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IKON OFFICE SOLUTIONS, INC.
FORM 10-K
September 30, 1999
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As filed with the Securities and Exchange Commission on December 28, 1999
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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, 1999 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)
23-0334400
OHIO (I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
19482
(Zip Code)
Box 834, Valley Forge, Pennsylvania
(Address of principal executive
offices)
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
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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. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 22, 1999, was approximately $606,302,003 based upon
the closing sales price on the New York Stock Exchange Composite Tape of
$5.875 per common share on December 22, 1999. For purposes of the foregoing
sentence only, all directors and executive 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 22, 1999 was 148,809,581.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II--Portions of the Registrant's Annual Report to Shareholders
for fiscal year ended September 30, 1999
Part III--Portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders
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FORWARD LOOKING INFORMATION
IKON Office Solutions, Inc. (the "Registrant," "IKON" or the "Company") may
from time to time provide information, whether verbally or in writing,
including certain statements included in or incorporated by reference in this
Form 10-K, which constitute "forward-looking" statements within the meaning of
the Private Securities Litigation Reform Act of 1995 ("Litigation Reform
Act"). These forward-looking statements include statements regarding the
following (and certain matters discussed in greater detail herein): growth
opportunities, productivity initiatives and the impact of the Company's brand
strategy; earnings revenue, margin, and cost-savings projections; anticipated
growth rates in the digital equipment and outsourcing industries; the
financial and legal impact of the class action litigation settlement; the cost
and completion date of the Company Year 2000 remediation project (and the
possible negative impact which might result from nonremediated systems of the
Company and/or its vendors); the reorganization of the Company's business
segments; and the Company's ability to finance its current operations and its
growth initiatives. Although IKON believes the expectations contained in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove correct.
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such
statements reflect the current views of the Registrant with respect to future
events and are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
The Registrant does not intend to update these forward-looking statements.
In accordance with the provisions of the Litigation Reform Act, we are
making investors aware that such "forward-looking" statements, because they
relate to future events, are by their very nature subject to many important
factors which could cause actual results to differ materially from those
contained in the "forward-looking" statements. These uncertainties and risks
include, but are not limited to, the following (some of which are explained in
greater detail below): conducting operations in a competitive environment and
a changing industry (which includes technical services and products that are
relatively new to the industry and to the Company); delays, difficulties,
management transitions and employment issues associated with consolidation
and/or changes in business operations; managing the integration of acquired
businesses; existing and future vendor relationships; risks relating to
currency exchange; economic, legal and political issues associated with
international operations; potential Year 2000 deficiencies associated with the
operation of IKON's internal systems and distributed products; the Company's
ability to access capital and its debt service requirements (including
sensitivity to fluctuation in interest rates); and general economic
conditions.
Competition. The Registrant operates in a highly competitive environment,
in which technological advances and demands of customers change rapidly.
There are a number of competitors of the Company with significant financial
resources to provide similar products and services in each of the markets
served by the Registrant, some of whom operate on a global basis. The
Registrant's success in its future performance is largely dependent upon
its ability to compete successfully in its currently-served markets and to
expand into additional product and service segments.
Transition to Digital. The analog segment of the office equipment market is
declining, as the market transitions to digital technology. Some of the new
digital products placed by the Registrant replace or compete with the
current analog products placed by the Registrant. Changes in the mix of
products from analog to digital, and the acceleration of that change, as
well as competitive developments, could cause actual results to vary from
those expected.
Pricing. The Registrant's ability to succeed is dependent upon its ability
to obtain adequate pricing for its products and services. Depending on
competitive market factors, future prices the Registrant can obtain for its
products and services may vary from historical levels.
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Vendor Relationships. The Registrant is not a manufacturer of any of the
equipment it sells. The cessation or deterioration of any significant
vendor relationship that may cause the Company to be unable to distribute
equipment, including digital products and high-volume copiers, parts and
supplies, would cause actual results to differ materially from those
expected.
Financing Business. A significant portion of the Registrant's profits are
derived from the financing of equipment provided to its customers. The
Registrant's ability to provide such financing at competitive rates and
realize profitable margins is highly dependent upon its own costs of
borrowing. Significant changes in credit ratings could reduce our access to
certain credit markets. The Registrant's credit ratings have declined in
recent years; however, the effects of such decline have been mitigated by
the Company's utilization of asset securitizations as a funding source.
Asset securitizations continue to be a viable funding source for the
Company, and our present credit ratings permit us ready access to the
credit markets. There is no assurance that these credit ratings can be
maintained and/or ready access to the credit markets can be assured.
Productivity Initiatives. The Registrant's ability to improve its profit
margins is largely dependent on its ability to maintain an efficient, cost-
effective operation. Under certain productivity initiatives (sometimes
referred to as the "Competitiveness and Productivity Project"), various
productivity improvements are being implemented. The Registrant's ability
to improve its profit margins through the implementation of these
productivity initiatives is dependent upon certain factors outside the
control of the Registrant and therefore could cause actual results to
differ materially from those anticipated.
International Operations. The Registrant's future revenue, cost and profit
results could be affected by a number of factors, including changes in
foreign currency exchange rates, changes in economic conditions from
country to country, changes in a country's political condition, trade
protection measures, licensing and other legal requirements and local tax
issues.
Consolidation and Disposition of Unproductive Assets. In the first quarter
of fiscal 2000, the Company approved a restructuring charge of
approximately $102 million. This charge is to consolidate or dispose of
certain underperforming and non-core locations and implement productivity
enhancements through consolidation/centralization of activities in
inventory management, purchasing, financial/accounting and other
administrative functions and consolidate or eliminate unproductive real
estate facilities. These efforts are aimed at improving our performance and
efficiency. The failure to execute these actions effectively would cause
actual results to differ materially from those anticipated.
Integration of Acquired Companies. The Company's success is dependent upon
its ability to integrate acquired companies and their operations which
include companies with technical services and products that are relatively
new to the Company and companies outside the United States, that present
additional risks relating to international operations. There can be no
assurance the Company will be successful in managing the integration of
acquired companies and their operations.
Year 2000. The Registrant's success on its Year 2000 plan is dependent upon
the availability of resources, the Registrant's ability to discover and
correct the Year 2000 sensitive problems which could have a serious impact
on the Registrant's information management systems, facilities and
products, and the ability of the Registrant's suppliers and customers to
bring their systems into Year 2000 compliance.
PART I
Item 1. Business.
General
IKON Office Solutions, Inc. was incorporated in Ohio in 1952 and is the
successor to a business incorporated in 1928. References herein to "we," "us"
or "our" refers to IKON and consolidated subsidiaries unless the context
specifically requires otherwise. The address of the Company's principal
executive offices is 70 Valley Stream Parkway, Malvern, Pennsylvania 19355
(telephone number: (610) 296-8000).
IKON provides a broad range of products and services to meet business
communication needs, and people with the expertise to deliver these products
and services effectively. Our products and services include copiers
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and printers, color solutions, distributed printing, outsourcing services,
imaging and legal outsourcing solutions, as well as network design and
consulting, application development and technology training. IKON aims to
furnish a high level of personal service and support for these products and
services, so customers can achieve the full measure of office technology
integration.
IKON operates over 1,000 locations in the United States, Canada, Mexico, the
United Kingdom, Germany, France, Ireland and Denmark. These locations comprise
the largest independent distribution network of office equipment in North
America.
IKON distributes the products of numerous manufacturers, including Canon,
Ricoh and Oce. IKON also distributes products from Microsoft, IBM, Lotus,
Compaq, Novell, Cisco, Citrix, and Hewlett-Packard. Customers include large
and small businesses, professional firms and government agencies.
In fiscal 1999, IKON generated approximately $5.5 billion in revenues, and
had operating income of $237.4 million, excluding a gain from asset
securitization of $14.3 million and the $101.1 million charge related to the
shareholder litigation settlement (See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Notes 10 and 18 appended
thereto).
Operating Segments
During fiscal year 1999, IKON adopted Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosures About Segments Of An Enterprise And
Related Information, which requires segment data to be measured and analyzed
on a basis that is consistent with how business activities are reported
internally to management.
Revenue and segment profit information about the Company's operating
segments in accordance with SFAS No. 131 is presented on page 52 of the 1999
Annual Report to Shareholders. Additional financial data and commentary on
recent financial results for operating segments are provided on pages 30
through 32 of that Report and in note 16 to the consolidated financial
statements (included on pages 51 through 53 of the 1999 Annual Report).
Operating businesses that are reported as segments under SFAS No. 131
include IKON North America and IKON Europe. The remaining businesses do not
meet the definition of a reportable segment and have been aggregated into
Other operations. A summary description of each of the Company's operating
segments follows.
IKON NORTH AMERICA. IKON North America ("INA") provides business services
and management services and includes our captive finance subsidiaries in North
America. Our business services product offerings include traditional copiers,
printers, and other office equipment and services, with an increased emphasis
on digital, high-volume and color units which may also include networking
capability. To assure we can deliver and maintain these capabilities to best
meet customers' needs, we offer competitive pricing, factory-certified
technicians for all equipment, and through our captive finance subsidiaries,
flexible financing and lease programs. We have placed over one million pieces
of office equipment with approximately 70% of this equipment covered by lease
and service contracts, which provide a predictable revenue stream. Management
services handles the outsourcing of our customers' mailrooms, copy centers and
general administrative facilities.
IKON EUROPE. IKON Europe's ("IE") product offerings include digital and
analog copiers, printers, and other office equipment, with an increased
emphasis on digital, high-volume and color units which may also include
networking capability. IE also provides management services for customers'
mailrooms, copy centers and general administrative facilities and document
production and overflow services.
OTHER. IKON's other businesses include document services and technology
services. Document services focuses on print-on-demand services and electronic
file conversion.
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Technology services provides design, planning and support services, for
network platforms and IT integration projects, and education and training
services.
Management and Board Changes
On October 21, 1999, the Company's Board of Directors elected as its
additional members Robert M. Furek, Chairman of the Board of Trustees of the
Hartford School System and a partner in Resolute Partners, a private equity
investment firm; Thomas R. Gibson, Chairman, Chief Executive Officer of the
Asbury Automotive Group; and Arthur E. Johnson, Vice President Corporate
Strategic Development for Lockheed Martin Corporation. Barbara Barnes
Hauptfuhrer, who has served as a director of the Company since 1988, and who
acted as Chairman of the Independent Directors from 1995 through 1998, has
reached the mandatory retirement age of 70, and therefore will not be standing
for reelection at the 2000 annual meeting of shareholders. Thomas P. Gerrity,
who has served as a director of the Company since 1997, and who acted as
Chairman of the Retirement Plans Investment Committee, resigned as of December
7, 1999. The Company wishes to thank Mrs. Hauptfuhrer and Mr. Gerrity for
their significant contributions to IKON's Board of Directors and to the
Company.
During fiscal 1999, a number of management appointments and promotions
occurred. William S. Urkiel was named Senior Vice President and Chief
Financial Officer, Barbara Pellow was named Senior Vice President of
Marketing, Dennis LeStrange was promoted to Senior Vice President, IKON North
America, Don Liu was named Senior Vice President and General Counsel, Beth
Sexton was promoted to Senior Vice President of Human Resources, Stephen
LaHood was named Vice President of Supply Chain and Paul Nellis was promoted
to Vice President, IKON Technology Services.
Transition to Digital Products
During fiscal 1999, we experienced a rapid transition from analog to digital
products (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations"). We believe that the office equipment market will
continue to change with the increasing acceptance of digital technology.
Digital products have the ability to communicate with other office equipment
and often eliminate the distinction between traditional photocopiers,
facsimile equipment and printers. Digital multifunctional office equipment can
offer customers the ability to print, copy, scan and fax all from one machine.
One of our goals is to convert our customer base to digital products as
quickly as possible. This part of our strategy is important to our long-term
success because conversion provides the ongoing revenue benefit of our service
relationship and permits us to develop customer relationships through which we
can sell additional products and services.
Operations Integration
In fiscal 1999, IKON took significant steps in its effort to integrate its
business operations. In May of this year, we created IKON North America
through the integration of our largest business divisions (See "Operating
Segments"). In addition, we recently announced that our Business Document
Services unit, which operates document production centers in the United States
and Canada, will be integrated into IKON North America. To help implement this
realignment of our business divisions, we appointed Dennis P. LeStrange to
head IKON North America (See "Management Changes").
By realigning these business divisions, we believe we can acquire a greater
understanding of our customers needs and are better positioned to design
customized solutions for their business challenges. This integration of
business divisions provides IKON North America with a broad portfolio of
products and services, which permit it to provide solutions on-site and
through outsourcing to meet the needs of a range of customers, from the
general office environment to the high-volume demands of the production
environment.
In addition to the integration of our businesses, in a further effort to
streamline our operations and increase our profitability, during the first
quarter of fiscal 2000, the Company approved a restructuring charge of
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approximately $102 million. This charge is comprised of $14 million severance,
$52 million in asset write downs (net of sale proceeds), and $36 million
facility and other contract cancellation expenses. The cash impact of the
charge is expected to be a net outflow of $41 million. This charge is to
consolidate or dispose of certain underperforming and non-core locations and
implement productivity enhancements through consolidation/centralization of
activities in inventory management, purchasing, financial/accounting and other
administrative functions and consolidate or eliminate unproductive real estate
facilities. These efforts are aimed at improving our performance and
efficiency (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
Marketing and Sales and Service Organizations
During 1999 we developed the strategy and creative direction for our
comprehensive, coordinated branding campaign that will be implemented over the
course of next year. The campaign includes television, radio, and print
advertising; public relations and trade show initiatives; and plans for a
bolder presence at our Web site, IKON.com. The campaign will showcase the full
range of IKON's capabilities, the strength of our local teams of experts, and
our commitment to customer service. We believe we can expand the market's
understanding of what we do and heighten marketplace awareness of our ability
to address critical needs--providing solutions that boost productivity and
help businesses communicate.
Our customer loyalty is built on our employees' ability to form strong
working relationships with the people they serve in the marketplace and our
employees' ability to deliver consistently superior service and support. In
fiscal 1999, we implemented a National Sales Model that is now in place in
virtually all of our U.S. and Canadian districts that is intended to improve
our ability to align our sales professionals with opportunities in the market.
The model uses a three-tiered system for deploying sales teams, and assigns
coverage for each geographic territory, and for specific named and major
accounts. Account representatives acting as primary client contacts are
supported by specialists in color, high-volume, outsourcing, and technology
applications. The coverage plan works together with a new sales compensation
plan that will be launched throughout fiscal 2000 and that provides incentives
to help ensure that efforts in the field are fully coordinated with corporate
goals. Sales personnel turnover is common in the industry and the Company is
making a considerable effort to attract and retain qualified sales personnel.
We have a worldwide service force of approximately 10,000 employees. Our
service force is continually trained on our new products. We are able to
provide a consistent level of service nationwide and worldwide because we do
not rely on independent local dealers for service and our service force is not
focused exclusively on metropolitan areas.
Productivity Initiatives
The Company, together with PricewaterhouseCoopers LLP, conducted a thorough
review of our business in an effort to improve its cost-competitiveness and
productivity. The focus of this effort was not just to identify cost-cutting
initiatives, but also to discover areas of opportunity within our organization
that we could leverage to gain efficiencies, and invest the resulting savings
in areas that are critical to our long-term success. Significant initiatives
from this review include the following: (a) Customer Service--we are focusing
on process areas such as cycle billing, order entry processes and billing
accuracy to simplify and improve the billing for all of our products and
services and enhancing our service focus, including digital help desk support,
service territory analysis, service and quality measurements and consistent
support tools in dispatch call centers; (b) Marketing--the Company has created
a team to develop integrated marketing programs and strategies across all of
our business units, as well as build awareness for the IKON brand; (c)
Purchasing, Inventory Management and Controllable Expenses--we are developing
a national supply chain organization that will seek to leverage our buying
power with vendors and streamline our distribution and inventory management
processes to gain
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efficiencies; (d) Human Resources--we have implemented a new organizational
structure that will support geographic territories across all business units;
and (e) Sales--we are implementing a sales coverage model to align our sales
professionals with the right opportunities, and provide them with territory
analysis and sales automation tools to effectively manage their territories as
well as a national sales compensation model that will be implemented
throughout the next fiscal year.
Customers
No single customer accounted for more than 10% of IKON's net sales in 1999.
IKON does, however, have certain major customers. The loss of, or major
reduction in business from, one or more of IKON's major customers could have a
negative effect on IKON's financial position or results of operations.
Suppliers and Inventory
The Company's business is dependent upon close relationships with its
vendors and its ability to purchase products from these vendors on competitive
terms. Products distributed by IKON are purchased from numerous domestic and
overseas suppliers, primarily Canon, Ricoh and Oce. The Company also relies on
its equipment vendors for parts and supplies. As a result of the current
demand for digital office products, we have been unable to secure a sufficient
supply of digital office equipment from our suppliers to meet our customers'
demands (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Transition to Digital Products").
The Company conducts its business in reliance upon its continuing ability to
purchase equipment, supplies, and parts from its current manufacturers
pursuant to authorized retail dealer and wholesale agreements.
Many of the Company's operations carry significant amounts of inventory to
meet rapid delivery requirements of customers. At September 30, 1999,
inventories accounted for approximately 15% 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 presently 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 pre-divestiture 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 taken as a whole.
Employees
At September 30, 1999, IKON had approximately 39,400 employees. IKON
believes its relations with its employees are good.
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Competition
IKON operates in a highly competitive environment. There are a number of
companies worldwide with significant financial resources which compete with
IKON to provide similar products and services in each of the markets served by
IKON. IKON's success in its future performance is largely dependent upon its
ability to compete successfully in its currently-served markets and to expand
into additional product and services segments.
Foreign Operations
IKON has operations in Canada, Mexico, the United Kingdom, Germany, France,
Ireland and Denmark. Information concerning revenues and long lived assets of
the Company's foreign continuing operations for each of the three years in the
period ended September 30, 1999 set forth in note 16 to the consolidated
financial statements (included on pages 51 through 53 of the 1999 Annual
Report) is incorporated herein by reference. Revenues from exports during the
last three fiscal years were not significant.
Item 2. Properties.
At September 30, 1999, IKON owned or leased over 950 facilities in 50
states, ten Canadian provinces, Europe and 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 9.3 million square
feet.
Item 3. Legal Proceedings.
Subject to formal approval by the court, the Company has reached a
settlement with the Plaintiffs in the series of purported class action
complaints which were filed in the United States District Court for the
Eastern District of Pennsylvania on behalf of the Company's shareholders, and
with the Plaintiff in a companion derivative lawsuit. The Plaintiffs alleged
that during the period from January 24, 1996 to August 13, 1998, IKON and
certain current and former principal officers and employee directors publicly
disseminated false and misleading statements concerning the Company's revenue,
profitability and financial condition in violation of the federal securities
law. Under the settlement, the Company will pay $111,000,000. The court has
preliminarily approved the settlement. The Company anticipates that a final
settlement agreement will be submitted to the court and that the court will
hold a hearing on the approval of the settlement agreement in February or
March, 2000. The Company believes that the settlement also resolves a
purported class action claim pending in federal court in Utah. The Utah action
contains one claim purporting to be a class claim brought under the Employee
Retirement Income Security Act of 1974 ("ERISA"). The plaintiffs seek to
represent a class of persons who participated in the Company's Retirement
Savings Plan after January 1, 1994. The class allegations in the Utah action
largely mirror the allegations made in the complaints filed in the Eastern
District of Pennsylvania.
There are other 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 other contingencies will materially affect the Company.
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.)
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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.
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Name Age Position and Years Served
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James J. Forese......... 64 President, 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)
Michael J. Dillon....... 46 Vice President (1994-Present) and Controller (1993-
Present); Group Controller, Office Products Group (1991-
1993)
David M. Gadra.......... 51 Senior Vice President and Chief Information Officer
(1996-Present); Manager, General Electric Corporation
Corporate Information Services (1992-1996)
Dennis P. LeStrange..... 45 Senior Vice President, IKON North America (1998-Present);
Senior Vice President of Marketing IKON Business Services
(1998-1999); President and Chief Executive Officer of
IKON New England (1994-1998)
Don H. Liu.............. 38 Senior Vice President and General Counsel (1999-Present);
Vice President and Deputy Chief Legal Officer, Aetna U.S.
Healthcare, including predecessor entity (1992-1999)
Barbara A. Pellow....... 45 Senior Vice President, Marketing (1999-Present); Industry
Consultant and a director, CAP Ventures (1996-1999); Vice
President of Marketing, Indigo; Vice President and
General Manager, Xerox Document Production Systems (1993-
1995)
Beth Sexton............. 43 Senior Vice President, Human Resources (1999-Present);
Vice President Human Resources (1997-1999); Regional Vice
President (1996 to 1997); Senior Management roles in
Human Resources with CH2M Hill and Norfolk South (1995)
William S. Urkiel....... 54 Senior Vice President and Chief Financial Officer (1999-
Present); Corporate Vice President and Chief Financial
Officer, AMP, Inc. (1997-1998); Corporate Controller,
AMP, Inc. (1995-1996); Senior Managing Director and Chief
Financial Officer, IBM Japan (1994)
</TABLE>
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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 15, 1999, there
were approximately 14,440 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 55 of the
1999 Annual Report is incorporated herein by reference.
IKON anticipates that it will pay a quarterly dividend of $.04 per common
share in March 2000. 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 1995
through 1999 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 56 and 57 of the
1999 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 28 through 35 of the
1999 Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information appearing under "Market Risk" on page 35 of the 1999 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 29 through 57 and the
information appearing under "Quarterly Financial Summary" for fiscal 1999 and
1998 on page 55 of the 1999 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)
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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 February 23, 2000 annual meeting
of shareholders (the "2000 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 2000 Proxy Statement is incorporated
herein by reference.
Item 11. Executive Compensation.
Information appearing under "Executive Compensation" in the 2000 Proxy
Statement is incorporated herein by reference.
10
<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 2000 Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information appearing under "Certain Transactions" in the 2000 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 1997 Form 10-K is incorporated herein by
reference.
3.2 Amendment to Amended and Restated Articles of Incorporation
filed as Exhibit 3.1 to IKON's 1998 Form 10-K is incorporated
herein by reference.
3.3 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 filed as Exhibit 4.1 to IKON's 1998 Form 10-K is
incorporated herein by reference.
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 and Amendment 1 to Credit
Agreement, dated as of April 1, 1997, ("DB Credit Agreement")
filed as Exhibit 4.2 to IKON's 1997 Form 10-K is incorporated
herein by reference.
4.3 Extension to DB Credit Agreement dated August 30, 1999.
4.4 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 (the "1995 Credit Agreement"), filed
as Exhibit 4.5 to IKON's 1998 Form 10-K is incorporated herein
by reference.
4.5 Amendment Number 1 to Guarantee appended to the 1995 Credit
Agreement, filed as Exhibit 4.3 to IKON"s 1998 Form 10-K is
incorporated herein by reference.
4.6 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.
4.8 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 Worldwide,
Inc. ("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.
11
<PAGE>
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.
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.
10.8 Amendment number 1 to Receivables Transfer Agreement dated as
of November 7, 1997 filed as Exhibit 10.7 to IKON's 1998 Form
10-K is incorporated herein by reference.
10.9 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.
10.10 Amendment number 1 to Transfer Agreement dated September 30,
1996 filed as Exhibit 10.8 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.11 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 filed as
Exhibit 10.9 to IKON's 1998 Form 10-K is incorporated herein by
reference.
10.12 Transfer Agreement dated as of December 1, 1998 between IKON
Funding-1, LLC and IOS Capital, Inc filed as Exhibit 10.10 to
IKON's 1998 Form 10-K, is incorporated herein by references.
10.13 First Amendment dated September 10, 1999 to Transfer Agreement.
10.14 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. filed as
Exhibit 10.11 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.15 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.
10.16 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.
10.17 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.
12
<PAGE>
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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 is incorporated
herein by reference.
10.23 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 and filed as Exhibit 10.19 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.24 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.
10.25 Amendment Number 1 to Amended and Restated Long Term Incentive
Compensation Plan, filed as 10.2 to IKON's 1998 Form 10-K, is
incorporated herein.
10.26 Annual Bonus Plan, filed as Exhibit 10.3 to IKON's 1994 Form
10-K, is incorporated herein by reference**.
10.27 1986 Stock Option Plan, filed as Exhibit 10.6 to IKON's 1995
Form 10-K is incorporated herein by reference.
10.28 Amendment to 1986 Stock Option Plan** as filed as Exhibit 10.22
to IKON's 1998 Form 10-K is incorporated herein by reference.
10.29 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.
10.30 Amendment to 1995 Stock Option Plan filed as Exhibit 10.23 to
IKON's 1998 Form 10-K is incorporated herein by reference.
10.31 Non-Employee Directors Stock Option Plan, filed as Exhibit
10.31 to IKON's 1997 Form 10-K is incorporated herein by
reference.
10.32 Executive Employment Contract for David M. Gadra, filed as
Exhibit 10.26 to IKON's 1997 Form 10-K is incorporated herein
by reference.
10.33 Executive Employment Contract for James J. Forese.**
10.34 Executive Employment Contract for David Mills.**
10.35 Amended Executive Employment Contract for David Mills.**
10.36 Letter amending Executive Employment Contract for Dennis P.
LeStrange.**
10.37 Executive Employment Contract for Peter W. Shoemaker, filed as
Exhibit 10.25 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.38 Executive Employment Contract for Lynn B. Graham, filed as
Exhibit 10.25 to IKON's 1998 Form 10-K is incorporated herein
by reference.
10.39 Form of Change in Control Agreement David M. Gadra, filed as
Exhibit 10.26 to IKON's 1997 Form 10-K is incorporated herein
by reference.
10.40 1980 Deferred Compensation Plan, filed as Exhibit 10.7 to
IKON's 1992 Form 10-K is incorporated herein by reference.
13
<PAGE>
10.41 Amendment dated November 6, 1997 to 1980 Deferred Compensation
Plan** filed as Exhibit 10.28 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.42 1985 Deferred Compensation Plan, filed as Exhibit 10.8 to
IKON's 1992 Form 10-K is incorporated herein by reference.
10.43 Amendment dated November 6, 1997 to 1985 Deferred Compensation
Plan** filed as Exhibit 10.29 to IKON's 1998 10-K is
incorporated herein by reference.
10.44 1991 Deferred Compensation Plan, filed as Exhibit 10.9 to
IKON's 1992 Form 10-K is incorporated herein by reference.
10.45 Amendment dated November 6, 1997 to 1991 Deferred Compensation
Plan** filed as Exhibit 10.30 to IKON's 1998 Form 10-K is
incorporated herein by reference.
10.46 Amended and Restated 1994 Deferred Compensation Plan filed as
Exhibit 10.31 to IKON's 1998 Form 10-K is incorporated herein
by reference.**
10.47 Executive Deferred Compensation Plan filed as Exhibit 10.32 to
IKON's 1998 Form 10-K is incorporated herein by reference.**
10.48 Concurrent Lease Agreement between IKON Office Solutions, Inc.
et al. And Care Trust dated September 14, 1999.
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, 1999 (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.
(b) Reports on Form 8-K.
None.
(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.
14
<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 1999 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, 1999, September 30, 1998 and
September 30, 1997
Consolidated Balance Sheets
--September 30, 1999 and September 30, 1998
Consolidated Statements of Cash Flows
--Fiscal years ended September 30, 1999, September 30, 1998 and
September 30, 1997
Consolidated Statements of Changes in Shareholders' Equity
--Fiscal years ended September 30, 1999, September 30, 1998 and
September 30, 1997
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.
15
<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, 1999 to be signed on its behalf by the undersigned,
thereunto duly authorized.
IKON OFFICE SOLUTIONS, INC.
Date: December 28, 1999
/s/ Michael J. Dillon
By: _________________________________
(Michael J. Dillon)
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below on December 28, 1999 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
(James J. Forese) (Principal Executive Officer)
/s/ William S. Urkiel Senior Vice President and
_______________________________ Chief Financial Officer
(William S. Urkiel) (Principal Financial Officer)
/s/ Michael J. Dillon Vice President and Controller
_______________________________ (Principal Accounting
(Michael J. Dillon) Officer)
*Judith M. Bell Director
_______________________________
(Judith M. Bell)
*James R. Birle Director
_______________________________
(James R. Birle)
*Philip E. Cushing Director
_______________________________
(Phillip E. Cushing)
*Robert M. Furek Director
_______________________________
(Robert M. Furek)
*Thomas R. Gibson Director
_______________________________
(Thomas R. Gibson)
16
<PAGE>
SIGNATURES TITLE
*Barbara Barnes Hauptfuhrer Director
______________________________
(Barbara Barnes Hauptfuhrer)
*Richard A. Jalkut Non-Executive Chairman and a
______________________________ Director
(Richard A. Jalkut)
*Arthur E. Johnson Director
______________________________
(Arthur E. Johnson)
*By her signature set forth below, Karin M. Kinney, 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/ Karin M. Kinney December 28, 1999
______________________________
(Karin M. Kinney)
17
<PAGE>
IKON OFFICE SOLUTIONS
SCHEDULE II--VALUATION AND QUALIFYING ASSETS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------------ ----------------------- ------------- -----------
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,
1999
Allowance for doubtful
accounts............... $63,591,000 $31,765,000 $ 550,000 (1) $52,363,000(2) $43,543,000
Lease Default Reserve... 83,507,000 62,790,000 (710,000)(3) 72,223,000(2) 74,784,000
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 14,014,000 (3) 74,014,000(2) 83,507,000
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
</TABLE>
- --------
(1) Represents beginning balances of acquired companies.
(2) Accounts written off during year, net of recoveries.
(3) Represents portion related to assets sold
18
<PAGE>
EXHIBIT 4.3
AMENDMENT NO. 2 TO THE CREDIT AGREEMENT
---------------------------------------
AMENDMENT NO. 2 TO THE CREDIT AGREEMENT (this "AGREEMENT"), dated as of
August 30, 1999, among IKON Office Solutions, Inc. (formerly known as Alco
Standard corporate, and referred to herein as the "Company"), IKON Office
Solutions, S.A. (Formerly known as Axion, S.A. and referred to herein as "IKON
France"), IKON Office Solutions Europe PLC ("IKON U.K." and together with the
Company and IKON France, collectively referred to herein as the "Borrowers"),
various banks (the "Banks") and Deutsche Bank AG, New York Branch, as agent (the
"Agent"). All capitalized terms defined in the hereinafter defined Credit
Agreement shall have the same meaning when used herein unless otherwise defined
herein.
W I T N E S S E T H:
Whereas, the Borrowers, the Banks and the Agent are parties to a Credit
Agreement, dated as of August 30, 1996 (as in effect on the date hereof the
"Credit Agreement:");
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Amendments to the Credit Agreement. (a) The definition of "Eurocurrency
----------------------------------
Rate" in Section 1.01 to the Credit Agreement is hereby amended by deleting the
percentage "0.20%" and replacing it with the percentage "0.625%".
(a) The definition of "Maturity Date" in Section 1.01 of the Credit
Agreement is hereby amended by deleting the date "August 30, 1999" and replacing
it with the date "February 29, 2000".
(b) Schedule I of the Credit Agreement is hereby amended in its entirety
to the form attached hereto as Annex A.
2. Representation and Warranties. In order to induce the Banks and the
-----------------------------
Agent to enter into this Amendment, each Borrower hereby represents and warrants
that:
(a) no Default or Event of Default exists or will exists as of the date
hereof and after giving effect to this Amendment; and
(b) as of the date hereof, after giving effect to this Amendment, all
representations, warranties, and agreements of the Borrower contained in the
Credit Agreement will be true and correct in all material respects.
3. GOVERNING LAW THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF
<PAGE>
EXHIBIT 4.3
NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF.
4. Agreement Not Otherwise Amended. This Amendment is limited precisely
as written and shall no be deemed to be an amendment, consent, waiver or
modification of any other term or condition of the Credit Agreement, any other
Credit Document, or any of the instruments or agreements referred to therein, or
prejudice any right or rights which the Banks, the Agent or any of them may now
have or may have in the future under or in connection with the Credit therein.
Except as expressly modified hereby, the terms and provisions of the Credit
Agreement shall continue in full force and effect. Whenever the Credit
Agreement is referred to in the Credit Agreement, any other Credit Document or
any of the instruments, agreements or other documents or papers executed and
delivered in connection therewith, it shall be deemed to be a reference to the
Credit Agreement as modified hereby.
5. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.
By: /s/ Michael J. Dillon IKON OFFICE SOLUTIONS, INC.
---------------------
Name: Michael J. Dillon By: /s/ J. F. Quinn
Title: Vice President & Controller ----------------
Name: J. F. Quinn
Title: Treasurer
By: /s/ Carlyle Singer IKON OFFICE SOLUTIONS, S.A.
------------------
Name: Carlyle Singer By: ______________________
Title: President Director General Name:
IKON France Title:
By: /s/ David Mills
----------------
Name: David Mills
Title: Vice President
<PAGE>
EXHIBIT 4.3
By: /s/ Michael J. Dillon IKON OFFICE SOLUTIONS EUROPE
--------------------- PLC
Name: Michael J. Dillon
Title: Vice President & Controller
By: /s/ J. F. Quinn
----------------
Name: J. F. Quinn
Title: Treasurer
DEUTSCHE BANK AG, NEW YORK
BRANCH AND CAYMAN ISLANDS
BRANCH
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By: _________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, AS AGENT
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT 4.3
IKON OFFICE SOLUTIONS EUROPE
PLC
By: ________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH AND CAYMAN ISLANDS
BRANCH
By: /s/ Hans-Josef Thiele
---------------------
Name: Hans-Josef Thiele
Title: Director
By: /s/ Ira Lubinsky
----------------
Name: Ira Lubinsky
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO
By: _________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, AS AGENT
By: /s/ Hans-Josef Thiele
---------------------
Name: Hans-Josef Thiele
Title: Director
By: /s/ Ira Lubinsky
----------------
Name: Ira Lubinsky
Title: Vice President
<PAGE>
EXHIBIT 4.3
IKON OFFICE SOLUTIONS EUROPE
PLC
By: _________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH AND CAYMAN ISLANDS
BRANCH
By: ________________________
Name:
Title:
By: ________________________
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By: /s/ Jeffrey Lubatka
-------------------
Name: Jeffrey Lubatka
Title: Vice President
DEUTSCHE BANK AG, NEW YORK
BRANCH, AS AGENT
By: ________________________
Name:
Title:
By: ________________________
Name:
Title:
<PAGE>
EXHIBIT 4.3
ANNEX A
-------
SCHEDULE I
----------
SCHEDULE OF COMMITMENTS
-----------------------
Bank Commitment
---- ----------
Deutsche Bank AG, New York Branch $25,000,000
And/or Cayman Island Branch
The First National Bank of Chicago 25,000,000
-----------
Total Commitment $50,000,000
<PAGE>
Exhibit 10.13
THIS FIRST AMENDMENT TO TRANSFER AGREEMENT (this "Amendment") is made as of
---------
September 10, 1999, among:
(1) IOS CAPITAL, INC., a Delaware corporation, as originator (the
"Originator"); and
(2) IKON FUNDING-1, LLC, a Delaware limited liability company, as
transferee (the "Transferee").
