------------------------------------------
5,632,182 4,867,867 3,789,717
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (3,519) 260,566 310,056
Interest Expense 70,668 47,453 37,179
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations Before Taxes
and Extraordinary Loss (74,187) 213,113 272,877
Income Taxes 8,863 90,751 107,984
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations
Before Extraordinary Loss (83,050) 122,362 164,893
Discontinued Operations 20,151 45,848
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary Loss (83,050) 142,513 210,741
Extraordinary Loss from Early Extinguishment of Debt,
net of tax benefit (12,156)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) (83,050) 130,357 210,741
Less Preferred Dividends 19,540 19,540 22,319
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Available to Common Shareholders $ (102,590) $ 110,817 $ 188,422
===========================================================================================================================
Earnings (Loss) Per Share
Continuing operations $ (.76) $ .77 $ 1.13
Discontinued operations .15 .37
Extraordinary loss (.09)
- ---------------------------------------------------------------------------------------------------------------------------
$ (.76) $ .83 $ 1.50
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share, assuming dilution
Continuing operations $ (.76) $ .77 $ 1.12
Discontinued operations .15 .35
Extraordinary loss (.09)
- ---------------------------------------------------------------------------------------------------------------------------
$ (.76) $ .83 $ 1.47
===========================================================================================================================
Cash Dividends Per Share of Common Stock $ .16 $ .26 $ .56
</TABLE>
See notes to consolidated financial statements.
thirty four.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 963 $ 21,341
Accounts receivable, less allowances of: 1998-$63,591; 1997-$54,192 793,934 765,660
Finance receivables, net 822,569 670,784
Inventories 431,837 442,207
Prepaid expenses 97,534 101,294
Deferred taxes 112,609 124,520
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 2,259,446 2,125,806
- ---------------------------------------------------------------------------------------------------------------------------
Investments and Long-Term Receivables 25,109 17,508
Long-Term Finance Receivables, net 1,556,454 1,331,372
Equipment on Operating Leases, net of accumulated amortization of:
1998-$158,315; 1997-$167,464 110,891 101,900
Property and Equipment, net 260,106 239,545
Goodwill 1,387,390 1,348,133
Other Assets 149,400 159,622
- ---------------------------------------------------------------------------------------------------------------------------
$5,748,796 $5,323,886
===========================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 56,358 $ 60,794
Current portion of long-term debt, finance subsidiaries 726,159 251,711
Notes payable 87,180 266,979
Trade accounts payable 245,520 206,547
Accrued salaries, wages and commissions 115,101 110,628
Deferred revenues 211,824 208,612
Other accrued expenses 312,711 268,511
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,754,853 1,373,782
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt 712,384 490,235
Long-Term Debt, Finance Subsidiaries 1,374,478 1,494,043
Deferred Taxes 325,488 330,996
Other Long-Term Liabilities 154,305 153,182
Shareholders' Equity
Series BB conversion preferred stock, no par value:
3,877,200 depositary shares issued and outstanding 290,170 290,170
Common stock, no par value: authorized 300,000,000 shares;
issued 1998-137,139,000 shares; 1997-135,705,000 shares 689,195 677,681
Retained earnings 453,570 574,646
Foreign currency translation adjustment (1,992) (728)
Cost of common shares in treasury: 1998-124,000 shares;
1997-2,401,000 shares (3,655) (60,121)
- ---------------------------------------------------------------------------------------------------------------------------
1,427,288 1,481,648
- ---------------------------------------------------------------------------------------------------------------------------
$5,748,796 $5,323,886
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
thirty five.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) Shares Amounts Shares Amounts Shares Amounts
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series AA Convertible Preferred Stock
Balance, beginning of year 4,025 $ 201,924
Dividend accretion 503
Preferred stock conversion (4,025) (202,427)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year
===========================================================================================================================
Series BB Conversion Preferred Stock 3,877 $290,170 3,877 $ 290,170 3,877 $ 290,170
===========================================================================================================================
Common Stock
Balance, beginning of year 135,705 $ 677,681 131,930 $1,305,413 116,136 $ 643,998
Series AA preferred stock conversion 8,198 368,382
Mergers, acquisitions and other 1,434 9,648 3,775 145,265 7,596 285,836
Unisource spin-off (779,770)
Tax benefit relating to stock plans 1,866 6,773 7,197
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year 137,139 $ 689,195 135,705 $ 677,681 131,930 $1,305,413
===========================================================================================================================
Retained Earnings
Balance, beginning of year $574,646 $ 701,771 $ 781,536
Net income (loss) (83,050) 130,357 210,741
Cash dividends declared:
Series AA preferred stock,
per share: 1996-$.719 (2,779)
Series BB preferred stock,
per share: $5.04 (19,540) (19,540) (19,540)
Common stock, per share: 1998-$.16;
1997-$.26; 1996-$.56 (21,600) (34,640) (70,010)
Pooled companies, prior to merger (177)
Series AA preferred stock conversion (199,108)
Unisource spin-off (210,071)
Credits from issuance of
treasury shares and other 3,114 6,769 1,108
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year $453,570 $ 574,646 $ 701,771
===========================================================================================================================
Foreign Currency Translation Adjustment
Balance, beginning of year $ (728) $ (25,187) $ (21,540)
Translation adjustment (1,264) (4,659) (3,647)
Unisource spin-off 29,118
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (1,992) $ (728) $ (25,187)
===========================================================================================================================
Cost of Common Shares in Treasury
Balance, beginning of year 2,401 $(60,121) 374 $ (16,663) 118 $ (4,726)
Purchases 178 (4,013) 4,486 (112,192) 2,004 (86,084)
Reissued for:
Exercise of options (377) 9,346 (50) 1,471 (395) 17,287
Sales to employee stock plans (485) 11,802 (501) 16,438 (534) 23,710
Mergers, acquisitions and other (1,593) 39,331 (1,908) 50,825
Series AA preferred stock conversion (819) 33,150
- ---------------------------------------------------------------------------------------------------------------------------
Balance, end of year 124 $ (3,655) 2,401 $ (60,121) 374 $ (16,663)
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
thirty six.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Income (loss) from continuing operations $ (83,050) $ 122,362 $ 164,893
Additions (deductions) to reconcile net income (loss)
from continuing operations to net cash provided
by operating activities of continuing operations:
Depreciation 140,101 108,037 84,447
Amortization 62,424 48,555 34,107
Provisions for losses on accounts receivable 47,052 25,724 18,296
Provision for deferred income taxes 9,500 92,063 62,174
Write-off of abandoned software and other assets
due to transformation 5,987 25,342
Loss from asset impairment 20,000
Changes in operating assets and liabilities, net
of effects from acquisitions and divestitures:
Increase in accounts receivable (43,741) (202,790) (83,783)
Decrease (increase) in inventories 20,926 (70,189) (41,445)
Increase in prepaid expenses (391) (21,699) (52,733)
Increase in accounts payable, deferred
revenues and accrued expenses 85,531 37,125 77,430
Miscellaneous 4,964 8,986 4,475
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of
continuing operations 269,303 173,516 267,861
Net cash provided by operating activities of
discontinued operations 24,176 205,914
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 269,303 197,692 473,775
Investing Activities
Cost of companies acquired, net of cash acquired (82,642) (155,907) (171,804)
Expenditures for property and equipment (119,680) (118,015) (108,566)
Expenditures for equipment on operating rental (92,489) (75,223) (38,068)
Proceeds from sale of property and equipment 38,518 35,980 34,482
Purchase of miscellaneous assets (1,000) (10,678) (19,054)
Finance receivables--additions (1,509,900) (1,459,102) (1,005,270)
Finance receivables--collections 871,555 651,025 389,384
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of
continuing operations (895,638) (1,131,920) (918,896)
Net cash used in investing activities of
discontinued operations (38,058) (201,356)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (895,638) (1,169,978) (1,120,252)
Financing Activities
Proceeds from:
Issuance of long-term debt 265,345 35,605 439,149
Option exercises and sale of treasury shares 19,911 43,807 55,084
Sale of finance subsidiaries' lease receivables 229,359 103,401 202,713
Issuance (repayment) of short-term borrowings, net (175,895) 75,388 (69,883)
Long-term debt repayments (42,704) (328,702) (74,546)
Finance subsidiaries' debt--issuance 888,185 932,728 515,673
Finance subsidiaries' debt--repayments (533,091) (314,000) (206,232)
Dividends paid (41,140) (54,180) (91,826)
Purchase of treasury shares (4,013) (112,192) (86,084)
Proceeds from (payments to) discontinued operations 551,834 (53,370)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities of
continuing operations 605,957 933,689 630,678
Net cash provided by (used in) financing
activities of discontinued operations 13,882 (4,558)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 605,957 947,571 626,120
- ---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (20,378) (24,715) (20,357)
Cash at beginning of year 21,341 46,056 66,413
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 963 $ 21,341 $ 46,056
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
thirty seven.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
IKON Office Solutions, Inc. (IKON or the Company) is a leading office technology
company, providing customers with total office solutions including copier and
printing systems, computer networking, print-on-demand services, copy center
management, hardware and software product interfaces and electronic file
conversion. IKON has locations throughout the United States and Canada and in
Europe (primarily in the United Kingdom), which comprise the largest network of
independent copier and office equipment dealers in North America and in the
United Kingdom. The Company's name was changed from Alco Standard Corporation
(Alco) to IKON Office Solutions, Inc. effective January 23, 1997.
1. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation. The spin-off of
Unisource Worldwide, Inc. (Unisource), the Company's paper products and supply
systems distribution business, was completed on December 31, 1996, as discussed
in Note 6. All of the following notes, unless otherwise stated, reflect data on
a continuing operations basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and notes. Actual results
could differ from those estimates and assumptions.
Revenue Recognition
Revenues are recognized at the time of shipment of products or performance of
services. Revenues from service contracts and rentals are recognized over the
term of the contract. The present value of payments due under sales-type lease
contracts is recorded as revenues and cost of goods sold is charged with the
book value of the equipment at the time of shipment. Finance income is
recognized over the related lease term.