BACKGROUND
----------
1. The Originator and the Transferee are parties to a Transfer Agreement,
dated as of December 1, 1998 (the "Transfer Agreement").
2. The parties hereto now desire to amend the Transfer Agreement in
certain respects, as provided below.
AGREEMENT
---------
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not defined herein shall have the
meanings assigned to such terms in the Transfer Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1. Amendment of the Transfer Agreement. The Transfer Agreement
-----------------------------------
is hereby amended to incorporate the changes shown on the marked pages attached
hereto as Exhibit A.
---------
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Effectiveness. This Amendment shall become effective and be
-------------
deemed effective as of the date first above written upon the receipt by PNC
Bank, National Association (as Agent under the Receivables Transfer Agreement)
of counterparts of this Amendment executed by the parties hereto.
<PAGE>
SECTION 3.2. Waiver of Conditions. Each of the parties hereto waives any
--------------------
other notice requirements or other conditions to this Amendment or the
transactions contemplated hereby specified in the documents amended hereby or
any related documents.
SECTION 3.3. Effect of Amendments; Ratification. Upon and after the
----------------------------------
effectiveness of this Amendment, (a)(i) this Amendment shall be a part of the
Transfer Agreement and (ii) each reference in the Transfer Agreement to "this
Agreement" and the words "hereof", "herein", "hereunder" and words of like
import, and each reference to the Transfer Agreement in any other related
agreement shall mean and be a reference to the Transfer Agreement, as amended
hereby; and (b) except as expressly amended hereby, the Transfer Agreement shall
remain in full force and effect and is hereby ratified and confirmed by the
parties thereto.
SECTION 3.4. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
SECTION 3.5. Headings, Etc. Article and Section headings of this
-------------
Amendment are inserted in this Amendment for convenience of reference only and
are not to be considered part of this Amendment for any other purpose.
SECTION 3.6. Counterparts. This Amendment may be executed by the parties
------------
hereto in separate counterparts, each of which shall be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the parties listed below have caused their names to be
signed hereto by their respective officers thereunto duly authorized all as of
the day and year first above written.
IOS CAPITAL, INC.
BY: /s/ Jack Quinn
--------------
Jack Quinn
Treasurer
IKON FUNDING-1, LLC
BY:_______________________________
Robert K. McLain
President
3
<PAGE>
IN WITNESS WHEREOF, the parties listed below have caused their names to be
signed hereto by their respective officers thereunto duly authorized all as of
the day and year first above written.
IOS CAPITAL, INC.
BY:_______________________________
Jack Quinn
Treasurer
IKON FUNDING-1, LLC
BY: /s/ Robert K. McLain
------------------------------
Robert K. McLain
President
4
<PAGE>
CONSENTED AND AGREED TO:
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By: /s/ John T. Smathers
--------------------
John T. Smathers
Vice President
5
<PAGE>
EXHIBIT A
---------
6
<PAGE>
Exhibit 10.25
IKON OFFICE SOLUTIONS, INC.
LONG TERM INCENTIVE COMPENSATION PLAN
(Amended and Restated as of October 20, 1999)
1. Purpose. The purpose of the Plan is to motivate, recognize and reward
-------
performance by key executives that enhances long-term shareholder value, and to
attract and retain qualified executives.
2. Eligibility. Participation in the Plan shall be limited to full-time
-----------
key employees of IKON Office Solutions, Inc. ("IKON") and its subsidiaries
(collectively, the "Company").
3. Administration and Interpretation. The Plan shall be administered by a
---------------------------------
committee (the "Committee") of the Board of Directors of IKON (the "Board"),
which shall consist of three or more directors, each of whom is a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 and an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code and applicable regulations thereunder, or, in the Board's
discretion, the Plan shall be administered by the Board. In the event that the
Board exercises its authority to administer the Plan, any references to the
Committee in the Plan shall be deemed, as appropriate, to be references to the
Board. The Committee may make such rules and establish such procedures as it
deems appropriate for the administration of the Plan. In the event of any
disagreement as to the interpretation of the Plan or any rule or procedure
thereunder, the decision of the Committee, or Board, as the case may be, shall
be final and binding upon all persons in interest. The Committee may appoint a
plan administrator or administrators to conduct the day-to-day administration of
the Plan and to make such decisions consistent with the Plan and any applicable
Award, as may be necessary in order to carry out the provisions of the Plan.
4. Awards. Awards may be made in the form of cash, shares of IKON common
-------
stock ("Shares"), or such other form approved by the Board. No more than
4,605,645 Shares may be issued under the Plan. Shares subject to awards which
have been forfeited pursuant to the terms of the Plan may again be awarded
pursuant to the Plan. At the time an Award is made, the Committee shall specify
(i) the amount and form of the Award; (ii) the performance goals (if any)
applicable to the Award; (iii) the vesting requirements (if any) applicable to
the Award; and (iv) any other terms and conditions of the Award. The number of
Awards (if any) made each year, the persons to whom and the time or times at
which Awards are made, the amount or form of any Award, the performance goals
(if any) applicable to each Award, the vesting requirements (if any) applicable
to each Award, and the other terms and provisions of each Award shall be wholly
within the discretion of the Committee, subject to the limit on the number of
Shares described above.
The Committee shall have the authority to accelerate vesting of any Award
or to waive performance goal requirements in its sole discretion. In the event
the participant transfers to a position as a full-time active employee of
another business unit within IKON prior to the end of the specified time period
for the attainment of performance goals, the Committee, in its sole discretion,
may determine that an adjustment should be made in the performance goals
associated with the Award, and/or may determine that the Award should be
forfeited in part or in its entirety.
5. Adjustments. In the event of any stock dividend, stock split,
-----------
combination of shares, merger, consolidation, reorganization, spin-off, or
recapitalization affecting the Shares (the "Event"), the maximum number and kind
of Shares that may be issued under the Plan, and the number and kind of Shares
subject to then outstanding awards, shall be appropriately and equitably
adjusted as
<PAGE>
necessary to maintain the same proportionate number of Shares as existed
immediately prior to the Event. No fractional shares will be issued under the
Plan on account of any such adjustments.
6. Forfeiture. Unless otherwise determined by the Committee, or otherwise
----------
provided in a separate contract approved by the Committee or the Board, an Award
will be forfeited if the participant is not a full-time employee of the Company
on the applicable vesting date, or if the applicable performance goals are not
met, subject to the provisions of Section 10 hereof.
7. Certificate. Each Award shall be evidenced by an Award Certificate,
-----------
which shall specify the amount and form of the Award, the performance goals (if
any), the vesting requirements (if any), and any other terms and conditions of
the Award.
8. Common Stock Subject to Award. Any Shares issued pursuant to an Award
-----------------------------
may be unissued shares or treasury shares, including shares bought on the open
market.
9. Rights of Participant in Shares. A participant shall not be deemed to
-------------------------------
be the holder of, or to have the rights of a holder with respect to, any Shares
subject to an Award unless and until a stock certificate representing such
Shares is issued to such participant.
10. Change in Control. Upon a Change in Control (as defined below), all
-----------------
outstanding Awards shall vest and be distributed to the participant. 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;
(B) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on October
20, 1999 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 of IKON on October 20, 1999 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 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 Shares
immediately prior to such transaction or series of transactions own a majority
of the outstanding voting shares and in substantially the same proportion
2
<PAGE>
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 10 be subject to
amendment or modification after a Change in Control has occurred.
11. Tax Withholding. The Company's obligation to issue amounts earned
---------------
pursuant to an Award is subject to all applicable tax withholding requirements.
12. Nonassignment. Any Award and the rights and privileges conferred
-------------
hereby shall not be transferred, assigned, pledged or hypothecated in any way by
the participant (whether by operation of law or otherwise), and shall not be
subject to execution, attachment or similar process.
13. Plan and Award Not to Affect Employment. Neither this Plan nor any
----------------------------------------
Award shall confer upon any employee any right to continue in the employ of the
Company.
14. Amendment or Termination of Plan. The Board may terminate the Plan or
--------------------------------
make such amendments to the Plan or any Award as it deems necessary or
advisable, provided, however, that unless otherwise required by law, and except
as provided in Sections 4, 5 and 10 hereof, no such amendment or termination may
materially impair the rights of any participant under any Award previously
granted without such participant's consent.
15. Successors. The Plan shall be binding upon and inure to the benefit
----------
of any successor, successors or assigns of IKON.
16. Severability. If any part of the Plan shall be determined to be
------------
invalid or void in any respect, such determination shall not affect, impair,
invalidate or nullify the remaining provisions of the Plan which shall continue
in full force and effect.
17. Governing Law. The Plan and actions taken in connection herewith
-------------
shall be governed and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
18. Construction. Wherever any words are used in the Plan in the
------------
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
19. Other Benefits. Neither the receipt of an Award nor the delivery of
--------------
cash, Shares, or any other amounts pursuant to an Award shall be deemed
compensation for purposes of computing benefits under any retirement plan nor
affect any benefits under any other benefit plan now or hereafter in effect
under which the availability or amount of benefits is related to the level of
compensation.
3
<PAGE>
20. Costs. Unless otherwise determined by the Board, the Company shall
-----
bear all expenses incurred in administering the Plan, including expenses of
issuing Shares pursuant to an Award.
21. Term of the Plan. No Award shall be made after September 30, 2004, or
----------------
such earlier date as the Board may determine. However, Awards made prior to such
date shall continue to be governed in accordance with the terms of the Plan and
participants shall be entitled to receive payment for such Awards under the
terms of the Plan.
4
<PAGE>
Exhibit 10.33
3/3/99
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made and entered into as of the 1st day of October, 1998 by and
between IKON Office Solutions, Inc., an Ohio corporation with its principal
office located at 70 Valley Stream Parkway, Malvern, Pennsylvania 19355
(together with its successors and assigns permitted under this Agreement, the
"Company") and James J. Forese, who resides at 134 Abrahams Lane, St. Davids,
Pennsylvania 19087 (the "Executive");
WITNESSETH:
-----------
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment;
WHEREAS, the Executive desires to accept employment with the Company,
subject to the terms and provisions of this Employment Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (together, the
"Parties") agree as follows:
1. Definitions.
------------
(a) "Affiliate" of a Person shall mean a Person that directly or
indirectly controls, is controlled by, or is under common control with, the
Person specified.
(b) "Agreement" shall mean this Employment Agreement, which includes
for all purposes its three Exhibits.
(c) "Base Salary" shall mean the salary provided for in Section 4 or
any increased salary granted to the Executive pursuant to Section 4.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean:
(i) the Executive is convicted of a felony involving moral
turpitude; or
(ii) the Executive engages in conduct that constitutes willful
gross neglect or willful gross misconduct in carrying out his duties under this
Agreement, resulting, in either
<PAGE>
case, in material economic harm to the Company, unless the Executive believed in
good faith that such conduct was in, or not opposed to, the best interests of
the Company.
(f) "Change in Control" shall mean the occurrence of any of the
following events:
(i) any "person," as such term is currently used in Section
13(d) of the Securities Exchange Act of 1934, as amended, becomes a "beneficial
owner," as such term is currently used in Rule 13d-3 promulgated under that act,
of 15% or more of the Voting Stock of the Company;
(ii) a majority of the Board consists of individuals other than
Incumbent Directors, which term means the members of the Board on the Effective
Date; provided that any individual becoming a director subsequent to such date
-------------
whose election or nomination for election was supported by a majority of the
directors who then comprised the Incumbent Directors shall be considered to be
an Incumbent Director;
(iii) the Company adopts any plan of liquidation providing for
the distribution of all or substantially all of its assets;
(iv) 50% or more of the assets of the Company is disposed of
pursuant to a merger, consolidation or other transaction or series of
transactions (unless the shareholders of the Company immediately prior to such
merger, consolidation or other transaction or series of transactions
beneficially own, directly or indirectly, in substantially the same proportion
as they owned the Voting Stock of the Company, more than 50% of the Voting Stock
or other ownership interests of the entity or entities, if any, that succeed to
the business of the Company); or
(v) the Company combines with another company and is the
surviving corporation but, immediately after the combination, the shareholders
of the Company immediately prior to the combination hold 50% or less of the
Voting Stock of the combined company, (there being excluded from the number of
shares held by such shareholders, but not from the Voting Stock of the combined
company, any shares received by Affiliates of such other company in exchange for
stock of such other company).
(g) "Claim" shall mean any claim, demand, request, investigation,
dispute, controversy, threat, discovery request, or request for testimony or
information.
(h) "Committee" shall mean the Human Resources Committee of the
Board.
(i) "Common Stock" shall mean common stock of the Company.
(j) "Constructive Termination Without Cause" shall mean a
termination by the Executive of his employment hereunder on 30 days' written
notice given by him to the
2
<PAGE>
Company following the occurrence, without his prior written consent, of any of
the following events, unless the Company shall have fully cured all grounds for
such termination within 15 days after the Executive gives notice thereof:
(i) any reduction in his then current Base Salary or in his
target or maximum annual bonus opportunity as a percentage of Base Salary;
(ii) any material failure to timely grant, or timely honor, any
equity or long-term incentive award under Section 6;
(iii) any material breach of any of the Company's obligations,
representations or warranties in this Agreement;
(iv) any failure to appoint, elect or reelect him to any of the
positions described in Section 3(a); the removal of him from any such position;
or any change in the reporting structure so that he reports to someone other
than the Board;
(v) any material diminution in his duties or the assignment to
him of duties that materially impair his ability to perform his duties;
(vi) following any Change in Control or Potential Change in
Control, any relocation of the Company's principal office, or of his own office
as assigned to him by the Company, to a location more than 50 miles from
Malvern, Pennsylvania;
(vii) following any Change in Control or Potential Change in
Control, any failure by the Company to continue in effect any compensation plan
in which the Executive participated immediately prior to such Change in Control
or Potential Change in Control and which is material to the Executive's total
compensation, including but not limited to the Company's stock option, incentive
compensation, deferred compensation, stock purchase, bonus and other plans or
any substitute plans adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or any failure by the Company to continue the
Executive's participation therein (or in such substitute or alternative plan) on
a basis no less favorable to the Executive, both in terms of the amount of
benefits provided and the level of the Executive's participation relative to
other participants, as existed immediately prior to such Change in Control or
Potential Change in Control;
(viii) following any Change in Control or Potential Change in
Control, any failure by the Company to continue to provide the Executive with
benefits substantially similar to those enjoyed by the Executive under any of
the Company's pension, life insurance, medical, health and accident, or
disability plans in which the Executive was participating immediately prior to
such Change in Control or Potential Change in Control, the taking of any action
by the Company which would directly or indirectly materially reduce any of such
benefits
3
<PAGE>
or deprive the Executive of any perquisite enjoyed by the Executive at the time
of such Change in Control or Potential Change in Control, or the failure by the
Company to maintain a vacation policy with respect to the Executive that is at
least as favorable as the vacation policy (whether formal or informal) in place
with respect to the Executive immediately prior to such Change in Control or
Potential Change in Control; or
(ix) the failure of the Company to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Company within 15 days after a merger,
consolidation, sale or similar transaction.
(k) "Disability" shall mean the Executive's inability, due to
physical or mental incapacity, to substantially perform his duties and
responsibilities under this Agreement for a period of 180 consecutive days as
determined by an approved medical doctor, selected by the Parties. If the
Parties cannot agree on a medical doctor, each Party shall select a medical
doctor and the two doctors shall select a third who shall be the approved
medical doctor for this purpose.
(l) "Effective Date" shall mean October 1, 1998.
(m) "Long-Term Incentive Plan" shall mean any of the long-term
incentive plans referred to in Section 6(b).
(n) "Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, estate, board, committee,
agency, body, employee benefit plan, or other person or entity.
(o) "Potential Change in Control" shall mean the occurrence of any of
the following events:
(i) the Company enters into an agreement, the consummation of
which will result in the occurrence of a Change in Control;
(ii) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, will constitute a
Change in Control; or
(iii) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(p) "Proceeding" shall mean any threatened or actual action, suit or
proceeding, whether civil, criminal, administrative, investigative, appellate or
other.
(q) "Pro-Rata" shall mean a fraction, the numerator of which is the
number of days that the Executive was employed in the applicable performance
period (a fiscal year in
4
<PAGE>
the case of an annual bonus and a performance cycle in the case of an award
under the Long-Term Incentive Plan) and the denominator of which shall be the
number of days in the applicable performance period.
(r) "Special Stock Option" shall mean the stock option referred to
in Section 6(a).
(s) "Term of Employment" shall mean the period specified in Section
2.
(t) "Termination Date" shall mean the date on which the Executive's
employment hereunder terminates in accordance with this Agreement.
(u) "Voting Stock" shall mean issued and outstanding capital stock or
other securities of any class or classes having general voting power, under
ordinary circumstances in the absence of contingencies, to elect, in the case of
a corporation, the directors of such corporation and, in the case of any other
entity, the corresponding governing Person(s).
2. Term of Employment.
-------------------
The Company hereby employs the Executive under this Agreement, and the
Executive hereby accepts such employment, for the Term of Employment. The Term
of Employment shall commence as of the Effective Date and shall end on September
30, 2001; provided, however, that the Term of Employment shall thereafter be
-----------------------
automatically extended for two additional one-year periods ("extension periods")
unless either Party shall give the other written notice at least six months
prior to the commencement of the pertinent extension period, that such Party is
electing not to so extend the Term of Employment. Notwithstanding the
foregoing, the Term of Employment may be earlier terminated in accordance with
the provisions of Section 8.
3. Positions, Duties and Responsibilities.
---------------------------------------
(a) During the Term of Employment, the Executive shall serve as the
President and Chief Executive Officer of the Company and as a member of the
Board; shall have the authority, duties and responsibilities customarily
exercised by an individual serving in those positions in a corporation of the
size and nature of the Company; shall perform such duties relating to the
management and operations of the Company, consistent with the foregoing, as may
from time to time be assigned to him by the Board; shall be assigned no duties
or responsibilities that are materially inconsistent with, or that materially
impair his ability to discharge, the foregoing duties and responsibilities; and
shall report solely and directly to the Board.
(b) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from (i) serving, with prior notice to the Board, on the
boards of directors of a
5
<PAGE>
reasonable number of other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations, (ii) engaging in charitable
activities and community affairs, and (iii) managing his personal investments
and affairs; provided that such activities do not materially interfere with the
-------------
performance of the Executive's duties and responsibilities hereunder.
4. Base Salary.
------------
Commencing as of the Effective Date, the Executive shall be paid an
annualized Base Salary of $750,000, payable in accordance with the regular
payroll practices of the Company. The Base Salary shall be reviewed no less
frequently than annually for increase in the discretion of the Board.
5. Annual Incentive Awards.
------------------------
The Executive shall be eligible for an annual incentive bonus award
from the Company in respect of each fiscal year of the Company that ends during
the Term of Employment. His annual target award opportunity shall be no less
than 75% of his annualized Base Salary in effect on the start of the fiscal year
and his maximum annual award opportunity shall be no less than 150% of his
annualized Base Salary in effect on the start of the fiscal year. The Executive
shall be paid his annual incentive awards at the same time that other senior-
level executives receive their incentive awards.
6. Long-Term Incentive Awards.
---------------------------
(a) Special Stock Option Award. As of the Effective Date, the Company
--------------------------
shall grant the Executive a ten-year option to purchase 500,000 shares of Common
Stock. Such option shall become exercisable to purchase: (i) 250,000 shares of
Common Stock at a price of $7.50 per share beginning as of the third anniversary
of the Effective Date; (ii) 150,000 shares of Common Stock at a price of $15.00
per share beginning as of the fourth anniversary of the Effective Date; and
(iii) 100,000 shares of Common Stock at a price of $22.00 per share beginning as
of the fifth anniversary of the Effective Date, subject in each case to the
terms, conditions and adjustments set forth in Exhibit A attached hereto and in
Section 8 below.
(b) Long-Term Incentive Plans.
--------------------------
(i) The Executive shall be entitled to participate in the
Company's Long-Term Incentive Compensation Plan (applying to the performance
period October 1, 1998 through September 30, 2001), with a cash participation
award equal to 135% of his annualized Base Salary and a corresponding ten-year
option grant to purchase 135,000 shares of Common Stock at an exercise price of
$7.50 per share.
6
<PAGE>
(ii) Beginning on each anniversary of the Effective Date that
occurs during the Term of Employment, the Executive shall be entitled to
participate in a Long-Term Incentive Plan that provides a cash award opportunity
ranging, in the Committee's discretion, from 90% to 180% of his annualized Base
Salary and that includes a corresponding stock option grant.
(iii) The Executive shall be paid any amount due under the cash
award portion of any Long-Term Incentive Plan no later than the earlier of (A)
the date that payouts are made under such Plan to other senior executives of the
Company and (B) 90 days after the end of the performance period that is covered
by such Plan.
7. Other Benefits.
---------------
(a) Other Executive Compensation Plans. During the Term of
----------------------------------
Employment, the Executive shall be entitled to participate in all compensation
plans and programs made generally available to senior executives of the Company,
including without limitation the Executive Deferred Compensation Plan.
(b) Employee Benefit. During the Term of Employment, the Executive
----------------
shall participate in all employee benefit plans and programs made available
generally to the Company's senior executives or to its employees, including,
without limitation, pension, profit-sharing, savings and other retirement plans
or programs, medical, dental, hospitalization, short-term and long-term
disability and life insurance plans or programs, accidental death and
dismemberment protection, travel accident insurance, and any other employee
welfare or retirement benefit plans or programs that may be sponsored by the
Company from time to time, including any plans or programs that supplement the
above-listed types of plans or programs, whether funded or unfunded. The
Executive shall be entitled to post-retirement welfare benefits on the same
basis as other similarly situated senior executives of the Company, provided
that for this purpose the Executive's period of employment shall, in accordance
with the last sentence of this Section 7(b), be deemed to be the period
necessary to obtain the maximum level of such benefits.
(c) Expenses. The Executive is authorized to incur reasonable
--------
expenses in carrying out his duties and responsibilities hereunder and the
Company shall promptly reimburse him for all such expenses, subject to
documentation in accordance with reasonable policies of the Company. The
Company shall promptly reimburse the Executive for all expenses (including,
without limitation, attorneys' fees and other charges of counsel) incurred by
him in connection with the negotiation and documentation of these employment
arrangements, up to a maximum of $75,000. The Executive shall be entitled to
reimbursement of expenses, and other benefits, in connection with his relocation
from the United Kingdom to the United States to the maximum extent consistent
with the Company's relocation programs and policies.
7
<PAGE>
(d) Perquisites. During the Term of Employment, the Executive shall
-----------
participate in all perquisites available to senior executives of the Company at
levels, and on terms and conditions, that are commensurate with his positions
and responsibilities at the Company, and shall receive such additional fringe
benefits and perquisites as the Company may, in its discretion, from time-to-
time provide, including without limitation:
(i) one country club (initiation and dues);
(ii) a leased automobile for the Executive's use (including,
without limitation, all costs of insurance, maintenance, repairs, oil and gas);
(iii) a complete annual executive physical examination;
(iv) appropriate home office equipment, including without
limitation a personal computer, fax machine, lap-top computer and similar
equipment;
(v) a cellular telephone and related service;
(vi) tax preparation and financial counseling services, up to
$5,000 per calendar year; and
(vii) five weeks paid vacation per year.
8. Termination of Employment.
--------------------------
(a) Termination Due to Death. In the event that the Executive's
------------------------
employment hereunder is terminated due to his death, his estate or his
beneficiaries (as the case may be) shall be entitled to:
(i) Base Salary through the end of the month in which his death
occurs;
(ii) a Pro-Rata annual incentive award for the fiscal year in
which his death occurs, based on the target bonus for the year of death, payable
in a lump sum promptly following his death;
(iii) the continued right to exercise each outstanding stock
option for a period of 12 months, all such options to become fully exercisable
as of the date of his death;
(iv) the continued right to exercise the Special Stock Option
for the lesser of (A) 5 years and (B) the remainder of its stated term;
8
<PAGE>
(v) Pro-Rata Long-Term Incentive Plan payouts, payable in a
lump sum, if earned, promptly following the end of the performance periods; and
(vi) the benefits described in Section 8(i)(i).
(b) Termination Due to Disability. In the event that the Executive's
-----------------------------
employment hereunder is terminated due to Disability, he shall be entitled to
the following:
(i) to receive, through age 65 and no less frequently than
monthly, periodic disability payments at a rate equal to 60% of the Base Salary
in effect as of the Termination Date, less the amount of any periodic disability
benefits provided to him by the Company (other than benefits attributable to his
own contributions) under any disability insurance plan or program of the Company
in effect during such period;
(ii) Base Salary through the end of the month in which the
Termination Date occurs;
(iii) a Pro-Rata annual incentive award for the fiscal year in
which his employment terminates, based on the target bonus for the year of
termination, payable in a lump sum promptly following the Termination Date;
(iv) the continued right to exercise each outstanding stock
option for a period of 12 months, all such options to become fully exercisable
as of the Termination Date;
(v) the continued right to exercise the Special Stock Option
for the lesser of (A) 5 years and (B) the remainder of its stated term;
(vi) Pro-Rata Long-Term Incentive Plan payouts, payable in a
lump sum, if earned, promptly following the end of the performance periods;
(vii) continued participation, through age 65, in all medical,
dental, vision, hospitalization, disability and life insurance coverages and in
all other employee welfare benefit plans, programs and arrangements in which he
was participating on the date on which his employment terminates, on terms and
conditions that are no less favorable to him than those that applied on such
date; and
(viii) the benefits described in Section 8(i)(i).
No termination of the Executive's employment for Disability shall
be effective unless the Party terminating his employment first gives 15 days
written notice of such termination to the other Party.
9
<PAGE>
(c) Termination by the Company for Cause.
------------------------------------
(i) No termination of the Executive's employment hereunder by
the Company for Cause shall be effective unless the provisions of this Section
8(c)(i) shall have been complied with. The Executive shall be given written
notice by the Board of the intention to terminate him for Cause, such notice to
state in detail the particular circumstances that constitute the grounds on
which the proposed termination for Cause is based. The Executive shall have 15
days after receiving such notice in which to cure such grounds, to the extent
such cure is possible. If he fails to cure such grounds, the Executive shall
then be entitled to a hearing before the Board. Such hearing shall be held
within 20 days of his receiving such notice, provided that he requests such
hearing within 15 days of receiving such notice. If, within five days following
such hearing, the Board gives written notice to the Executive confirming that,
in the judgment of at least two thirds of the members of the Board, Cause for
terminating his employment on the basis set forth in the original notice exists,
his employment hereunder shall thereupon be terminated for Cause, subject to de
--
novo review, at the Executive's election, through arbitration in accordance with
- ----
Section 14.
(ii) In the event that the Executive's employment hereunder is
terminated by the Company for Cause in accordance with Section 8(c)(i), he shall
be entitled to:
(A) expiration and forfeiture of any stock options
unexercisable on the Termination Date;
(B) 30 days to exercise any stock option exercisable on the
Termination Date; and
(C) the benefits described in Section 8(i)(i).
(d) Termination Without Cause. In the event that the Executive's
-------------------------
employment hereunder is terminated by the Company without Cause and Section 8(f)
does not apply, then the Executive shall be entitled to:
(i) Base Salary through the later of (A) September 30, 2001 and
(B) the second anniversary of the Termination Date, payable as provided in
Section 4.
(ii) a Pro-Rata annual incentive award for the fiscal year in
which his employment terminates, based on the target bonus for the year of
termination, payable in a lump sum promptly following the Termination Date;
(iii) an annual incentive award for a period of 24 months
following the Termination Date, based on the target bonus for the year of
termination, payable on a Pro-Rata
10
<PAGE>
basis in equal installments over the 24-month period for which Base Salary is
continued, plus a Pro-Rata payment for a partial year, if termination is prior
to September 30, 1999.
(iv) the continued right to exercise the Special Stock Option, for
the lesser of (A) 5 years and (B) the remainder of its term, such option to
become fully exercisable as of the Termination Date;
(v) the continued right to exercise any outstanding stock option,
other than the Special Stock Option, for a period of 3 months, all such options
to become fully exercisable as of the Termination Date;
(vi) full payout, at maximum levels, under each ongoing Long-Term
Incentive Plan in which the Executive is participating as of the Termination
Date, with the payouts due in a lump sum promptly following the Termination
Date;
(vii) continued participation, through the later of (A) September 30,
2001 and (B) the second anniversary of the Termination Date, in all medical,
dental, vision, hospitalization, disability and life insurance coverages and in
all other employee welfare benefit plans, programs and arrangements in which he
or his family members were participating on such date, on terms and conditions
that are no less favorable to him than those that applied on such date and with
COBRA benefits commencing thereafter; provided that the Company's obligation
-------------
under this Section 8(d)(vii) shall be reduced to the extent that equivalent
coverages and benefits (determined on a coverage-by-coverage and benefit-by-
benefit basis) are provided under the plans, programs or arrangements of a
subsequent employer; and
(viii) the benefits described in Section 8(i)(i).
(e) Constructive Termination Without Cause. In the event that (x) a
--------------------------------------
Constructive Termination Without Cause occurs and (y) Section 8(f) does not
apply, then the Executive shall have the same entitlements as provided under
Section 8(d) for a termination by the Company without Cause.
(f) Termination Without Cause Following a Change in Control or
----------------------------------------------------------
Potential Change in Control. In the event that (x) the Executive's employment
- ---------------------------
hereunder is terminated (A) through a Constructive Termination Without Cause or
(B) by the Company without Cause and (y) the termination of employment occurs in
connection with, or within two years following, a Change in Control or Potential
Change in Control, then the Executive shall be entitled to:
(i) Base Salary through the third anniversary of the Termination
Date, payable as provided in Section 4;
11
<PAGE>
(ii) a Pro-Rata annual incentive award for the fiscal year in which
his employment terminates based on the greater of (A) the Executive's actual
bonus for the year preceding termination and (B) the maximum bonus for the year
of termination, payable in a lump sum promptly following the Termination Date;
(iii) an annual incentive award for a period of 36 months following
the Termination Date, based on the greater of (A) his maximum incentive bonus
for the year of termination and (B) his actual bonus for the year preceding
termination, payable in equal installments over the 36-month period for which
Base Salary is continued.
(iv) the continued right to exercise any stock option, for the
lesser of (A) 24 months and (B) the remainder of its term, such option to become
fully exercisable as of the Termination Date;
(v) full payout, at maximum levels, under each ongoing Long-Term
Incentive Plan in which the Executive is participating as of the Termination
Date, with the payouts due in a lump sum promptly following the Termination
Date;
(vi) an amount equal to the Company's contributions to which the
Executive would have been entitled under the Company's Retirement Savings Plan
(or any successor thereto) if the Executive had continued working for the
Company and the Retirement Savings Plan continued in force during the Separation
Period at the highest annual rate of Base Salary achieved during the Executive's
period of actual employment with the Company, and making the maximum amount of
employee contributions, if any, as are required under such plans;
(vii) an amount equal to the excess of (A) the present value of the
benefits to which the Executive would be entitled under the Company's Pension
Plan and Company's Supplemental Retirement Plan (and any successor thereto) if
the Executive had continued working for the Company for a period of 36 months
following the Termination Date at the highest annual rate of Base Salary
achieved during the Executive's period of actual employment with the Company,
and the Pension Plan continued in force during the Separation Period, over (B)
the present value of the benefits to which the Executive is actually entitled
under the Company's Pension Plan and Supplemental Retirement Plan, each computed
as of the date of the Executive's Date of Termination, with present values to be
determined using the discount rate used by the Pension Benefits Guaranty
Corporation to calculate the benefit liabilities under the Pension Plan in the
event of a plan termination on the Date of Termination, compounded monthly, the
mortality tables prescribed in the Company's Pension Plan for determining
actuarial equivalence, and the reduction factor (if any) for the early
commencement of pension payments based on the Executive's age on the last day of
the 36th month following the Termination Date;
(viii) continued participation, through the third anniversary of the
12
<PAGE>
Termination Date, in all medical, dental, vision, hospitalization, disability
and life insurance coverages and in all other employee welfare benefit plans,
programs and arrangements in which he or his family members were participating
on such date, on terms and conditions that are no less favorable to him than
those that applied on such date and with COBRA benefits commencing thereafter,
provided that the Company's obligation under this Section 8(f)(vi) shall be
reduced to the extent that equivalent coverages and benefits (determined on a
coverage-by-coverage and benefit-by-benefit basis) are provided under the plans,
programs or arrangements of a subsequent employer; and
(ix) the benefits described in Section 8(i)(i).
(g) Voluntary Termination. In the event that the Executive terminates
---------------------
his employment with the Company on his own initiative, other than by death, for
Disability, by a Constructive Termination Without Cause or by giving notice in
accordance with Section 2, then he shall have the same entitlements as provided
in Section 8(c)(ii) in the case of a termination by the Company for Cause. A
voluntary termination under this Section 8(g) shall be effective upon written
notice to the Company and shall not be deemed a breach of this Agreement.
(h) Termination by Retirement. In the event that the Executive's
-------------------------
employment hereunder is terminated (x) by the Executive or the Company through
notice in accordance with Section 2 or (y) by expiration of the second extension
period referred to in Section 2, then the Executive shall be entitled to:
(i) the continued right to exercise any outstanding stock option,
except the Special Stock Option, for 12 months, all such options to become fully
exercisable as of the Termination Date;
(ii) the Special Stock Option to become exercisable as originally
scheduled and remain exercisable for the lesser of (A) five years following the
Termination Date and (B) the remainder of its term; and
(iii) the benefits described in Section 8(i)(i).
(i) Miscellaneous.
--------------
(i) On any termination of the Executive's employment hereunder, he
shall be entitled to:
(A) Base Salary through the Termination Date;
(B) the balance of any incentive awards earned (but not yet
paid);
13
<PAGE>
(C) any amounts due him under Section 7;
(D) a lump-sum payment in respect of accrued but unused
vacation days at his Base Salary rate in effect as of the Termination Date;
(E) payment, promptly when due, of all amounts owed to him in
connection with the termination; and
(F) other benefits, if any, in accordance with applicable
plans, programs and arrangements of the Company, provided that Executive shall
-------------
not be eligible to receive payments under any severance program of the Company
applicable to employees generally.
(ii) In the event that the Executive, or any member of his family,
is precluded from continuing full participation in any employee benefit plan,
program or arrangement, then the Executive shall be provided with the after-tax
economic equivalent of any benefit or coverage foregone. For this purpose, the
economic equivalent of any benefit or coverage foregone shall be deemed to be
the total cost to the Executive of obtaining such benefit or coverage himself on
an individual basis. Payment of such after-tax economic equivalent shall be made
quarterly in advance, without discount.
(iii) In the event of any termination of the Executive's employment
hereunder, the Executive shall be under no obligation to seek other employment
or otherwise mitigate the obligations of the Company under this Agreement.
(iv) In the event of a termination of Executive's employment due to
(x) a Termination without Cause pursuant to Section g(d) or (y) a Constructive
Termination without Cause pursuant to Section 8(e), the Base Salary continuation
payments shall be offset to the extent of the Executive's earnings from full-
time employment with another employer during the period of Base Salary
continuation.
(v) Any amounts due under this Section 8 are considered to be
reasonable by the Company and are not in the nature of a penalty.
9. Change in Control.
------------------
(a) Vesting. In the event that a Change in Control or Potential
-------
Change in Control occurs after the Effective Date, then each outstanding stock
option (including, without limitation, the Special Stock Option) shall become
fully exercisable as of the date of such Change in Control or Potential Change
in Control and shall remain fully exercisable for the remainder of its maximum
stated term except as otherwise provided in Section 8. In the event that holders
of Common Stock receive cash, securities or other property in respect to their
Common Stock in connection with a Change in Control transaction, the Company
shall use its
14
<PAGE>
best reasonable efforts to enable the Executive (if he so elects) to exercise
any stock option at a time and in a fashion that will entitle him to receive in
exchange for any shares thus acquired the same consideration as is received in
such Change in Control transaction by other holders of Common Stock.
Notwithstanding the foregoing, in the event that a Change in Control or
Potential Change in Control occurs within 180 days following the Effective Date,
then the Executive's right to exercise the Special Stock Option in respect of
the shares referred to in Section 6(a) shall not accelerate.
(b) Golden Parachute Tax. In the event that any payment or benefit
--------------------
made or provided to or for the benefit of the Executive in connection with this
Agreement, the Executive's employment with the Company, or the termination
thereof (a "Payment") is determined to be subject to any excise tax ("Excise
Tax") imposed by Section 4999 of the Code (or any successor to such Section),
the Company shall pay to the Executive, prior to the time any Excise Tax is
payable with respect to such Payment (through withholding or otherwise), an
additional amount which, after the imposition of all income, employment, excise
and other taxes, penalties and interest thereon, is equal to the sum of (i) the
Excise Tax on such Payment plus (ii) any penalty and interest assessments
associated with such Excise Tax. The determination of whether any Payment is
subject to an Excise Tax and, if so, the amount to be paid by the Company to the
Executive and the time of payment shall be made by an independent auditor (the
"Auditor") selected jointly by the Parties and paid by the Company. Unless the
Executive agrees otherwise in writing, the Auditor shall be a nationally
recognized United States public accounting firm that has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Company or any of its Affiliates. If the Parties cannot agree on the firm to
serve as the Auditor, then the Parties shall each select one accounting firm and
those two firms shall jointly select the accounting firm to serve as the
Auditor.
10. Indemnification; D&O Insurance.
-------------------------------
(a) Indemnification. The Company agrees that (i) if the Executive is
---------------
made a party, or is threatened to be made a party, to any Proceeding by reason
of the fact that he is or was a director, officer, employee, agent, manager,
consultant or representative of the Company or is or was serving at the request
of the Company or any of its Affiliates as a director, officer, member,
employee, agent, manager, consultant or representative of another Person or (ii)
if any Claim is made, or threatened to be made, that arises out of or relates to
this Agreement or the Executive's service hereunder or in any of the foregoing
capacities, then the Executive shall promptly be indemnified and held harmless
by the Company to the fullest extent legally permitted or authorized by the
Company's certificate of incorporation, bylaws or Board resolutions or, if
greater, by the laws of the State of Ohio, against any and all costs, expenses,
liabilities and losses (including, without limitation, attorneys' fees,
judgments, interest, expenses of investigation, penalties, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, employee, agent, manager, consultant or representative of the Company or
other Person and shall
15
<PAGE>
inure to the benefit of the Executive's heirs, executors and administrators. The
Company shall advance to the Executive all costs and expenses incurred by him in
connection with any such Proceeding or Claim within 15 days after receiving
written notice requesting such an advance. Such notice shall include, to the
extent required by applicable law, an undertaking by the Executive to repay the
amount advanced if he is ultimately determined not to be entitled to
indemnification against such costs and expenses.
(b) D&O Insurance. During the Term of Employment and for a period of
-------------
six years thereafter, the Company shall keep in place a directors and officers'
liability insurance policy (or policies) providing comprehensive coverage to the
Executive to the extent that the Company provides such coverage for any other
senior executive or director.
11. Covenants.
----------
(a) Confidentiality. During the Term of Employment and thereafter,
---------------
the Executive shall not, without the prior written consent of the Company,
divulge, disclose or make accessible to any Person any confidential non-public
document, record or information concerning the business or affairs of the
Company that he has acquired in the course of his employment hereunder, except
(x) to the Company or to any authorized (or apparently authorized) agent or
representative of the Company, (y) in connection with performing his duties
under this Agreement, or (z) when required to do so by law or by a court,
governmental agency, legislative body, or other Person with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information; provided that these restrictions shall not apply to any document,
-------------
record or other information that (i) has previously been disclosed to the
public, or is in the public domain, other than as a result of the Executive's
breach of this Section II (a), or (ii) is known or generally available within
any trade or industry of the Company.
(b) Non-Solicitation. During the 24 month period that commences on
----------------
the Termination Date and ends on the second anniversary of the Termination Date,
the Executive shall not without the prior consent of the Company:
(i) solicit, on his own behalf or on behalf of any other
Person, any individual known by the Executive to be an employee of the Company
to instead become an employee of any Person not affiliated with the Company;
(ii) solicit, on his own behalf or on behalf of any other
Person, any Person known by the Executive to be customer of, or vendor to, the
Company to instead become a customer of, or vendor to, any Person not affiliated
with the Company.
(c) Non-Competition. During the 12 month period that commences on the
---------------
Termination Date and ends on the first anniversary of the Termination Date, the
Executive shall not, without the prior consent of the Company, directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by
16
<PAGE>
or otherwise connected in any substantial manner with any business which
directly or indirectly competes to a material extent with any line of business
of the Company or its subsidiaries which was operated by the Company or its
subsidiaries at the Termination Date; provided that nothing in this paragraph
shall prohibit the Executive from acquiring up to 5% of any class of outstanding
equity securities of any corporation whose equity securities are regularly
traded on a national securities exchange or in the "over-the-counter market,"
and provided further, that the foregoing restriction of this Section 11 (c)
shall not apply following a Change of Control Event or a Potential Change in
Control Event if (v) the Executive's employment has been terminated by the
Company without Cause, (w) the Executive terminates his employment as the result
of a Constructive Termination or (x) the Company elects not to extend the Term
of Employment.
12. Assignability, Binding Nature.
------------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or a sale or liquidation of all or
substantially all of the assets of the Company; provided that the assignee or
-------------
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes the liabilities, obligations and
duties of the Company, as contained in this Agreement, either contractually or
as a matter of law. In the event of any sale of assets or liquidation as
described in the preceding sentence, the Company shall use its best efforts to
cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder. No rights or obligations of
the Executive under this Agreement may be assigned or transferred by the
Executive other than his fights to compensation and benefits, which may be
transferred only by will or operation of law, except as provided in Section
16(e) or in Exhibit A.
13. Representations.
----------------
(a) The Company's Representations. The Company represents and
-----------------------------
warrants that (i) it is fully authorized by action of its Board (and of any
other Person or body whose action is required) to enter into this Agreement and
to perform its obligations under it; (ii) the execution, delivery and
performance of this Agreement by the Company does not violate any applicable
law, regulation, order, judgment or decree or any agreement, plan or corporate
governance document of the Company; and (iii) upon the execution and delivery of
this Agreement by the Parties, this Agreement shall be the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except to the extent enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
fights generally.
17
<PAGE>
(b) The Executive's Representations. The Executive represents and
-------------------------------
warrants that, to the best of his knowledge and belief, (i) delivery and
performance of this Agreement by him does not violate any applicable law,
regulation, order, judgment or decree or any agreement to which the Executive is
a party or by which he is bound, and (ii) upon the execution and delivery of
this Agreement by the Parties and the Guarantor, this Agreement shall be the
valid and binding obligation of the Executive, enforceable against him in
accordance with its terms, except to the extent enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
14. Resolution of Disputes.
-----------------------
Any Claim arising out of or relating to this Agreement or the
Executive's employment with the Company or the termination thereof shall be
resolved by binding confidential arbitration, to be held in Philadelphia,
Pennsylvania, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Company shall promptly pay all costs and expenses, including without limitation
attorneys' fees, incurred by the Executive or his beneficiaries in resolving any
such Claim. Pending the resolution of any Claim, the Executive (and his
beneficiaries) shall continue to receive all payments and benefits due under
this Agreement.
15. Notices.
--------
Any notice, consent, demand, request, or other communication given to
a Person in connection with this Agreement shall be in writing and shall be
deemed to have been given to such Person (a) when delivered personally to such
Person or (b), provided that a written acknowledgment of receipt is obtained,
two days after being sent by prepaid certified or registered mail, or by a
nationally recognized overnight courier, to the address specified below for such
Person (or to such other address as such Person shall have specified by ten days
advance notice given in accordance with this Section 15), or (c) in the case of
the Company only, on the first business day after it is sent by facsimile to the
facsimile number set forth for the Company (or to such other facsimile number as
the Company shall have specified by ten days advance notice given in accordance
with this Section 15), with a confirmatory copy sent by certified or registered
mail or by overnight courier to the Company in accordance with this Section 15.
If to the Company: IKON Office Solutions, Inc.
70 Valley Stream Parkway
Malvern, Pennsylvania 19355
Attn: General Counsel
Facsimile #:______________
If to the Executive: James J. Forese
18
<PAGE>
134 Abrahams Lane
St. Davids, Pennsylvania 19087
(with a copy to the Executive at the Company's
address)
If to a beneficiary The address most recently specified by the
of the Executive: Executive or beneficiary through notice given
in accordance with this Section 15.
16. Miscellaneous.
--------------
(a) Entire Agreement. This Agreement contains the entire
----------------
understanding and agreement between the Parties concerning the subject matter
hereof and supersedes all prior agreements, understandings, discussions,
negotiations and undertakings, whether written or oral, between the Parties with
respect thereto.
(b) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law so as to achieve the purposes of this Agreement.
(c) Amendment or Waiver. No provision in this Agreement may be
-------------------
amended unless such amendment is set forth in a writing signed by the Parties.
No waiver by either Party of any breach of any condition or provision contained
in this Agreement shall be deemed a waiver of any similar or dissimilar
condition or provision at the same or any prior or subsequent time. To be
effective, any waiver must be set forth in a writing signed by the waiving
Party.
(d) Headings. The headings of the Sections contained in this
--------
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
(e) Beneficiaries/References. The Executive shall be entitled, to
------------------------
the extent permitted under any applicable law, to select and change a
beneficiary or beneficiaries to receive any compensation or benefit hereunder
following the Executive's death by giving the Company written notice thereof.
In the event of the Executive's death or a judicial determination of his
incompetence, references in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.
(f) Survivorship. Except as otherwise set forth in this Agreement,
------------
the respective rights and obligations of the Parties hereunder shall survive any
termination of the Executive's employment.
19
<PAGE>
(g) Governing Law/Jurisdiction. This Agreement shall be governed,
--------------------------
construed, performed and enforced in accordance with the laws of the State of
Pennsylvania, without reference to principles of conflict of laws.
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
The Company
By: /s/ Richard A. Jalkut
---------------------
Title: Chairman
The Executive
/s/ James J. Forese
------------------
James J. Forese
20
<PAGE>
Exhibit 10.34
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. YOU MUST
BE AWARE THAT ADDENDA A B AND C FORM PART OF THIS AGREEMENT
This Employment Agreement ("Agreement") effective ______ October 1997 is
entered into between IKON OFFICE SOLUTIONS PLC (Company Number: 1271033) whose
registered office is situated at IKON House. 30 Cowcross Street. London ECIM
6DQ ("IKON") and David Mills of 2 Farley Park, Oxted, Surrey RH8 9HY
("Executive").
In consideration of the mutual promises contained in this Agreement none of
which would be conferred upon Executive absent execution of this Agreement, the
parties to this Agreement ("Parties"), INTENDING TO BE LEGALLY BOUND, agree as
follows:
DEFINITIONS
- -----------
In this Agreement unless the context otherwise requires:
1. "Board" means the Board of Directors of IKON;
2. "Group Companies" means the Company, its ultimate holding company and all
subsidiary and associated companies of the Company and/or its ultimate
holding company;
3. "associated company" means a company which falls to be treated as such for
the purposes of Statement of Standard Accounting Practice No. I of the
Institute of Chartered Accountants in England & Wales;
4. "subsidiary" and "holding company" have the meaning ascribed thereto in
Section 736 of the Companies Act 1985 (as mended).
ARTICLE I - TERMS OF EMPLOYMENT
- -------------------------------
1.1 DUTIES
------
1.1.1 DUTIES OF POSITION. IKON shall employ Executive as President. The
------------------
Parties expressly agree that the position of President of IKON is a key position
and an executive position in IKON. Executive shall comply with his obligations
set forth in this Agreement. 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 IKON and its Group Companies.
1.1.2 DUTY OF LOYALTY. Executive will (1) devote substantially the whole of
---------------
his working time, attention, and energies to the business of IKON and its Group
Companies and diligently perform all duties incident to his employment; (2) use
his best efforts to promote the interests and goodwill of IKON and its Group
Companies; and (3) perform such other duties commensurate with his office as
President of IKON from time to time reasonably assigned to him. Further, during
the Term (as defined below) Executive shall not knowingly engage in any activity
to the detriment or embarrassment of IKON and its Group Companies. By way of
illustration and not as a limitation, Executive shall not discuss with any
customer or potential customer of or any
<PAGE>
customer of or any competitor of IKON any plans by Executive or any other
employees of IKON and its Group Companies to leave the employment of IKON and
its Group Companies (save where such discussions concern the employment of
Executive with a customer or potential customer whose business does not compete
with file Company's Business (as detailed in Article 3.1)) or to compete with
IKON and its Group Companies and Executive shall at all times in performance of
his duties work in concert with and take reasonable direction from the Board.
Further, Executive will make such reports, concerning the affairs of IKON and
other Group Companies as and when required by the Board or any holding company
of IKON.
1.1.3 DISCLOSURE OF INTERESTS
-----------------------
1.1.3.1 Except as a representative of IKON or with the previous approval of
the Board, Executive shall not during the Term (as defined below) whether
directly or indirectly paid or unpaid be engaged or concerned in the conduct of
any other actual or prospective business or profession or be or become an
employee, agent, partner, consultant or director of any other company or firm or
have any financial interest in any other such business or profession.
1.1.3.2 Executive shall be permitted to hold: (i) shares or securities of
a company any of whose shares or securities are quoted or dealt in on any
recognized investment exchange provided that any such holding shall not exceed
five (5) per cent of the issued share capital of the company concerned and is
held by way of bona fide investment only; (ii) shares or securities of an
unquoted company provided that any such holding shall not exceed ten (10) per
cent of the issued share capital of the company and is held by way of bona fide
investment only; (iii) passive investment in venture capital trusts, business
expansion schemes or similar bodies save that this sub-Article 1.1.3.2 shall not
permit any holding of shares, securities and other investment in any company or
other entity engaged in business similar to or competitive with the Company's
Business (as defined in Article 3.1) and (iv) investment in unit trusts and
other similar widely diversified funds (e.g. investment funds and pension funds)
in which Executive does not direct the businesses in which investments are made.
1.2 TERM OF AGREEMENT
-----------------
1.2.1 Length of Term. IKON shall engage Executive and Executive shall
--------------
serve IKON as herein provided. The term of this engagement shall commence on
_______ October 1997 and shall continue subject as herein mentioned in this
Agreement unless and until terminated by either party giving to the other not
less than three (3) months previous notice in writing but not in any event so as
to extend beyond Executive's 65/th/ birthday ("Term").
1.2.2 Payment in Lieu. Where notice is served to terminate the Term
---------------
whether by IKON or by Executive, then IKON shall terminate the Term forthwith
and in full and final satisfaction of Executive's claims under this Agreement by
paying to Executive a payment in lieu of notice. Such payment will be without
prejudice to the obligations of the Parties under Article 4 hereof and to
Executive's right to payment of accrued Base Salary, Contractual Bonus and other
Contractual Entitlements (each of Base Salary, Contractual Bonus and other
Contractual entitlements as set out in Addendum A) in respect of the period to
the date of termination. Such payment will be comprised of Executive's Base
Salary, Contractual Entitlements and his Contractual Bonus as set out in
Addendum A each pro-rata for the remaining period of notice on the basis that
the Executive had actually served the remaining period of notice. The method of
calculating the payment in lieu of notice as at the date hereof is provided at
Addendum C.
1.2.3 Continuing Service. Where notice is served to terminate the Term
------------------
pursuant to Article 1.2.1, Executive shall, at the request of IKON, provide his
services (as provided for hereunder) for a further period of up to one month
from the date notice is served (the "Further Period"). In the event that
Executive is so requested, Executive shall receive a further payment equivalent
to his Base Salary, Contractual Entitlements and Contractual Bonus pro rata the
Further Period. The method of calculating the further payment as at the date
hereof is provided at Addendum C. For the sake of clarity such payment shall be
in addition to the other payments,
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Further Period. The method of calculating the further payment as at the date
hereof is provided at Addendum C. For the sake of clarity such payment shall be
in addition to the other payments, if any, due to Executive hereunder. The date
of termination for the purposes of this Agreement shall be the date where notice
is served to terminate the Term pursuant to Article 1.2.1.
1.3 COMPENSATION. During the Term, Executive shall be compensated in
------------
accordance with the terms set forth in Addendum A of the Agreement which is
incorporated as if fully set forth herein. Without prejudice to the generality
of the foregoing this shall include any changes to the Base Salary. Contractual
Entitlements or Contractual Bonus stated therein ("Total Compensation Package")
providing such alterations to Base Salary and/or alterations to Contractual
Entitlements and/or alterations in Contractual Bonus which have been mutually
agreed by Executive and IKON and notified to Executive in writing by IKON. In
the event IKON shall pay to Executive during the Term any compensation in excess
of die Total Compensation Package provided for herein, the same shall not be
deemed thereby for any purpose to become part of the contractual remuneration or
part of Total Compensation Package hereunder. The fact that such a payment is
payable in any one year does not indicate any entitlement for future years.
1.4 OBLIGATIONS OF EXECUTIVE
------------------------
1.4.1 Executive understands that the obligations imposed under this
Agreement are not exclusive, and that Executive may be required in pursuance of
his duties hereunder:
(1) to perform services not only for IKON but also for any of the Group
Companies and without further remuneration (except as otherwise agreed) to
accept such offices in any of the Group Companies as IKON may from time to time
reasonably require;
(2) to work at such places within the United Kingdom as IKON may
require within a reasonable travelling distance of Executive's current location;
and
(3) to travel to such places whether in or outside the United Kingdom
by such means and on such occasions as IKON may from time to time reasonably
require.
1.4.2 Without prejudice to Article 1.2.2 but notwithstanding the
foregoing or any other provision of this Agreement, IKON shall not be under any
obligation to vest in or assign to Executive any powers or duties and may
require Executive to perform:
(1) all his normal duties;
(2) a part only of his normal duties and no other duties;
(3) such duties as it may reasonably require and no others;
(4) no duties whatever;
and may from time to time suspend or exclude Executive from the performance of
his duties and/or from all or any promises of IKON for the period of three (3)
months in total at any one time without the need to give any reason for doing so
but his Total Compensation Package hereunder will not cease to be payable to or
provided to Executive (in whole or in part) by reason only of such requirement
as mentioned in sub-Articles (2) to (4) of this Article 1.4.2 or such suspension
or exclusion (unless or until his employment under this Agreement shall be
terminated.)
1.5 DISCOVERIES
-----------
1.5.1 Acknowledgement of Potential Discoveries. Executive acknowledges
----------------------------------------
that because of the nature of his duties and the particular responsibilities
arising as a result of such duties which he owes to IKON and the Group Companies
he has a special obligation to further the interests of IKON and the Group
Companies. In particular, the duties of Executive may include
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reviewing the services supplied by IKON and Group Companies with a view to
improving them by new and/or original ideas and inventions and implementing such
improvements.
1.5.2 Duty of Disclosure. Executive shall promptly disclose in writing
------------------
to IKON any and all information, ideas, conceptions, inventions, discoveries,
processes, methods, designs and know-hows, as well as all works of authorship
(including computer programs) (together "Intellectual Property") which are
conceived, originated, developed, made or acquired by Executive either
individually or jointly with others, during the period of Executive's employment
with IKON and: (i) for which IKON or any other Group Company provided either
equipment, supplies, facilities, or confidential information; or (ii) which were
made or conceived on or partially on IKON's time; or (iii) which relate to
IKON's business or that of any other Group Company any or the business that IKON
or any other Group Company is in the process of developing.
1.5.3 Vesting. Executive acknowledges that the intellectual property
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rights subsisting or which may in the future subsist in any such Intellectual
Property conceived, originated, developed, made or acquired by Executive, either
individually or jointly with others, during the period of Executive's employment
with IKON will, on creation, vest in and be the exclusive property of IKON and
its Group Companies and where the same does not automatically vest as aforesaid
the Executive shall assign the same to IKON or its nominee (upon the request and
at the cost of IKON). Executive hereby irrevocably waives any rights which he
may have in any such Intellectual Property which are or have been conferred upon
him by Chapter IV of Part I of the Copyright. Designs and Patents Act 1988
headed "Moral Rights".
1.5.4 Appointment of Attorney. Executive hereby irrevocable, appoints
-----------------------
IKON to be his attorney, in his name and on his behalf to execute and do any
such instrument or thing and generally to use his name for the purpose of giving
to IKON or its nominee the full benefit of the provisions of this Article 1.5
and acknowledges in favor of any third party that a certificate in writing
signed by any Director or Secretary of IKON that any instrument or act falls
within the authority hereby conferred shall be conclusive evidence that such is
the case.
1.5.5 Discoveries Post Termination. Executive agrees that, without
----------------------------
limitation to the foregoing:
(a) any Intellectual Property disclosed by Executive to a third
person or described in a patent or registered design application filed by the
Executive or on the Executive's behalf, and
(b) any Intellectual Property disclosed to a third person,
published or the subject of an application for copyright or other registration
filed by Executive or on Executive's behalf.
during or within twelve (12) months following termination of the Term will be
presumed to have been written, developed, produced, conceived or made by
Executive during the Term, unless proved by Executive to have been written,
developed, produced, conceived or made by Executive following the termination of
the Term.
ARTICLE 2 - TERMINATION OF AGREEMENT
- ------------------------------------
2.1 TERMINATION BY THE COMPANY - DEFAULT. IKON may, in its sole discretion,
-------------------------------------
terminate Executive's employment summarily at any time during the Term if
Executive shall have committed an act of gross misconduct which without
prejudice to the generality of the foregoing shall include Executive:
(1) committing an act of dishonesty or theft;
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(2) being declared bankrupt or compounding with his creditors; and
(3) engaging in any activity to the detriment or embarrassment of IKON
(and any Group Company), or breaching the duties of loyalty to IKON under
Article 1.1.2 hereunder, or refusing to take reasonable directions from the
Board (or any holding company) of IKON PROVIDED THAT such conduct amounts to a
gross breach of his obligations under the terms of this Agreement.
In the event of the termination of Executive trader this Article 2.1,
Executive's right to the compensation and benefits provided in Addendum A shall
immediately terminate and/or cease to accrue provided, however, that Executive
shall receive computed on a pro-rata basis to the date of termination of
employment (i) the unpaid portion, if any, of the Base Salary and (ii) any
unpaid accrued Contractual Entitlements owed to the Executive in accordance with
Addendum A. Save where terminated under sub-Article 2.1(2), there will be no
entitlement to receive accrued Contractual Bonus.
2.2 TERMINATION BY THE COMPANY - IN OTHER CIRCUMSTANCES. IKON may terminate the
--------------------------------------------------
employment of Executive during the Term as stated in Article 1.2.
2.3 DISABILITY AND DEATH
--------------------
2.3.1 DISABILITY. If the Executive is unable fully to perform his duties
----------
and responsibilities hereunder to the full extent required by IKON by reason of
illness, injury or incapacity for twenty -six (26) consecutive weeks in any
period of twelve (12) months, IKON may, by written notice to Executive forthwith
(or as from a future date specified in the notice) discontinue payment in whole
or part of the Total Compensation Package until such incapacity shall cease or
(whether or not the payment of the Total Compensation Package shall have
discontinued as aforesaid) determine the Term. Subject as aforesaid, the Total
Compensation Package shall continue to be payable to Executive notwithstanding
incapacity but IKON shall be entitled to set off or deduct therefrom the amount
of any sickness or other benefit to which the Executive is entitled under the
social security legislation for the time being in force. In the event that
Executive is unable to perform his duties as set out in this Article, IKON shall
not act in such a way as to frustrate the purpose of the Permanent Health
Insurance as set out in Addendum A.
2.3.2 DEATH. In the event that Executive dies during the Term, IKON shall
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pay to his executors, legal representatives or administrators an amount equal to
the installment of his Base Salary set forth in Addendum A for the month in
which he dies and a payment equal to the Contractual Bonus pro rata the period
served shall be paid and thereafter IKON 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 will be in effect for employees of IKON and in which
Executive participated and (ii) any unpaid accrued benefits owed to the
Executive in accordance with the terms of scheme or plan referred to in Addendum
A.
ARTICLE 3 - RESTRICTION ON THE USE OF CONFIDENTIAL INFORMATION
- ----------------------------------------------------------------
3.1 SCOPE OF CONFIDENTIAL INFORMATION. Executive acknowledges that IKON and
----------------------------------
its Group Companies are engaged in the business of sales, servicing, renting,
financing and leasing relating to copier equipment, facsimiles, laser printers
and document facilities management and state-of-the-art copying and/or document
scanning operations, the ongoing development and implementation of outsourcing
of document facilities management, copying, facsimile, laser printing and local
area networking sales and services and such other business or
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businesses as IKON may notify Executive prior to termination hereof 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". IKON and Executive intend that the meaning of "Company Secrets" in
this Agreement will be read as broadly as possible to include all confidential
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
as IKON may notify Executive prior to termination hereof) 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 IKON
and its Group Companies during Executive's employment by IKON, IKON and its
Group Companies 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 IKON 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 IKON who do not have a reasonable right or need to know the Company
Secrets.
Executive will, during his employment relationship with IKON 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
IKON and as directed by IKON, any of the Company Secrets.
The restrictions set out in this Article shall not apply so such matters: (1)
which are in public domain (other than through the default of Executive); or (2)
which Executive is required to produce by a court of competent jurisdiction or
by government or regulatory body.
3.3 RETURN OF CONFIDENTIAL INFORMATION. Executive will, prior to or upon
----------------------------------
leaving employment with IKON, deliver up to IKON any and all records, items and
media of any type (including, without limitations, 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 IKON and its Group Companies.
3.4 ADDITIONAL AGREEMENTS REQUIRED BY THIRD PARTIES. Executive will enter into
-----------------------------------------------
and comply fully with any agreement reasonably required by any of IKON and its
Group Companies' affiliates, business partners, suppliers or contractors with
respect to the protection of the confidential and proprietary information of
such entities.
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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 an), 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 ACKNOWLEDGEMENT BY EXECUTIVE
----------------------------
4.1.1 ACKNOWLEDGEMENT OF PROTECTABLE INTERESTS. Executive agrees that
----------------------------------------
IKON and its Group Companies have protectable interests in the Company Secrets,
goodwill, trade connections, their employees and the specialized knowledge
acquired by Executive during the course of his employment with IKON and any
Group Companies.
4.1.2 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 IKON and its Group Companies of its non-
enforcement outweighs any harm to the Executive of its enforcement by injunction
or otherwise.
4.2 POST-EMPLOYMENT RESTRICTIONS
----------------------------
4.2.1 In consideration of Executive submitting to the obligations upon
him under Article 4.2.2 hereof, IKON shall where there is termination of
Executive's employment.
(1) pay to Executive the Sum as hereinafter defined per month (i)
commencing at the expiration of the period in respect of which payment is made
pursuant to Article 1.2.2 hereof or at the date of termination (whichever shall
be the later) and (ii) ending at the expiration of the period of one year from
the date of termination (which period shall, if relevant. be reduced in the same
manner referred to at Article 4.2.3) (the "Payment Period"). The Sum shall be
equal to one month's Base Salary, and one month's Contractual Bonus and one
months' Contractual Entitlements as was being paid to or, as in the case of the
Contractual Bonus, accrued by or as in the case of the Contractual Entitlements
provided to Executive (each of Base Salary, Contractual Bonus and other
Contractual Entitlements as set out in Addendum A) immediately prior to
termination. The method of calculating the Sum as at (the date hereof is
provided at Addendum C. Each Sum shall be paid in arrears on or before the last
working day of each month and shall be paid less such tax and statutory
deductions that IKON is obliged by law and by the appropriate statutory or
governmental authority to deduct from such payment.
(2) (provided that the Term shall not have been terminated pursuant to
Article 2.1 hereof) request the Committee (as defined in the Rules of the Alco
Standard Corporation/IKON Office Solutions, Inc Stock Option Plan (the "Plan"))
to exercise its discretion pursuant to Article 6.3(f) of the Plan in order that,
in circumstances where Executive shall have ceased to be an employee or
consultant of a Group Company, that Executive's remaining stock options
exercisable as at the date of termination shall remain exercisable as permitted
by the Plan for the duration of the longer of the period of 3 months from
termination or the period of 3 months from the first day that Executive is
permitted to exercise such options where earlier exercise is prohibited by law
or regulations and that Executive shall for the said period have right to
exercise such options and/or sell such stock in IKON Office Solutions, Inc.
subject to the Executive complying with the provisions of Article 4.2.2. IKON
shall procure that Executive shall no longer be deemed an "insider" as described
in the Confidential Information and Securities Trading Policy, a copy of which
Executive has already received. In the event that Executive shall have before
the
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expiry of the period stated (without the prior approval of IKON) directly or
indirectly to a material extent breached Executive's obligations set out in
Article 4.2.2 below then all options which Executive holds pursuant to the Plan
shall lapse and terminate and shall not in any event be exercisable thereafter
(unless the Committee (as defined in the Plan) shall otherwise so determine).
Executive hereby specifically acknowledges that the exercise of the discretion
referred to above is not an entitlement and that this Article is reasonable in
the circumstances.
It is agreed that this sub-Article 4.2.1(2) shall apply mutatis mutandis to
any other plan or scheme (subject always to the rules of such plan or scheme)
operated by IKON or any other Group Company pursuant to which Executive has the
right to acquire stock in IKON Office Solutions, Inc.
4.2.2 Executive hereby covenants with IKON (for itself and as trustee for
its Group Companies) that upon termination of Executive's employment with IKON
howsoever arising Executive will not, without the express written consent of
IKON, directly or indirectly, for the following periods stated front the date of
termination, in any capacity (including 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.
4.2.2.1 at any time make any announcement, statement or comment
(whether to the financial media, any competitor, customer or supplier of any
Group Company, any contract consultant specializing in examining terms of
photocopying contracts of supply and/or service, any employee of any Group
Company) concerning:
(i) the terms of this Agreement; and
(ii) the business of IKON and other Group Companies in
breach of Article 3;
save to the extent required by law or by any relevant
statutory authority
4.2.2.2 at anytime make any statement concerning IKON or any other
Group Company or any officers or employees of any such company which is
calculated to be damaging to the business or reputation of the same;
4.2.2.3 for the period of one (1) year from the date of
termination, make contact with the officers, employees, competitors, customers
and suppliers of Group Companies which is calculated to cause any disruption or
any adverse effect to the business of any Group Company. Without prejudice to
the generality of the foregoing, in the event that any such person shall contact
Executive, Executive shall inform them that Executive has left IKON on agreed
terms (without specifying those terms) and that he is unable to discuss any
matters concerning any Group Company. If this does not resolve the matter,
Executive shall refer such person to the Company Secretary of IKON. This
Article 4.2.2.3 shall not prevent Executive contacting the individuals stated
for the purpose of Executive furthering his own legitimate career interests
PROVIDED THAT first such interests are outside the Company's Business and
secondly that such conduct is not calculated to cause any disruption or any
adverse effect to the business of any Group Company:
4.2.2.4 for the period of one (1) year from the date of termination
in the Relevant Territory, solicit or interfere with or endeavor to entice away
from IKON or any of the Relevant Group Companies (for any undertaking which
provides services/products similar to those provided by IKON) any person, firm,
company or entity who was a customer of IKON or of any of the Relevant Group
Companies in the twelve (12) months prior to the date of termination and with
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whom Executive was concerned in the course of his duties for IKON or its
predecessors in business or had personal contact at any time during the said 12
months;
4.2.2.5 for the period of one (1) year from the date of termination
in the Relevant Territory, offer to employ or engage or solicit the employment
or engagement of any person who immediately prior to the date of termination was
a director, senior employee, salesman, service engineer, manager or consultant
of IKON or any of the Relevant Group Companies and with whom Executive worked in
the twelve (12) months prior to the date of termination (whether or not such
person would commit any breach of their contract of employment or engagement by
reason of leaving the service of such company);
4.2.2.6 for the period of one (1) year from the date of termination
in the Relevant Territory, accept or continue any employment, engagement,
substantial shareholding or directorship in or act as a consultant to any
business if such employment, engagement, substantial shareholding, directorship
or consultancy is (so far as Executive is aware or could reasonably be expected
to be aware) concerned with the business of sales, servicing, renting, financing
and leasing relating to copier equipment, facsimiles, laser printers and leasing
relating to copier equipment, facsimiles, laser printers and document facilities
management and state-of-the-art copying and/or document scanning operations, the
ongoing development and implementation of outsourcing of document facilities
management, copying, facsimile, laser printing and local area networking sales
and services, and such other businesses as IKON may notify Executive prior to
termination hereof and with which Executive was concerned with in the course of
his duties for IKON or any Relevant Group Companies or their predecessors in
business at any time during the twelve (12) months immediately preceding the
date of termination; and
4.2.2.7 at any time represent himself as being in any way connected
with an interest in IKON or any Relevant Group Company except for matters
directly connected with any shares or other securities in such companies
4.2.3 For the purposes of this Article:
4.2.3.1 "Relevant Territory" shall mean England, Scotland and Wales
which Executive hereby acknowledges constitutes the market of IKON or its
Relevant Group Companies for products and services with which the Executive is
so concerned at the date hereof. Executive further acknowledges that if such
area be different as at the date of termination then such Relevant Territory
shall Mean the area constituting the market of IKON or its Relevant Group
Companies for products and services with which Executive shall have been
concerned for the period of twelve (12) months prior to termination. In such
circumstances IKON shall provide to the Executive with a list detailing the
areas constituting the Relevant Territory within fourteen (14) days of
termination.