Inventories
Inventories are stated at the lower of cost or market using the average cost or
specific identification methods and consist of finished goods available for
sale.
Goodwill
Substantially all goodwill (excess of purchase price over net assets acquired)
is amortized over periods ranging from 25 to 40 years using the straight-line
method. The recoverability of goodwill is evaluated at the operating unit level
by an analysis of operating results and consideration of other significant
events or changes in the business environment. If an operating unit has current
operating losses and based upon projections there is a likelihood that such
operating losses will continue, the Company will evaluate whether impairment
exists on the basis of undiscounted expected future cash flows from operations
before interest for the remaining amortization period. If impairment exists, the
carrying amount of the goodwill is reduced by the estimated shortfall of cash
flows on a discounted basis. Accumulated amortization at September 30, 1998 and
1997 was $143,000,000 and $103,000,000, respectively.
Depreciation
Properties and equipment are depreciated over their useful lives by the
straight-line method.
Foreign Currency Translation
Assets and liabilities of all material foreign subsidiaries are translated into
U.S. dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of shareholders'
equity.
Accounting Changes
In February 1997, the FASB issued Statement No. 128,
"Earnings Per Share" (SFAS 128), which simplified the standards for computing
earnings per share (EPS). SFAS 128 was effective for the first quarter of fiscal
1998 and all prior period EPS amounts have been restated. The Company has
presented basic and diluted EPS and disclosed the computations in Note 14. The
effect of adoption was not material on EPS of any prior period.
Pending Accounting Changes
In June 1997, the FASB issued Statements No. 130, "Reporting Comprehensive
Income" (SFAS 130), and No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. SFAS 131 establishes
new standards for reporting information about operating segments. Both SFAS 130
and 131 will be adopted in fiscal 1999.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132), which is an
amendment of FASB Statements No. 87, 88 and 106. SFAS 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminates certain disclosures required under FASB Statements No.
87, 88 and 106. SFAS 132 will be adopted in fiscal 1999.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires the Company to recognize all derivatives as either assets or
liabilities and measure the instruments at fair value. The Company intends to
adopt the standard on October 1, 1999. The Company does not believe the effect
of adoption will be material.
thirty eight.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
1. Significant Accounting Policies (continued)
Interest Rate and Currency Swap Agreements
The Company uses interest rate and currency swap agreements for purposes other
than trading and they are treated as off-balance sheet items. Interest rate swap
agreements are used by the Company to modify variable rate obligations to fixed
rate obligations, thereby reducing the exposure to market rate fluctuations. The
interest rate swap agreements are designated as hedges, and effectiveness is
determined by matching the principal balance and terms with that specific
obligation. Such an agreement involves the exchange of amounts based on fixed
interest rates for amounts based on variable interest rates over the life of the
agreement without an exchange of the notional amount upon which payments are
based. The differential to be paid or received as interest rates change is
accounted for on the accrual method of accounting. The related amount payable to
or receivable from counterparties is included as an adjustment to accrued
interest in other accrued expenses. Currency swap agreements are used to manage
exposure relating to certain intercompany debt denominated in one foreign
currency that will be repaid in another foreign currency. Currency swap
agreements are designated as hedges of firm commitments to pay interest and
principal on debt, which would otherwise expose the Company to foreign currency
risk. Currency translation gains and losses on the principal swapped are offset
by corresponding translation gains and losses on the related foreign denominated
assets. Gains and losses on terminations of interest rate and currency swap
agreements are deferred as an adjustment to the carrying amount of the
outstanding obligation and amortized as an adjustment to interest expense
related to the obligation over the remaining term of the original contract life
of the terminated swap agreement. In the event of early extinguishment of the
obligation, any realized or unrealized gain or loss from the swap would be
recognized in income at the time of extinguishment.
Business Segment Information
As a result of the spin-off of Unisource, the Company operates in a single
industry segment. The Company provides its customers with integrated solutions
for copier, office equipment, outsourcing and networking needs.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
2. Loss on Asset Impairment
In October 1996, the Company purchased a software development company that it
believed to be a strategic fit with its systems integration companies. In fiscal
1998, this company began to experience operating losses and negative cash flows
from operations. During the third quarter of fiscal 1998, management evaluated
projections that indicated this trend was expected to continue. Management
concluded that the carrying amounts of the goodwill and other long-lived assets
were not recoverable and, in accordance with the Company's accounting policy,
recorded an impairment loss of $20,000,000.
3. Transformation Costs
In September 1995, the Company announced its transformation program to change
its organization into a more cohesive and efficient network by building a
uniform information technology system and implementing best practices for
critically important management functions throughout the IKON companies. The
Company has substantially completed the transformation program as of September
30, 1998. The transformation involves a variety of activities that the Company
believes will ultimately lower administrative costs and improve gross margins
through the creation of marketplace-focused field operations with greater
attention to customer sales and services. These activities include consolidating
purchasing, inventory control, logistics and other activities into thirteen
customer service centers in the U.S., establishing a single financial processing
center, building a common information technology system, adopting a common name
and common benefit programs.
Transformation costs were as follows:
Fiscal Year Ended September 30
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Severance and other
employee-related costs $ 47,159 $ 53,866 $ 18,702
Facility consolidation costs 25,233 24,738 1,293
Technology conversion
costs and other 5,641 37,297 1,428
Costs incurred to adopt the
IKON name worldwide 11,007
- --------------------------------------------------------------------------------
$ 78,033 $126,908 $ 21,423
================================================================================
Severance and other employee-related costs include temporary labor and
consultants assisting with the transformation. Facility consolidation costs
include lease buyouts and write-offs of leasehold improvements. Technology
conversion costs include the write-off of costs related to the abandoned SAP
computer pilot program in fiscal 1997 and other technology conversion costs.
The September 30, 1998 balance sheet includes a severance accrual for 227
employees totaling $9,310,000 and a facility consolidation accrual of
$10,776,000.
thirty nine.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Mergers
During the second quarter of fiscal 1996, the Company completed two mergers
accounted for as poolings-of-interests by issuing common stock for all of the
shares of Legal Copies International, Inc. and JMM Enterprises, Inc. Total
common shares issued in connection with these mergers were 3,953,990.
Components of the operating results from continuing operations for periods
prior to the merger were:
Three Months Ended
December 31, 1995
(in thousands) (unaudited)
- --------------------------------------------------------------------------
Revenues
IKON Office Solutions, Inc. $852,396
Pooled companies 48,183
- --------------------------------------------------------------------------
$900,579
==========================================================================
Income from continuing operations
IKON Office Solutions, Inc. $ 35,186
Pooled companies 1,751
- --------------------------------------------------------------------------
$ 36,937
==========================================================================
5. Acquisitions
The Company made 34 acquisitions in fiscal 1998 for an aggregate purchase price
of $99,408,000 in cash and stock. Total assets related to fiscal 1998
acquisitions were $157,595,000, including goodwill of $94,769,000. In addition,
$29,829,000 was paid and capitalized in fiscal 1998 relating to prior years'
acquisitions.
In fiscal 1997, the Company made 89 acquisitions for an aggregate purchase
price of $317,864,000 in cash and stock. Total assets related to these
acquisitions were $438,954,000, including goodwill of $277,209,000. An
additional $9,608,000 was paid and capitalized in fiscal 1997 relating to prior
years' acquisitions.
In addition to the mergers described in Note 4, the Company made 97
acquisitions in fiscal 1996 for an aggregate purchase price of $358,568,000 in
cash, notes and stock. Total assets related to these 97 acquisitions were
$499,729,000, including goodwill of $313,495,000. The Company also issued
486,304 common shares for an acquisition accounted for as a pooling-of-interests
whose results of operations were included from the beginning of the fiscal year.
An additional $4,086,000 was paid and capitalized in fiscal 1996 relating to
prior years' acquisitions.
All acquisitions, unless otherwise noted, are included in results of
operations from their dates of acquisition.
Had the purchase acquisitions been made at the beginning of the fiscal year
prior to their acquisition, unaudited pro forma results from continuing
operations would have been:
Fiscal Year Ended September 30
(in thousands except per share data)
(unaudited) 1998 1997 1996
- -----------------------------------------------------------------------------
Revenues $ 5,744,054 $ 5,561,592 $4,961,482
Income (loss) from
continuing operations (82,552) 131,545 180,934
Earnings (loss) per share
from continuing operations
Basic (.75) .81 1.19
Diluted (.75) .80 1.17
- -----------------------------------------------------------------------------
6. Discontinued Operations
On June 19, 1996, the Company announced that it would separate Unisource, its
paper products and supply systems distribution business from IKON, its office
solutions business, with each business operating as a stand-alone, publicly
traded company. In order to effect the separation of these businesses, the
Company declared a dividend payable to holders of record of Alco common stock at
the close of business on December 13, 1996 (the Record Date) of one share of
common stock, $.001 par value, of Unisource common stock, for every two shares
of Alco stock owned on the Record Date. The distribution resulted in 100% of the
outstanding shares of Unisource common stock being distributed to Alco
shareholders on December 31, 1996. The Internal Revenue Service issued a ruling
letter which provided that, except for any cash received in lieu of fractional
shares, the spin-off of Unisource was tax-free to Alco and to Alco's U.S.
shareholders.