4.2.3.2 "Relevant Group Company" shall mean any of the Group
Companies for which Executive has performed services or in which he has held
office during the twelve (12) months immediately preceding termination; and
4.2.3.3 the periods of the restrictions stated at Article 4.2.2 as
being one (1) year shall be reduced by the length of time, if any, that
Executive is suspended from his duties pursuant to Article 1.4.2 hereof if such
suspension ends with the date of termination.
4.2.4 In event that before or during the Payment Period Executive shall
have (without the prior approval of the Board) directly, or indirectly, to a
material extent breached his obligations as set out herein at Article 1.1.2, 3
or 4.2 then the Board shall be entitled forthwith to terminate all payments
pursuant to Article 4.2.1 and to keep such sums on account of damages and the
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restrictions in Article 4.2.2 shall continue to apply to Executive
notwithstanding the termination of such payments.
4.2.5 Executive acknowledges that he had the opportunity to take legal
advice in relation to the restrictions contained in Article 4 of this Agreement
and that lie acknowledges that in the circumstances, and bearing in mind the
substantial consideration to be paid to him pursuant to Article 4.2.1 of this
Agreement such restrictions are reasonable to protect the legitimate business
interests of IKON and other Group Companies and (but without prejudice to the
generality of the foregoing) that such consideration is more than sufficient for
such covenants, and accordingly that Executive hereby irrevocably waives any
right which he might otherwise have to allege that such consideration was not
sufficient.
4.2.6 IKON (for itself and as trustee for its Group Companies) hereby
covenants with Executive that upon termination of Executive's employment with
IKON howsoever arising it will not (without the express written consent of
Executive) at any time make any announcement, statement or comment concerning
tire terms of this Agreement save to the extent required by law or by any
relevant statutory authority.
4.2.7 IKON (for itself and as trustee for its Group Companies) hereby
covenants with Executive that upon termination of Executive's employment with
IKON howsoever arising it will not (without the express written consent of
Executive) at any time make any statement concerning Executive which is
calculated to be damaging to the reputation of Executive save as required to
enforce the terms of this Agreement.
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-
termination 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 - MISCELLANEOUS
- -------------------------
5.1 RESIGNATIONS. Upon the termination of the Term howsoever arising,
------------
Executive shall at any time or from time to time thereafter upon the request of
IKON, resign without claim for compensation from all offices held in IKON or any
of the Group Companies and from membership of any organization acquired by
reason of or in connection with his employment hereunder and should he fail to
do so, IKON is hereby irrevocably appointed to be Executive's attorney in his
name and on his behalf to execute any documents and to do any things necessary
or requisite to give effect to this Article 5.1.
5.2 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 IKON's legally protectable interests as
described in this Agreement, and without negating or impairing other
restrictions or agreements set forth herein.
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5.3 REASONABLENESS. Executive acknowledges that lie 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 and the Company's
Business. 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.
5.4 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 effect to the Agreement as modified.
5.5 SUCCESSORS AND ASSIGNS OF THE COMPANY. This Agreement shall bind IKON and
-------------------------------------
Executive 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 IKON, or which shall in
any other manner cause a majority of the current members of the Board to be
replaced at any time after the effective date of this Agreement.
5.6 SURVIVAL OF OBLIGATIONS AND PROVISIONS. Exercise of IKON termination
--------------------------------------
rights according to the provisions of Articles 2.1.2.2 and 2.3.1 shall not
affect the Parties' rights of the Parties' obligations under Article 1.1.2 and
Articles 3.4, or 5. The Parties acknowledge and agree that the provisions
within Article 1.1.2 and Articles 3, 4 or 5 survive the termination or
expiration of this Agreement as well as the termination of Executive's
employment relationship with IKON.
5.7 ENTIRE AGREEMENT. Executive acknowledges and agrees that this Agreement,
----------------
including Addenda A, B and C which are incorporated herein and made a part of
the Agreement, constitutes 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 and pension rights as provided for at Article 3.3
and Article 6 of Addendum A 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 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.
5.8 APPLICABLE LAW. This Agreement shall be governed and construed in all
--------------
respects in accordance with English law.
5.9 VENUE. The Parties hereto hereby irrevocably submit to the exclusive
-----
jurisdiction of the English Courts for the purpose of hearing and determining
any dispute arising out of this Agreement.
5.10 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 IKON, to: b) If to Executive, to:
The Company Secretary D Mills Esq
IKON Office Solutions PLC 2 Farley Park
IKON House Oxted
Cowcross Street Surrey
London EC I M 6DQ RH8 9HY
11
<PAGE>
5.11 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.
5.12 WAIVER. No emission or delay on 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.
5.13 CONSTRUCTION
------------
5.13.1 The headings in this Agreement are inserted for convenience only,
and shall not affect its construction.
5.13.2 Any reference to a statutory provision shall be construed as a
reference to any statutory, modification or re-enactment thereof (whether before
or after the date hereof) for the time being in force.
5.14 STATUTORY INFORMATION. Addendum B hereto (in addition to this Agreement)
---------------------
constitutes a written statement as at the date hereof of the terms of employment
of the Executive in compliance with the provisions of the Employment Rights Act
1996; it does not form part of the contract of employment and may be varied by
IKON by notice in writing to the Executive of any changes applicable to his
employment,
12
<PAGE>
IN WITNESS whereof, the Executive has signed as a deed and IKON has signed the
day and year first before written.
SIGNED as a DEED by the said
DAVID MILLS
in the presence of:
SIGNED by IAN DENIS CRABB
duly authorized for and on behalf of
IKON OFFICE SOLUTIONS PLC
in the presence of:
13
<PAGE>
Addendum A
NAME: DAVID MILLS
TITLE: PRESIDENT - IKON OFFICE SOLUTIONS PLC
HOME ADDRESS: 2 Farley Park, Oxted, Surrey, RH8 9HY
TERM: 3 months notice
1. BASE SALARY
-----------
During the Term as remuneration for his services hereunder, Executive shall
be paid a fixed salary, at the rate of (Pounds)125,000 per annum or such other
rate as may from time to time be mutually agreed. Such salary shall be
inclusive of any fees or remuneration which he would otherwise be entitled to
receive from IKON or any Group Company and shall be payable by bank credit
transfer in equal monthly installments in arrears on or before the last working
day of each calendar month. Such salary is referred to as "Base Salary" in this
Agreement.
2. CONTRACTUAL BONUS OPPORTUNITY
-----------------------------
Subject to the remainder of this Article 2, Executive shall be entitled to
an annual contractual bonus of up to (Pounds)125.000 per annum payable within
two months after the end of the Company's financial year (the "Contractual
Bonus"). The Contractual Bonus shall be payable based on targets which may be
personal or based upon the results of IKON or based upon the results of part of
IKON for the relevant financial year of IKON or a combination of these. In
respect of financial years subsequent to that of the date hereof, the targets
shall be notified in writing to Executive in the first month of the applicable
financial year namely October. If the relevant target is or targets are
achieved (and in the event of dispute the reasonable decision of the Board shall
be final as to the achievement thereof) then provided the Term shall not have
terminated during that year he shall be paid a Contractual Bonus as previously
notified to him. If the term terminates during a financial year (other than
pursuant to Article 2.1 in which case no Contractual Bonus shall be payable and
Article 2.3.2 in which case the Contractual Bonus shall be paid subject to the
provisions of that article), a payment equal to the Contractual Bonus pro-rata,
the period served in that financial year shall be paid in addition to the
payments of Contractual Bonus pursuant to Articles 1.2.2 and 1.2.3 within two
weeks of the date of termination.
On termination of the Term if sums are payable to Executive in respect of
Contractual Bonus in respect of any period it shall be assumed that the
Contractual Bonus shall be equal to 100% of Base Salary as was being paid to
Executive immediately prior to termination pro rata in respect of such period.
3. CONTRACTUAL ENTITLEMENTS
------------------------
The following (as detailed in this Article 3) are referred to as
"Contractual Entitlements" in this Agreement:
3.1 CAR. IKON shall, during the Term, provide Executive with a car of a
---
cost and type to be determined from time to time by the Board and subject to any
terms and conditions which IKON may from time to time reasonably impose on the
Executive in relation thereto. For the sake of clarity, the Executive's car
shall be of a market value of (Pounds)50.000 (including VAT) when new and
replaced every three (3) years. IKON shall bear the cost of insuring, testing,
taxing, repairing and maintaining the same and shall reimburse to the Executive
all reasonable running expenses (including petrol) of the car properly incurred
whether in connection with the performance of duties hereunder or otherwise.
Executive shall:
14
<PAGE>
(1) take good care of the car and ensure that the provisions and
conditions of any policy of insurance relating thereto are observed,
(2) not permit such car to be taken out of the United Kingdom without
the written consent of IKON: and
(3) return the car and its keys and all documents relating to it to
the IKON Registered Office immediately upon the termination of the Term
howsoever arising.
Executive's spouse and their children residing with them may, subject to the
consent of IKON, be permitted to use such car. In such circumstances, it is
Executive's responsibilities to ensure that authorization is obtained from
IKON's insurers and the provisions of this Agreement in relation to the car are
mutatis mutandis complied with.
As an alternative to the provision of the car, Executive shall be entitled to
receive the sum of (Pounds)17,620 per year car allowance. In such
circumstances, Executive shall return the car forthwith.
3.2 PRIVATE HEALTH. Executive shall be entitled during the Term to
--------------
participate at IKON's expense for himself and his spouse and their children
residing with them under the age of 21 in IKON's health insurance scheme in
force for the time being subject always to the rules of such scheme and subject
to cover being available at a cost considered reasonable by IKON.
3.3 PENSION AND LIFE ASSURANCE. Executive shall be entitled during the
--------------------------
Term to participate in the Following pension and life assurance arrangements:
ERSKINE HOUSE PENSION FUND (THE "FUND"). In respect of the Fund,
---------------------------------------
Executive shall receive terms in accordance with the terms applicable to upper
tier members of the Fund details of which are available from the Fund's
administrators B G J & Co., Piper House, Hatch Lane, Windsor, Berkshire SL4 3QP.
Executive's participation in the Fund shall at all times be subject to the Trust
Deed and Rules and all other documentation governing the Fund from time to time.
LIABILITY ON TERMNATION. On termination of the Term, the liability of
-----------------------
IKON under Articles 1.2.2, 1.2.3 and 4.2.1(1) in respect of the Fund (being part
of the Contractual Entitlements) in respect of any period after termination
shall be an amount equal to 13.3 per cent of the aggregate of Base Salary and a
sum equal to the Contractual Bonus.
3.4 HOLIDAYS. During the Term, Executive shall be entitled to twenty-five
--------
(25) working days' paid Holiday (in addition to public holidays) in each
calendar year January to December to be taken at such time or times as may be
approved by the Board. Holidays not taken may not be carried over to a
subsequent year. Upon the determination of the Term, either Executive shall be
entitled to receive payment in lieu of accrued holidays not taken at that date
(provided that such determination is not pursuant to Article 2.1 of the
Agreement) or IKON shall be entitled to make a deduction from Executive's
remuneration in respect of holidays taken in excess of the accrued entitlement.
The accrued holiday entitlement at the date of determination shall be calculated
on the basis of two (2) days Holiday for each completed calendar month of
service in the then current calendar year and the amount of the payment in lieu
or deduction shall be calculated on the basis of 1/260 of Executive's annual
salary for each day's holiday not taken or taken in excess of the accrued
entitlement.
3.5 PERMANENT HEALTH INSURANCE. IKON shall provide Executive with
--------------------------
permanent health insurance which shall come into effect after twenty-six (26)
consecutive weeks
15
<PAGE>
of absence because of total incapacity from following Executive's occupation
through ill-health, accident or disability and which shall, subject to the
scheme rules and subject to any maximum limit set by the insurer, pay to
Executive fifty percent (50%) of the Executive's Base Salary at 6 April
immediately preceding from time to time the date such absence commenced. IKON
shall have no obligation to make payment to Executive to the extent that it has
not received, for whatever reason, moneys from the insurer. The terms applicable
to the scheme are contained in formal documents which are available for
inspection from the scheme administrators BGJ & Co., Piper House, Hatch Lane,
Windsor, Berkshire, SL43QP.
4. EXPENSES.
--------
Executive shall be reimbursed travel and entertainment expenses and all
other expenses reasonably, exclusively, necessarily and wholly incurred on
behalf of IKON business consistent with the policies of IKON which expenses
shall be evidenced in such manner as IKON may specify from time to time.
5. DIRECTORS' AND OFFICERS' LIABIITY INSURANCE.
-------------------------------------------
Executive shall participate in any scheme considered by the Board to be
appropriate to the Executive for Directors' and Officers' liability insurance
subject always to the rules of the scheme and the insurance coverage being
available at a cost considered reasonable by IKON.
6. PARTICIPATION IN SHARE INCENTIVE SCHEMES/PLANS.
----------------------------------------------
It is acknowledged by Executive that the grant to him of any share option
or any other rights to acquire shares in IKON, its holding Company or any
associated companies (or his eligibility therefor) shall not constitute
remuneration of any nature whatsoever nor impose any obligation upon IKON under
the Agreement and that all matters pertaining to share options or any other
rights to IKON under the Agreement and that all matters pertaining to share
options or any other rights to acquire shares shall be subject only to the rules
of the relevant share option or share acquisition scheme/plan as amended from
time to time and that such matters fall outside the scope of the Agreement.
Without prejudice to the generality of the foregoing, the provisions of this
Article shall include IKON Office Solutions, Inc.'s Partnership Plans (including
PSPP). LTIP and stock options (including SAYE) and the Executive's status as
"Partner." Executive shall have no rights upon termination of his employment
pursuant to the Agreement save as expressly provided in the rules of the
relevant scheme/plan.
16
<PAGE>
Addendum B
1. Executive has been continuously in the employment of IKON (including
reckonable service with any of the Group Companies) since I November 1982.
2. Rate of Remuneration and the intervals at which it is paid are contained in
Addendum A.
3. There are no specific terms and conditions relating to hours of work except
as provided in Article 1.1.2.
4. The terms and conditions relating to holidays are contained in Addendum A,
as are those relating to sickness.
5. Executive is entitled to participate in the pension arrangements described
in Addendum A. In addition, he is entitled to participate in the private
medical insurance scheme also described in Addendum A (subject always to
the rules thereof as amended from time to time) full details of which are
available from out the Administrators, BGJ & Co., Piper House, Hatch Lane,
Windsor, Berkshire SL4 3QP.
6. Particulars as to the length of notice to terminate are contained in
Article 1.2.1.
7. Particulars as to the work for which Executive is employed are contained in
Article 1.
8. Subject to Article 1.4.1, Executive's place of work at the date of this
Schedule is IKON House, 30 Cowcross Street, London ECIM 6DQ.
9. There are no disciplinary rules applicable to Executive except as provided
in this Agreement and if the Executive is dissatisfied with any
disciplinary decision he should apply orally or in writing to the Board.
It is expressly agreed that this part 9 of Addendum B does not have
contractual effect.
10. Any application for the purpose of seeking redress of any grievance
relating to the Executive's employment should be made either orally or in
writing to the Chief Executive of IKON Office Solutions Europe PLC and if
still unresolved after ten days to the Board. It is expressly agreed that
this part 10 of Addendum B does not have contractual effect.
11. A Contracting-Out certificate is in force in respect of Executive's
employment.
12. Details of Executive's work outside the U.K. are contained in Article
1.4.1.
13. There is no collective agreement affecting Executive.
17
<PAGE>
Addendum C
1. PAYMENT IN LIEU
---------------
In the circumstances provided for in Article 1.2.2, Executive shall be
entitled to a payment in lieu equal to three monthly payments which shall be
calculated in the manner set out in Article 4 of this Addendum C.
2. PAYMENT FOR CONTINUING SERVICE
------------------------------
In the circumstances provided for in Article 1.2.3, Executive shall be
entitled to a payment equal to one monthly payment (or part thereof) which shall
be calculated in the manner set out in Article 4 of this Addendum C.
3. THE SUM
-------
In the circumstances provided for in Article 4.2.1, Executive shall be
entitled to payment of the Sum. The Sum shall be calculated in the manner set
out in Article 4 of this Addendum C.
4. CALCULATION
-----------
(Pounds)
Base Salary 125,000
Contractual Bonus 125,000
Contractual Entitlements
- Car 17,620
- Pension 33,250/1/
- Private Health Insurance, Permanent
Health Insurance and Life Assurance 1,477
----------------
Total Compensation Package per annum (Pounds) 302,347
----------------
One monthly payment/the Sum = 302.347 = 25,195 (less tax and statutory
-------
12 deductions which IKON is
obliged to deduct
from such payments)
Notes
Generally:
This Addendum C shows only the method of calculation. The figures to be used in
any calculation shall be those prevailing as at the date of termination (subject
to the provisions of Article 3.3 of Addendum A).
/1/ This sum was calculated by applying the fixed contribution rate (on
termination) of 13.3% to the Base Salary and Contractual Bonus as at the date
hereof in accordance with Article 3.3 of Addendum A.
18
<PAGE>
Dated , 1999
--------------------------------------------------
IKON OFFICE SOLUTIONS PLC
- and-
DAVID MILLS
- --------------------------------------------------------------------------------
SUPPLEMENTAL EXECUTIVE EMPLOYMENT AGREEMENT
- --------------------------------------------------------------------------------
ASFFURST MORRIS CRISP
Broadwalk House
5 Appold Street
London EC2A 2HA
Tel: 01 71 638 1111
Fax: 0 1 71 972 7990
Ref. OHBIAKGII30800826
<PAGE>
THIS AGREEMENT is made on 1999
BETWEEN:
(1) IKON OFFICE SOLUTIONS PLC whose registered office is at IKON House, 30
Cowcross Street, London ECIM 6DQ (the "Company"); and
(2) DAVID MILLS of 2 Farley Park, Oxted, Surrey, RH8 9HY (the "Executive")
WHEREAS:
(A) By an executive employment agreement dated 22 October 1997 (the "Employment
Agreement"), the Executive is employed by the Company
(B) The Company and the Executive have agreed to amend the Employment Agreement
in the manner hereinafter appearing.
THE PARTIES AGREE AS FOLLOWS:
I. DEFINITIONS
In this agreement unless the context otherwise requires:
1.1 "Change of Control" means (subject to clause 3):
(i) any Person, together with its affiliates and associates (as
such terms are used in Rule 12b-2 of the US Securities
Exchange Act of 1934), is or becomes a Beneficial Owner (as
defined in Rule 13d-3 of the said Act) directly or
indirectly of 15% or more of either the then outstanding
shares of common stock of IKON, Inc.; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors then serving on the
IKON, Inc. Board: individuals who on the date hereof,
constitute the IKON, Inc. Board and any new director whose
appointment or election by the IKON, Inc. Board or
nomination for election by IKON, Inc.'s shareholders was
approved by a vote of at least a majority of the directors
then still in office who either were directors on the date
hereof or whose appointment, election or nomination for
election was previously so approved; or
(iii) IKON, Inc. consolidates with, or merges with or into, any
other Person (other than a wholly owned subsidiary of IKON.
Inc.), or any other person consolidates with, or merges with
or into IKON, Inc., and, in connection therewith, all or
part of the outstanding shares of common stock of IKON, Inc.
shall be changed in any way or converted into or exchanged
for stock or other securities or cash or any other property;
or
(iv) a transaction or series of transactions in which, directly
or indirectly, IKON, Inc. shall sell or otherwise transfer
(or one or more of its subsidiaries shall sell or otherwise
transfer) assets (x) aggregating more than 50% of the assets
(measured by either book value or fair market value) or (y)
generating more than 50% of the operating income or cash
flow of IKON, Inc. and its subsidiaries (taken as a whole)
to any other Person or group of Persons.
2
<PAGE>
Notwithstanding the foregoing, no "Change of 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 the common stock of
IKON, Inc. immediately prior to such transaction or series
of transactions own a majority of the outstanding voting
shares and in substantially the same proportion in any
entity which owns all or substantially all of the assets of
IKON, Inc. immediately following such transaction or series
of transactions.
1.2 "IKON, Inc." means IKON Office Solutions, Inc. an Ohio corporation with its
principal offices located at Malvem, Pennsylvania USA.
1.3 "Person" shall have the meaning given to it in section 3(a)(9) of the US
Securities Exchange Act of 1934 as modified and used in sections 13(d) and
14(d) thereof, except that such term shall not include (i) IKON, Inc. or
any of its affiliates (as defined in Rule 12b-2 promulgated under the said
Act), (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of IKON, Inc. or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to the offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of IKON, Inc. in substantially the same proportions as their
ownership of stock of IKON, Inc.
1.4 "Separation Period" means the two year period (or such longer period as the
Human Resources Committee of the board of IKON, Inc. may determine)
beginning on the Termination Date (as defined in clause 3.2).
1.5 The definitions contained in the Employment Agreement apply in this
Agreement,
2. EMPLOYMENT AGREEMENT
2.1 Save as expressly varied by this Agreement the Employment Agreement shall
continue in force and effect.
3. CHANGE OF CONTROL
3.1 Notwithstanding article 1.2 of the Employment Agreement if within the
period of 24 months following a Change of Control and subject to clause 3.3
either:
(i) the Company serves notice on the Executive to terminate the
Employment Agreement whether or not with immediate effect (for
any reason save those stated at article 2.1 of the Employment
Agreement); or
(ii) the Executive is constructively dismissed by the Company (which,
without prejudice to the generality of the foregoing, shall be
deemed to have occurred where the Executive does not receive from
the person who effects the Change of Control either confirmation
that his employment with the Company shall continue on the terms
set out in Employment Agreement or where the Executive does not
receive within six months of the Change of Control from the
Person who effects the Change of Control suitable alternative
employment which is overall no less beneficial to the Executive
than his employment under the Employment Agreement. Suitable
alternative employment must include, but not be limited to, an
equivalent remuneration package (in terms of fixed salary, an
opportunity to
3
<PAGE>
earn bonus and other benefits (including pension) and an
equivalent position to that held by the Executive prior to the
Change of Control);
then the Executive shall receive the Package (as stated in clause 3.2)
within 20 days of the date on which the condition is satisfied
("Termination Date");
3.2 The Package shall comprise the following:
(i) a payment equal to the target Contractual Bonus pro rata the
period served in the financial year (in which the Termination
Date occurs) to the Termination Date;
(ii) continued provision of private health insurance and life
insurance for the Separation Period on the terms provided at
Articles 3.2 and 3.3 of Addendum A of the Employment Agreement
(in the event that the Company is precluded from continuing such
provision it shall provide the Executive with a cash sum equal to
such amount as would enable the Executive to purchase such
provision). The provision of such benefit shall cease to the
extent that the Executive is already receiving or receives an
equivalent benefit from a source other than the Company;
(iii) a payment equal to the Base Salary payable as at the Termination
Date for the duration of the Separation Period;
(iv) a payment equal to the target Contractual Bonus payable as at the
Termination Date for the duration of the Separation Period;
(v) a payment equal to the difference between (i) value of the
benefits to which the Executive would be entitled under the
pension arrangements described at Article 3.3 of Addendum A of
the Employment Agreement if the Executive had continued working
for the Company during the Separation Period, and (ii) the value
of the benefits to which the Executive is actually entitled under
the pension arrangements described at Article 3.3 of Addendum A
of the Employment Agreement as at the Termination Date. This
calculation shall be made by the Company's actuaries as at the
Termination Date.
(vi) notwithstanding any provision of IKON, lnc.'s LTIP to the
contrary, the Executive shall be fully vested in all conditional
awards under the LTIP and the Company shall pay to the Executive
a lump sum amount, in cash, equal to the total of any incentive
compensation which has been allocated or awarded to the Executive
for a measuring period which commenced prior to the Termination
Date under the IKON, Inc. LTIP but which, as of the Termination
Date, is contingent only upon the continued employment of the
Executive to a subsequent date and/or upon achievement of
performance goals and which otherwise has not been paid, computed
as if all performance goals have been or will be achieved to the
maximum extent, in lieu of any payment of such incentive
compensation under the IKON, Inc. LTIP, and without proration;
provided, however, that the foregoing amount shall be paid only
to the extent, and in the amount, not already paid under the
terms of the IKON, Inc. LTIP;
(vii) full vesting in all stock options, including options granted
after the date of this Agreement which, to the extent not
previously vested under the terms of the IKON, Inc. stock option
plans, shall be exercisable beginning on the Termination Date;
and
4
<PAGE>
(viii) waiver of all or any claims that the Company or any Group Company
may have in respect of Article 4 of the Employment Agreement.
3.3 In the event of disability or death, Article 2.3 of the Employment
Agreement shall continue to apply to the exclusion of the provisions of
this clause.
3.4 The provision of the Package shall be without prejudice to the Executive's
right to payment of accrued Base Salary, Contractual Bonus and other
Contractual Entitlements (each of Base Salary, Contractual Bonus and other
Contractual Entitlements as set out in Addendum A of the Employment
Agreement) to the Termination Date.
3.5 The payments (being part of the Package) due under clause 3.2 shall be
payable less any sums paid to the Executive under Articles 1.2.2, 1.2.3 and
4.2.1 of the Employment Agreement and less tax and other statutory
deductions which the Company is obliged to deduct from such payment and/or
benefit.
3.6 The Package shall be accepted by the Executive in full and final settlement
of all and any claims that the Executive may have arising out of his
employment with the Company or its termination.
3.7 Following the Termination Date the Company shall reimburse the Executive
for all his reasonable legal fees and other expenses incurred by him
relating to the Executive's rights and obligations under this Agreement.
The Company shall reimburse the Executive for all such reasonable legal
fees and expenses no later than five business days after delivery of the
Executive's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
4. RECONSTRUCTION AND AMALGAMATION
Without prejudice to clause 3 if at any time the Executive's employment is
terminated in connection with any reconstruction or amalgamation of the
Company or any of the subsidiary companies whether by winding up or
otherwise and the Executive receives an offer on terms which (considered in
their entirety) are not less favorable to any material extent than the
terms of this agreement from a company involved in or resulting from such
reconstruction or amalgamation the Executive shall have no claim whatsoever
against the Company or any such company arising out of or connected with
such termination.
IN WITNESS whereof this Agreement has been executed as a deed on the date first
above written
Signed as a Deed by IKON OFFICE )
SOLUTIONS PLC in the presence )
Of: )
Director
Signed as a deed by the said
DAVED MILLS in the
5
<PAGE>
Witness Signature ............................................
Name ............................................
Address ............................................
............................................
Occupation ............................................
6
<PAGE>
Exhibit 10.36
August 24, 1998
CONFIDENTIAL
Mr. Dennis LeStrange
President, Northeast Distinct
755 Winding Brook Dr.
Glastonbury, CT 06033
Dear Dennis:
I am pleased to offer you the position of Sr. Vice President for Marketing.
Following is a summary of your compensation and highlights of the associated
benefits, which will be effective upon your execution of the Executive
Employment Agreement.
1. A base salary of $250,000, effective August 1, 1998.
2. A bonus opportunity of $250,000. You will be guaranteed your bonus for the
fourth quarter of fiscal 1998. Your bonus for fiscal 1999 will be
guaranteed at the rate of 75%. The bonus criteria will be communicated to
you shortly.
3. A one-time grant of 50,000 Stock Options, subject to Board of Director
approval.
4. A monthly auto allowance of $500.
5. Relocation benefits as outlined in Addendum C of the Executive Employment
Agreement.
6. A moving bonus of $100,000 grossed up to accommodate incurred income taxes.
7. If you incur a loss on the sale of your home, the company will reimburse
you for that loss. Your home sale loss assistance will be based on the sale
price of the home plus IRS capital improvements as defined by the Internal
Revenue Service.
<PAGE>
Exhibit 10.36
8. If you are not appointed to the position of President, Business Services or
another position that is agreeable to you on or about October 1, 1999, you
will have the option, at that time, to resign and receive a severance
package that would include two years of salary.
9. Fringe benefits consistent with IKON's policy.
10. The "Change of Control" agreement will be offered to you subject to Board
of Director approval.
11. IKON will reimburse you for reasonable Country Club initiation fees and
dues.
Dennis, I am looking forward to continuing our professional partnership and the
contribution that I know you will provide to IKON's Business Services Division.
Very truly yours,
/s/ Peter W. Shoemaker
Peter W. Shoemaker
Sr. Vice President, Business Operations
<PAGE>
EXHIBIT 10.48
CONFIDENTIAL
------------
Concurrent Lease Agreement
Made as of September 14, 1999
BETWEEN
IKON OFFICE SOLUTIONS, INC.
as Lessor and Collector
- and -
IKON CAPITAL, INC.
as Sub-Collector
- and -
IKON OFFICE SOLUTIONS, INC.
as Performance Guarantor
- and -
CARE TRUST
as Concurrent Lessee
DAVIES, WARD & BECK
Barristers & Solicitors
<PAGE>
TABLE OF CONTENTS
<TABLE>
ARTICLE 1
INTERPRETATION
<S> <C>
1.1 Definitions......................................................................... 2
1.2 Headings............................................................................ 18
1.3 Extended Meanings................................................................... 19
1.4 Non-Business Days................................................................... 19
1.5 Governing Law....................................................................... 19
1.6 Reference to Statutes............................................................... 19
1.7 Severability........................................................................ 19
1.8 PPSA Terms.......................................................................... 20
1.9 Currency............................................................................ 20
1.10 Deed................................................................................ 20
1.11 Rating Agency Ratings............................................................... 20
1.12 Months, Settlement Periods and Tranche Periods...................................... 20
1.13 Controlling Interest................................................................ 20
1.14 Schedules........................................................................... 20
ARTICLE 2
CONCURRENT LEASE
2.1 Grant of Concurrent Lease.......................................................... 21
2.2 Term of Concurrent Lease........................................................... 22
2.3 Rent for Concurrent Lease.......................................................... 22
2.4 Prepayment of Rent................................................................. 23
2.5 Remittances from Collections....................................................... 23
2.6 Level Two Credit Enhancement....................................................... 25
2.7 Satisfaction of Deferred Rent...................................................... 27
2.8 No Recourse........................................................................ 27
2.9 Concurrent Leases Limited by Program Limit......................................... 27
2.10 Payment of GST by the Concurrent Lessee............................................ 27
2.11 Acknowledgment and Quit Claim...................................................... 28
2.12 Swap Agreements.................................................................... 29
ARTICLE 3
TERMINATION WITH RESPECT TO CERTAIN EQUIPMENT
3.1 General............................................................................. 29
3.2 Liquidated Leases................................................................... 30
3.3 Lease Variations.................................................................... 31
3.4 Ineligible Leases................................................................... 32
3.5 Substituted Leases.................................................................. 32
3.6 Adverse Claims...................................................................... 33
ARTICLE 4
CONDITIONS PRECEDENT
4.1 Conditions Precedent for the Initial Concurrent Lease............................... 34
4.2 Conditions Precedent in Favour of the Concurrent Lessee for All Concurrent Leases... 36
4.3 Condition Precedent in Favour of the Lessor and the Performance Guarantor for All
Concurrent Leases......................................................... 37
</TABLE>
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<PAGE>
<TABLE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
<S> <C>
5.1 Representations and Warranties of the Concurrent Lessee............................ 38
5.2 General Representations and Warranties of the Lessor............................... 38
5.3 Representations and Warranties of the Performance Guarantor and IKON Capital....... 43
5.4 Eligibility Criteria Regarding the Leases and the Equipment........................ 45
5.5 Survival........................................................................... 50
ARTICLE 6
ADMINISTRATION
6.1 Designation of the Collector....................................................... 50
6.2 Standard of Care................................................................... 51
6.3 Authorization of Collector......................................................... 51
6.4 Enforcement of Leases.............................................................. 52
6.5 Assignment for Purpose of Enforcement.............................................. 52
6.6 Deposit of Collections............................................................. 52
6.7 Collector Amounts.................................................................. 53
6.8 Description of Services............................................................ 53
6.9 Additional Covenants of the Collector.............................................. 54
6.10 Negative Covenants of the Collector................................................ 59
6.11 Lease Amendments, Modifications and Waivers........................................ 60
6.12 Collector Termination Events....................................................... 60
6.13 Notice of Collector Termination Events............................................. 63
6.14 Effecting a Collector Transfer..................................................... 63
6.15 Appointment of Replacement Collector............................................... 63
6.16 Collection and Remittance of Taxes................................................. 63
6.17 Additional Collector Covenants Following a Collector Transfer...................... 64
6.18 Concurrent Lessee's Rights Following a Collector Transfer.......................... 64
6.19 Delegation in Favour of Securitization Agent....................................... 65
6.20 Payments to Securitization Agent................................................... 65
ARTICLE 7
TRIGGER EVENTS AND TERMINATION EVENTS
7.1 Meaning of Trigger Event........................................................... 66
7.2 Action Upon a Trigger Event........................................................ 68
7.3 Optional Termination of Concurrent Leases.......................................... 69
7.4 Meaning of Termination Event....................................................... 70
7.5 Action Upon a Termination Event.................................................... 71
7.6 Right of First Refusal............................................................. 71
7.7 Lack of Liquidity Support.......................................................... 72
ARTICLE 8
GENERAL COVENANTS AND POWER OF ATTORNEY
8.1 Affirmative Covenants of the Lessor................................................ 73
8.2 Reporting Requirements of the Lessor............................................... 76
8.3 Negative Covenants of the Lessor................................................... 78
8.4 Power of Attorney; Further Assurances.............................................. 79
</TABLE>
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<PAGE>
<TABLE>
ARTICLE 9
INDEMNIFICATION
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9.1 Indemnification by the Lessor...................................................... 80
9.2 Notification of Potential Liability................................................ 81
9.3 Litigation......................................................................... 81
9.4 The Lessor to Remain Obligated..................................................... 82
9.5 Tax Indemnity...................................................................... 82
9.6 Tax Credit......................................................................... 83
9.7 Survival........................................................................... 84
ARTICLE 10
GUARANTEE
10.1 Guarantee.......................................................................... 84
10.2 Validity of the Performance Guarantor's Obligations as Guarantor................... 84
10.3 Subrogation........................................................................ 85
10.4 Authorization by the Performance Guarantor as Guarantor............................ 86
10.5 Changes in the Lessor.............................................................. 86
10.6 Covenants of the Performance Guarantor as Guarantor................................ 86
10.7 Taxes.............................................................................. 87
10.8 Judgment Currency.................................................................. 87
ARTICLE 11
MISCELLANEOUS
11.1 Liability of the Concurrent Lessee, the Credit Enhancer and the Securitization
Agent.............................................................................. 88
11.2 Change in Circumstances............................................................ 88
11.3 Amendments, Waivers, Etc........................................................... 89
11.4 Notices, Etc....................................................................... 89
11.5 No Waiver; Remedies................................................................ 91
11.6 Binding Effect; Assignability...................................................... 91
11.7 Costs and Expenses................................................................. 92
11.8 Confidentiality.................................................................... 92
11.9 Capital Cost Allowance............................................................. 93
11.10 Effect of Agreement................................................................ 93
11.11 Termination........................................................................ 93
11.12 Execution in Counterparts.......................................................... 94
</TABLE>
SCHEDULES
SCHEDULE A - Form of Concurrent Lease Request
SCHEDULE B - Location of Records and Bank Accounts that Receive Direct Payments
SCHEDULE C - Standard Form Leases
SCHEDULE D - Form of Portfolio Report
SCHEDULE E - Form of Promissory Note (GST)
SCHEDULE F - List of Predecessors
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<PAGE>
CONCURRENT LEASE AGREEMENT
MEMORANDUM OF AGREEMENT made as of September 14, 1999.
B E T W E E N:
IKON OFFICE SOLUTIONS, INC.,
a corporation incorporated under the laws of Ontario,
(hereinafter referred to as the "Lessor"),
- and -
IKON CAPITAL, INC.,
a corporation incorporated under the laws of Canada,
(hereinafter referred to as "IKON Capital"),
- and -
IKON OFFICE SOLUTIONS, INC.,
a corporation incorporated under the laws of the State of Ohio,
(hereinafter referred to as the "Performance Guarantor"),
- and -
THE TRUST COMPANY OF BANK
OF MONTREAL,
a trust company incorporated under the laws of Canada and
licensed to carry on business as a trustee in each of the
provinces of Canada, in its capacity as trustee of CARE TRUST, a
trust established and existing under the laws of the Province of
Ontario,
(in such capacity, hereinafter referred to as the "Concurrent
Lessee").
WHEREAS the Lessor is the owner of the Equipment, and desires to grant
a lease to the Concurrent Lessee, and the Concurrent Lessee desires to lease
from the Lessor, concurrently with the interest of the Lessees pursuant to the
Designated Eligible Leases, the Equipment, all on the terms and subject to the
terms of this Agreement;
AND WHEREAS IKON Capital has been requested and is willing to act as
sub-collector hereunder;
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AND WHEREAS the Performance Guarantor desires to guarantee the
performance by the Lessor of its obligations under this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
premises, covenants and agreements of the parties herein contained and for other
good and valuable consideration (the receipt and sufficiency of which are hereby
acknowledged by each of the parties), the parties hereby covenant and agree as
follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions
-----------
In this Agreement, unless the context requires otherwise, the
following terms shall have the following meanings, respectively:
"Administrative Charges" means, with respect to a Designated Eligible Lease,
late payment charges, extension fees, termination fees, charges for returned
cheques or dishonoured payments or dishonoured transfer instructions and similar
charges, in each case payable by the Lessee, provided the same does not form
part of payments on account of Rent payable by the Lessees under such lease;
"Advance Rate" means 92%;
"Adverse Claim" means a security interest, lien, adverse claim, title retention
agreement, pledge, assignment (whether or not by way of security), charge,
encumbrance, mortgage, right of set-off, lease or other right or claim of any
Person, other than the Concurrent Lessee or Persons claiming under or through
the Concurrent Lessee, ranking ahead of or pari passu with the security interest
of the Concurrent Lessee;
"Affiliate", in respect of a specified Person, means any other Person:
(a) that is either directly or indirectly controlled by the specified
Person or by a Person or Persons that also control the specified
Person; or
(b) that either directly or indirectly controls the specified Person,
and, for the purposes of this definition, "control" shall mean de facto control,
being the power to direct the management and policies of a Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise;
"Affiliated Lessee" means any Lessee which is an Affiliate of another Lessee;
<PAGE>
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"Aggregate Financed Balance" means, on a particular date, the aggregate Financed
Balances of all Designated Eligible Leases on that date, excluding Designated
Eligible Leases relating to Equipment in respect of which the Concurrent Lease
shall have been terminated on or prior to that date in accordance with the
provisions hereof and, for greater certainty, excluding the Financed Balances of
any Designated Eligible Leases which are Defaulted Leases on such date;
"Available L/C Amount" means, on any date, the maximum amount available to be
drawn on the Level Two Credit Enhancement, which amount shall be equal to the
lesser of:
(1) the Stated L/C Amount on such date; and
(2) the Available L/C Amount for the immediately preceding Remittance Date
minus all drawings, if any, on the Level Two Credit Enhancement made
in accordance with section 2.6(a) plus all amounts paid to the Credit
Enhancer or deposited to the L/C Funding Account pursuant to section
2.5(i)(ii), in each case, on such prior Remittance Date,
provided that, with respect to the initial Remittance Date, the Available L/C
Amount shall be equal to the Stated L/C Amount;
"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;
"CIRR" means, in respect of a Designated Eligible Lease, on any date, the rate
of interest per annum designated as the combined internal rate of return or CIRR
in the Concurrent Lease Request with respect to such Designated Eligible Lease
and equivalent to the discount which when applied to (a) the total payments
(excluding payment of the Residual Amount and Administrative Charges and
security deposits) to be made over the Term of such Designated Eligible Lease
and (b) the Residual Amount in respect of such Designated Eligible Lease,
results in a present value of the Designated Eligible Lease equal to the
aggregate cost, at the time of creation of such Designated Eligible Lease, of
the Equipment in respect of such Designated Eligible Lease;
"Closing Date" means September 14, 1999, or such other date as may be mutually
agreed between the parties;
"Collection Account" means an Eligible Deposit Account established in the name
of the Collector as trustee for and on behalf of the Concurrent Lessee, which
account shall be separate and segregated from the Collector's own assets, shall
bear interest and which shall initially be account number 001-1097780, transit
number 25329, maintained at the branch of Bank of Montreal located at 236, 167
Street and Stony Plain Road, Edmonton, Alberta T5P 4B3;
"Collection Costs" means all reasonable out-of-pocket costs and expenses of (a)
the Collector, if other than the Lessor or an Affiliate of the Lessor, and (b)
the Concurrent Lessee, in administering
<PAGE>
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and collecting the Designated Eligible Leases and the related Equipment and
enforcing the Related Rights related thereto, including reasonable legal
expenses of the Collector or the Concurrent Lessee, as the case may be;
"Collections" means, without duplication, all cash collections and other cash
proceeds on account of Rent under the Designated Eligible Leases and cash
collections and other cash proceeds in respect of the Related Rights, in either
case received by any of the Performance Guarantor, the Collector, the Lessor or
IKON Capital, including all insurance proceeds, all Administrative Charges, all
Liquidation Proceeds, all Investment Income, all amounts paid by the Collector
or the Lessor pursuant to sections 3.2, 3.3, 3.4, 3.6, 7.3 or 7.6, all money
drawn from the Letter of Credit or the L/C Funding Account, all amounts received
by the Concurrent Lessee as a result of the termination, modification or
amendment of any Swap Agreement (excluding any Settlement Amounts to the extent
used to enter into another Swap Agreement), any amounts received pursuant to any
Swap Agreement (excluding the Settlement Amount), and any other amounts deemed
to be Collections hereunder or required to be deposited into the Collection
Account hereunder, but for all purposes excluding payments or recoveries made in
respect of the Residual Amount upon the termination or enforcement of any
Designated Eligible Lease and Taxes payable by the Lessees or received by the
Collector and remitted to the appropriate governmental authority under section
6.8(i) and security deposits made by Lessees;
"Collector" means the Person designated as the Collector for the time being
pursuant to section 6.1 and after a Collector Transfer shall include any
Replacement Collector;
"Collector Termination Event" has the meaning ascribed thereto in section 6.12;
"Collector Transfer" has the meaning ascribed thereto in section 6.14;
"Concentration Limit" means an amount, in respect of a Lessee at the time the
relevant Equipment became subject to a Concurrent Lease hereunder, equal to 2%
of the Aggregate Financed Balance, provided, however, that the "Concentration
Limit" may from time to time be changed by the Concurrent Lessee, with the
consent of the Rating Agency and the Credit Enhancer, with such change to be
effective only in respect of Concurrent Leases entered into on and after the
date of such change, and provided further that in the case of a Lessee and any
Affiliated Lessees, the Concentration Limit shall be calculated as if such
Lessee and such Affiliated Lessees are one Lessee;
"Concurrent Lease" has the meaning ascribed thereto in section 2.1(a);
"Concurrent Lease Request" means a notice, substantially in the form of Schedule
A, delivered by the Lessor to the Concurrent Lessee pursuant to section 2.1,
which Concurrent Lease Request shall have attached thereto a list of the
relevant Designated Eligible Leases, listed by the Lessor's assigned lease
number, which govern the Equipment that the Lessor proposes the Concurrent
Lessee concurrently lease hereunder (including particulars regarding the related
Cut-Off Date, the CIRR, the Financed Balance and the Residual Amount of each
listed Designated Eligible Lease and the prepayment amount relating thereto as
of the related Cut-Off Date);
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"Concurrent Lessee's Account" means the Concurrent Lessee's account maintained
at an Eligible Institution which shall initially be the main Toronto branch of
Bank of Montreal (account number 1316-573, transit number 0002) or such other
account as has been most recently designated by the Concurrent Lessee, by
written notice given to the Lessor, as the Concurrent Lessee's Account for the
purposes hereof;
"Credit and Collection Policies" means the customary policies and practices of
the Collector relating to the creditworthiness of lessees, the making of
collections and the enforcement of contracts relating to the Designated Eligible
Leases, the Lease Entitlements and the Related Rights, as such policies and
practices may be amended from time to time in accordance with the provisions of
this Agreement, which policies and practices, as in effect at and prior to the
date hereof, have resulted in the historical collections results furnished to
the Concurrent Lessee;
"Credit Enhancement Agreement" means the credit enhancement agreement between
the Lessor, the Collector, IKON Capital, the Performance Guarantor, the
Concurrent Lessee and the Credit Enhancer dated the date hereof providing for
the Level Two Credit Enhancement;
"Credit Enhancement Fee" means the L/C Fee (as defined in the Credit Enhancement
Agreement) payable pursuant to section 5 of the Credit Enhancement Agreement;
"Credit Enhancer" means, initially, State Street Bank and Trust Company and
after replacement thereof any other Person having a long-term unsecured debt
rating of at least AA (low) by the Rating Agency (or an equivalent rating by a
United States rating agency recognized by the Rating Agency) and who by any
means whatsoever, including any letter of credit, surety bond, cash collateral
account, spread account, guaranteed rate agreement, refinancing facility, tax
protection agreement, interest rate swap agreement or other similar arrangement,
provides credit enhancement in respect of the Designated Eligible Leases and/or
the Notes issued to fund the prepayment of rent in respect of such Designated
Eligible Leases;
"Cut-Off Date" means, with respect to any Concurrent Lease entered into
hereunder, the first day of the Reporting Period in which the related Lease Date
will occur as set out in the Concurrent Lease Request delivered by the Lessor to
the Concurrent Lessee in accordance with section 2.1(a);
"Deed of Settlement" means the deed of settlement pursuant to which the
Concurrent Lessee was established, as the same may be amended from time to time;
"Default Ratio" means, in respect of any particular Reporting Period, the ratio
(expressed as a percentage) of (a) the product of (i) the aggregate Financed
Balances of all Designated Eligible Leases which became Defaulted Leases during
such Reporting Period (including Designated Eligible Leases, the Concurrent
Lease relating to which has been terminated pursuant to sections 3.5 or 7.3(c)),
net of any recoveries in respect of each Designated Eligible Lease which had
been a Defaulted Lease and (ii) 12, to (b) prior to the Termination Date, the
amount obtained when the Aggregate Financed Balance on the last day of each of
the previous 12 Reporting Periods is divided by 12, and after the Termination
Date, the Aggregate Financed Balance on the last day of such Reporting Period;
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"Defaulted Lease" means a Designated Eligible Lease in respect of which (a) any
Scheduled Payment owing thereunder is uncollectible or is deemed to be
uncollectible in accordance with the Credit and Collection Policies, or (b) any
Scheduled Payment thereunder is more than 120 days past due; provided, however,
that, to the extent permitted by the Credit and Collection Policies, the
Collector shall be entitled to extend the time for payment for certain
Designated Eligible Leases beyond 120 days provided that the failure of the
related Lessor to make the required payments thereunder, and any such extension
granted by the Lessor, is not due to the credit quality or credit worthiness of
such Lessee, in which case such extended Designated Eligible Lease shall not be
a Defaulted Lease unless the aggregate Financed Balances of all other Designated
Eligible Leases for which any such extension has been granted, when taken
together with the Financed Balance of the Designated Eligible Lease at issue,
exceeds 1% of the Aggregate Financed Balance at the time of determination, and
provided further that, for greater certainty, any extended Designated Eligible
Lease that is not a Defaulted Lease by virtue of the foregoing proviso shall
continue to be considered a 90 Day Past Due Lease for purposes of this
Agreement;
"Deferred Rent" has the meaning ascribed thereto in section 2.4;
"Deferred Rental Account" means an Eligible Deposit Account established in the
name of the Concurrent Lessee, which account shall bear interest and which shall
initially be account number 1350-077, transit number 0002, maintained at the
main branch of Bank of Montreal in Toronto, Ontario;
"Deferred Rental Rate" means 2%;
"Deferred Rental Excess Amount" means, on any Reporting Date, the amount of the
cash maintained in the Deferred Rental Account in excess of the Deferred Rental
Required Amount calculated as of the immediately preceding Settlement Date;
"Deferred Rental Floor" means, on any date, the product obtained when (a) the
highest amount that has formed the Deferred Rental Required Amount prior to such
date, is multiplied by (b) 40%;
"Deferred Rental Required Amount" means, on any Reporting Date, the greatest of
(a) the amount obtained when the Deferred Rental Rate is multiplied by the
Aggregate Financed Balance, (b) the amount obtained when the Aggregate Financed
Balance is multiplied by 1.5 times the Default Ratio and (c) the Deferred Rental
Floor, in each case calculated as of the immediately preceding Settlement Date;
"Delinquency Ratio" means, in respect of any Reporting Period, the ratio
(expressed as a percentage) calculated by dividing (a) the aggregate Financed
Balances of all Delinquent Leases as of the last day of such Reporting Period by
(b) the Aggregate Financed Balance as of the last day of such Reporting Period;
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"Delinquent Lease" means a Designated Eligible Lease in respect of which any
portion of any Scheduled Payment has not been made within 61 days after the date
on which the Scheduled Payment was due;
"Designated Eligible Lease" means one of the equipment lease agreements entered
into by Lessees in respect of Equipment which is also the subject of a
Concurrent Lease hereunder, together with all supplements, amendments,
transaction documents, confirmations and customer agreements relating thereto,
providing, among other things, for the use by the Lessee thereunder of the
Equipment forming the subject matter thereof;
"Eligible Deposit Account" means either (a) an account with an Eligible
Institution, or (b) a segregated trust account with the corporate trust
department of a depositary institution organized under the laws of Canada or a
province thereof and authorized to act as a trustee for funds deposited in such
account, so long as any of the securities of such depositary institution shall
have a credit rating from the Rating Agency in one or more of its generic credit
rating categories which signifies investment grade;
"Eligible Institution" means a depositary institution which at all times (a) has
either (i) a long-term unsecured debt rating not lower than AA (low) by the
Rating Agency or (ii) a short-term unsecured debt rating not lower than R-1
(middle) by the Rating Agency, or (b) has its obligations with respect to the
relevant matter guaranteed by an institution with either of the ratings referred
to in (a);
"Eligible Investments" means, at any particular date, book-based securities,
negotiable instruments or securities, in each case, maturing not later than the
Business Day preceding the next succeeding Reporting Date after such date
represented by instruments in bearer or registered form which evidence any of:
(a) direct obligations of, or obligations fully guaranteed as to the
timely payment of principal and interest by, the Government of Canada;
(b) any security having a rating of at least R-1 (middle) (or the
equivalent thereof) from the Rating Agency, provided that, at any
time, no more than $2 million may be invested in any one security of a
particular issuer of the type referred to in this section (b); and
(c) any other class of investment approved in writing by the
Securitization Agent, the Credit Enhancer and the Rating Agency (other
than those set out in (a) and (b) above),
and, without limiting the generality of the foregoing, if so qualified,
securities of the Concurrent Lessee, the Securitization Agent, the Liquidity
Agent and any Affiliate thereof may be considered Eligible Investments for the
purposes of this definition;
"Eligible Lease" has the meaning ascribed thereto in section 5.4;
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"Equipment" means, collectively, the office and business equipment and other
tangible personal property, together with all accessions, upgrades, additions
and enhancements thereto, which form the subject matter of a Designated Eligible
Lease or the Designated Eligible Leases, as the context requires, whether
provided by the Lessor, or a Predecessor or any other Person, to the Lessee or
Lessees on an installed or an uninstalled basis;
"ETA" means Part IX of the Excise Tax Act (Canada);
"Final Termination Date" means the first day following the Termination Date on
or by which the last remaining Designated Eligible Lease has been terminated or
liquidated in full, whether as a result of the expiry of the term thereof,
through the receipt of Collections or Liquidation Proceeds or otherwise, or is
sold to any Person (excluding the Credit Enhancer) for value (paid in cash);
"Financed Balance" means, with respect to a Designated Eligible Lease at a
particular date, the aggregate of the present value of each Scheduled Payment
(including arrears thereof) to be made over the remaining Term of the Designated
Eligible Lease, calculated by discounting to such date each such Scheduled
Payment (including arrears thereof) at the CIRR applicable to such Designated
Eligible Lease on such date;
"Funding Discount" means an amount determined for each Tranche Period, whether
occurring prior to or after the Termination Date, pursuant to the following
formula:
(UPR x TR x TP) + (AOB x TR x TP)
-- --
365 365
where:
"UPR" means an amount equal to the aggregate Unamortized Prepaid Rent
for all Designated Eligible Leases hereunder, calculated as of the
second Settlement Date preceding the last day of such Tranche Period;
"TP" means the number of days in such Tranche Period;
"TR" means the Tranche Rate for such Tranche Period; and
"AOB" means the aggregate Unamortized Prepaid Rent under all
Designated Eligible Leases in respect of which the related Equipment
became subject to a Concurrent Lease hereunder during the Reporting
Period immediately preceding the last day of the relevant Tranche
Period, calculated as of the relevant Cut-Off Date;
"Governmental Authority" means the government of any sovereign state or any
political subdivision thereof, or of any political subdivision of a political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory, administrative or other functions of or pertaining to government.
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"Gross-Up" has the meaning ascribed thereto in section 9.6;
"Grossed-Up Payment" has the meaning ascribed thereto in section 9.6;
"GST" means all amounts payable under the ETA or pursuant to any similar value
added tax legislation in any other jurisdiction of Canada that is stated to be
harmonized with the GST which, for greater certainty, shall include the HST and
the QST;
"Guarantee" means the guarantee and other provisions contained in Article 10;
"Guaranteed Obligations" has the meaning ascribed thereto in section 10.1;
"Hedging Costs" in respect of a Concurrent Lease hereunder and each Tranche
Period, means the net amount (other than Settlement Amounts) payable by the
Concurrent Lessee pursuant to any Swap Agreement entered into by, or assigned
to, the Concurrent Lessee in connection with this Agreement;
"HST" means the harmonized sales tax imposed under the ETA;
"Indebtedness" means:
(a) indebtedness for borrowed money or for the deferred purchase price of
property or services;
(b) the redemption price of any redeemable preference shares;
(c) obligations evidenced by bonds, debentures, notes or other similar
instruments;
(d) obligations as lessee under leases which, in accordance with generally
accepted accounting principles, would be treated as capital leases;
(e) obligations in respect of letters of credit or similar instruments
issued or accepted by any bank or other institution;
(f) obligations under direct or indirect guarantees 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 any
of sections (a) through (e) above; and
(g) obligations (calculated on a mark to market basis) under any "eligible
financial contracts" (as such term is defined in the Bankruptcy and
Insolvency Act (Canada));
provided, however, that (i) "Indebtedness" shall not include obligations both
(A) classified as accounts payable or accrued liabilities under generally
accepted accounting principles and (B)
<PAGE>
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incurred in the ordinary course of business, and (ii) no obligation included in
Indebtedness shall be included under more than one of any of sections (a)
through (g) above;
"Indemnified Amounts" has the meaning ascribed thereto in section 9.1;
"Indemnified Parties" has the meaning ascribed thereto in section 9.1;
"Initial Deposited Amount" means, with respect to any Designated Eligible Leases
subject to a Concurrent Lease Request, an amount equal to the aggregate Financed
Balances of those leases on the related Cut-Off Date, multiplied by the greater
of (a) the Deferred Rental Rate, and (b) the product of (i) the Default Ratio,
calculated as of the Settlement Date immediately preceding the relevant Lease
Date, and (ii) 1.5;
"Initial Liquidation Payment" has the meaning ascribed thereto in section 3.1;
"Insolvency Statutes" has the meaning ascribed thereto in section 5.2(q);
"Investment Income" means all investment income or other proceeds, including
interest or other similar amounts, net of any investment losses, earned on funds
on deposit, from time to time, in the Collection Account, the Deferred Rental
Account and the L/C Funding Account;
"L/C Funding Account" has the meaning ascribed thereto in section 2.6(b)(ii);
"L/C Funding Account Surplus" means, on any date, the amount, if any, by which
the amount on deposit in the L/C Funding Account exceeds the then Available L/C
Amount;
"L/C Funding Date" means the date on which the Concurrent Lessee makes a draw on
the Letter of Credit in either of the circumstances contemplated in section
2.6(b) and deposits the amount of such draw into the L/C Funding Account;
"Lease Date" has the meaning ascribed thereto in section 2.1(a);
"Lease Entitlements" has the meaning ascribed thereto in section 2.11;
"Lease Termination Date" means the day that, in accordance with section 7.2 or
7.5, is declared as, or automatically becomes, the Lease Termination Date;
"Lessee" means, in respect of a Designated Eligible Lease, the Person, other
than the Lessor, who is shown as a party to such Designated Eligible Lease, and
includes any co-lessee and any guarantor or other Person who owes or is
responsible for or agrees to make payments in respect of such Designated
Eligible Lease;
"Letter of Credit" means the irrevocable letter of credit delivered by the
Credit Enhancer to the Concurrent Lessee pursuant to the terms of the Credit
Enhancement Agreement;
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"Level Two Credit Enhancement" means (a) at any time prior to the L/C Funding
Date, the Letter of Credit, and (b) at any time on or after the L/C Funding
Date, the funds on deposit from time to time in the L/C Funding Account;
"Liquidated Lease" means any Designated Eligible Lease enforced by the Collector
either through sale or re-lease of all or part of the Equipment forming the
subject matter thereof, or through enforcement of a judgment or otherwise;
"Liquidation Proceeds" means all monies collected from whatever source in
respect of a Liquidated Lease (including through the re-leasing of the relevant
Equipment) net of the sum of any amounts paid or remitted by the Collector in
accordance with applicable law to the Lessee or to a Governmental Authority in
respect of Taxes on the sale or other disposition of the Equipment (or part
thereof) subject to such Liquidated Lease and the amount of any reasonable out-
of-pocket costs and expenses incurred by the Collector in enforcing any
Liquidated Lease or in refurbishing the Equipment subject thereto;
"Liquidity Agent" has the meaning ascribed thereto in the Liquidity Agreement;
"Liquidity Agreement" means the agreement made as of January 27, 1998, between
the Concurrent Lessee, the banks and other financial institutions whose names
appear on Schedule 1 to such agreement and Bank of Montreal, as such agreement
may be amended or supplemented from time to time;
"90 Day Past Due Lease" means a Designated Eligible Lease in respect of which
(a) any portion of any Scheduled Payment has not been made within 91 days after
the date on which the Scheduled Payment was due or which would be classified as
non-performing or written off as uncollectible in accordance with the Credit and
Collection Policies, or (b) the Lessee is a Person who would satisfy section
7.1(i) if the words "the Lessor" were changed to "Lessee" in each instance in
section 7.1(i);
"90 Day Past Due Ratio" means, in respect of any Reporting Period, the ratio
(expressed as a percentage) calculated by dividing (a) the aggregate Financed
Balances of all 90 Day Past Due Leases as of the last day of such Reporting
Period (including any 90 Day Past Due Lease, the Concurrent Lease related to
which has been terminated pursuant to sections 3.5 or 7.3(c)) by (b) the
Aggregate Financed Balance as of the last day of such Reporting Period;
"Note Obligations" means the aggregate amount of (a) in the case of discount
Notes, the face amount at maturity of such Notes, and (b) in the case of
interest-bearing Notes, the face amount thereof plus accrued interest thereon at
the rate stipulated therein to the maturity thereof.
"Notes" means short-term debt obligations issued by the Concurrent Lessee
pursuant to the trust indenture made as of January 27, 1998 between the
Concurrent Lessee and Montreal Trust Company of Canada, the proceeds of sale of
which are used to finance the entering into of, and the maintenance of the
Concurrent Lessee's interest in, Concurrent Leases hereunder (including Notes
issued to repay maturing Notes issued by the Concurrent Lessee for such
purpose);
<PAGE>
-12-
"Officer's Certificate" means a certificate signed by the chairman of the board,
the president, any vice-president, the secretary, the treasurer or the
controller of the Lessor, IKON Capital or the Performance Guarantor, as the case
may be;
"Overcollateralization Date" means the day that the Aggregate Financed Balance
declines below $80 million;
"Parent Company" means each corporation, if any, of which the Collector is a
Subsidiary, provided that, in the case of the Lessor, "Parent Company" shall
mean the Performance Guarantor only and shall not include any corporation of
which the Performance Guarantor is a Subsidiary;
"Person" means an individual, partnership, association, corporation, trust,
joint venture, unincorporated association or organization, proprietorship, board
or body established by statute, any Governmental Authority or other entity;
"Portfolio Report" means a report substantially in the form of Schedule D;
"PPSA" means the Personal Property Security Act (Ontario) and the comparable
legislation of any other province or territory of Canada;
"Predecessor" means any one of the predecessor corporations of the Lessor listed
on Schedule F hereto;
"Prepaid Rent" means the sum required to prepay the Rent due under any
Concurrent Lease, which sum shall be equal to the product of (a) the aggregate
Financed Balances of the Designated Eligible Leases relating to the relevant
Concurrent Lease as of the relevant Cut-Off Date and (b) the Advance Rate;
"Prime Rate" means the fluctuating annual interest rate which, on any day, shall
be equal to the rate of interest most recently established by Bank of Montreal
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, for any Reporting Date, the amount calculated pursuant
to the following formula:
A (AFB + FB - V - AWO)
where:
"A" means (a) prior to either the Lease Termination Date or the
Overcollateralization Date, the Advance Rate, and (b) on and after
either the Lease Termination Date or the Overcollateralization Date,
1;
<PAGE>
-13-
"AFB" means the Aggregate Financed Balance on the second Settlement
Date immediately preceding such Reporting Date;
"FB" means the aggregate Financed Balances of all Designated Eligible
Leases in respect of which the related Equipment became subject to a
Concurrent Lease hereunder during the Reporting Period immediately
preceding such Reporting Date calculated as of the Cut-Off Date of
each such Concurrent Lease;
"V" means the Aggregate Financed Balance on the Settlement Date
immediately preceding such Reporting Date; and
"AWO" means the Financed Balances of any Designated Eligible Leases
which became Defaulted Leases during the Reporting Period immediately
preceding the Reporting Date directly as a result of (a) facts
relating to any Designated Eligible Leases that resulted in a breach
of the Lessor's representations and warranties hereunder, or (b) an
Adverse Claim arising through the Lessor, IKON Capital or the
Performance Guarantor after the Cut-off Date applicable to the
Concurrent Lease in respect of such Designated Eligible Lease;
"Program Fee" has the meaning ascribed thereto in section 6.20(a)(i);
"Program Limit" means $200,000,000, or such greater amount as the parties may
agree to in writing with the approval of the Credit Enhancer and the Rating
Agency;
"PST" means Taxes payable under the Retail Sales Tax Act (Ontario) or any
similar statute of any other jurisdiction in Canada, other than the Province of
Quebec;
"QST" means the Quebec Sales Tax payable under the QSTA;
"QSTA" means An Act Respecting the Quebec Sales Tax;
"Rating Agency" means Dominion Bond Rating Service Limited and its successors
and, at any particular time hereafter, may include any other nationally
recognized credit rating agency or agencies then authorized by the
Securitization Agent to rate securities issued by the Concurrent Lessee;
"Records" means all contracts, books, records and other documents and
information (including computer programmes, tapes, diskettes, punch cards, data
processing software and related property and rights) maintained by or on behalf
of the Lessor, IKON Capital or the Performance Guarantor evidencing or otherwise
relating to any Equipment concurrently leased or intended to be concurrently
leased by the Lessor to the Concurrent Lessee, or relating to the related
Designated Eligible Leases, Lessees, Related Rights, Lease Entitlements,
Collections or the Collection Account and, after the entering into of the
Concurrent Lease of any such Equipment by the Concurrent Lessee, shall include
all such records, information and material maintained or required to be
<PAGE>
-14-
maintained by the Collector in respect thereof in accordance with the Credit and
Collection Policies and this Agreement;
"Reconciliation Amount" means, in respect of a Liquidated Lease calculated upon
the final determination of the amount of Liquidation Proceeds received in
respect of such Liquidated Lease, the positive amount obtained, when the Rent
Portion of the Liquidation Proceeds for such Liquidated Lease is subtracted from
the Initial Liquidation Payment for such Liquidated Lease;
"Related Rights", with respect to any Designated Eligible Lease, means any of
the following that secures payment or performance, either directly or
indirectly, of the Lessee's obligations to pay Scheduled Payments and
Administrative Charges following the Lease Date under such Designated Eligible
Lease:
(a) any Adverse Claim in any assets mortgaged, pledged, assigned or
otherwise encumbered, including all amounts paid by the Lessee to the
Lessor by way of advance rent payments, security deposits or
otherwise, and all financing statements and similar registrations and
notices covering any collateral subject to the aforementioned Adverse
Claims;
(b) all guarantees, indemnities and repurchase agreements or arrangements
of whatever kind;
(c) all proceeds of any policies of life, disability and general liability
insurance covering the Lessee (whether maintained by the relevant
Lessee, the Lessor or any other Person) which have been assigned to or
for the benefit of the Lessor or pursuant to which the Lessor has been
named as an insured party;
(d) all proceeds of any policies of insurance relating to physical damage,
loss, destruction or breakdown of the Equipment subject to such
Designated Eligible Lease (whether maintained by the relevant Lessee,
the Lessor or any other Person); and
(e) all proceeds of the foregoing, including any payment respecting
indemnity or compensation for loss of or damage to any of the
foregoing;
"Remittance Date" means, in respect of a Reporting Period, the last Business Day
of the Reporting Period immediately following such Reporting Period;
"Rent" means, with respect to any Designated Eligible Lease, that portion of
each remaining Scheduled Payment to be made by the Lessee that represents a
payment on account of the rent charged under the Designated Eligible Lease for
the use and possession of the Equipment forming the subject matter of such
Designated Eligible Lease;
<PAGE>
-15-
"Rent Portion of Liquidation Proceeds" means, with respect to a Liquidated Lease
at a particular date, an amount determined according to the following formula:
A x LP
---
A+B
where:
"A" means the Financed Balance of such Liquidated Lease as at such
date;
"B" means the Residual Amount relating to such Liquidated Lease; and
"LP" means the Liquidation Proceeds relating to such Liquidated Lease;
"Replacement Collector" means, at any time following a Collector Transfer, the
Person whom the Concurrent Lessee designates from time to time by notice given
to the Lessor as the Replacement Collector;
"Replacement Collector Fee" means the actual fee payable to a Replacement
Collector, which fee shall be such commercially reasonable amount as may be
negotiated between the Concurrent Lessee and such Replacement Collector from
time to time;
"Reporting Date" means, in respect of a Reporting Period, the day that is five
Business Days prior to the Remittance Date pertaining to such Reporting Period.