In conjunction with the separation of their businesses, Unisource and the
Company entered into various agreements that address the allocation of assets
and liabilities between them and define their relationship after the separation,
including a Distribution Agreement (Distribution Agreement), a Benefits
Agreement (Benefits Agreement) and a Tax Sharing and Indemnification Agreement
(Tax Sharing Agreement). The Distribution Agreement provides for, among other
things, the principal transactions required to effect the Distribution, the
conditions to the Distribution, the allocation between the Company and Unisource
of certain assets and liabilities and cooperation by the Company and Unisource
in the provision of information and certain facilities necessary to perform the
administrative functions incident to their respective businesses. The
Distribution Agreement includes cross-indemnification provisions pursuant to
which Unisource and the Company indemnify each other for damages that may arise
out of a breach of their respective obligations under the agreement. Under the
Benefits Agreement, Unisource's obligation to provide benefits includes all
obligations with respect to Unisource employees under pension plans, savings
plans and multiemployer plans, welfare plans (retiree medical plans),
supplemental benefit plans, certain deferred compensation plans, incentive
plans, stock-based plans and other plans covering Unisource employees and
includes liabilities that arose while the individuals were employed by Alco. The
Benefits Agreement requires the Company to reimburse Unisource for a portion of
any payments made by Unisource to former Unisource employees under Alco's 1985,
1991 and 1994 deferred compensation plans.
forty.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
6. Discontinued Operations (continued)
Unisource assumed certain Alco pension plans covering Unisource employees, and
assets and liabilities attributable to Unisource employees under Alco's
participating companies pension plan and Alco's 401(k) plan have been
transferred to new Unisource pension and 401(k) plans, respectively. Under the
Tax Sharing Agreement, Unisource will bear its respective share of (i) the
Company's federal consolidated income tax liability (or benefit), (ii) any
unitary state income tax liability, and (iii) the Company's consolidated
personal property tax liability for all tax periods that end before or that
include the Distribution Date. Unisource is responsible for paying any tax
liabilities arising for any tax return that it files separately. If any tax year
ending before or including the Distribution Date is subsequently examined by the
IRS, and an adjustment results from such examination, then Unisource's share of
the Company's additional federal consolidated income tax liability (or benefit
for that tax year) will be computed and agreed to by the parties. The Tax
Sharing Agreement generally provides that in the event either the Company or
Unisource takes any action inconsistent with, or fails to take any action
required by, or in accordance with the qualification of the Distribution as
tax-free, then the Company or Unisource, as the case may be, will be liable for
and indemnify and hold the other harmless from any tax liability resulting from
such action.
The Company has accounted for Unisource as a discontinued operation in fiscal
1997 and 1996. Prior-year amounts for Unisource have been restated to reflect
interest and other expenses allocated by the Company. Unisource has been charged
corporate interest expense based on the relationship of its net assets to total
Company net assets, excluding corporate debt, in amounts of $7,203,000 in the
first quarter of fiscal 1997 and $29,572,000 in fiscal 1996. The Company
recorded a charge against earnings of $50,000,000 in the third quarter of fiscal
1996 for restructuring activities at Unisource. The charge included facility
closures costs of $33,000,000 and severance costs for approximately 900
employees of $17,000,000 associated with the announced regional realignment from
ten to five regions in the United States and facilities mergers in the U.S. and
Canada. An $18,000,000 charge against earnings was recorded in the third quarter
of fiscal 1996 for costs associated with the spin-off of Unisource consisting
primarily of investment banking fees, legal and accounting fees, filing fees and
employee termination costs directly related to the spin-off.
The results of discontinued operations were:
Three Months Ended Fiscal Year Ended
(in thousands) December 31, 1996 September 30, 1996
- ------------------------------------------------------------------------------
Revenues (Unisource) $ 1,728,533 $ 7,022,808
==============================================================================
Income before taxes
Unisource (including $50,000
restructuring charge in 1996) 34,743 103,003
Spin-off costs (18,000)
- ------------------------------------------------------------------------------
34,743 85,003
Tax expense (benefit)
Unisource 14,592 43,005
Spin-off costs (3,850)
- ------------------------------------------------------------------------------
14,592 39,155
Net income
Unisource 20,151 59,998
Spin-off costs (14,150)
- ------------------------------------------------------------------------------
$ 20,151 $ 45,848
==============================================================================
In December 1996, Unisource repaid $553,500,000 of intercompany debt outstanding
with the Company and the Unisource common stock was distributed to Alco
shareholders. Equity of the Company was reduced by $960,723,000, which was the
equity of Unisource at December 31, 1996, adjusted for post-closing tax and
pension adjustments.
7. Finance Receivables
The Company's wholly owned finance subsidiaries are engaged in purchasing office
equipment from Company dealers and leasing the equipment to customers under
direct financing leases.
Components of finance receivables, net, are as follows:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Gross receivables $2,688,736 $2,311,263
Unearned income (496,735) (426,979)
Unguaranteed residuals 284,543 194,639
Allowance for doubtful accounts (97,521) (76,767)
- --------------------------------------------------------------------------------
Lease receivables 2,379,023 2,002,156
Less: Current portion 822,569 670,784
- --------------------------------------------------------------------------------
Long-term lease receivables $1,556,454 $1,331,372
================================================================================
At September 30, 1998, future minimum payments to be received under direct
financing leases were: 1999-$924,431,000; 2000-$783,506,000; 2001-$556,398,000;
2002-$308,274,000; 2003-$115,289,000; thereafter-$838,000; while future minimum
lease payments to be received under operating leases were: 1999-$42,323,000;
2000-$30,980,000; 2001-$21,117,000; 2002-$10,977,000; 2003-$3,973,000;
thereafter-$1,000.
IKON's U.S. finance subsidiary has entered into asset securitization
agreements for $275,000,000 of eligible direct financing lease receivables that
expire in March 1999 ($125,000,000) and September 1999 ($150,000,000). The
agreements contain limited recourse provisions that require the finance
subsidiary to assign an additional amount of undivided interest in leases as a
reserve to cover any potential losses to the purchaser due to uncollectible
leases.
forty one.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
IKON's Canadian finance subsidiary entered into an asset securitization
agreement for up to CN$175,000,000 of eligible direct financing lease
receivables that expires in April 1999. Under the terms of the agreement, there
are limited recourse provisions to cover potential losses to the purchaser.
As collections reduce previously sold interests, new leases can be sold up to
the agreement amount. In fiscal year 1998, the U.S. finance subsidiary sold an
additional $106,144,000 in leases, replacing leases liquidated during the year,
and the Canadian finance subsidiary sold CN$171,664,000 ($134,581,000) in
leases.
The changes in the finance subsidiaries' servicing liabilities relating to the
asset securitization agreements for the fiscal years ended September 30, 1998
and 1997, are as follows:
(in thousands) 1998 1997
- -------------------------------------------------------------------
Beginning of period $ 8,248 $ 8,467
Additions 5,870 3,170
Less: Amortization (3,753) (3,389)
- -------------------------------------------------------------------
Balance at September 30 $10,365 $ 8,248
- -------------------------------------------------------------------
8. Property and Equipment
Property and equipment, at cost, consisted of:
September 30 (in thousands) 1998 1997
- -------------------------------------------------------------------
Land $ 6,718 $ 6,797
Buildings and improvements 94,706 83,294
Furniture and equipment 398,122 372,269
- -------------------------------------------------------------------
499,546 462,360
Less: accumulated depreciation 239,440 222,815
- -------------------------------------------------------------------
Balance at September 30 $260,106 $239,545
===================================================================
9. Notes Payable and Long-Term Debt
Notes payable consisted of:
September 30 (in thousands) 1998 1997
- -------------------------------------------------------------------
Notes payable to banks at
average interest rate 6.1% $82,298 $259,464
Other notes payable at
average interest rate:
1998-6.5%; 1997-8.8% 4,882 7,515
- -------------------------------------------------------------------
$87,180 $266,979
===================================================================
Long-term debt consisted of:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Bond issue at stated interest rate of
6.75%, net of discount (1998-$4,411;
1997-$4,467), due 2025,
effective interest rate of 6.87% $295,589 $295,533
Bond issue at stated interest rate of
6.75%, net of discount (1998-$271),
due 2004, effective interest rate
of 6.794% 124,729
Bond issue at stated interest rate
of 7.3%, net of discount (1998-$659),
due 2027, effective interest rate
of 7.344% 124,341
Bond issue at interest rate of 8.875%
due 2001 43,819 43,819
Private placement debt at average
interest rate of 7.2%, due 2005 55,000 55,000
Bank debt at average interest rate of
7.7%, due 2000 45,121 71,641
Sundry notes, bonds and mortgages
at average interest rate: 1998-7.2%;
1997-7.7%, due 1999-2005 53,611 52,876
Present value of capital lease obligations
(gross amount: 1998-$28,401;
1997-$36,494) 26,532 32,160
- --------------------------------------------------------------------------------
768,742 551,029
Less current maturities 56,358 60,794
- --------------------------------------------------------------------------------
$712,384 $490,235
================================================================================
After giving effect to interest rate swaps, the average effective interest
rate on the Company's long-term bank debt was 7.7% at both September 30, 1998
and 1997, compared to average stated variable rates of 4.8% and 3.5% at
September 30, 1998 and 1997, respectively.
Long-term debt, finance subsidiaries consisted of:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Medium term notes at average interest
rate: 1998-6.5%; 1997-6.6% $1,849,750 $1,542,250
Notes payable to banks at average
interest rate: 1998-6.9%;
1997-6.4% 250,887 203,504
- --------------------------------------------------------------------------------
2,100,637 1,745,754
Less current maturities 726,159 251,711
- --------------------------------------------------------------------------------
$1,374,478 $1,494,043
================================================================================
After giving effect to interest rate swaps on finance subsidiaries debt issued
during fiscal 1998, the average interest rate on $225,000,000 of the Company's
medium term notes was 6.2% at September 30, 1998, compared to an average
variable rate of 5.4% at September 30, 1998.
forty two.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
9. Notes Payable and Long-Term Debt
(continued)
Long-term debt and long-term debt, finance subsidiaries mature as follows:
Long-Term Debt,
Finance
(in thousands) Long-Term Debt Subsidiaries
- --------------------------------------------------------------------------------
(fiscal year)
1999 $ 56,358 $726,159
2000 52,986 699,893
2001 52,308 533,374
2002 4,835 111,396
2003 2,065 29,815
2004-2027 600,190
- --------------------------------------------------------------------------------
On December 2, 1996, Unisource borrowed under its new credit facility to repay
$553,500,000 of intercompany debt with the Company. The Company prepaid debt in
the amount of $514,000,000 from these funds. Early repayment of this debt
resulted in certain prepayment penalties. Total prepayment penalties of
$18,701,000 and related tax benefits of $6,545,000 are reflected as an
extraordinary loss on early extinguishment of debt on the Statement of
Operations for fiscal 1997.