"Reporting Period" means a calendar month, except that the first Reporting
Period shall be the period beginning on the Cut-Off Date related to the initial
Concurrent Lease hereunder and ending September 30, 1999 and the last Reporting
Period shall be the Reporting Period in which the Final Termination Date occurs;
"Residual Amount" means the dollar value ascribed by the Lessor at the
commencement date of a Designated Eligible Lease as the value of the Equipment
forming the subject matter of such Designated Eligible Lease as at the end of
the Term of such Designated Eligible Lease;
"Residual Portion of Liquidation Proceeds" means, with respect to a Liquidated
Lease at a particular date, an amount determined according to the following
formula:
B x LP
---
A+B
where:
"A" means the Financed Balance of such Liquidated Lease as at such
date;
<PAGE>
-16-
"B" means the Residual Amount relating to such Designated Eligible
Lease; and
"LP" means the Liquidation Proceeds relating to such Liquidated Lease;
"Scheduled Payment" means, with respect to a Designated Eligible Lease, any
payment required to be made by the Lessee pursuant to the Designated Eligible
Lease on account of Rent but, for greater certainty, exclusive of Administrative
Charges and payments to be made upon the termination of such Designated Eligible
Lease in respect of the Residual Amount, if any, and excluding any security
deposits paid by the Lessee at the time the Designated Eligible Lease is entered
into;
"Securitization Agent" means Nesbitt Burns Inc.;
"Settlement Amount" has the meaning ascribed thereto in any Swap Agreement;
"Settlement Date" means the last day of a Reporting Period;
"Standard Form Leases" means the forms of transaction documents and
confirmations annexed collectively as Schedule C hereto, which forms are used by
the Lessor as of the Closing Date to constitute the agreements pursuant to which
the Lessor leases Equipment to the Lessees and such other forms of leases which
may be used by the Lessor after the Closing Date which have substantially
similar terms to the Standard Form Leases annexed hereto;
"Stated L/C Amount" means (a) on any date prior to the Lease Termination Date,
the lesser of (i) $16 million and (ii) 8% of the aggregate Unamortized Prepaid
Rent in respect of all Designated Eligible Leases, calculated as at such date of
calculation, subject to Concurrent Leases hereunder on such date, and (b) on any
date on and after the Lease Termination Date, the lesser of (i) $16 million and
(ii) 8% of the aggregate Unamortized Prepaid Rent in respect of all Designated
Eligible Leases, calculated as at the Remittance Date immediately preceding the
Lease Termination Date, subject to Concurrent Leases hereunder on such preceding
Remittance Date;
"Substituted Lease" has the meaning ascribed thereto in section 3.5;
"Subsidiary" has the meaning ascribed thereto in the Securities Act (Ontario),
as in effect at the date hereof;
"Sub-Collector" has the meaning ascribed thereto in section 6.1;
"Swap Agreement" means an interest rate hedge, option, swap or similar agreement
assigned to or entered into pursuant to section 4.1 or 4.2 between the
Concurrent Lessee and a third party acceptable to the Credit Enhancer (such
third party to have a long term unsecured debt rating of no less than AA (low)
from the Rating Agency) in connection with each Concurrent Lease Request, such
agreement to be in a form acceptable to the Concurrent Lessee, the Lessor and
the Credit Enhancer;
<PAGE>
-17-
"Swap Rate" means the rate payable by the Concurrent Lessee and specified as the
"Swap Rate" in the related Swap Agreement;
"Swap Unwinding Costs" means any amounts required to be paid by the Concurrent
Lessee, including any unwinding costs, as a result of the termination of all or
a portion of a Swap Agreement in accordance with section 2.12;
"Tangible Net Worth" means, at any date, the remainder of (a) the sum of all
amounts to be included under shareholders' equity on the balance sheet of the
Lessor in accordance with Canadian generally accepted accounting principles
prepared as of such date minus (b) the sum of goodwill and other items treated
as intangibles in accordance with Canadian generally accepted accounting
principles on such balance sheet;
"Tax Credit" has the meaning ascribed thereto in section 9.6;
"Taxes" means any withholding, stamp, general corporation, property, capital,
large corporations, excise, GST, sales or other tax or any fee, levy, assessment
or other governmental charge, including any related penalties or interest
(excluding taxes imposed upon the Concurrent Lessee with respect to its income);
"Term" means, with respect to a Designated Eligible Lease, the period commencing
on the commencement date thereof and ending on the termination date thereof;
"Termination Date" means the earlier of:
(i) the Lease Termination Date; and
(ii) August 31, 2001, which date may be extended by notice from the
Concurrent Lessee to the Lessor upon agreement to such extension
by the Lessor, the Securitization Agent and the Credit Enhancer;
"Termination Event" has the meaning ascribed thereto in section 7.4;
"Time of Closing" means 9:00 o'clock a.m. (Toronto time) on the Closing Date, or
such other time as may be mutually agreed;
"Tranche" means the Notes issued (a) on a Remittance Date to repay maturing
Notes, or (b) on a Lease Date to fund a Concurrent Lease Request;
"Tranche Amount" means, in respect of a Tranche, the dollar amount of the
proceeds from the issuance of the Notes associated with such Tranche;
"Tranche Period" means, with respect to each Tranche Amount, (a) in respect of
the first Remittance Date following any Concurrent Lease hereunder, the period
from and including the
<PAGE>
-18-
related Lease Date to, but excluding, such first Remittance Date and (b) in
respect of any other Remittance Date, the period from and including the
immediately preceding Remittance Date to, but excluding, such Remittance Date;
"Tranche Rate" means either (a) the rate of interest per annum which is the
equivalent of the discount rate at which Notes issued in respect of a Tranche
are sold by any dealer or other agent selected by the Concurrent Lessee, or (b)
if the Notes are interest bearing, the rate of interest per annum payable in
respect of Notes issued in respect of a Tranche;
"Trigger Event" has the meaning ascribed thereto in section 7.1;
"Trust GST" has the meaning ascribed thereto in section 2.10;
"Unamortized Prepaid Rent" means, with respect to a Designated Eligible Lease,
the product of (a) the Advance Rate, and (b) the Financed Balance of that
Designated Eligible Lease; and
"Weighted Average Term" means, in respect of a group of Designated Eligible
Leases, a fraction the numerator of which is the aggregate of the products
obtained when the Financed Balance of each such Designated Eligible Lease is
multiplied by the remaining Term thereof and the denominator of which is the
aggregate Financed Balances of all such Designated Eligible Leases.
1.2 Headings
--------
The division of this Agreement into Articles, sections, subsections,
paragraphs, clauses and other subdivisions, the provision of a table of contents
and the insertion of 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, subsection, paragraph,
clause, Schedule or other portion hereof and include the recitals and any
agreement supplemental hereto. Unless something in the subject matter or context
is inconsistent therewith, references herein to Articles, sections, subsections,
paragraphs, clauses and Schedules are to Articles, sections, subsections,
paragraphs, clauses and Schedules of this Agreement.
1.3 Extended Meanings
-----------------
Words importing the singular shall include the plural and vice versa
and words importing gender shall include all genders. Words importing natural
persons shall include all Persons. Any defined term used in the singular
preceded by "any" or "each" shall be taken to indicate any number of the members
of the relevant class. Every use of the word "including" or "includes" herein
shall be construed as meaning, respectively, "including, without limitation" and
"includes, without limitation".
<PAGE>
-19-
1.4 Non-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.
1.5 Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada applicable
therein. Each of the parties hereto hereby attorns to the non-exclusive
jurisdiction of the courts of the Province of Ontario.
1.6 Reference to Statutes
---------------------
All references herein to any statute or any provision thereof shall,
unless expressly provided to the contrary herein, include all regulations made
thereunder or in connection therewith from time to time and shall include such
statute or provision as the same may be amended, re-enacted or replaced from
time to time.
1.7 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.
1.8 PPSA Terms
----------
Unless the context otherwise requires, all terms used herein which are
defined in the PPSA (Ontario) and are not specifically defined herein shall have
the meanings ascribed to them respectively in the PPSA (Ontario).
1.9 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.
1.10 Deed
----
It is the intention of the parties that this Agreement, including each
Concurrent Lease, when duly executed and delivered by the parties, shall
constitute a deed.
<PAGE>
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1.11 Rating Agency Ratings
---------------------
Except as otherwise specifically provided for herein, all specific
ratings referred to herein are ratings of the initial Rating Agency, being
Dominion Bond Rating Service Limited. If any Rating Agency is substituted for
another Rating Agency, the specific ratings herein shall be the ratings of such
substituted Rating Agency equivalent to the ratings of Dominion Bond Rating
Service Limited or such Rating Agency, as the case may be, mutatis mutandis.
1.12 Months, Settlement Periods and Tranche Periods
----------------------------------------------
When reference is made herein to a month, unless otherwise stated, it
shall be construed to mean a calendar month. When reference is made herein to a
Reporting Period or Tranche Period next preceding a date or time, it shall be
construed to mean the Reporting Period or Tranche Period, as the case may be,
ending immediately prior to the commencement of the Reporting Period or Tranche
Period during which such date or time occurs.
1.13 Controlling Interest
--------------------
For the purposes of this Agreement, a Person or Persons holds a
controlling interest in a body corporate if such Person or Persons directly or
indirectly controls such body corporate and, for the purposes of this section
1.13, "control" shall mean de facto control, being the power to direct the
management and policies of a body corporate, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
1.14 Schedules
---------
The following Schedules annexed hereto are incorporated herein by
reference and are deemed to be part hereof:
Schedule A - Form of Concurrent Lease Request
Schedule B - Location of Records and Bank Accounts that Receive
Direct Payments
Schedule C - Standard Form Leases
Schedule D - Form of Portfolio Report
Schedule E - Form of Promissory Note (GST)
Schedule F - List of Predecessors
ARTICLE 2
CONCURRENT LEASE
2.1 Grant of Concurrent Lease
-------------------------
(1) Subject to the terms and conditions hereof, from time to time prior to
the Termination Date, the Lessor may, by delivering a Concurrent Lease Request
to the Concurrent Lessee at least
<PAGE>
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five Business Days prior to the requested closing date specified in the
Concurrent Lease Request (each, a "Lease Date"), but not more than once in any
Reporting Period, request that the Concurrent Lessee, concurrently with and
subject to the rights of the Lessees under the Designated Eligible Leases
relating thereto, agree to enter into a lease effective as of the Cut-Off Date
specified in the Concurrent Lease Request to possess and use the Equipment set
out in such Concurrent Lease Request (any such lease granted by the Lessor to
and in favour of the Concurrent Lessee as aforesaid being referred to herein as
a "Concurrent Lease"). Unless the Concurrent Lessee notifies the Lessor that the
Concurrent Lessee has elected not to enter into a Concurrent Lease within two
Business Days of receipt of a Concurrent Lease Request, then, subject to the
terms and conditions hereof, including section 4.2(c), the Concurrent Lessee
will be deemed to have agreed to lease from the Lessor the Equipment set out in
such Concurrent Lease Request on the terms and conditions of this Agreement.
Each Concurrent Lease Request shall specify the Cut-Off Date related to the
Concurrent Leases requested thereunder, the requested Lease Date, (which shall
be the first day of a Tranche Period) the amount of Prepaid Rent required to
prepay the Rent under such Concurrent Leases in accordance with section 2.4,
(which in each case shall be for a minimum amount of $5 million) and the
aggregate Residual Amount relating to such Concurrent Lease Request; provided,
however, that the Concurrent Lessee shall have no obligation to concurrently
lease any Equipment set out in a Concurrent Lease Request (i) if the Notes to be
issued pursuant to such Concurrent Lease Request would have an outstanding
aggregate principal amount of less than $5 million or would mature on a date
other than the next succeeding Remittance Date or (ii) if more than one Tranche
would be outstanding after the issuance of Notes in connection with such
Concurrent Lease Request or (iii) until such time as the Lessor and the
Concurrent Lessee have agreed on the Swap Rate relating to such Concurrent Lease
Request, each acting reasonably, and the Concurrent Lessee shall have entered
into a Swap Agreement in respect thereof in accordance with section 4.1 or 4.2,
as the case may be.
(2) It is hereby expressly acknowledged and agreed that the interest of
the Concurrent Lessee under each Concurrent Lease in and to the Equipment
thereunder is that of lessee only, and that title to all such Equipment shall
remain vested in the Lessor. It is further expressly acknowledged and agreed
that (i) the grant by the Lessor to the Concurrent Lessee of each Concurrent
Lease shall constitute the Concurrent Lessee, in the place and stead of the
Lessor, as the lessor to the Lessees of the Equipment thereunder, and (ii) the
rights of the Lessees with respect to the possession and use of the Equipment
shall be the same as under the Designated Eligible Leases and may be asserted
against the Concurrent Lessee to the same extent as such rights could be
asserted against the Lessor prior to the grant of the Concurrent Lease.
(3) In its capacity as lessor to the Concurrent Lessee, and so that the
Concurrent Lessee will not be in violation of its obligation as lessor to the
Lessees or any of them, the Lessor covenants and agrees to and in favour of the
Concurrent Lessee that, subject to the Credit and Collection Policies, at all
times during the term of each Concurrent Lease, the Lessor will comply with and
perform each term, condition, representation, warranty and covenant required to
be complied with or performed by the Lessor under each Designated Eligible
Lease.
<PAGE>
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(4) In its capacity as lessor to each Lessee under each Designated
Eligible Lease, the Concurrent Lessee covenants and agrees to and in favour of
the Lessor to cause and require each Lessee, and during any period that the
Concurrent Lessee is in actual possession of and using the Equipment or any of
them, the Concurrent Lessee further covenants and agrees to comply with and
perform each term, condition, representation, warranty and covenant required to
be complied with or performed by a Lessee under the relevant Designated Eligible
Lease.
2.2 Term of Concurrent Lease
------------------------
The term of each Concurrent Lease in respect of any Equipment shall
commence at the opening of business on the related Cut-Off Date and, unless
terminated or deemed terminated earlier in accordance with the provisions
hereof, shall terminate at 11:59 p.m. (Toronto time) on the day that is the
first day after the day on which the Designated Eligible Lease relating to such
Equipment is terminated. It is hereby expressly acknowledged and agreed that the
Lessor's title and ownership with respect to any of the Equipment shall be
subject to the rights of the Concurrent Lessee under each Concurrent Lease with
respect to such Equipment, and, consequently, except as otherwise provided
herein, upon the termination or liquidation of the Designated Eligible Lease
relating to any Equipment (whether upon the expiry of the Term thereof or as a
result of a default by the Lessee thereunder or otherwise), the Concurrent
Lessee shall, until the expiry of the term of the Concurrent Lease relating to
such Equipment, have the exclusive right to possess and use such Equipment as
provided for in this Article 2. Except as provided herein, the Lessor shall not
be entitled to terminate the Concurrent Lease in respect of the Equipment
forming the subject matter of any Designated Eligible Lease.
2.3 Rent for Concurrent Lease
-------------------------
In consideration of the grant by the Lessor to the Concurrent Lessee
of each Concurrent Lease, the Concurrent Lessee shall pay to the Lessor during
the term of each such Concurrent Lease, on the first day of each calendar month
after the relevant Lease Date, as monthly rent, an amount equal to 99.99% of the
sum of all payments of Rent forming part of the Scheduled Payments to be made in
respect of the relevant Designated Eligible Leases during the most recently
completed Reporting Period. GST, plus any other tax payable under a statute of
a province of Canada similar to the ETA, subject to such reasonable
modifications as may be required in the circumstances will be added to any
amount so paid. The GST registration number of the Lessor is 873008189.
2.4 Prepayment of Rent
------------------
The Lessor acknowledges and agrees that the Concurrent Lessee may
satisfy and discharge its obligations to make all monthly rent payments required
by section 2.3 by (a) paying to the Lessor on the Lease Date, by certified
cheque or by wire transfer to an account designated by the Lessor, as a
prepayment of rent, a sum equal to the Prepaid Rent less the Initial Deposited
Amount and (b) paying to the Lessor deferred rent (the "Deferred Rent") pursuant
to and in accordance with sections 2.5 and 2.7, each of which payments shall be
made without the need on the
<PAGE>
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part of the Lessor to provide the Concurrent Lessee with any invoices. The
Concurrent Lessee hereby agrees to cause the Initial Deposited Amount to be
deposited into the Deferred Rental Account. Notwithstanding the foregoing, the
Lessor shall provide the Concurrent Lessee with any invoices or other
documentation necessary for the Concurrent Lessee to claim GST input tax credits
and input tax refunds.
2.5 Remittances from Collections
----------------------------
On each Remittance Date, unless otherwise required herein, the
Collector shall, and hereby covenants to, deposit all Collections for the
immediately preceding Reporting Period into the Collection Account and the
Concurrent Lessee hereby authorizes and directs the Collector, on or before each
Remittance Date, to apply the Collections for such immediately preceding
Reporting Period to make the following deposits and payments from the Collection
Account (and with respect to section (n)(ii) below only, payments from the
Deferred Rental Account), to the extent of such Collections, in the following
order of priority:
(1) to the counterparty under any Swap Agreement, an amount equal to the
Hedging Costs (if greater than zero), to the extent not previously
paid;
(2) after a Collector Transfer, to the Replacement Collector, an amount
equal to the Replacement Collector Fee that has accrued and remains
unpaid on such Remittance Date and to the Replacement Collector or the
Concurrent Lessee, as applicable, any amounts owed and remaining
unpaid pursuant to section 6.20(a)(ii);
(3) into the Concurrent Lessee's Account, any amounts outstanding in
respect of the Funding Discount in respect of each outstanding Tranche
on such Remittance Date, plus any accrued interest on any such overdue
amounts;
(4) into the Concurrent Lessee's Account, the Program Amount in respect of
the previous Reporting Period, together with any previously payable
Program Amounts to the extent not paid, plus any accrued interest on
any such overdue amounts, calculated from the respective Remittance
Date on which any such overdue amount was required to be paid, at a
rate equal to the then applicable Tranche Rate in respect of
outstanding Notes;
(5) into the Concurrent Lessee's Account, any amounts outstanding in
respect of the Program Fee on such Remittance Date;
(6) to the Credit Enhancer or applicable Governmental Authority, in
payment of the sum of (i) the Credit Enhancement Fee for the Tranche
Period immediately preceding such Remittance Date, together with any
other unpaid Credit Enhancement Fees (with interest thereon at the
Prime Rate plus 3.0%), and (ii) all Taxes (as such term is defined in
the Credit Enhancement Agreement) and other amounts payable to or by
the Credit Enhancer in respect of such Credit Enhancement Fees and
interest;
<PAGE>
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(7) to the Credit Enhancer or applicable Governmental Authority, in
payment of (i) an amount equal to the sum of (x) the accrued and
unpaid interest, if any, due and payable to the Credit Enhancer on any
amounts drawn by the Concurrent Lessee on the Credit Enhancement
pursuant to section 2.6, and (y) all Taxes (as such term is defined in
the Credit Enhancement Agreement) and other amounts payable with
respect to or by the Credit Enhancer with respect to such interest, to
the extent not previously paid, and (ii) any amounts drawn by the
Concurrent Lessee on the Credit Enhancement and not previously
reimbursed to the Credit Enhancer or, after the L/C Funding Date,
deposited to the L/C Funding Account;
(8) to the Credit Enhancer or applicable Governmental Authority, in
payment of the aggregate of all other amounts due and payable to the
Credit Enhancer and all Taxes, (as such term is defined in the Credit
Enhancement Agreement), to the extent not previously paid;
(9) into the Concurrent Lessee's Account, any amounts payable by the
Lessor pursuant to sections 6.20(b), 11.2 and 11.7, to the extent
agreed to by the Credit Enhancer and not previously paid;
(10) to the Lessor, the aggregate Reconciliation Amounts for such Reporting
Period;
(11) into the Deferred Rental Account, the amount required to ensure that
the amount on deposit in the Deferred Rental Account is maintained at
the Deferred Rental Required Amount;
(12) at the option of the Concurrent Lessee, and upon the written direction
of the Concurrent Lessee to the Collector prior to the Remittance
Date, to any holder of an Adverse Claim referred to in section 3.6 to
the extent the Lessor has been deemed to have received a Collection
pursuant thereto but has not made the deposit required pursuant to
section 3.6;
(13) into the Concurrent Lessee's Account, all other amounts (including
interest) owed to or owned by the Concurrent Lessee hereunder, to the
extent not previously paid or so deposited; and
(14) prior to the earlier of the occurrence of the Lease Termination Date
or the Overcollateralization Date, to the Lessor on account of
Deferred Rent (i) any amounts remaining from the Collections received
during the relevant Reporting Period after payment of all amounts
required by (a) through (m) above, and (ii) from the Deferred Rental
Account, the Deferred Rental Excess Amount, if any, provided that, on
and after the earlier to occur of the Lease Termination Date and the
Overcollateralization Date, any amount that would otherwise be payable
to the
<PAGE>
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Lessor pursuant to this section 2.5(n) shall be deposited, or shall
remain on deposit, as the case may be, in the Deferred Rental Account.
If, on any Remittance Date prior to the Final Termination Date, Collections are
insufficient to make the payments and deposits referred to in (a) through (i)
above, inclusive, the Lessor shall deposit the amount of the deficiency to the
Collection Account from funds on deposit in the Deferred Rental Account to the
extent funds are available in the Deferred Rental Account and apply such amount
to the payment of any unpaid amount under, and in the priority set forth in,
sections 2.5(a) through (i), inclusive.
2.6 Level Two Credit Enhancement
----------------------------
(1) If, on any Remittance Date, the amount on deposit in the Deferred
Rental Account is reduced to zero (after giving effect to all deposits to and
withdrawals from the Deferred Rental Account on such Remittance Date in
accordance with section 2.5), the Concurrent Lessee shall make a drawing on the
Level Two Credit Enhancement in an amount equal to the lesser of (i) the
Available L/C Amount on such Remittance Date, and (ii) the amount, if any, by
which (A) the sum of the amounts required to be paid or deposited on such
Remittance Date under sections 2.5(a) through (e), inclusive, exceeds (B) the
sum of (x) the Collections for the Reporting Period prior to such Remittance
Date, and (y) the amount, if any, on deposit in the Deferred Rental Account on
such Remittance Date prior to making any of the payments required under sections
2.5(a) through (e).
Any amount drawn on the Level Two Credit Enhancement on any Remittance
Date pursuant to this section 2.6(a) shall be applied by the Concurrent Lessee
to make the requisite payments and deposits under sections 2.5(a) through (e),
inclusive.
(2) If, at any time, the rating of the long term unsecured debt
obligations of the Credit Enhancer is reduced to below AA(low) by the Rating
Agency, or to the extent that the Rating Agency is not then rating the long term
unsecured debt of the Credit Enhancer, to below an equivalent rating by a United
States rating agency recognized by the Rating Agency, the Concurrent Lessee
shall, within 60 days following such an occurrence, either:
(1) replace the Letter of Credit with an irrevocable letter of credit
with a stated amount not less than the then Available L/C Amount
and issued by a successor Credit Enhancer satisfactory to the
Lessor and the Rating Agency, or make any other arrangement
satisfactory to the Lessor, the Rating Agency and the
Securitization Agent; or
(2) cause a draw to be made under the Letter of Credit in an amount
equal to the Available L/C Amount and deposit such amount into an
Eligible Deposit Account established in the name of the
Concurrent Lessee and known as the "L/C Funding Account".
<PAGE>
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(3) Funds on deposit in the L/C Funding Account on any Remittance Date,
after giving effect to any withdrawals to be made from the L/C Funding Account
on such Remittance Date pursuant to section 2.6(a), shall be invested by the
Concurrent Lessee in Eligible Investments at the direction of the Credit
Enhancer, as provided in section 6(e) of the Credit Enhancement Agreement. Any
such Eligible Investments shall mature not later than the Business Day preceding
the next succeeding Reporting Date so that such funds will be available for
withdrawal on or prior to the following Remittance Date in accordance with and
to the extent provided for in section 2.6(a). The proceeds of any such
investments shall be invested in Eligible Investments in accordance with the
provisions of this section 2.6(c). The Concurrent Lessee shall hold possession
of the negotiable instruments or securities, if any, evidencing such Eligible
Investments. On each Remittance Date, all interest and earnings (net of losses
and investment expenses) accrued since the preceding Remittance Date on funds on
deposit in the L/C Funding Account shall be applied in accordance with the
Credit Enhancement Agreement. For purposes of determining the availability of
funds or the balances in the L/C Funding Account for any reason, all investment
earnings on such funds shall be deemed not to be available or on deposit.
(4) If the L/C Funding Account Surplus on any Remittance Date, after
giving effect to all deposits to and withdrawals from the L/C Funding Account
with respect to such Remittance Date, is greater than zero, the Concurrent
Lessee shall withdraw from the L/C Funding Account and apply in accordance with
the Credit Enhancement Agreement, an amount equal to the amount of such L/C
Funding Account Surplus.
(5) Upon the earliest to occur of (i) the Final Termination Date, and (ii)
the day on which all Notes have been paid in full, the Concurrent Lessee shall
withdraw from the L/C Funding Account for application in accordance with the
Credit Enhancement Agreement all amounts on deposit in the L/C Funding Account.
(6) Notwithstanding any provision of this Agreement, from and after the
L/C Funding Date, the L/C Funding Account shall replace the Letter of Credit for
all purposes of this Agreement. As a result, after the L/C Funding Date unless
the context requires otherwise, (i) any reference in this Agreement to a draw
under the Letter of Credit shall be deemed to refer to a withdrawal from the L/C
Funding Account, and (ii) any reference in section 2.5(g)(ii) to a payment to
the Credit Enhancer shall be deemed to refer to a deposit into the L/C Funding
Account; provided, however, that from and after the L/C Funding Date the Credit
Enhancer shall still be entitled to receive payments pursuant to sections
2.5(f), (g)(i) and (h).
2.7 Satisfaction of Deferred Rent
-----------------------------
Forthwith after the Final Termination Date (or such earlier date as
may be agreed upon by the Concurrent Lessee and the Lessor), and provided that
the Concurrent Lessee and the Credit Enhancer have each received all amounts
that are required to be paid to them pursuant to section 2.5, the Concurrent
Lessee shall, in full satisfaction of its obligation to pay the then outstanding
amount of Deferred Rent, if any, (a) pay to the Lessor all Collections in the
possession or control of the Concurrent Lessee or any Replacement Collector and
all amounts then on deposit
<PAGE>
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in the Deferred Rental Account and the Collection Account, and (b) terminate all
Concurrent Leases whereupon the Concurrent Lessee shall cease to have any
interest in or to any Designated Eligible Leases, Equipment, Related Rights or
any proceeds thereof, such that from and after such time, the Lessor shall hold
and enjoy all right, title and interest in and to all Designated Eligible
Leases, Equipment, Related Rights and all proceeds thereof, free and clear of
all Adverse Claims created by the Concurrent Lessee or any Replacement
Collector, but without any other representation or warranty (whether express,
implied, statutory or otherwise) by or on behalf of the Concurrent Lessee.
2.8 No Recourse
-----------
Except as set forth herein, in the event that the Lessee under any
Designated Eligible Lease is unable, neglects or refuses to satisfy its
financial or other obligations thereunder, or is in default thereunder for any
reason whatsoever, no recourse shall be had by the Concurrent Lessee against the
Lessor therefor.
2.9 Concurrent Leases Limited by Program Limit
------------------------------------------
No Concurrent Leases may be granted hereunder if, after giving effect
thereto and the issue of Notes to fund payment of the Prepaid Rent in respect of
such Concurrent Leases, (a) the aggregate Unamortized Prepaid Rent for all
Designated Eligible Leases would exceed the Program Limit or (b) the aggregate
Tranche Amounts in respect of all Notes outstanding on the relevant date would
exceed the aggregate Unamortized Prepaid Rent in respect of all Designated
Eligible Leases subject to Concurrent Leases hereunder as of the immediately
preceding Cut-Off Date.
2.10 Payment of GST by the Concurrent Lessee
---------------------------------------
The Lessor agrees that the Concurrent Lessee may satisfy its
obligation to pay GST to the Lessor in respect of the Prepaid Rent provided for
in section 2.4 (the "Trust GST") by way of a promissory note executed by the
Concurrent Lessee in favour of the Lessor in an amount equal to the amount of
Trust GST plus the amount of any interest paid or payable to the Concurrent
Lessee in accordance with the ETA and the QSTA received by the Trust in respect
of the input tax credit or input tax refund entitlement of the Concurrent
Lessee, and otherwise substantially in the form set out in Schedule E, in
accordance with the following provisions:
(1) the Concurrent Lessee shall have a reporting period for the purposes
of the ETA and QSTA that is a calendar month;
(2) the Concurrent Lessee shall file returns under section 238 of the ETA
and section 468 of the QSTA on or before the fifth Business Day
following the end of the Reporting Period in which (or in respect of
which) the Concurrent Lessee paid the Trust GST (as represented by the
promissory note) and shall claim in such returns an input tax credit
and input tax refund (including in respect of the full amount of the
Trust GST) for that period pursuant to the applicable provisions of
the ETA and QSTA;
<PAGE>
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(3) the Concurrent Lessee shall pay to the Lessor, within three Business
Days of such time or times as the Concurrent Lessee receives any net
tax refund in respect of the Trust GST, the amount of any such net tax
refund, together with any interest thereon received by the Concurrent
Lessee, in satisfaction of the promissory note; and
(4) the Concurrent Lessee shall assign to the Lessor, as security for the
obligations of the Concurrent Lessee under the promissory note, all of
the right, title and interest of the Concurrent Lessee in and to any
net tax refund receivable by the Concurrent Lessee in respect of the
Trust GST, together with any interest receivable thereon. The rights
and recourses of the Lessor with respect to any amounts owing by the
Concurrent Lessee to the Lessor in respect of the Tax and under the
promissory note shall be limited to the enforcement of such assignment
and otherwise at law against such security. The Lessor shall not be
entitled to enforce any right or recourse against any other property
or assets of the Concurrent Lessee with respect to any liability of
the Concurrent Lessee to the Lessor under this section 2.10 or the
promissory note.
2.11 Acknowledgment and Quit Claim
-----------------------------
The Lessor acknowledges that, as a consequence of the grant of rights
by the Lessor to the Concurrent Lessee under this Agreement and pursuant to each
Concurrent Lease Request, and the liability of the Concurrent Lessee to pay to
the Lessor the rent or Prepaid Rent and Deferred Rent, as the case may be, under
the Concurrent Leases as provided for in this Article 2, the Concurrent Lessee
is entitled, among other things, to receive all relevant Collections as of and
from the opening of business on the relevant Cut-Off Date. Accordingly, each of
the Concurrent Lessee and the Lessor hereby acknowledges that, on each Lease
Date, all of the Lessor's right, title and interest in the following Lease
Entitlements (as defined below), as they relate to the related Equipment
concurrently leased by the Concurrent Lessee hereunder, shall, by virtue of the
Concurrent Lease thereof, vest in the Concurrent Lessee as of and from the
opening of business on the related Cut-Off Date:
(1) all of the Lessor's right, title and interest in, to and under the
Designated Eligible Leases (excluding, for greater certainty, title to
the Equipment forming the subject matter of such leases and the
Residual Amount, if any, applicable to any such leases) and (i) the
original credit application originally executed by each Lessee and any
credit analysis and credit agency report and the "quality indicator
score" records relating to the Lessees, if any, and (ii) all other
documents kept on file by the Lessor at the respective offices of the
Lessor, IKON Capital or the Performance Guarantor at the locations
specified in Schedule B evidencing the Related Rights and/or relating
to the Designated Eligible Leases, the Lessees or the Equipment;
(2) all of the Lessor's right, title and interest in and to all
Collections made after the relevant Cut-Off Date including rights, if
any, under direct debit agreements with Lessees, and all cheques,
notes, instruments of payment and other remittances relating thereto;
<PAGE>
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(3) all of the Lessor's right, title and interest in and to the Related
Rights created pursuant to or relating to the Designated Eligible
Leases; and
(4) all proceeds from any or all of the foregoing
(all of the property and rights transferred, assigned and conveyed pursuant to
this section 2.11 being collectively referred to herein as the "Lease
Entitlements").
2.12 Swap Agreements
---------------
If the Lessor elects to terminate all Concurrent Leases pursuant to
section 7.3 or if the Concurrent Lessee elects to sell all such Concurrent
Leases pursuant to section 7.6, or if any Concurrent Lease is terminated
pursuant to any of sections 3.2, 3.3(c) or 3.4, the Concurrent Lessee shall have
the right, but not the obligation, to terminate, modify or amend any portion of
the Swap Agreement entered into by the Concurrent Lessee in connection with such
Concurrent Leases. To the extent the Concurrent Lessee terminates, modifies or
amends a Swap Agreement in such circumstances, it shall notify the Lessor in
writing at least one Business Day prior to effecting such termination,
modification or amendment. The Concurrent Lessee agrees that it shall cause all
proceeds received by it as a result of the termination, modification or
amendment of a Swap Agreement (net of any amounts used to enter into another
Swap Agreement) pursuant to this section 2.12 to be deposited to the Collection
Account.
ARTICLE 3
TERMINATION WITH RESPECT TO CERTAIN EQUIPMENT
3.1 General
-------
The provisions of this Article 3 are in addition to and not in
limitation of the indemnification provisions set out in this Agreement and the
other covenants, rights and remedies described herein.
3.2 Liquidated Leases
-----------------
The parties acknowledge that the Collector is obligated, in accordance
with this Agreement and the Credit and Collection Policies, to enforce a
Designated Eligible Lease that is to become a Liquidated Lease, including, by
taking possession of and/or re-leasing the Equipment to a third party or selling
the Equipment forming the subject matter of such Lease and by enforcing the
Related Rights. The Concurrent Lessee shall be entitled to require the Lessor
to terminate the Concurrent Lease with respect to the Equipment forming the
subject matter of such Liquidated Lease by notice in writing to the Lessor or as
provided for in this section 3.2. If, one Business Day prior to a transfer of
title to, or repossession of, the Equipment by the Collector in connection with
the enforcement of a Designated Eligible Lease, the Concurrent Lessee shall not
have provided the
<PAGE>
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Lessor with notice that it does not wish to exercise its option to terminate the
Concurrent Lease with respect to such Equipment, the Concurrent Lessee shall be
deemed to have exercised such option with respect to such Equipment, and,
subject to the next following sentence, the Concurrent Lease shall be and shall
be deemed to be terminated with respect to such Equipment as of the date of such
transfer of title to, or repossession of, such Equipment by the Collector. Such
termination shall be effective upon the payment by the Lessor to the Concurrent
Lessee, by deposit to the Collection Account, as a refund of a portion of the
Prepaid Rent paid by the Concurrent Lessee in respect of such Equipment, of an
amount equal to the lesser of:
(1) the Rent Portion of Liquidation Proceeds relating to such Designated
Eligible Lease in respect of all Reporting Periods, calculated on the
date on which the Collector transferred title to or took repossession
of the Equipment; and
(2) the Unamortized Prepaid Rent relating to such Designated Eligible
Lease, calculated as at such date, plus the portion of the Hedging
Costs that relates to the Financed Balance of such Designated Eligible
Lease on that date, plus any Swap Unwinding Costs, plus any other
amounts owed to the Concurrent Lessee hereunder in respect of such
Designated Eligible Lease;
provided, that, to the extent the Liquidation Proceeds with respect to such
Liquidated Lease shall not have been identified or otherwise determined on the
first Settlement Date occurring after the relevant Designated Eligible Lease is
determined to be a Liquidated Lease, the Collector shall pay to the Concurrent
Lessee (an "Initial Liquidation Payment"), by deposit to the Collection Account
no later than the Remittance Date for the Reporting Period in which such
Settlement Date occurs, the amount referred to in (b) above. Upon the making of
the Initial Liquidation Payment in the manner referred to above, the Lessor
shall become entitled to receive, in accordance with section 2.5, the
Reconciliation Amount, if any, relating to such Liquidated Lease.