On January 16, 1998, the Company's credit agreement with several banks was
amended to increase the amount available from $400,000,000 to $600,000,000 and
to extend the termination to January 16, 2003. There were no other significant
changes to the terms of the agreement. The agreement includes a facility fee
that could range from 6.25 to 10.0 basis points per annum on the commitment,
based upon the Company's current long-term debt rating (8.5 basis points per
annum at September 30, 1998). The agreement provides that loans may be made
under either domestic or Eurocurrency notes at rates computed under a selection
of rate formulas including prime or Eurocurrency rates. At September 30, 1998,
short-term borrowings supported by the credit agreement totaled $63,600,000
leaving $536,400,000 unused and available.
The wholly owned U.S. finance subsidiary of the Company may offer notes to the
public from time to time under its medium term notes program. These notes are
offered at varying maturities of nine months or more from their dates of issue
and may be subject to redemption at the option of the finance subsidiary, in
whole or in part, prior to the maturity date in conjunction with meeting
specified provisions. Interest rates are determined based on market conditions
at the time of issuance. At September 30, 1998, $1,123,250,000 is available for
issuance under this program.
The Company is in compliance with all covenants, including financial, for all
loan agreements. Capital lease obligations and mortgages are secured by property
and equipment that had a net book value of $25,758,000 at September 30, 1998.
Interest paid, including finance subsidiaries and corporate interest allocated
to discontinued operations, approximated $186,000,000, $151,000,000 and
$119,000,000 for fiscal years 1998, 1997 and 1996, respectively.
10. Leases
Equipment acquired under capital leases is included in property and equipment in
the amount of $45,416,000 in 1998 and $44,465,000 in 1997 and the related
amounts of accumulated amortization are $19,966,000 in 1998 and $26,021,000 in
1997. Related obligations are in long-term debt and related amortization is
included in depreciation.
At September 30, 1998, future minimum lease payments under noncancelable
operating leases with initial or remaining terms of more than one year were:
1999-$66,099,000; 2000-$53,116,000; 2001-$43,128,000; 2002-$30,307,000;
2003-$19,233,000; thereafter-$28,179,000.
Total rental expense was $85,646,000 in 1998, $81,608,000 in 1997 and
$67,006,000 in 1996.
11. Contingencies
The Company and certain principal officers and directors were named as
defendants in fourteen purported class action complaints filed on behalf of
purchasers of the Company's common stock during the class period from October
15, 1997 through August 13, 1998. The complaints allege violations of securities
laws during the class period. Management believes the lawsuits are without merit
and that the outcome will not have a material adverse effect on the financial
position or overall trends in the results of operations of the Company. However,
due to the inherent uncertainties of litigation, the Company cannot accurately
predict the ultimate outcome of litigation. An unfavorable outcome of litigation
could have an adverse impact on the Company's financial condition and results of
operations.
There are contingent liabilities for taxes, guarantees, other lawsuits,
environmental remediation claims relating to discontinued operations and various
other matters occurring in the ordinary course of business. On the basis of
information furnished by counsel and others, management believes that none of
these contingencies will materially affect the Company.
12. Shareholders' Equity
During the first quarter of fiscal 1996, 432,130 common shares were issued for
Series AA Preferred Stock conversions by holders. On February 9, 1996, the
Company redeemed the balance of its Series AA Preferred Stock for common stock
at the conversion rate of 2.2402 shares of common stock for each depositary
share. Common shares totaling 8,585,423 were issued in connection with this
redemption.
At September 30, 1998, the Company has outstanding 3,877,200 depositary
shares, each representing 1/100th of a share of Series BB conversion preferred
stock. Dividends are cumulative at $5.04 per year per depositary share. The
Series BB preferred stock has one vote per share (equivalent to 1/100th vote per
depositary share) and has a liquidation preference of $77.375 per depositary
share plus an amount equal to accrued and unpaid dividends. Prior to October 1,
1998, each depositary share was convertible at the option of the holder into
2.0468 shares of common stock of the Company. On October 1, 1998,
forty three.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
each of the outstanding depositary shares automatically converted into 2.4972
shares of common stock per depositary share, resulting in the issuance of
9,682,143 common shares.
IKON amended its Rights Agreement (Rights Plan) as of June 18, 1997. The
Rights Plan, which was scheduled to expire in accordance with its terms on
February 10, 1998, was extended as amended for an additional ten-year term
expiring June 18, 2007. The amendment established a new exercise price of
$204.00 per preferred stock purchase right (individually, a "Right," and
collectively, the "Rights"). A Right entitles holders thereof to buy 1/100th of
a share of Series 12 Preferred Stock of the Company (the "Preferred Shares").
The Rights Plan provides that the Rights will be exercisable and will trade
separately from shares of the Company's common stock only if a person or group
(an "Acquiring Person") acquires beneficial ownership of 15% or more of the
shares of the Company's common stock or commences a tender or exchange offer
that would result in such a person or group owning 15% or more of the shares of
the Company's common stock (a "Flip-in Event"). Only when one or more of these
events occur will shareholders receive certificates for the Rights.
If any person actually acquires 15% or more of the shares of common stock,
other than through a tender or exchange offer for all shares of common stock
that provides a fair price and other terms for such shares, or if a 15%-or-more
shareholder engages in certain "self-dealing" transactions or engages in a
merger or other business combination in which the Company survives and shares of
its common stock remain outstanding, the other shareholders will be able to
exercise the Rights and buy shares of common stock of the Company having twice
the value of the exercise price of the Rights. A provision has been added to the
Rights Plan that allows shareholders, upon action by a majority of the
Continuing Directors (Continuing Directors are, in general, directors who were
members of the Board of Directors prior to a Flip-in Event), to exercise their
Rights for 50% of the shares of common stock otherwise purchasable upon
surrender to the Company of the Rights so exercised and without other payment of
exercise price.
The Rights Plan was also amended to reduce the price at which the Board of
Directors can redeem the Rights to $.01 per Right, and to provide that the
Rights may only be redeemed by majority vote of the Continuing Directors.
The Rights, in general, may be redeemed at any time prior to the tenth day
following public announcement that a person has acquired a 15% ownership
position in shares of common stock of the Company.
================================================================================
13. Income Taxes
Provision for income taxes:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $(5,034) $ 781 $(2,983) $78,770 $21,144 $58,540
Foreign 2,857 1,350 2,032 4,940 13,496 528
State 1,540 7,369 (361) 8,353 11,170 3,106
- ----------------------------------------------------------------------------------------------------------------------------
Taxes on income $ (637) $9,500 $(1,312) $92,063 $45,810 $62,174
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
forty four.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
13. Income Taxes (continued)
The components of deferred income tax assets and liabilities, including finance
subsidiaries, were as follows:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and lease
income recognition $492,616 $390,444
- --------------------------------------------------------------------------------
Total deferred tax liabilities 492,616 390,444
Deferred tax assets:
Accrued liabilities 160,644 144,324
Net operating loss carryforwards 138,475 28,766
AMT credit carryforwards 34,011 38,792
Other, net 6,723 15,341
- --------------------------------------------------------------------------------
Total deferred tax assets 339,853 227,223
Valuation allowance 60,116 43,255
- --------------------------------------------------------------------------------
Net deferred tax assets 279,737 183,968
- --------------------------------------------------------------------------------
Net deferred tax liabilities $212,879 $206,476
- --------------------------------------------------------------------------------
Net operating loss carryforwards consist primarily of state carryforwards of
$579,000,000 principally expiring in years 1999 through 2018 and federal
carryforwards of $245,000,000 expiring in 2018. A full valuation allowance has
been established against the state carryforwards. A reconciliation of income tax
expense at the U.S. federal statutory income tax rate to actual income tax
expense is as follows:
Fiscal Year Ended September 30
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Tax at statutory rate $(25,965) $74,590 $ 95,507
State income taxes, net of
U.S. federal tax benefit 8,371 8,098 9,278
Goodwill 14,601 10,656 5,730
Loss from asset impairment
and acquisition related charges 10,807
Foreign including credits (1,725) (1,279) (818)
Other 2,774 (1,314) (1,713)
- -------------------------------------------------------------------------------
$ 8,863 $90,751 $107,984
- -------------------------------------------------------------------------------
Net income tax payments (refunds) for all operations, including
discontinued, amounted to $(4,051,000) in 1998, $(22,081,000) in 1997, and
$46,231,000 in 1996.
Undistributed earnings of the Company's foreign subsidiaries were
approximately $57,400,000 at September 30, 1998. Those earnings are considered
to be indefinitely reinvested and, therefore, no provision has been recorded for
U.S. federal and state income taxes.
14. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
September 30 (in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
Numerator:
Income (loss) from
continuing operations $(83,050) $122,362 $164,893
Preferred stock dividends 19,540 19,540 22,319
- ------------------------------------------------------------------------------
Numerator for continuing
operations basic earnings
per share--income (loss)
available to common
shareholders (102,590) 102,822 142,574
Effect of dilutive securities:
Series AA preferred
dividend adjustment 2,779
Convertible loan notes 329 307
- ------------------------------------------------------------------------------
329 3,086
Numerator for continuing
operations diluted earnings
per share--income (loss)
available to common
shareholders after assumed
conversions $(102,590) $103,151 $145,660
- ------------------------------------------------------------------------------
Denominator:
Denominator for basic
earnings per share--
weighted average shares 135,145 133,261 125,856
Effect of dilutive securities:
Series AA convertible
preferred stock 2,396
Employee stock options 1,112 1,793
Convertible loan notes 273 374
- --------------------------------------------------------------------------------
Dilutive potential
common shares 1,385 4,563
Denominator for diluted
earnings per share--adjusted
weighted average shares and
assumed conversions 135,145 134,646 130,419
- --------------------------------------------------------------------------------
Basic earnings (loss) per
share from continuing
operations $ (0.76) $ 0.77 $ 1.13
- --------------------------------------------------------------------------------
Diluted earnings (loss) per
share from continuing
operations $ (0.76) $ 0.77 $ 1.12
- --------------------------------------------------------------------------------
For additional disclosures regarding the outstanding preferred stock and
employee stock options, see Notes 12 and 15.
forty five.