Upon the payment to the Concurrent Lessee of such amount (including by
the making of the Initial Liquidation Payment), (i) the Concurrent Lease
relating to the relevant Equipment shall be and shall be deemed to have been
terminated, (ii) the Lessor shall cease to be entitled to any further payments
of Deferred Rent in respect of such Equipment, (iii) the Concurrent Lessee shall
be deemed to have released, re-assigned and reconveyed to the Lessor all of its
right, title and interest in and to such Equipment and the Lease Entitlements
(insofar as they relate to the Liquidated Lease relating to such Equipment)
without recourse, and subject only to the representations and warranties of the
Concurrent Lessee that such right, title and interest is held beneficially by it
and is released, transferred, assigned and conveyed to the Lessor free and clear
of any Adverse Claims created, suffered or permitted to exist by the Concurrent
Lessee, and (iv) the Collector shall pay or transfer to the Lessor all other
proceeds of the Liquidated Lease, if any, subsequently received by the Collector
from the Lessee under such Liquidated Lease. Upon the final determination of
the Liquidation Proceeds with respect to any Liquidated Lease, the Collector
shall pay to the Lessor the Residual Portion of the Liquidation Proceeds for
such Lease.
<PAGE>
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3.3 Lease Variations
----------------
(a) If, in accordance with Article 6 hereof and the Credit and
Collection Policies, the Collector proposes to:
(i) allow a Lessee to purchase the Equipment forming the subject matter
of its Designated Eligible Lease prior to the expiry of the Term
thereof;
(ii) terminate a Designated Eligible Lease prior to the expiry of the
Term thereof for any reason other than a default on the part of the
Lessee;
(iii) extend the Term of a Designated Eligible Lease beyond its stated
Term; or
(iv) decrease the amount or number of the Scheduled Payments required
under any Designated Eligible Lease,
it shall provide reasonably prompt written notice thereof to the Concurrent
Lessee and the Credit Enhancer. Subject to section 3.3(b), upon receipt of such
notice the Concurrent Lessee shall be entitled to require the Lessor to
terminate the Concurrent Lease with respect to the Equipment forming the subject
of the relevant Designated Eligible Lease, in which case the Collector shall be
entitled to take any such action described in any of sections 3.3(a)(i) through
(iv) only following the termination of the Concurrent Lease relating to such
Equipment. If, one Business Day prior to the completion of any of the actions
referred to in any of sections 3.3(a)(i) to (iv) above, the Concurrent Lessee
shall not have provided the Lessor with notice that it does not wish to exercise
its option to terminate the Concurrent Lease with respect to such Equipment, the
Concurrent Lessee shall be deemed to have exercised such option with respect to
such Equipment and the Concurrent Lease shall be and shall be deemed to be
terminated with respect to such Equipment as of the date of completion of any
such action.
(b) If an event referred to in either section 3.3(a)(i) or (ii) occurs
as a direct result of the Lessee requesting such termination on a basis
unsolicited by the Collector, the Concurrent Lessee shall be deemed to have
exercised the option referred to in section 3.3(a) and the Concurrent Lease
shall be and shall be deemed to be terminated with respect to such Equipment as
of the date of completion of the action under section 3.3(a)(i) or (ii), as the
case may be.
(c) Any such termination under section 3.3(a) or (b) shall be effective
upon the payment by the Lessor to the Concurrent Lessee, by deposit to the
Collection Account, as a refund of a portion of the Prepaid Rent paid by the
Concurrent Lessee in respect of the relevant Equipment, of an amount equal to
the Unamortized Prepaid Rent relating to the relevant Designated Eligible Lease,
calculated as at the date on which such payment is made to the Collector plus
the portion of the Hedging Costs that relates to the Financed Balance under such
Designated Eligible Lease on that date plus any Swap Unwinding Costs, plus any
other amounts owed to the Concurrent Lessee hereunder in respect of such
Designated Eligible Lease. Upon the payment of such amount to the Concurrent
Lessee, (i) the Concurrent Lease relating to such Equipment shall be and shall
be deemed
<PAGE>
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to have been terminated, (ii) the Lessor shall cease to be entitled to
any further payments of Deferred Rent in respect of such Equipment, (iii) the
Concurrent Lessee shall be deemed to have released, re-assigned and reconveyed
to the Lessor all of its right, title and interest in and to such Equipment and
the Lease Entitlements (insofar as they relate to the Designated Eligible Lease
relating to such Equipment), without recourse, and subject only to the
representations and warranties of the Concurrent Lessee that such right, title
and interest is held beneficially by it and is released, transferred, assigned
and conveyed to the Lessor free and clear of any Adverse Claims created,
suffered or permitted to exist by the Concurrent Lessee, and (iv) the Collector
shall pay or transfer to the Lessor all other proceeds of the Designated
Eligible Lease, if any, subsequently received by the Collector from the Lessee
under such Designated Eligible Lease.
3.4 Ineligible Leases
-----------------
Promptly upon discovering that an eligibility requirement contained in
section 5.4 has not been satisfied with respect to any Designated Eligible Lease
or Designated Eligible Leases or that an event described in section 7.1(h) has
occurred, the Lessor shall inform the Concurrent Lessee in writing, in
reasonable detail, with respect thereto, or the Concurrent Lessee shall so
inform the Lessor with respect thereto, as the case may be. Unless such event
or state of facts shall have been cured on or before the first Settlement Date
following the receipt of such notice, the Lessor will promptly pay to the
Concurrent Lessee, by deposit to the Collection Account, an amount equal to the
Unamortized Prepaid Rent in respect of any such Designated Eligible Lease
materially adversely affected thereby, calculated as at the date on which such
payment is made, plus the portion of the Hedging Costs that relates to the
Financed Balance under such Designated Eligible Lease on such date, plus any
Swap Unwinding Costs, plus any other amounts owed to the Concurrent Lessee
hereunder in respect of such Designated Eligible Lease.
Upon the payment of such amount, (i) the Concurrent Lease shall be and
shall be deemed to have been terminated by the Lessor with respect to the
Equipment forming the subject matter of the relevant Designated Eligible Lease,
(ii) the Lessor shall cease to be entitled to any further payments of Deferred
Rent in respect of such Equipment, (iii) the Concurrent Lessee shall be deemed
to have released, re-assigned and reconveyed to the Lessor all of its right,
title and interest in and to such Equipment and Lease Entitlements (insofar as
they relate to the Designated Eligible Lease relating to such Equipment),
without recourse, and subject only to the representations and warranties of the
Concurrent Lessee that such right, title and interest is held beneficially by it
and is released, transferred, assigned and conveyed to the Lessor free and clear
of any Adverse Claims created, suffered or permitted to exist by the Concurrent
Lessee and (iv) the Collector shall pay or transfer to the Lessor all other
proceeds of the Designated Eligible Lease, if any, subsequently received by the
Collector from the Lessee under such Designated Eligible Lease.
3.5 Substituted Leases
------------------
The Lessor shall have the option to substitute a Designated Eligible
Lease which is an Eligible Lease (a "Substituted Lease") for a 90 Day Past Due
Lease, provided that:
<PAGE>
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(1) the sum of the aggregate Financed Balances of all Substituted Leases
shall not exceed 10% of the highest Aggregate Financed Balance amount
on any date prior to the date such substitution occurs;
(2) at the time of such substitution, the aggregate Financed Balances of
such Substituted Leases shall be at least equal to the aggregate
Financed Balances of the 90 Day Past Due Leases being substituted; and
(3) the Substituted Leases have approximately the same Weighted Average
Term and CIRR as the 90 Day Past Due Leases being substituted.
Contemporaneously with the substitution of such Substituted Leases, the Lessor
shall grant to the Concurrent Lessee, and the Concurrent Lessee shall accept,
concurrently with and subject to the rights of the Lessees under the Substituted
Leases relating thereto, a Concurrent Lease in respect of the Equipment forming
the subject matter of such Substituted Leases. Contemporaneously with the
substitution of the Substituted Leases, (i) the Concurrent Leases shall be and
shall be deemed to have been terminated by the Lessor with respect to the
Equipment forming the subject matter of the 90 Day Past Due Leases so
substituted, (ii) the Lessor shall cease to be entitled to any further payments
of Deferred Rent in respect of such Equipment, (iii) the Concurrent Lessee shall
be deemed to have released, re-assigned and reconveyed to the Lessor all of its
right, title and interest in and to such Equipment and Lease Entitlements
(insofar as they relate to the 90 Day Past Due Lease relating to such Equipment)
without recourse, and subject only to the representations and warranties of the
Concurrent Lessee that such right, title and interest is held beneficially by it
and is released, transferred, assigned and conveyed to the Lessor free and clear
of any Adverse Claims created, suffered or permitted to exist by the Concurrent
Lessee and (iv) the Collector shall pay or transfer to the Lessor all other
proceeds of the 90 Day Past Due Lease, if any, subsequently received by the
Collector from the Lessee under such 90 Day Past Due Lease.
3.6 Adverse Claims
--------------
(1) If on any day prior to the Termination Date, any Adverse Claim arising
through the Lessor is asserted against the Lessor's or the Concurrent Lessee's
interest in any Equipment, the Lessor shall, for all purposes hereof, be
irrebuttably deemed to have received, for the Concurrent Lessee's account on
such day, a Collection equal to the Unamortized Prepaid Rent relating to the
relevant Designated Eligible Lease as of the next following Remittance Date,
plus the portion of the Hedging Costs that relates to the Financed Balance under
such Designated Eligible Lease, as of such next following Remittance Date, plus
any Swap Unwinding Costs, plus any other amounts owed to the Concurrent Lessee
hereunder in respect of such Designated Eligible Lease, and the Lessor shall
deposit such amount into the Collection Account on such next following
Remittance Date unless, pursuant to section 6.6, the Lessor is required to make
deposits of Collections into the Collection Account on the next following
Business Day after receipt thereof, in which case the Lessor shall deposit such
amount to the Collection Account on such next following Business Day after the
day it becomes aware of the circumstances requiring a deposit under this section
3.6.
<PAGE>
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(2) Upon deposit into the Collection Account of the amount contemplated
under (a) above, (i) the Concurrent Lease relating to such Equipment shall be
and shall be deemed to have been terminated, (ii) the Lessor shall cease to be
entitled to any further payments of Deferred Rent in respect of such Equipment,
(iii) the Concurrent Lessee shall be deemed to have released, re-assigned and
reconveyed to the Lessor all of its right, title and interest in and to such
Equipment and the Lease Entitlements (insofar as they relate to the Designated
Eligible Lease relating to such Equipment), without recourse, and subject only
to the representations and warranties of the Concurrent Lessee that such right,
title and interest is held beneficially by it and is released, transferred,
assigned and conveyed to the Lessor free and clear of any Adverse Claims
created, suffered or permitted to exist by the Concurrent Lessee, and (iv) the
Collector shall pay or transfer to the Lessor all other proceeds of the
Designated Eligible Lease, if any, subsequently received by the Collector from
the Lessee under such Designated Eligible Lease.
ARTICLE 4
CONDITIONS PRECEDENT
4.1 Conditions Precedent for the Initial Concurrent Lease
-----------------------------------------------------
On or before the Closing Date, unless waived by each of the Concurrent
Lessee, the Rating Agency and the Credit Enhancer in writing, the following
shall have occurred or the Lessor, IKON Capital or the Performance Guarantor
shall have delivered to the Concurrent Lessee the following, as the case may be,
in each case in form and substance satisfactory to the Concurrent Lessee:
(1) evidence that each of the Lessor, IKON Capital and the Performance
Guarantor is duly existing under its jurisdiction of incorporation,
along with certificates of status or compliance or other evidence
satisfactory to the Concurrent Lessee and its counsel, each acting
reasonably, that the Lessor is duly qualified, licensed or registered
in each of the jurisdictions in which it carries on its present
business and operations, except where the failure to be so qualified,
licensed or registered in any such jurisdiction does not have and will
not have a material adverse effect on the conduct of the business of
the Lessor or any material adverse effect on the validity,
enforceability or collectability of any of the Designated Eligible
Leases or the Lease Entitlements;
(2) a certificate of an officer of each of the Lessor, IKON Capital and
the Performance Guarantor, to be in full force and effect as of the
Closing Date, providing for and certifying the resolutions of the
board of directors of the Lessor, IKON Capital and the Performance
Guarantor approving and authorizing the execution, delivery and
performance of this Agreement and the other documents to be delivered
by the Lessor, IKON Capital and the Performance Guarantor hereunder,
the granting of Concurrent Leases hereunder and the assignment of the
Lease Entitlements hereunder;
<PAGE>
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(3) incumbency certificates of the officers of the Lessor, IKON Capital
and the Performance Guarantor executing this Agreement and the other
documents to be delivered by the Lessor, IKON Capital and the
Performance Guarantor hereunder showing their names, offices and
specimen signatures on which certificates the Concurrent Lessee shall
be entitled to conclusively rely 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 4.1(c);
(4) to the extent not previously received, or as required by the Credit
Enhancer or the Rating Agency, reports showing the results of the
searches conducted in each of the provinces of Canada, other than the
Provinces of Prince Edward Island, Newfoundland and Saskatchewan,
against the Lessor and each Predecessor on the Business Day
immediately preceding the Closing Date (or as near as practicable
thereto) to determine the existence of any Adverse Claims in the
assets of the Lessor or in the Equipment or the Lease Entitlements;
(5) sample copies of each of the Standard Form Leases and other documents
generally used or required by the Lessor in each of the provinces of
Canada with respect to Equipment and to provide for the Related
Rights, including credit application forms and direct debit
authorization forms;
(6) executed copies of this Agreement, the Credit Enhancement Agreement
and the other agreements and instruments called for hereunder;
(7) opinions of counsel to the Lessor, IKON Capital and the Performance
Guarantor dated as of the Closing Date, together with supporting
opinions of local counsel in such provinces of Canada as the
Concurrent Lessee, the Credit Enhancer and the Rating Agency, each
acting reasonably, may determine;
(8) copies of verification statements, officially stamped or marked to
indicate that copies of such documents have been filed with the
appropriate Governmental Authorities in all the Provinces of Canada
or, if officially stamped copies are not available prior to the
Closing Date, photocopies of documents accepted for filing or
registration, of all financing statements or financing statements
providing for the renewal of any prior registrations or other similar
statements or other registrations, if any, filed in such province or
provinces with respect to the grant of the Concurrent Lease and the
transfer, assignment and conveyance of the Lease Entitlements to
ensure recognition as against third parties of the interests of the
Concurrent Lessee under the Concurrent Lease in the Equipment and the
interests of the Concurrent Lessee in the Lease Entitlements, in each
case showing the Lessor's address as #810, 715-5th Avenue S.W.,
Calgary, Alberta T2P 2X6;
<PAGE>
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(9) evidence that such Persons as the Concurrent Lessee may have
designated who have registered financing statements or similar
instruments against the Lessor shall have entered into such agreements
or amended their registrations, filings or recordings so as to negate
any interest in the Equipment or the Lease Entitlements capable of
encumbering or defeating the interests of the Concurrent Lessee
therein;
(10) the Lessor shall have paid to the Concurrent Lessee the amount of
certain expenses of the Concurrent Lessee which the Lessor has agreed
to reimburse to the Concurrent Lessee pursuant to section 11.7;
(11) an Advance Ruling Certificate shall have been issued to the Concurrent
Lessee by the Director of Investigation and Research, Bureau of
Competition Policy, pursuant to the Competition Act (Canada) in
connection with the transactions contemplated hereby, which
certificate shall be in full force and effect;
(12) such other documentation as may be required by the Concurrent Lessee
or its counsel, Davies, Ward & Beck, or by the Lessor and the
Performance Guarantor or their counsel, Tory Tory DesLauriers and
Binnington, or by the Credit Enhancer or its counsel, Fraser Milner,
or by the Rating Agency, in each case acting reasonably; and
(13) the Concurrent Lessee shall have entered into a Swap Agreement as
required under section 2.1(a).
4.2 Conditions Precedent in Favour of the Concurrent Lessee for All
---------------------------------------------------------------
Concurrent Leases
- -----------------
Prior to the granting of each Concurrent Lease hereunder (including
the first Concurrent Lease), the following shall have occurred, or the Lessor or
the Performance Guarantor, as the case may be, shall have delivered to the
Concurrent Lessee the following, in each case in form and substance satisfactory
to the Concurrent Lessee:
(1) the Concurrent Lessee shall have received a Concurrent Lease Request,
in form and substance satisfactory to the Concurrent Lessee, dated
within 20 Business Days prior to the Lease Date and containing such
additional information, with respect to the Designated Eligible
Leases, the Equipment or otherwise, as may be reasonably requested by
the Concurrent Lessee;
(2) on the date of such Concurrent Lease (immediately prior to, at the
time of and after giving effect to such Concurrent Lease), the
following statements will be true, and the Lessor, IKON Capital and
the Performance Guarantor, by the Lessor accepting any payment
pursuant to section 2.3 or 2.4 in respect of a Concurrent Lease, will
be deemed to have certified that:
<PAGE>
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(1) the representations and warranties contained in Article 5 of this
Agreement (excluding the representations and warranties contained
in section 5.1) are correct on and as of the relevant Lease Date
as though made on and as of such date; and
(2) no event has occurred and is continuing, or would result from the
granting of such Concurrent Lease, that constitutes either a
Trigger Event or a Termination Event or would constitute either a
Trigger Event or a Termination Event by further requirement that
notice be given or time elapse or both;
(3) a Swap Agreement shall have been executed by the relevant parties
similar in form to the Swap Agreement entered into with respect to the
initial Concurrent Lease under section 4.1, or in such other form
approved by the Securitization Agent and the Credit Enhancer, and the
fixed rate payable under such Swap Agreement shall be less than or
equal to the Prime Rate at the time the Swap Agreement is entered
into, unless otherwise approved by the Credit Enhancer; and
(4) all documents, instruments and agreements required by the terms hereof
to be delivered to the Concurrent Lessee shall be so delivered and
shall be satisfactory in form and substance to the Concurrent Lessee,
acting reasonably, and the Concurrent Lessee shall have received such
other approvals, opinions or documents as it may reasonably request.
4.3 Condition Precedent in Favour of the Lessor and the Performance
---------------------------------------------------------------
Guarantor for All Concurrent Leases
- -----------------------------------
Prior to the granting of each Concurrent Lease hereunder (including
the first Concurrent Lease), the Concurrent Lessee, by entering into any such
Concurrent Lease, will be deemed to have certified that the representations and
warranties contained in section 5.1 are correct on and as of the relevant Lease
Date as though made on and as of such date.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Concurrent Lessee
-------------------------------------------------------
The Concurrent Lessee represents and warrants to the Lessor and the
Performance Guarantor, and acknowledges that each of the Lessor and the
Performance Guarantor is relying upon such representations and warranties in
consummating the transactions contemplated hereby and in entering into each
Concurrent Lease hereunder, that as of the Closing Date and as of each Lease
Date:
<PAGE>
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(1) The Trust Company of Bank of Montreal, or any successor trustee of
CARE Trust, is a trust corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation and, pursuant to the Deed of Settlement, has full power
and authority to execute and deliver this Agreement and the other
documents to be delivered by it hereunder and to perform the terms and
conditions hereof and thereof;
(2) CARE Trust is a trust validly existing under the laws of the Province
of Ontario;
(3) the execution, delivery and performance by the Concurrent Lessee of
this Agreement and all instruments, agreements and documents
contemplated to be executed and delivered by the Concurrent Lessee
hereunder are within the powers of the Concurrent Lessee, do not
contravene, the Deed of Settlement or any other indenture, agreement
or instrument to which the Concurrent Lessee is a party and constitute
legal, valid and binding obligations of the Concurrent Lessee
enforceable against it in accordance with their terms; and
(4) there are no actions, suits or proceedings in existence or, to the
knowledge of the Concurrent Lessee, pending or threatened against or
affecting the Concurrent Lessee, or the property of the Concurrent
Lessee, in any court, or before any arbitrator of any kind, or before
or by any governmental body, which may materially adversely affect the
ability of the Concurrent Lessee to perform its obligations under this
Agreement and all instruments, agreements and documents contemplated
to be executed and delivered by the Concurrent Lessee hereunder.
5.2 General Representations and Warranties of the Lessor
----------------------------------------------------
The Lessor represents and warrants to the Concurrent Lessee, and
acknowledges that the Concurrent Lessee is relying upon such representations and
warranties in consummating the transactions contemplated hereby and in entering
into each Concurrent Lease hereunder, that, as of the Closing Date and as of
each Lease Date:
(1) the Lessor 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 materially
adversely affect the collectibility of the Designated Eligible Leases
or the Lease Entitlements or the enforcement of the Related Rights;
(2) the execution, delivery and performance by the Lessor of this
Agreement, any Concurrent Lease Request 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;
<PAGE>
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(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;
and do not result in or require the creation of any Adverse Claim upon
or with respect to any of its properties other than with respect
hereto;
(3) 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 the Lessor of this
Agreement, 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
a Designed Eligible Lease and concurrently leased hereunder and in all
other Lease Entitlements and Related Rights relating thereto;
(4) this Agreement, each Concurrent Lease Request and all other documents
delivered by the Lessee hereunder have been duly executed and
delivered by the Lessee or on its behalf;
(5) this Agreement, each Concurrent Lease Request and the other documents
to be delivered hereunder constitute legal, valid and binding
obligations of the Lessee enforceable against it in accordance with
their terms (assuming due and valid authorization, execution and
delivery thereof by the other parties thereto) subject to applicable
bankruptcy, insolvency, reorganization, winding-up, moratorium,
arrangement 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);
(6) the consolidated balance sheet of the Lessor as at September 30, 1998
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 a senior financial
officer of the Performance Guarantor certifying the accuracy of such
statements, fairly present in all material respects consolidated
financial position of the Lessor as at such date and the consolidated
results of the operations of the Lessor for the period ended on such
date, all in accordance with generally accepted accounting principles;
and since September 30, 1998 there has been no material adverse change
in any such financial position or operations;
<PAGE>
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(7) the consolidated balance sheet of the Lessor as at March 31, 1999 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 a senior financial
officer of the Performance Guarantor certifying the accuracy of such
statements, fairly present in all material respects the financial
position of the Lessor as at such date and the results of the
operations of the Lessor for the period ended on such date, all in
accordance with generally accepted accounting principles; and since
March 31, 1999 there has been no material adverse change in such
financial position or operations;
(8) all filings, recordings, registrations or other actions required under
this Agreement have been made or taken as referred to in Article 4 in
each jurisdiction necessary or appropriate to validate, preserve,
perfect or protect the interests of the Concurrent Lessee under the
Concurrent Leases and the Equipment subject to the Concurrent Leases
and the ownership interests of the Concurrent Lessee in, and the
rights of the Concurrent Lessee to collect, any and all of the Lease
Entitlements, including the right to enforce the Related Rights with
respect to the Designated Eligible Leases and the Equipment;
(9) there is no fact known to the Lessor (other than matters of a general
economic nature) that materially adversely affects (i) the business,
operations, property, assets or condition (financial or otherwise) of
the Lessor or its Subsidiaries, taken as a whole, or (ii) the Lessor,
the Designated Eligible Leases, the Equipment or the Lease
Entitlements, that has not been disclosed herein or in other
documents, certificates and written statements furnished to the
Concurrent Lessee or its advisors, the Credit Enhancer or the Rating
Agency for use in connection with the evaluation and entering into of
the transactions contemplated hereby;
(10) as of the date hereof, the chief executive office and the chief place
of business of the Lessor is located at #810, 715-5th Avenue S.W.,
Calgary, Alberta T2P 2X6 and the books, records, documents and
Designated Eligible Leases in which the Lessor has any interest and
other printed information (excluding policies or certificates of
insurance) evidencing or relating to the Designated Eligible Leases,
the Lessees, the Equipment and the Lease Entitlements are located at
the offices of the Lessor shown in Schedule B;
(11) there are no actions, suits or proceedings, of which the Lessor has
not advised the Concurrent Lessee in writing, against or affecting the
Lessor or any of its Affiliates 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 the financial condition of the Lessor or
its ability to perform its obligations hereunder or under the other
documents delivered by it hereunder and the Lessor is not in default
with respect to any order of any court, governmental body or
<PAGE>
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arbitrator which materially adversely affects the Lessor's ability to
perform its obligations hereunder or thereunder;
(12) no event of default has occurred and is outstanding under any
agreement or instrument referred to in section 5.2(b)(iii) 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;
(13) 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;
(14) 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 and no effective financing statements or other
instrument similar in effect covering any Designated Eligible Lease,
the Equipment leased thereunder or the Lease Entitlements and Related
Rights 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 and the
Lease Entitlements and Related Rights relating thereto.
(15) each Lease set out on a Concurrent Lease Request is 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 Collections Policy;
(16) no Portfolio Report (if prepared by the Lessor, or to the extent that
information contained therein is supplied by the Lessor), Concurrent
Lease Request, information, exhibit, financial statement, document,
book, record or report furnished or to be furnished by the Lessor to
the Concurrent Lessee, the Credit Enhancer or the Rating Agency 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 receiving party 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;
(17) the Lessor is not a bankrupt, an insolvent person, in insolvent
circumstances or on the eve of or in contemplation of insolvency or
unable to meet its engagements or obligations, as applicable, within
the meaning of the Bankruptcy and Insolvency Act (Canada), the
Companies' Creditors Arrangement Act (Canada), the Assignment and
Preferences Act (Ontario) and the Fraudulent Conveyances Act (Ontario)
(the "Insolvency Statutes");
<PAGE>
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(18) the Lessor will not become an insolvent person or be put in insolvent
circumstances or become unable to meet its engagements or obligations,
as applicable, within the meaning of any of the Insolvency Statutes by
entering into, or immediately after completion of the transactions
contemplated by, this Agreement;
(19) 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;
(20) 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 Lease Entitlements or the
ability of the Lessor to collect Lease Entitlements or the ability of
the Lessor, IKON Capital or the Performance Guarantor to perform its
obligations hereunder;
(21) the Lessor is not a non-resident as defined under the Income Tax Act
(Canada);
(22) the 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;
(23) 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 for Equipment;
(24) no event has occurred and is continuing and no condition exists which
constitutes a Trigger Event or a Termination Event:
(25) transactions contemplated herein do not require compliance with the
Bulk Sales Act (Ontario) or any similar legislation of any other
jurisdiction;
(26) the microfiche or other records and materials containing particulars
of the Lessees, the Equipment and the Lease Entitlements made
available to the Concurrent Lessee from time to time will be true and
correct in all material respects; and
(27) the computer records of the Lessor which contain particulars of the
Designated Eligible Leases will contain notations, marks or other
designations sufficient to identify that the Equipment subject to such
leases have been leased by the Lessor to the Concurrent Lessee
hereunder.
<PAGE>
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5.3 Representations and Warranties of the Performance Guarantor and IKON
--------------------------------------------------------------------
Capital
-------
Each of the Performance Guarantor and IKON Capital represents and
warrants to the Concurrent Lessee, and acknowledges that the Concurrent Lessee
is relying upon such representations and warranties in consummating the
transactions contemplated hereby and in entering into each Concurrent Lease
hereunder, that, as of the Closing Date and as of each Lease Date:
(1) each of the Performance Guarantor and IKON Capital is a corporation
validly existing under the laws of its jurisdiction of incorporation;
(2) the execution, delivery and performance by each of the Performance
Guarantor and IKON Capital of this Agreement and the other documents
to be delivered by each of them hereunder 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;
(3) 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 each of
the Performance Guarantor and IKON Capital of this Agreement and any
other documents delivered by it hereunder;
(4) this Agreement and all other documents delivered by the Performance
Guarantor and IKON Capital hereunder have been duly executed and
delivered by them or on their behalf;
(5) this Agreement constitutes a legal, valid and binding obligation of
each of the Performance Guarantor and IKON Capital enforceable
against it in accordance with its terms (assuming due and valid
authorization, execution and delivery thereof by the other parties
thereto) subject to applicable bankruptcy, reorganization,
insolvency, reorganization, winding-up, moratorium, arrangement 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);
<PAGE>
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(6) as of the date hereof, the chief executive office and the chief
place of business of the Performance Guarantor is located at 70
Valley Stream Parkway, Malvern, Pennsylvania, U.S.A. and the chief
executive office and the chief place of business of IKON Capital is
located at 16007-116 Avenue, Edmonton, Alberta and the books,
records, documents and Designated Eligible Leases in which IKON
Capital has any interest and other printed information (excluding
policies or certificates of insurance) evidencing or relating to the
Designated Eligible Leases, the Lessees, the Equipment and the Lease
Entitlements are located at the offices of IKON Capital shown in
Schedule B;
(7) no written information furnished to the Concurrent Lessee or its
advisors, the Credit Enhancer or the Rating Agency by or on behalf
of the Performance Guarantor or IKON Capital (or known to the
Performance Guarantor or IKON Capital in the case of any document
not furnished by or on behalf of them) in connection with the
transactions contemplated by this Agreement contains any untrue
statement of a material fact or omits to state any material fact
that is required to be stated or that is necessary to be stated to
make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading;
(8) there are no actions, suits or proceedings of which either of the
Performance Guarantor or IKON Capital 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 the financial condition of either of the
Performance Guarantor or IKON Capital, or either of their abilities
to perform their respective obligations hereunder or under the other
documents delivered by either of them hereunder and neither of the
Performance Guarantor nor IKON Capital is 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;
(9) the Performance Guarantor is not insolvent within the meaning of the
Bankruptcy Code of the United States, in insolvent circumstances or
on the eve of or in contemplation of insolvency or unable to meet
its engagements or obligation and IKON Capital is not a bankrupt, an
insolvent person, in insolvent circumstances or on the eve of or in
contemplation of insolvency or unable to meet its engagements or
obligations, as applicable, within the meaning of any of the
Insolvency Statutes;
(10) neither the Performance Guarantor nor IKON Capital, will become
insolvent or be put in insolvent circumstances or become unable to
meet its engagements or obligations, as applicable, within, in the
case of the Performance Guarantor, the meaning of the Bankruptcy
Code of the United States, and, in the case of IKON Capital, the
meaning of any of the Insolvency Statutes, by entering into, or
immediately after completion of the transactions contemplated by,
this Agreement;
<PAGE>
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(11) the microfiche or other records and materials containing particulars
of the Designated Eligible Lessees, the Equipment and the Lease
Entitlements made available to the Concurrent Lessee from time to
time will be true and correct in all material respects;
(12) the Performance Guarantor, either directly or indirectly, through a
holding company is the registered and beneficial owner of all of the
issued and outstanding shares in the capital of the Lessor and IKON
Capital;
(13) no material default has occurred and is outstanding under any
agreement or instrument referred to in section 5.3(b)(iii) which
default would materially and adversely affect either the Performance
Guarantor's or IKON Capital's ability to perform its respective
obligations hereunder or under the other documents delivered by it
hereunder;
(14) in the case of the Performance Guarantor, its long term debt is
rated by Moody's Investor Services, Inc. at Baa 3 or better and by
Standard & Poor's Rating Group at BBB- or better; and
(15) in the case of the Performance Guarantor, no Concurrent Lease
Request 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.