<PAGE>
Ikon Office Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Options to purchase 5,972,215 shares of common stock at $7.85 per share to
$62.45 per share were outstanding during fiscal 1998 but were not included in
the computation of diluted earnings per share because the effect would be
antidilutive.
The Company's Series BB conversion preferred stock is excluded from the
dilutive calculation because the effect of adding 9,682,143 shares and deleting
the preferred dividends to reflect assumed conversion would be antidilutive.
15. Stock Options
Employee stock options are granted at the market price at dates of grant which
does not require the Company to recognize any compensation expense. These
options expire in ten years and generally vest over five years. The proceeds of
options exercised are credited to shareholders' equity. As permitted by SFAS
123, the Company continues to account for its stock options in accordance with
APB 25. A plan for the Company's nonemployee directors enables participants to
receive their annual directors' fees in the form of options to purchase shares
of common stock at a discount. The discount is equivalent to the annual
directors' fees and is charged to expense.
Changes in common shares under option were:
Weighted
Shares Average Price
- -----------------------------------------------------------------------------
September 30, 1995 4,586,358 $20.07
Granted 1,582,767 43.17
Exercised (813,408) 15.77
Cancelled (72,077) 35.25
- -----------------------------------------------------------------------------
September 30, 1996 5,283,640 27.45
Unisource Spin-off Adjustment 952,043 23.53
Granted 1,395,757 38.96
Exercised (894,601) 16.85
Cancelled
Unisource Spin-off (943,103) 32.34
Other (219,045) 26.39
- -----------------------------------------------------------------------------
September 30, 1997 5,574,691 26.53
Granted 983,614 27.66
Exercised (377,374) 15.49
Cancelled (248,768) 31.76
- -----------------------------------------------------------------------------
September 30, 1998 5,932,163 $27.18
- -----------------------------------------------------------------------------
Available for Grant 3,877,028
=============================================================================
In connection with the separation of Unisource from Alco, stock options that
were not exercised prior to the effective date of the Distribution were
adjusted. Optionholders who remained employees of IKON retained their options to
purchase IKON shares. The number of shares subject to, and the exercise price
of, each IKON option was adjusted based upon a formula that preserved the
inherent intrinsic value and vesting and term provisions of such options.
Optionholders who became employees of Unisource after the Distribution were
given the opportunity to receive options to purchase shares of Unisource common
stock in lieu of their Alco options or had their options cancelled.
The following is provided to comply with the disclosure requirements of SFAS
123. If the Company had elected to recognize compensation costs based on the
fair value at the date of grant for awards in fiscal years 1998, 1997 and 1996,
consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been reduced to the following pro forma amounts:
Fiscal year ended September 30
(in thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before
extraordinary loss $(90,653) $117,615 $162,932
Income from discontinued
operations 19,871 45,116
Income (loss) before
extraordinary loss (90,653) 137,486 208,048
Earnings (loss) per share
Continuing operations $ (.82) $ .73 $ 1.11
Discontinued operations .15 .36
Extraordinary loss (.09)
- --------------------------------------------------------------------------------
Net Income (Loss) $ (.82) $ .79 $ 1.47
- --------------------------------------------------------------------------------
Earnings (loss) per share,
assuming dilution
Continuing operations $ (.82) $ .73 $ 1.10
Discontinued operations .15 .34
Extraordinary loss (.09)
- --------------------------------------------------------------------------------
Net Income (Loss) $ (.82) $ .79 $ 1.44
- --------------------------------------------------------------------------------
The pro forma effect on net income may not be representative of the pro forma
effect on net income of future years because the SFAS 123 method of accounting
for pro forma compensation expense has not been applied to options granted prior
to October 1, 1995.
The weighted-average fair values at date of grant for options granted during
fiscal years 1998, 1997 and 1996 were $13.66, $15.49 and $14.75, respectively,
and were estimated using the Black-Scholes option-pricing model. The following
assumptions were applied for periods before the Unisource spin-off, subsequent
to the Unisource spin-off and fiscal 1998, respectively: (i) expected dividend
yields of 1.4%, .6% and .7%, (ii) expected volatility rates of 29.1%, 31.8% and
46.5%, and (iii) expected lives of 5.4 years and 5.7 years (both subsequent to
spin-off and fiscal 1998). The risk-free interest rates applied for fiscal 1998,
1997 and 1996 were 5.7%, 6.4% and 5.9%, respectively.
forty six
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
15. Stock Options (continued)
The following table summarizes information about stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------- -----------------------------------
Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 9/30/98 Contractual Life Price at 9/30/98 Price
<S> <C> <C> <C> <C> <C>
$ 7.92- $17.13 1,160,564 3.2 years $12.75 1,080,564 $12.82
18.14- 25.12 1,410,748 5.8 21.62 982,127 21.43
26.53- 33.47 1,490,123 8.6 29.04 289,485 29.00
34.28- 38.79 1,333,425 7.5 36.41 472,837 36.25
44.63- 56.42 537,303 8.3 44.91 115,225 45.84
</TABLE>
- --------------------------------------------------------------------------------
16. Pension and Stock Purchase Plans
The Company sponsors defined benefit pension plans for the majority of its
employees. The benefits generally are based on years of service and
compensation. The Company funds at least the minimum amount required by
government regulations. The cost of these plans, together with contributions to
defined contribution pension plans ($108,000 in 1998, $861,000 in 1997 and
$1,338,000 in 1996) charged to continuing operations amounted to $18,202,000 for
1998, $17,623,000 for 1997 and $20,215,000 for 1996.
The components of net periodic pension cost for the Company-sponsored defined
benefit pension plans are:
Fiscal Year Ended September 30
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
Service cost $21,977 $ 19,208 $ 15,734
Interest cost on projected
benefit obligation 19,710 18,373 7,448
Actual return on plan assets (30,606) (30,949) (15,663)
Net amortization and deferral 7,013 10,130 11,358
- ------------------------------------------------------------------------------
Net pension cost $18,094 $ 16,762 $18,877
- ------------------------------------------------------------------------------
Assumptions used in accounting for the Company-sponsored defined benefit
pension plans were:
1998 1997 1996
- -------------------------------------------------------------------------------
Weighted average
discount rates 7.0% 7.75% 7.75%
Rates of increase in
compensation levels 5.5% 6.25% 6.25%
Expected long-term rate
of return on assets 10.0% 10.00% 10.00%
The funded status and amounts recognized in the Consolidated Balance Sheets
for the Company-sponsored defined benefit pension plans were:
September 30 (in thousands) 1998 1997
- --------------------------------------------------------------------------------
Actuarial present value of
benefit obligations
Vested $229,018 $212,332
- --------------------------------------------------------------------------------
Accumulated $237,233 $218,585
- --------------------------------------------------------------------------------
Projected $312,275 $260,959
Plan assets at fair value 285,859 259,243
- --------------------------------------------------------------------------------
Plan assets less than
projected benefits (26,416) (1,716)
Items not yet recognized
Net gain (26,817) (42,864)
Prior service cost 14,783 12,705
Net asset existing at transition date (6,245) (7,494)
Adjustment required to recognize
minimum liability (4,799) (4,535)
- --------------------------------------------------------------------------------
Net pension liability $(49,494) $(43,904)
- --------------------------------------------------------------------------------
Under the Benefits Agreement with Unisource, the Company assumed certain
benefit obligations and related assets for retirees and terminated vested
employees of Unisource which totaled approximately $105,000,000.
Substantially all of the plan assets at September 30, 1998 are invested in
listed stocks, including common stock of the Company having a fair value of
$8,625,600.
The majority of the Company's employees were eligible to participate in the
Company's Retirement Savings Plan (RSP). The RSP allows employees to invest 1%
to 16% of regular compensation before taxes in six different investment funds.
The Company contributes an amount equal to two-thirds of the employees'
investments, up to 6% of regular compensation, for a maximum Company match of
4%. All Company contributions are invested in the Company's common shares.
Employees vest in a percentage of the Company's contribution after two years of
service, with full vesting at the completion of five years of service. There is
a similar plan for eligible management employees. The cost of the plans charged
to continuing operations amounted to $35,949,000 in 1998, $31,026,000 in 1997
and $23,596,000 in 1996.
The Company has a Long-Term Incentive Compensation Plan (LTIP) that is
intended to motivate, recognize and reward key management employees for long-
term performance. Under the plan, key management employees are granted cash
awards, which are earned upon achieving predetermined performance objectives
during three-year intervals. The value of these awards is charged to expense
over the related plan period. In
forty seven.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
connection with this plan, the Company expensed $0 in fiscal 1998, $3,111,000 in
fiscal 1997 and $7,500,000 in fiscal 1996.
17. Geographic Information
Revenues, income (loss) before taxes, and identifiable assets by geographic area
from continuing operations for the fiscal years ended September 30 were as
follows:
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Revenues
Domestic $4,893.7 $4,467.6 $3,559.7
Europe 428.7 375.8 360.6
Canada 280.6 270.7 177.7
Other 25.7 14.3 1.8
- --------------------------------------------------------------------------------
Total $5,628.7 $5,128.4 $4,099.8
- --------------------------------------------------------------------------------
Income (Loss) Before Taxes
Domestic $ (15.6) $ 233.4 $ 251.1
Europe 15.5 10.0 38.3
Canada (8.1) 17.5 20.6
Other 4.7 (.3) .1
- --------------------------------------------------------------------------------
Operating (3.5) 260.6 310.1
Interest expense (70.7) (47.5) (37.2)
- --------------------------------------------------------------------------------
Total $ (74.2) $ 213.1 $ 272.9
- --------------------------------------------------------------------------------
Assets
Domestic $4,715.8 $4,340.4 $3,096.2
Europe 707.2 566.3 560.2
Canada 304.6 405.1 227.5
Other 21.2 12.1 11.5
- --------------------------------------------------------------------------------
Total $5,748.8 $5,323.9 $3,895.4
- --------------------------------------------------------------------------------
18. Financial Instruments
The Company uses financial instruments in the normal course of its business,
including derivative financial instruments, for purposes other than trading.
These financial instruments include debt, commitments to extend credit and
interest rate and currency swap agreements. The notional or contractual amounts
of these commitments and other financial instruments are discussed below.
Concentration of Credit Risk
The Company is subject to credit risk through trade receivables, lease
receivables and short-term cash investments. Credit risk with respect to trade
and lease receivables is minimized because of a large customer base and its
geographic dispersion. Short-term cash investments are placed with high-credit
quality financial institutions and in short-duration corporate and government
debt securities funds. By policy, the Company limits the amount of credit
exposure in any one type of investment instrument.
Interest Rate and Currency Swap Agreements
The Company has interest rate swap agreements relating to financial instruments
of its U.S. finance subsidiary having total principal/notional amounts of
$300,000,000 and $105,000,000 at September 30, 1998 and 1997, respectively, with
fixed rates from 5.48% to 6.16% at September 30, 1998 and 5.77% to 7.08% at
September 30, 1997. The Company also has Canadian dollar denominated interest
rate swap agreements having a total principal/notional amount of CN$98,248,000
($64,185,000 at September 30, 1998) with fixed rates from 7.43% to 7.74% at
September 30, 1998 and 1997. The Company is required to make payments to the
counterparties at the fixed rates stated in the agreements and in return the
Company receives payments at variable rates.
The Company has interest rate swap agreements relating to financial
instruments of its Canadian finance subsidiary. These swaps have a
principal/notional amount of CN$143,421,000 ($93,700,000) at September 30, 1998.
The Company is required to make variable rate payments to counterparties based
on the one-month commercial paper rate plus .25% and receive payments at the
one-month bankers' acceptance rate.
At September 30, 1998 and 1997, the Company also had cross-currency swap
agreements to exchange Canadian Dollars (CN$98,248,000) for pounds sterling
((pound)46,500,000). The Company is required to make pounds sterling payments at
fixed rates from 9.53% to 9.90% in exchange for Canadian dollar payments at
fixed rates from 9.02% to 9.38%.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to the swap agreements. However, the Company does not anticipate
nonperformance by the counterparties.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments.
Cash, Notes Payable and Long-Term Receivables
The carrying amounts reported in the consolidated balance sheets approximate
fair value.
Long-Term Debt
The fair value of long-term debt instruments is estimated using a discounted
cash flow analysis. For more information on these instruments, refer to Note 9.
Off-Balance-Sheet Instruments
Fair values for the Company's off-balance-sheet instruments (interest rate and
currency swaps) are based on the termination of the agreements.
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
1998 1997
September 30 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt:
Bond issues $ 588,478 $ 496,470 $ 339,352 $ 327,869
Private placement debt 55,000 52,789 55,000 55,791
Bank debt 45,121 46,074 71,641 74,269
Sundry notes, bonds and mortgages 53,611 53,029 52,876 54,581
Finance subsidiaries' debt 2,100,637 2,090,472 1,745,754 1,750,298
Interest rate and currency swaps (22,487) (7,183)
</TABLE>
forty eight.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Quarterly Financial Summary
<TABLE>
<CAPTION>
First Second Third Fourth
(unaudited, in millions except per share data) Quarter Quarter (a) Quarter (b) Quarter (c) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Revenues $1,374.3 $1,431.6 $1,394.7 $1,428.1 $5,628.7
Gross profit 543.2 552.4 489.4 490.1 2,075.1
Transformation costs 19.5 18.2 16.5 23.8 78.0
Income (loss) before taxes 65.4 52.6 (108.5) (83.7) (74.2)
Net income (loss) $ 37.0 $ 30.3 $ (88.7) $ (61.7) $ (83.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ .24 $ .19 $ (.69) $ (.49) $ (.76)
====================================================================================================================================
Diluted earnings (loss) per share $ .24 $ .19 $ (.69) $ (.49) $ (.76)
====================================================================================================================================
Dividends per share $ .04 $ .04 $ .04 $ .04 $ .16
Common stock price
High/Low 31 15/16 - 24 1/2 35 3/16 - 26 36 1/4 - 14 3/8 15 3/4 - 5 1/16 36 1/4 - 5 1/16
1997
Revenues $1,140.4 $1,277.9 $1,316.3 $1,393.8 $5,128.4
Gross profit 451.9 496.9 517.2 544.6 2,010.6
Transformation costs 14.3 61.2 23.0 28.4 126.9
Income before taxes 73.2 30.1 52.6 57.2 213.1
Income (loss)
Continuing operations 44.7 14.6 30.1 33.0 122.4
Discontinued operations 20.2 20.2
Extraordinary loss (12.2) (12.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 52.7 $ 14.6 $ 30.1 $ 33.0 $ 130.4
====================================================================================================================================
Basic earnings (loss) per share
Continuing operations $ .30 $ .07 $ .19 $ .21 $ .77
Discontinued operations .15 .15
Extraordinary loss (.09) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
$ .36 $ .07 $ .19 $ .21 $ .83
====================================================================================================================================
Diluted earnings (loss) per share
Continuing operations $ .30 $ .07 $ .19 $ .21 $ .77
Discontinued operations .15 .15
Extraordinary loss (.09) (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
$ .36 $ .07 $ .19 $ .21 $ .83
====================================================================================================================================
Dividends per share $ .14 $ .04 $ .04 $ .04 $ .26
Common stock price
High/Low 52 1/4 - 44 3/8 46 5/8 - 32 1/2 34 7/8 - 20 5/8 29 5/8 - 21 1/2 52 1/4 - 20 5/8
</TABLE>
(a) Second quarter fiscal 1998 results include $16,000,000 of unusual
adjustments.
(b) Third quarter fiscal 1998 results include pretax charges for increases to
accounting estimates for lease default and accounts receivable reserves of
$48,000,000 ($28,000,000 for lease defaults and $20,000,000 for accounts
receivable). Also included are a loss of $20,000,000 related to an asset
impairment at a Technology Services company engaged in the development of
high-end custom software applications and other adjustments of approximately
$26,000,000.
(c) Fourth quarter fiscal 1998 results include pretax charges of $40,400,000 for
expenses related to the closing of underperforming branches, executive
severance packages and the settlement of lawsuits.
forty nine.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Corporate Financial Summary
<TABLE>
<CAPTION>
Ten-Year
(in millions, except per share data, Compound
shareholders of record, employees) Growth 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Continuing Operations
Revenues 23.8% $5,628.7 $5,128.4 $4,099.8 $3,091.6
Gross profit 24.4 2,075.1 2,010.6 1,564.5 1,168.3
% of revenues 36.9 39.2 38.2 37.8
Selling and administrative 24.6 1,980.5 1,623.1 1,233.0 956.1
% of gross profit 95.4 80.7 78.8 81.8
Operating income (loss) (3.5) 260.6 310.1 212.2
% of revenues (.1) 5.1 7.6 6.9
Income (loss) before taxes (74.2) 213.1 272.9 190.5
% of revenues (1.3) 4.2 6.7 6.2
Effective income tax rate (%) -- (g) 42.6 39.6 39.6
Income (loss) (83.1) 122.4 164.9 115.0
% of revenues (1.5) 2.4 4.0 3.7
Earnings (loss) per share
Basic (.76) .77 1.13 0.87
Diluted (.76) .77 1.12 0.86
Capital expenditures 23.2 212.2 193.2 146.6 91.1
Depreciation and amortization 23.1 202.5 156.6 118.6 87.4
- ---------------------------------------------------------------------------------------------------------------------------
Discontinued Operations and Extraordinary Items
Income (loss) $8.0 $45.8 $88.7
Earnings (loss) per share
Basic .06 .37 0.78
Diluted .06 .35 0.76
- ---------------------------------------------------------------------------------------------------------------------------
Total Operations and Extraordinary Items
Net income (loss) $(83.1) $130.4 $210.7 $203.7
Earnings (loss) per share
Basic (.76) .83 1.50 1.65
Diluted (.76) .83 1.47 1.62
- ---------------------------------------------------------------------------------------------------------------------------
Share Activity
Dividends per share $0.16 $0.26 $0.56 $0.52
Per share book value 1.7% 8.30 8.94 14.94 12.06
Return on shareholders' equity % (8.8) 7.8 13.8 15.8
Weighted average shares (basic) 135.1 133.3 125.9 114.3
Adjusted weighted average shares (diluted) 135.1 134.6 130.4 116.5
Shareholders of record 14,990 15,089 15,033 15,099
- ---------------------------------------------------------------------------------------------------------------------------
Supplementary Information
Days sales outstanding (e) 44.0 44.5 34.2 33.6
Inventory turns (e) 6.7 6.3 5.7 6.3
Current ratio 1.3 1.5 1.2 1.1
Pretax return on capital employed % (.1) 8.5 14.8 17.1
Pretax return on capital employed, excluding
finance subsidiaries % (5.0) 10.0 19.0 21.1
Working capital 9.2% $504.6 $752.0 $251.2 $144.7
Total assets 17.1 5,748.8 5,323.9 5,384.6 4,110.3
Total debt 27.4 2,956.6 2,563.8 2,158.4 1,499.3
% of capitalization 67.4 63.4 48.9 44.2
Total debt, excluding finance subsidiaries 15.1 855.9 818.0 1,031.4 681.7
% of capitalization 37.5 35.6 31.4 26.5
Serial preferred stock
Employees (f) 42,600 40,900 43,100 39,200
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Continuing operations include unrelated businesses sold in 1988.
(b) Excludes the effect of the sale of IMMOS in fiscal 1994 and Unisource
restructuring costs in fiscal 1993.
(c) Includes unusual pretax charges relating to the Hillman Companies of
$10,323,000.
(d) Excludes gain on sale of Alco Health Services Corporation of
pretax - $96,800,000; net income - $61,900,000.
(e) Continuing operations only.
(f) Includes discontinued operations.
(g) Not meaningful.
Note: Unless otherwise noted, ratios and operating results include the effect
of: fiscal 1994 - loss on sale of investment in IMMOS, pretax income
($115,265,000), net income ($95,086,000), diluted earnings per share ($.87);
fiscal 1993 - Unisource restructuring costs, operating income ($175,000,000),
net income ($112,875,000), diluted earnings per share ($1.14).
fifty.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Continuing Operations
Revenues $ 2,391.1 $1,723.1 $1,354.2 $1,127.4 $1,018.6 $ 789.3 $667.0(a)
Gross profit 926.7 680.3 550.6 441.1 412.4 311.6 234.0(a)
% of revenues 38.8 39.5 40.7 39.1 40.5 39.5 35.1
Selling and administrative 750.1 561.0 460.8 383.3 378.9 287.7 219.4(a)
% of gross profit 80.9 82.5 83.7 86.9 91.9 92.3 93.8
Operating income (loss) 59.4 116.8 96.5 57.8 28.8 23.9 22.5(a)
% of revenues 2.5 6.8 7.1 5.1 2.8 3.0 3.4
Income (loss) before taxes 43.3 101.4 85.1 40.4 8.3(c) 9.1 10.7(a)
% of revenues 1.8 5.9 6.3 3.6 0.8 1.2 1.6
Effective income tax rate (%) 95.4 39.6 39.4 39.0 40.7 20.0 25.5
Income (loss) 2.0 61.3 51.6 24.6 4.9(c) 7.3 8.0(a)
% of revenues 0.1 3.6 3.8 2.2 0.5 0.9 1.2
Earnings (loss) per share
Basic (0.09) 0.53 0.54 0.27 0.05(c) 0.08 0.08(a)
Diluted (0.09) 0.52 0.53 0.26 0.05 0.08 0.08
Capital expenditures 79.0 64.3 36.9 33.4 40.5 35.1 26.3(a)
Depreciation and amortization 67.4 51.3 42.3 43.1 38.0 32.1 25.3(a)
- ------------------------------------------------------------------------------------------------------------------------------------
Discontinued Operations and
Extraordinary Item
Income (loss) $74.5 ($58.6) $47.5 $94.1 $88.6 $160.2 $103.4
Earnings (loss) per share
Basic 0.68 (0.60) 0.49 1.01 0.97 1.73 1.06
Diluted 0.68 (0.59) 0.49 1.00 0.95 1.69 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total Operations and Extraordinary Items
Net income (loss) $76.5 $2.6 $99.1 $118.7 $93.5(c) $167.5 $111.4
Earnings (loss) per share
Basic 0.59 (0.07) 1.03 1.28 1.02 1.81 1.14
Diluted 0.59 (0.07) 1.02 1.26 1.00 1.77 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
Share Activity
Dividends per share $ 0.50 $ 0.48 $ 0.46 $ 0.44 $ 0.42 $ 0.38 $ 0.34
Per share book value 10.50 8.55 9.11 8.91 8.20 7.25 6.98
Return on shareholders' equity % 15.1 11.6 11.6 15.0 13.4 16.6(d) 17.1
Weighted average shares (basic) 109.3 97.3 96.3 92.7 91.3 92.5 97.8
Adjusted weighted average shares (diluted) 109.3 98.7 97.7 94.1 93.3 94.5 99.8
Shareholders of record 14,348 13,999 13,726 14,096 14,152 13,410 14,103
- ------------------------------------------------------------------------------------------------------------------------------------
Supplementary Information
Days sales outstanding (e) 30.2 32.9 32.3 33.8 34.8 37.6 37.9
Inventory turns (e) 5.7 5.1 5.2 4.8 4.7 4.3 4.1
Current ratio 1.3 1.1 1.3 1.9 1.7 1.5 2.2
Pretax return on capital employed % 15.9(b) 13.5(b) 15.1 15.3 18.5 19.4(d) 19.2
Pretax return on capital employed, excluding
finance subsidiaries % 18.6(b) 15.8(b) 17.5 17.6 20.9 21.1(d) 20.0
Working capital $171.5 $87.2 $140.4 $299.9 $216.9 $161.9 $209.8
Total assets 2,897.7 2,734.2 1,944.0 1,703.0 1,544.0 1,295.8 1,182.1
Total debt 949.2 1,240.0 805.4 548.1 469.2 391.2 261.5
% of capitalization 40.7 54.5 48.0 39.8 38.3 37.8 27.4
Total debt, excluding finance subsidiaries 484.3 825.7 504.9 327.4 309.6 296.7 209.3
% of capitalization 25.9 44.4 36.6 28.3 29.0 31.5 23.2
Serial preferred stock 0.3 1.6 2.9 4.9 7.4 9.9
Employees (f) 33,100 30,200 24,800 19,800 21,700 20,500 17,900
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
fifty one.
<PAGE>
IKON Office Solutions, Inc. and Subsidiaries
Board of Directors
James J. Forese /1,4/
President and Chief Executive Officer, IKON Office Solutions, Inc. He was
elected a director in 1998. Mr. Forese also serves as a director of Unisource
Worldwide, Inc., American Management Systems and National Utilities Investor's
Corporation.
Richard A. Jalkut/1,2,3,4/
Non-executive Chairman of the Board of Directors of IKON Office Solutions, Inc.
Mr. Jalkut is also President and Chief Executive Officer of PathNet and serves
as a director of Marine Midland Bank and Home Wireless Networks. He was named a
director in 1996.
Judith M. Bel/2,3,4/
Proprietor, The Men's Shop at the Broadmoor; Co-Proprietor, A Short Story Inc.
and Managing Partner, Bell's Market Grill and Bell Retail Group. She is also a
director of Hayden Hays Gallery, Southern Colorado Chapter of the Arthritis
Foundation and a Trustee for El Pomar Foundation. Ms. Bell was elected in 1998.
James R. Birle/1,2,3,4/
Chairman, Resolute Partners, Inc. He is also director of Massachusetts Mutual
Life Insurance Company, Drexel Industries, Inc., The Connecticut Health and
Education Facilities Authority and Transparency International. Mr. Birle was
elected to the Board in 1996.
Philip E. Cushing/2,3,4/
Group Chief Executive of Inchcape PLC. He is also a Non-executive Director of
Bunzl PLC. Mr. Cushing was elected to the Board in 1997.
Kurt E. Dinkelacker/4/
Executive Vice President and Chief Financial Officer, IKON Office Solutions,
Inc. He is a member of the Finance Committee of Crozer-Keystone Health System in
Media, PA. Mr. Dinkelacker was elected to the Board in 1996.
Thomas P. Gerrity/1,2,3,4/
Dean and Professor, The Wharton School of the University of Pennsylvania. Dr.
Gerrity was elected a director in 1998. He also serves as a director of CVS
Corporation, Fannie Mae, Reliance Group Holdings, Inc., Sun Company, Inc. and
Knight Ridder, Inc.
Frederick S. Hammer/2,3,4/
He has been a director since 1986. Mr. Hammer is also Co-Chairman,
Inter-Atlantic Group and is Chairman, Annuity and Life Re (Holdings), Ltd. He
also serves as a director of Medallion Financial Corp. and Tri-Arc Financial
Services.
Barbara Barnes Hauptfuhrer/1,2,3,4/
She has been a director since 1988 and is Chairman of the Independent Directors.
Ms. Hauptfuhrer is also a director of The Vanguard Group of Investment Companies
and of each of the mutual funds in the Group, The Great Atlantic and Pacific Tea
Co., Inc., Knight Ridder, Inc., Massachusetts Mutual Life Insurance Co. and
Raytheon Company.
1 Executive
2 Audit
3 Human Resources Committee
4 Investment Committee
- --------------------------------------------------------------------------------
Corporate Officers
James J. Forese
President and Chief Executive Officer
Kurt E. Dinkelacker
Executive Vice President and Chief Financial Officer
David M. Gadra
Senior Vice President and Chief Information Officer
Lynn B. Graham
Senior Vice President and President, Document Services
Peter W. Shoemaker
Senior Vice President and President, Business Services
Edward C. Groark
Vice President and President, Technology Services
David D. Mills
Vice President and President, IKON Europe
Michael J. Dillon
Vice President and Controller
Michael H. Dudek
Vice President, Finance
Beth B. Sexton
Vice President, Human Resources
Karin M. Kinney
Corporate Counsel and Secretary
J.F. Quinn
Treasurer
fifty two.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The registrant is IKON Office Solutions, Inc., an Ohio corporation, which has no
parent. The following sets forth information with respect to IKON's subsidiaries
as of December 18, 1998.
<TABLE>
<CAPTION>
State or other
jurisdiction of
% Voting Securities Incorporation or
Subsidiary Owned (by whom) organization
- ---------- -------------- ------------
<S> <C> <C>
Alco Office Products Group, Inc. (AOPG). 100% IKON Delaware & U.K.
Alco Venture Capital Company 100% IKON Delaware
Chesterbrook Insurance Limited 100% IKON Bermuda
IKON Capital, Inc. (Canada) 100% IKON Canada
IKON Denmark (ID) 100% IKON Denmark
IKON Document Solutions Ltd (Ireland) 100% IKON Ireland
IKON, Inc. 100% IKON Delaware
IKON North America, Inc. (IKNA) 100% IKON Delaware
IKON de Mexico, S.A. de C.V. (IDM) 49.99% IKNA/.01% IKON Mexico
IKON Servicios, S.A. de C.V. (IS) 49.99% IDM/.01% IKNA Mexico
IKON Copiroyal, S.A. de C.V. 49.99% IDM/.01% IS Mexico
IKON Inmuebles 49.99% IDM/.01% IS Mexico
IKON Office Solutions Australia Pty Ltd 100% IKNA Australia
IKON Office Solutions, Inc. (Canada) (IOS-Canada) 100% IKNA Canada
IKON Office Solutions Dublin Limited 100% IOS-Canada Ireland
IKON Office Solutions Technology Services, Inc. (Canada) 100% IOS-Canada Canada
Pimeau B.V. 100% IKON France
IKON Office Solutions (Holding) France (IOSHF) 78% IKON / 22% PIMEAU France
IKON Office Solutions S.A. (IOSSA) 100% IOSHF France
IKON Document Service S.A. 100% IOSSA France
IKON Total Document Services S.A. 100% IOSSA France
IKON Office Solutions Foundation, Inc. 100% IKON Pennsylvania
IKON Office Solutions Group PLC (IOSG) 100% IKON England
IKON Office Solutions Europe PLC (IOSE) 100% IOSG England
IKON Office Solutions PLC (IOSPLC) 100% IOSE England
IKON Capital PLC 100% IOSPLC England
Kafevend Group PLC 100% IOSPLC England
Image Systems Solutions LTD 100% IOSPLC England
Rockliff Computers LTD 100% IOSPLC England
IKON Office Solutions Holding GmbH (IOSH) 100% IOSE Germany
IKON Office Solutions GmbH Frankfurt 100% IOSH Germany
IKON Office Solutions GmbH (Weisbaden) 100% IOSH Germany
IKON Office Solutions GmbH (Leasing) 100% IOSH Germany
IKON Office Solutions GmbH Leipzig 100% IOSH Germany
IKON Office Solutions GmbH (Hamburg) 100% IOSH Germany
IKON Office Solutions Technology Services, Inc. 100% IKON Delaware
IKON Office Solutions West, Inc. 100% IKON Delaware
IKON Realty, Inc. 100% IKON Delaware
Integra Technology International, Inc. (INTEGRA) 100% IKON Arizona
Integra Techsoft Ltd. 100% INTEGRA India
Valinor Inc. 100% IKON Massachusetts
IOS Capital, Inc.(IOSC) 100% IKON Delaware
IKON Funding, Inc. 100% IOSC Delaware
MDR Management Corporation 100% IKON Delaware
Office Group, Inc. 100% IOSHC Delaware
Office Products, Inc. 100% IOSHC Delaware
Partners Securities Company 100% IKON Delaware
Upshur Coals Corporation 100% IKON West Virginia
</TABLE>
<PAGE>
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of IKON Office Solutions, Inc. of our report dated November 3, 1998, included in
the 1998 Annual Report to Shareholders of IKON Office Solutions, Inc.
Our audits also included the financial statement schedule of IKON Office
Solutions, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the following registration
statements on Forms S-3, S-4 and S-8 of IKON Office Solutions, Inc. and in the
related Prospectuses of our report dated November 3, 1998, with respect to the
consolidated financial statements of IKON Office Solutions, Inc. incorporated by
reference in its Annual Report (Form 10-K) for the fiscal year ended September
30, 1998, filed with the Securities and Exchange Commission.
REGISTRATION
NUMBER FILING DATE DESCRIPTION
- -------------- ------------------ ---------------------------------
2-66880 March 10, 1980 IKON Office Solutions, Inc.
1980 Deferred Compensation Plan
2-75296 December 11, 1982 IKON Office Solutions, Inc.
1982 Deferred Compensation Plan
33-00120 September 6, 1985 IKON Office Solutions, Inc.
1985 Deferred Compensation Plan
33-26732 January 27, 1989 IKON Office Solutions, Inc.
Non Employee Directors' Stock Option Plan
(formerly 1989 Directors' Stock Option Plan)
33-36745 September 10, 1990 IKON Office Solutions, Inc.
1991 Deferred Compensation Plan
33-38193 December 10, 1990 IKON Office Solutions, Inc.
1986 Stock Option Plan
33-51183 November 24, 1993 IKON Office Solutions, Inc.
Partners' Stock Purchase Plan
33-54781 July 28, 1994 IKON Office Solutions, Inc.
Stock Award Plan
33-56469 November 15, 1994 IKON Office Solutions, Inc.
1995 Stock Option Plan
33-56471 November 15, 1994 IKON Office Solutions, Inc.
Long Term Incentive Compensation
Plan
33-64177 November 14, 1995 IKON Office Solutions, Inc.
$750,000,000 Debt Securities,
Preferred Stock or Common Stock
333-24931 April 10, 1997 IKON Office Solutions, Inc.
10,000,000 Shares of Common Stock
333-47769 March 11, 1998 IKON Office Solutions, Inc.
Partners' Stock Purchase Plan
333-47783 March 11, 1998 IKON Office Solutions, Inc.
Stock Award Plan
333-66975 November 11, 1998 IKON Office Solutions, Inc.
Retirement Savings Plan
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
December 22, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that she is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Kurt E. Dinkelacker, Karin M.
Kinney and Michael J. Dillon as her attorneys-in-fact, each with the power of
substitution, to execute, on her behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Judy M. Bell
--------------------------
Judy M. Bell
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of
substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ James R. Birle
--------------------------
James R. Birle
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of
substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Philip E. Cushing
------------------------------
Philip E. Cushing
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of
substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Kurt E. Dinkelacker
------------------------------
Kurt E. Dinkelacker
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Karin M. Kinney and Michael J.
Dillon as his attorneys-in-fact, each with the power of substitution, to
execute, on his behalf, the foregoing Report on Form 10-K, and any and all
amendments thereto, for filing with the Securities and Exchange Commission
("SEC"), and to do all such other acts and execute all such other documents
which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Thomas P. Gerrity
---------------------------
Thomas P. Gerrity
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of
substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Frederick S. Hammer
-----------------------
Frederick S. Hammer
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that she is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as her attorneys-in-fact, each with the power of
substitution, to execute, on her behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Barbara Barnes Hauptfuhrer
---------------------------------------
Barbara Barnes Hauptfuhrer
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of William F. Drake, Jr., Karin M.
Kinney and Michael J. Dillon as his attorneys-in-fact, each with the power of
substitution, to execute, on his behalf, the foregoing Report on Form 10-K, and
any and all amendments thereto, for filing with the Securities and Exchange
Commission ("SEC"), and to do all such other acts and execute all such other
documents which said attorney may deem necessary or desirable.
Dated this 19/th/ day of December 1998.
/s/ Richard A. Jalkut
------------------------------
Richard A. Jalkut
<PAGE>
EXHIBIT 24.1
CERTIFICATION
I, Karin M. Kinney, Secretary of IKON Office Solutions, Inc., do hereby
certify that the following resolutions were duly passed by the Board of
Directors of the Corporation on November 3, 1998, and that the resolutions are,
as of the date hereof, in full force and effect:
FURTHER RESOLVED, that each of the officers and directors of the
corporation is hereby authorized to appoint attorneys-in-fact on behalf of
each of them each attorney-in-fact with the power of substitution, to
execute on such officer's or director's behalf, one or more registration
statements and annual reports of the corporation for filing with the
Securities and Exchange Commission ("SEC"), and any and all amendments to
said documents which said attorney may deem necessary or desirable to
enable the corporation to register the offering of (i) serial preferred
stock; (ii) common stock; (iii) debt securities; and/or (iv) participation
interests in employee benefit plans under the federal securities law, and
to further enable the corporation to file such reports as are necessary
under Section 13 or 15(d) of the Securities Exchange Act of 1934 and such
other documents as are necessary to comply with all rules, regulations or
requirements of the SEC in respect thereto; and
FURTHER RESOLVED, that any officer of the corporation is hereby
authorized to do and perform, or cause to be done or performed, any and all
things and to execute and deliver any and all agreements, certificates,
undertakings, documents or instruments necessary or appropriate in order to
carry out the purpose and intent of the foregoing resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand this 19th day of
December, 1998.
/s/ Karin M. Kinney
_________________________
Karin M. Kinney
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of IKON Office Solutions, Inc. and
subsidiaries and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 963,000
<SECURITIES> 0
<RECEIVABLES> 857,525,000
<ALLOWANCES> 63,591,000
<INVENTORY> 431,837,000
<CURRENT-ASSETS> 2,259,446,000
<PP&E> 768,752,000<F1>
<DEPRECIATION> 397,755,000<F2>
<TOTAL-ASSETS> 5,748,796,000
<CURRENT-LIABILITIES> 1,754,853,000
<BONDS> 2,086,862,000
0
290,170,000
<COMMON> 689,195,000
<OTHER-SE> 447,923,000
<TOTAL-LIABILITY-AND-EQUITY> 5,748,796,000
<SALES> 3,012,006,000
<TOTAL-REVENUES> 5,628,663,000
<CGS> 2,038,682,000
<TOTAL-COSTS> 3,553,610,000<F3>
<OTHER-EXPENSES> 2,078,572,000<F4>
<LOSS-PROVISION> 47,052,000
<INTEREST-EXPENSE> 70,668,000
<INCOME-PRETAX> (74,187,000)
<INCOME-TAX> 8,863,000
<INCOME-CONTINUING> (83,050,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,050,000)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
<FN>
<F1>(1) Includes equipment on operating leases, at cost, of $269,206,000.
<F2>(2) Includes accumulated depreciation for equipment on operating leases of
$158,315,000.
<F3>(3) Includes Finance Subsidiaries interest of $129,148,000.
<F4>(4) Represents selling, general and administrative expenses, transformation
costs, and loss from asset impairment.
</FN>
</TABLE>