5.4 Eligibility Criteria Regarding the Leases and the Equipment
-----------------------------------------------------------
Each Designated Eligible Lease and the related Equipment and Lease
Entitlements, shall satisfy the following eligibility criteria as at the
relevant Cut-Off Date and Lease Date (such lease being referred to herein as an
"Eligible Lease"):
(1) (i) each Designated Eligible Lease was entered into in one of the
provinces or territories of Canada by the Lessor, or by a
Predecessor, for the lease and licence of the Equipment contemplated
thereby in the ordinary course of the Lessor's business and complies
in all material respects with the Credit and Collection Policies;
each such Designated Eligible Lease was fully and properly executed
by the parties thereto and is in a form substantially similar to one
of the Standard Form Leases; (ii) the rights of the Lessor under
each Designated Eligible Lease are secured by a valid, subsisting
and enforceable first priority Adverse Claim in favour of the Lessor
in the related Equipment, which Adverse Claim has been perfected or
otherwise protected by all necessary or appropriate filings,
registrations, recordings or other actions in each jurisdiction
necessary to ensure the priority of such Adverse Claim; (iii) each
<PAGE>
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Designated Eligible Lease contains customary and enforceable
provisions such that the rights and remedies of the Lessor and its
assigns shall be adequate for realization against the Equipment,
subject to the limitations on enforcement referred to in paragraph (e)
below; (iv) the Lessee under each Designated Eligible Lease is located
in a Province or Territory of Canada and no such Lessee is the
government of Canada or of a Territory of Canada; (v) each Designated
Eligible Lease is denominated and payable in Canadian dollars and
provides for monthly, quarterly, semi-annual or annual payments with a
fixed rate of interest and the Scheduled Payments fully amortize the
Financed Balance of such Designated Eligible Lease at the relevant
Cut-Off Date (other than any obligation to make a payment with respect
to the Residual Amount) at the CIRR thereof over the remaining Term of
such Designated Eligible Lease but do not amortize or otherwise
provide for the payment of all or any part of the Residual Amount; and
(vi) the Term of each Designated Eligible Lease does not exceed 84
months following the relevant Cut-Off Date and the aggregate Financed
Balances of all Designated Eligible Leases, the Terms of which are
greater than 66 months, do not exceed 15% of the Aggregate Financed
Balance;
(2) none of the Equipment has been sold, transferred, assigned, encumbered
or pledged by the Lessor to any Person other than the Lessees, and the
Lessor has good and marketable title to (i) each Designated Eligible
Lease and the Equipment (subject to the rights of the relevant
Lessees) forming the subject matter of each Designated Eligible Lease,
(ii) the related Lease Entitlements and (iii) all chattel paper
relating thereto, free and clear of all Adverse Claims and rights of
others, other than those created pursuant to this Agreement, and
immediately upon the transfer thereof, the Concurrent Lessee shall
have good and marketable title to the Lease Entitlements, free and
clear of all Adverse Claims and rights of others;
(3) the information set forth in each Concurrent Lease Request shall be
true and correct in all material respects as of the close of business
on the relevant Lease Date;
(4) each Designated Eligible Lease, and the lease to the Lessee thereunder
of the related Equipment, shall have complied at the time it was
originated or made, and at the relevant Cut-Off Date and Lease Date
shall comply, in all material respects, with all requirements of
applicable law which would affect the enforceability of such
Designated Eligible Lease, including any applicable consumer
protection legislation and interest rate disclosure legislation;
(5) each Designated Eligible Lease represents the legal, valid and binding
payment obligation in writing of the Lessee, enforceable by the Lessor
and its assigns against such Lessee in accordance with its terms
(subject to applicable law, including the limitations on enforcement
contained in the Bankruptcy and Insolvency Act (Canada)) and each such
Designated Eligible Lease constitutes the Lessee's obligation to pay
to the Lessor and its assigns the amounts and at the time or times
specified in such Designated Eligible Lease;
<PAGE>
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(6) the Lease Entitlements are fully assignable by the Lessor without the
consent of the Lessee, including without making any filing or
recording or obtaining any consent under any federal or provincial
legislation;
(7) there is no federal, provincial or local law or ordinance under which
any of the Lease Entitlements shall be subject to any Taxes, nor will
any payment or remittance to be made by or on behalf of the Lessor on
its own behalf or on behalf of any Lessee under this Agreement be
subject to Taxes; provided, however, that such statement shall not
extend to any Taxes payable on the income of the Concurrent Lessee,
Taxes payable by virtue of the non-resident status of the Concurrent
Lessee or Taxes payable in respect of GST or PST payable by the
Lessees;
(8) the Lessor has complied in all material respects with all of its
obligations under each Designated Eligible Lease and under all other
agreements, instruments and documents entered into by the Lessor in
connection therewith, including all maintenance and service contracts,
if any;
(9) the Lessor, or a Predecessor, approved the lease of the relevant
Equipment to each of the Lessees and the Lessor (or IKON Capital) has
administered all of the Designated Eligible Leases, the Equipment and
the Lease Entitlements, in each case, in accordance with the Credit
and Collection Policies;
(10) (i) no Lessee is an Affiliate of the Lessor, (ii) no Lessee under any
Designated Eligible Lease is a Lessee under any other Designated
Eligible Lease that is a Delinquent Lease, and (iii) no Lessee has, at
any time prior to the Lease Date, renegotiated the terms of payment of
a Designated Eligible Lease in a manner that would render incorrect
the information set out in the relevant Concurrent Lease Request;
(11) all of the Equipment complies with the specifications, warranties and
representations made with respect thereto in the relevant Designated
Eligible Lease;
(12) the Designated Eligible Leases are all triple net leases requiring the
Lessees thereunder to pay all taxes and maintenance associated with
the Equipment; all Scheduled Payments under each Designated Eligible
Lease are absolute and unconditional obligations of the Lessee or
Lessees under such Designated Eligible Lease regardless of any
defence, set-off, counterclaim or abatement for any reason; no
Designated Eligible Lease imposes any delivery, repair, maintenance,
warranty or other affirmative obligations upon the Lessor thereunder;
and no Designated Eligible Lease entitles the Lessee to terminate or
cancel the Designated Eligible Lease except upon payment of an amount
at least equal to the Financed Balance of such Designated Eligible
Lease, determined at the time of payment;
<PAGE>
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(13) there are no agreements, representations, warranties, conditions or
covenants, whether oral, written, express or implied, on the part of
the Lessor affecting or relating to any Equipment forming the subject
matter of any Designated Eligible Lease save as expressly set out
herein and in such Designated Eligible Lease;
(14) there has been no prepayment whatsoever under any Designated Eligible
Lease that would render incorrect the information set out in the
relevant Concurrent Lease Request; none of the Designated Eligible
Leases has been rewritten or extended owing to the delinquency of or
credit issues associated with the Lessee; the Equipment forming the
subject matter of each Designated Eligible Lease has been delivered
to and accepted by the Lessee under such Designated Eligible Lease;
the Lessor, as of the Lease Date for a Designated Eligible Lease, has
no knowledge that any of the related Equipment is defective or that
any related manufacturer's warranty with respect to any Equipment is
not in good standing or is illegal, invalid or unenforceable and the
result of such illegality, invalidity or unenforceability is or may
result in the value of the relevant Equipment being less than the
original Financed Balance of the relevant Designated Eligible Lease
as at the lease date of the relevant Designated Eligible Lease;
(15) no Designated Eligible Lease has been satisfied or rescinded, no
rights subordinated, nor has any Equipment been released from the
Adverse Claim of the Related Rights under a Designated Eligible Lease
in whole or in part;
(16) the Lessor has not granted any consents, approvals, extensions or
waivers under or in respect of any Designated Eligible Lease;
(17) no right of rescission, set-off, counterclaim or defence has been
asserted or threatened with respect to any Designated Eligible Lease,
and no Person has contested the validity of any such Designated
Eligible Lease; no Lessee has any right of rescission, set-off,
counterclaim or defence under any Designated Eligible Lease;
(18) no Adverse Claims or claims have been filed for work, labour or
materials relating to Equipment that would rank prior to, or equal to
or pari passu with, the Adverse Claim granted by the Lessee in its
interests in the Equipment in favour of the Lessor;
(19) subject to the other provisions of this section 5.4, no default,
breach, violation or event permitting acceleration under the terms of
any Designated Eligible Lease has occurred, and no continuing
condition that with notice or lapse of time would constitute a
default, breach, violation or event permitting acceleration under the
terms of any Designated Eligible Lease has arisen;
(20) no Designated Eligible Lease is subject to the laws of any
jurisdiction under which the sale, transfer or assignment of such
Designated Eligible Lease or of any rights
<PAGE>
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and benefits thereunder by the Lessor to the Concurrent Lessee under
this Agreement would be unlawful, void or voidable;
(21) all Lessees are required to remit all monies required to be paid in
respect of the Designated Eligible Leases to one of the locations
specified in Schedule B or to one of the bank accounts listed in
Schedule B, as such Schedule B may be amended from time to time by
the Lessor upon the Lessor delivering a revised Schedule B to the
Concurrent Lessee and the Securitization Agent;
(22) the rate shown on the microfiche or other records provided to the
Concurrent Lessee with respect to each Designated Eligible Lease is
the same as the CIRR of such Designated Eligible Lease on its Cut-Off
Date;
(23) no Designated Eligible Lease was a Delinquent Lease, a 90 Day Past
Due Lease or a Defaulted Lease as of the relevant Cut-Off Date;
(24) as of each Lease Date, no Lessee was noted in the Lessor's, IKON
Capital's or the Performance Guarantor's records as being the subject
of a bankruptcy proceeding;
(25) each Designated Eligible Lease constitutes chattel paper, and the
Lease Entitlements constitute one or more of chattel paper, money,
instruments or intangibles;
(26) after giving effect to the Concurrent Lease of all Equipment
requested pursuant to a Concurrent Lease Request, the aggregate
Financed Balances of all Designated Eligible Leases owing by such
Lessee and by any Affiliate thereof will not exceed the Concentration
Limit in respect of such Lessee;
(27) each Designated Eligible Lease provides that the Lessee is required
to maintain, at the Lessee's expense, insurance covering the loss of
or damage to the Equipment with the Lessor as a named insured or loss
payee;
(28) the Designated Eligible Leases subject to each Concurrent Lease
Request, taken as a whole, shall have a weighted average CIRR equal
to or greater than the Prime Rate plus 2%;
(29) the initial Rent payment under each Designated Eligible Lease is due
not later than during the Reporting Period in which the Lease Date in
respect of such Designated Eligible Lease occurs or the next
following Reporting Period;
(30) the original cost of any individual item of tangible personal
property forming part of the Equipment subject to a Designated
Eligible Lease shall not exceed $1 million;
(31) after giving effect to the Concurrent Lease of all Equipment subject
to a Concurrent Lease Request, the aggregate Financed Balances of all
Designated Eligible Leases
<PAGE>
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requiring payments (i) other than on a monthly basis shall not exceed
40% of the Aggregate Financed Balance and (ii) on an annual basis
shall not exceed 5% of the Aggregate Financed Balance.
5.5 Survival
--------
The representations, warranties and covenants of the Concurrent Lessee,
the Lessor, IKON Capital and the Performance Guarantor contained in this
Agreement shall survive the consummation of the transactions contemplated by
this Agreement and, notwithstanding the occurrence of such events, shall
continue in full force and effect until the earlier of (a) such time as all
amounts payable to, and obligations owed to, the Trust hereunder have been paid
or otherwise satisfied and (b) the date which is for a period of two years from
the Final Termination Date.
ARTICLE 6
ADMINISTRATION
6.1 Designation of the Collector
----------------------------
By executing and delivering this Agreement, the Lessor is designated
as the Collector until a Collector Transfer, and hereby agrees to perform the
duties and obligations of the Collector pursuant to the terms hereof and at no
cost to the Concurrent Lessee. Subject to the provisions of this Agreement, the
Collector shall administer and service, and collect amounts owing under, the
Designated Eligible Leases as agent for the Concurrent Lessee until the Final
Termination Date. The Collector may, with the Concurrent Lessee's prior written
consent, subcontract with any other Person (a "Sub-Collector") for the
administration and collection of the Designated Eligible Leases; provided,
however, that no such consent shall be required in connection with the
enforcement of any particular Designated Eligible Lease that does not involve
any such subcontracting with respect to Designated Eligible Leases generally;
and provided further that the Collector shall remain liable for the performance
of the duties and obligations so subcontracted, and the payment of all
associated costs, and all other duties and obligations of the Collector pursuant
to the terms of this Agreement. Subject to the foregoing, so long as the Lessor
is the Collector, IKON Capital 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 a Sub-Collector and
agrees to continue to perform the duties and obligations it has been delegated
by the Collector on or prior to the date hereof, in accordance with the
provisions of this Agreement, and shall 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
Article 6 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>
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6.2 Standard of Care
----------------
The Collector, as agent for the Concurrent Lessee (to the extent
provided herein), shall perform its duties hereunder with reasonable care and
diligence, using that degree of skill and attention that the Collector exercises
in managing, servicing, administering, collecting on and performing similar
functions relating to comparable leases and related entitlements that it
services for itself or other Persons.
6.3 Authorization of Collector
--------------------------
Without limiting the generality of the authority granted by the
designation of any Person as Collector, and subject to the other provisions of
this Agreement, the Collector is hereby authorized and empowered by the
Concurrent Lessee to take any and all reasonable steps in its name and on its
behalf necessary or desirable, and not inconsistent with the concurrent lease of
the Equipment by the Concurrent Lessee, except that the Collector shall not be
required to notify any Person of the Concurrent Lessee's interest therein until
the occurrence of a Trigger Event or Termination Event, to collect all amounts
due under any and all Designated Eligible Leases, including to execute and
deliver, on behalf of the Concurrent Lessee and any subsequent assignees, any
and all instruments of satisfaction or cancellation, or partial or full release
or discharge, and all other comparable instruments, with respect to the
Equipment, the Designated Eligible Leases or the Lease Entitlements and, after
delinquency of any Designated Eligible Lease, and to the extent permitted under
and in compliance with applicable law and regulations, to commence proceedings
with respect to enforcing payment of such Designated Eligible Lease and the
Lease Entitlements, and adjusting, settling or compromising the account or
payment thereof, to the same extent as the Lessor could have done if it had
continued to directly lease the Equipment. The Concurrent Lessee shall furnish
the Collector with any powers of attorney and other documents that are within
the ability of the Concurrent Lessee to furnish and which are reasonably
necessary or appropriate to enable the Collector to carry out its servicing and
administrative duties hereunder as agent of the Concurrent Lessee.
6.4 Enforcement of Leases
---------------------
The Collector is authorized to enforce and protect the Concurrent
Lessee's rights and interests in and under the Designated Eligible Leases and
the related Lease Entitlements and the Concurrent Lessee's right to receive
payment in respect thereof, and the Collector may commence or defend proceedings
in the name of the Concurrent Lessee (or any agent thereof, including the
Collector) for the purpose of enforcing or protecting any rights under any
Designated Eligible Lease or the related Lease Entitlements or against any
Lessee personally. In no event shall the Collector be entitled to take any
action that would make the Concurrent Lessee a party to any litigation without
the Concurrent Lessee's express prior written consent except only to the extent
necessarily incidental to the enforcement by the Collector of any Designated
Eligible Lease or the related Lease Entitlements.
<PAGE>
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6.5 Assignment for Purpose of Enforcement
-------------------------------------
If the Collector shall commence a legal proceeding to enforce any
rights under any Designated Eligible Lease or the related Lease Entitlements or
against a Lessee personally in accordance with this Agreement, the Concurrent
Lessee shall thereupon be deemed to have automatically assigned such Designated
Eligible Lease or Lease Entitlements to the Collector, solely for the purpose of
and only to the extent necessarily incidental to the enforcement by the
Collector of such rights. The Collector shall hold such assigned Designated
Eligible Lease or Lease Entitlements in trust for the Concurrent Lessee and the
same shall be deemed to have been automatically re-assigned to the Concurrent
Lessee when the assignment to the Collector ceases to be necessary for the
enforcement by the Collector of such rights. If in any enforcement suit or
legal proceeding it shall be held that the Collector may not enforce a right
under a Designated Eligible Lease or the related Lease Entitlements on the
grounds that it shall not be a real party in interest or a holder entitled to
enforce rights in respect of the Designated Eligible Lease or the related Lease
Entitlements, the Concurrent Lessee shall, at the Collector's expense and
direction, take steps as are necessary to enforce such Designated Eligible Lease
or Lease Entitlements.
6.6 Deposit of Collections
----------------------
During such time prior to a Collector Transfer as (a) the Collector
has a long-term unsecured debt rating of at least BBB (low) by the Rating Agency
or an equivalent rating by a recognized Canadian or United States rating agency,
(b) the obligation of the Collector to deposit Collections received by it to the
Collection Account are fully guaranteed by an entity having a long-term
unsecured debt rating of at least BBB (low) by the Rating Agency or an
equivalent rating by a recognized Canadian or United States rating agency, or
(c) the Securitization Agent, the Rating Agency or the Credit Enhancer have not
notified the Collector to the contrary, the Collector may use for its own
benefit all Collections received with respect to Designated Eligible Leases
during a Reporting Period until the occurrence of the Remittance Date related to
such Reporting Period during the immediately following Reporting Period, at
which time the Collector shall deposit all such Collections into the Collection
Account. At any other time, the Collector shall deposit all Collections to the
Collection Account on the Business Day next following the day on which such
Collections are received. All Collections deposited to the Collection Account
shall be held for the benefit of the Concurrent Lessee and shall be withdrawn
from the Collection Account only in accordance with the terms of this Agreement.
6.7 Collector Amounts
-----------------
On each Reporting Date, the Collector shall provide the Concurrent
Lessee with an Officer's Certificate specifying all amounts payable pursuant to
section 2.5 of this Agreement.
6.8 Description of Services
-----------------------
The Collector shall, unless the Concurrent Lessee directs otherwise
with the approval of the Credit Enhancer and the Rating Agency, take or cause to
be taken all such reasonable actions
<PAGE>
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as may be necessary or advisable from time to time to administer and service
each Designated Eligible Lease and the related Lease Entitlements in accordance
with this Agreement and applicable law. Without limiting the generality of the
foregoing (but subject to the exceptions expressed in the preceding sentence),
the Collector shall, in accordance with the Credit and Collection Policies, with
respect to each Designated Eligible Lease:
(1) take or cause to be taken all such actions as may be necessary or
desirable from time to time to collect the Designated Eligible Lease
in accordance with the terms and provisions thereof;
(2) keep an account with respect to the Designated Eligible Lease and post
to it all payments received under or in respect of such Designated
Eligible Lease;
(3) deposit all Collections in respect of the Designated Eligible Lease to
the Collection Account as required by section 6.6, regardless of any
defence, set-off right or counterclaim;
(4) give timely notice to the Lessee of the Designated Eligible Lease of
any payment or other default thereunder;
(5) record the Designated Eligible Lease as being delinquent or defaulted;
(6) investigate all delinquencies and defaults under the Designated
Eligible Lease;
(7) respond to all reasonable enquiries of the Lessee of the Designated
Eligible Lease or other obligors under the Related Rights;
(8) take such steps as are necessary to maintain the perfection and
priority, as the case may be, of the Adverse Claims, if any, created
pursuant to the Designated Eligible Lease and the Related Rights and,
subject to section 6.8(m) and (n) of this Agreement, to refrain from
releasing any such Adverse Claim in whole or in part except to the
extent that the Collector would have done so in a similar situation
with respect to lease agreements administered by it on its own behalf;
(9) subject to section 6.16, make all payments to Governmental Authorities
and others where a statutory lien or deemed trust having priority over
the Concurrent Lessee's interest in the Equipment relating to the
Designated Eligible Lease has arisen, provided that nothing herein
shall preclude the Collector from contesting any claim in the ordinary
course of business and in good faith, and remit all amounts of Taxes
owing in respect of such Equipment;
(10) determine the advisability of taking action and instituting and
carrying out legal proceedings with respect to the Designated Eligible
Lease and the Lease Entitlements pertaining thereto in case of default
by the Lessee under such Designated Eligible
<PAGE>
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Lease and take such action and institute and carry out such legal
proceedings determined by it to be advisable;
(11) maintain Records with respect to each Designated Eligible Lease and
the Lease Entitlements pertaining thereto and grant representatives of
the Concurrent Lessee reasonable access to examine and make copies of
the Records and a reasonable opportunity to discuss matters relating
to the administration and servicing of each Designated Eligible Lease
and the Lease Entitlements pertaining thereto with personnel of the
Collector involved in such administration and servicing during
business hours, including the opportunity to see and review
information systems and software in operation;
(12) hold as trust property for and on behalf of the Concurrent Lessee,
free of any Adverse Claim (other than the leasehold interest or
Adverse Claims created pursuant to this Agreement), all Records with
respect to the Designated Eligible Leases at any one or more of the
offices identified in Schedule B until the Final Termination Date;
(13) execute and deliver all such assignments, releases and discharges of
the Designated Eligible Leases as are required by the terms thereof
and upon receipt of all amounts due thereunder; and
(14) settle, compromise and otherwise deal with any claims under the
Designated Eligible Leases or the Related Rights if necessary,
advisable or otherwise permitted in accordance with the Credit and
Collection Policies.
6.9 Additional Covenants of the Collector
-------------------------------------
From the date of this Agreement until the Final Termination Date, the
Collector covenants and agrees that it shall, unless the Concurrent Lessee, with
the approval of each of the Credit Enhancer and the Rating Agency, shall
otherwise consent in writing:
(1) comply with all laws, rules, regulations and orders applicable to the
Collector and its business and properties and the Designated Eligible
Leases, except where the failure to do so would not materially
adversely affect the Concurrent Lessee's interests hereunder, or the
concurrent Lessee's interests in or the enforceability of the
Designated Eligible Leases (including the collectibility of the Lease
Entitlements) or the ability of the Collector to perform its
obligations hereunder or thereunder;
(2) preserve and maintain its corporate existence, rights, franchises and
privileges in its jurisdiction of incorporation and qualify and remain
qualified as an extra-provincial or other out-of-jurisdiction
corporation in each jurisdiction in which the failure to do so would
materially adversely affect the interests of the Concurrent Lessee
hereunder, or the Concurrent Lessee's interests in or the
enforceability of the
<PAGE>
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Designated Eligible Leases (including the collectibility of the Lease
Entitlements) or the ability of the Collector to perform its
obligations thereunder or hereunder;
(3) notify the Concurrent Lessee at least ten Business Days prior to
changing its corporate name;
(4) notify the Concurrent Lessee at least 30 Business Days prior to
changing its chief place of business or chief executive office;
(5) comply in all respects with the Credit and Collection Policies in
regard to each Designated Eligible Lease and the Lease Entitlements
and notify the Concurrent Lessee, on each Settlement Date prior to the
occurrence of a Trigger Event or Termination Event, or promptly,
following the occurrence of a Trigger Event or Termination Event, of
any amendments to a Designated Eligible Lease made in accordance with
the Credit and Collection Policies which would result in the
information set out in any Concurrent Lease Request no longer being
accurate;
(6) at its own expense, employ and provide general administrative,
supervisory and accounting staff and general overhead as may from time
to time be reasonably required to carry out its obligations hereunder;
(7) pay from its own funds all general administrative expenses and other
costs incurred by the Collector in carrying out its obligations
hereunder and all fees and expenses of any administrator appointed or
subcontractor retained by it;
(8) maintain, or caused to be maintained, true and correct at all times
the representations and warranties made in sections 5.2(a) to (e),
inclusive, of this Agreement as if the references to "it" and "the
Lessor" therein (as the context so permits) were read as "the
Collector";
(9) cause its employees to perform their employment responsibilities in
collecting and administering the Designated Eligible Leases, the
Equipment and the Lease Entitlements in the same manner as if the
Equipment were directly leased to the Lessees by the Collector, except
(i) to the extent necessary or desirable to accommodate the exercise
by the Concurrent Lessee of its rights under this Agreement, or (ii)
as otherwise required hereby or thereby;
(10) maintain and implement prudent and reasonable administrative and
operating procedures (including an ability to recreate the Records in
the event of the destruction of the originals of such Records) and
keep and maintain all Records and other information reasonably
necessary or advisable for the enforcement of all Designated Eligible
Leases and the Lease Entitlements and Related Rights related thereto
(including Records adequate to permit the daily identification of all
<PAGE>
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Collections under and adjustments to each Designated Eligible
Lease the Lease Entitlements);
(11) (i) 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 Entitlements and the Related Rights relating
thereto or the conditions or operations, financial or
otherwise, of the Collector as may be in existence in written
form or, if available in databases maintained by the Collector,
may be produced with existing software and which the Concurrent
Lessee may from time to time reasonably request; and
(ii) 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 Entitlements and the Related 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 Entitlements and the Related
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;
(12) to the extent the Records consist in whole or in part of computer
programs which are licensed by the Collector, the Collector will,
forthwith upon the occurrence of a Collector Termination Event, use
its best efforts to arrange for the licence or sublicense of such
programs to the Concurrent Lessee for the limited purpose of
permitting the Concurrent Lessee or any Replacement Collector to
administer and collect the Designated Eligible Leases and to enforce
the rights acquired by the Concurrent Lessee in respect of the
Related Rights;
(13) perform the covenants described in sections 8.1(g), (j) and 8.2(f) of
this Agreement as if the references to "it" and "the Lessor" therein
(as the context so permits) were read as "the Collector";
(14) other than by providing actual notice of such sale, transfer and
assignment to the Lessees of such Designated Eligible Leases or the
obligors under any Related Rights with respect thereto, take all
steps reasonably necessary, or in the opinion of the Concurrent
Lessee or its counsel advisable, (i) to validate, protect or perfect
the interest of the Concurrent Lessee in the Designated Eligible
Leases or Lease Entitlements, and (ii) to defeat the assertion by any
third party (other than a third party claiming through or under the
Concurrent Lessee) of any Adverse Claim in the Designated Eligible
Leases or the Lease Entitlements;
<PAGE>
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(15) on each Reporting Date:
(1) deliver or cause to be delivered to the Concurrent Lessee and
the Credit Enhancer a Portfolio Report relating to the
Designated Eligible Leases and the Equipment for the related
Reporting Period and relating to all transactions between the
Lessor and the Concurrent Lessee during such Reporting Period,
such report to be current as of the close of business of the
Collector on the Settlement Date of such Reporting Period;
(2) upon the Concurrent Lessee's reasonable request therefor,
deliver or cause to be delivered to the Concurrent Lessee a
listing by the Lessee of all Designated Eligible Leases and an
aging report for all such leases, each as of such day; and
(3) upon the Concurrent Lessee's reasonable request therefor,
provide to the Concurrent Lessee any other information or
documentation relating to any Designated Eligible Lease that
may be in existence in written form or, if available in Records
maintained by the Collector, that may be produced with the
Collector's existing software, provided that there shall always
be in written form or producible with the Collector's existing
software from the Records information indicating as to each
Designated Eligible Lease the Lessee thereunder, the amounts
owing thereunder and the location of the Records relating
thereto;
(16) co-operate with, and offer such assistance as may reasonably be
requested by, the chartered accountants selected by the Concurrent
Lessee to furnish reports in respect of the Concurrent Lessee, the
Concurrent Leases and the servicing of the Designated Eligible Leases
and Related Rights under this Agreement, and furnish in respect of
the preceding fiscal year, addressed to the Concurrent Lessee and
such other Persons as the Concurrent Lessee may reasonably designate,
an Officer's Certificate of the Collector (on behalf of the
Collector, without personal liability) who is familiar with this
Agreement certifying that, to the knowledge of such officer, the
Collector complied in such calendar year with its obligations
hereunder except to the extent non-compliance therewith did not
materially adversely affect the interests of the Concurrent Lessee
and except as further set forth in such certificate;
(17) upon request of the Concurrent Lessee and with the Collector's
written consent, such consent not to be unreasonably withheld, and at
the Collector's expense, direct the Collector's auditors to assist
the Concurrent Lessee's auditors to the extent and in such manner as
is reasonably required for the Concurrent Lessee's auditors to report
on the status of the Concurrent Leases under this Agreement;
<PAGE>
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(18) promptly after the Collector becomes aware thereof, provide the
Concurrent Lessee, the Rating Agency and the Credit Enhancer with
notice of any litigation or other court or arbitration proceeding
brought against the Collector and/or its Subsidiaries and/or any
Parent Company in which (i) injunctive or similar relief is sought in
respect of which there is a reasonable possibility of a determination
that would materially adversely affect the Collector's ability to
perform its obligations hereunder, or (ii) the amount at issue is
$1,000,000 or more in excess of insurance coverage;
(19) provide the Concurrent Lessee, the Rating Agency and the Credit
Enhancer with such other information respecting any change in the
financial condition or operations of the Collector and/or its
Subsidiaries and/or any Parent Company as may materially adversely
affect the ability of the Collector to perform its obligations
hereunder;
(20) provide the Concurrent Lessee, the Rating Agency and the Credit
Enhancer with ten Business Days' notice prior to taking any action
that may adversely affect the perfection, validity or protection of
the Concurrent Lessee's rights to collect or enforce the Designated
Eligible Leases and the proceeds thereof, including the right to
enforce the Related Rights;
(21) promptly after the Collector becomes aware thereof, but in any event
no later than two Business Days thereafter, provide the Concurrent
Lessee, the Rating Agency and the Credit Enhancer with notice of any
Collector Termination Event that is continuing when the Collector
becomes aware thereof; and
(22) cause all relevant computer date-related systems used by the
Collector to perform its duties as Collector relating to the
Concurrent Leases and the servicing of the Designated Eligible Leases
and the Equipment, including related supporting data and files, to
function correctly when dealing with date/times and date/time related
data and to, without interruption, accurately process date/time data
from, into, and between the 20th and 21st centuries, and the years
1999 and 2000, and perform leap year calculations, and to not, as a
result of the processing of such data, (i) malfunction in any
material respect, or (ii) cease to function. "accurately process", as
referred to above, includes accurately inputting, outputting,
extracting, displaying, calculating, comparing, sorting and
sequencing such data.
6.10 Negative Covenants of the Collector
-----------------------------------
From the date of this Agreement until the Final Termination Date, the
Collector covenants and agrees that it shall not, unless each of the Concurrent
Lessee, the Rating Agency and the Credit Enhancer shall otherwise consent in
writing (such consent not to be unreasonably withheld or delayed):
<PAGE>
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(1) make any material change to the Credit and Collection Policies that
would be adverse to the Concurrent Lessee's interests in, or the
collectibility or enforceability of, the Designated Eligible Leases,
the Lease Entitlements or the Related Rights (but the Collector may
make such other non-material changes as it considers necessary or
advisable from time to time), nor will it apply different credit,
collection and administration policies and procedures to Designated
Eligible Leases or to leases which are to become Designated Eligible
Leases than it applies with respect to leases owned by or to be owned
by it;
(2) except as contemplated by section 3.3, extend, amend or otherwise
modify the terms of any Designated Eligible Lease (other than
adjusting, settling or compromising the account or payment of a
Designated Eligible Lease pursuant to this Article 6 and except for
deferments in the ordinary course of business which are consistent
with the Credit and Collection Policies), or amend, modify or waive
any term or condition of any contract related thereto except in the
case of any such contracts or any amendments, modifications or waivers
contemplated by section 6.11;
(3) (i) enter into any transaction of reorganization, consolidation,
amalgamation, merger or arrangement, as a result of which any other
Person, including for these purposes a continuing corporation
resulting from the amalgamation of the Collector with any other body
corporate, becomes, by operation of law or otherwise, the owner of all
or substantially all the assets of the Collector or any Parent Company
and that materially and adversely affects the Collector's (or such
continuing corporation's) ability to service the Designated Eligible
Leases or to perform any of its other obligations under this
Agreement, or (ii) liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution) or transfer, sell, lease or otherwise
dispose of its assets as an entirety or substantially as an entirety,
unless the Concurrent Lessee, the Rating Agency and the Credit
Enhancer have otherwise approved;
(4) release any security, guarantee or insurance securing any indebtedness
under any of the Designated Eligible Leases, except to the extent that
granting such release is in accordance with this Agreement, the Credit
and Collection Policies and the Collector's usual practices as an
obligee or such security, guarantee or insurance is replaced in a form
acceptable to the Concurrent Lessee, acting reasonably; or
(5) take or omit to take any action if the taking or omitting to take such
action by the Collector would constitute a breach by the Collector of
any representation, warranty or covenant in this Agreement or in any
other document delivered hereunder or thereunder or contemplated
hereby or thereby.
6.11 Lease Amendments, Modifications and Waivers
-------------------------------------------
In performing its obligations hereunder, the Collector may, without
the necessity of obtaining the prior consent of the Concurrent Lessee, enter
into and grant modifications, waivers and
<PAGE>
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amendments to the terms of any Designated Eligible Lease so long as such
modifications, waivers or amendments: (a) are made in accordance with the Credit
and Collection Policies; (b) do not reduce the amount or extend the time for
payment of any Scheduled Payment to be paid under a Designated Eligible Lease
(other than to permit termination of a Designated Eligible Lease which does not
otherwise provide for termination by requiring that the Lessee pay, in lieu of
all future Scheduled Payments with respect to the Designated Eligible Lease, an
amount which equals or exceeds the Financed Balance at such time) or the
Lessee's absolute and unconditional obligation to make payment of the same; (c)
do not reduce or adversely affect the Lessee's obligation to maintain, service,
insure and care for the Equipment forming the subject matter of such Designated
Eligible Lease or would permit the alteration of any of such Equipment in any
way which could adversely affect such Designated Eligible Lease's present or
future value; and (d) otherwise could not adversely affect the interests of the
Concurrent Lessee or the Credit Enhancer in, or the collectibility or
enforceability of, the Designated Eligible Leases, the Lease Entitlements or the
Related Rights; provided, however, that no such amendment, modification or
waiver shall be permitted where the making of it could cause a Designated
Eligible Lease to no longer be an Eligible Lease if such Designated Eligible
Lease were the subject of a new Concurrent Lease hereunder.
6.12 Collector Termination Events
----------------------------
Upon the occurrence or existence of one or more of the following
events or facts which is continuing (a "Collector Termination Event"), the
Concurrent Lessee shall be entitled to effect a Collector Transfer:
(1) any failure of the Collector to pay or deposit any amount to be paid
or deposited by it under this Agreement when due;
(2) any failure on the part of the Collector to duly perform or observe
any terms, conditions, covenants or agreements of the Collector set
forth under this Agreement, other than such as are specifically
referred to in paragraph (a) above, which failure continues unremedied
for a period of 10 days after the date on which the Collector receives
written notice thereof from the Concurrent Lessee;
(3) the incorrectness when made or furnished, or deemed to have been made
or furnished, by or on behalf of the Collector pursuant hereto of any
warranty, representation or statement, which incorrectness materially
adversely affects or has materially adversely affected the Concurrent
Lessee's or the Credit Enhancer's interests, if such material adverse
effect remains unremedied for a period of 10 Business Days after the
date on which the Concurrent Lessee gives written notice thereof to
the Collector;
(4) the non-payment at its final maturity, or the acceleration as a result
of a default by any one of the Lessor, IKON Capital, the Performance
Guarantor, any Replacement Collector and any of the Subsidiaries or
Parent Companies of any Replacement Collector of the principal amount
of any Indebtedness of it and the aggregate of all
<PAGE>
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such sums not paid by it is in excess of $1 million (or its equivalent
in other currencies), in the case of each such entity other than the
Performance Guarantor, and U.S.$10 million in the case of the
Performance Guarantor, and, in any such case, the time for payment of
such Indebtedness shall not have been effectively extended, as a
result of which the ability of the Collector to comply with its
obligations as Collector under this Agreement, in the opinion of the
Concurrent Lessee, acting reasonably, is likely to be impaired in any
material respect;
(5) the occurrence of an event of default, as defined in any indenture or
instrument under which any one of the Performance Guarantor, the
Lessor, IKON Capital, any Replacement Collector and any of the
Subsidiaries or Parent Companies of any Replacement Collector has at
any time, or shall after the date of this Agreement have, outstanding
any Indebtedness, that is continuing if such Indebtedness shall have
become accelerated so that an amount in excess of $1 million (or its
equivalent in other currencies), in the case of each such entity other
than the Performance Guarantor, and U.S. $10 million in the case of
the Performance Guarantor, shall have become due and payable by it
prior to the date on which the same would otherwise have become due
and payable and such acceleration shall not have been rescinded or
annulled or such event of default shall not be remedied or cured,
whether by payment or otherwise, by it within the time provided in
such indenture or instrument, as a result of which the ability of the
Collector to comply with its obligations as Collector under this
Agreement, in the opinion of the Concurrent Lessee, acting reasonably,
is likely to be impaired in any material respect;
(6) the taking of possession by an encumbrancer (including a receiver,
receiver manager or trustee) of any assets of any one of the
Performance Guarantor, the Lessor, IKON Capital, any Replacement
Collector and any of the Subsidiaries or Parent Companies of any
Replacement Collector (other than solely to perfect an Adverse Claim
therein) which constitute a material part of its assets, or the
levying or enforcement or a distress or execution or any similar
process against a material part of its assets that remains unsatisfied
for such period as would permit a sale or other disposition of such
assets to occur;
(7) the issuance or levying of a writ of execution, attachment or similar
process against all or a material portion of the property of any one
of the Lessor, IKON Capital, the Performance Guarantor, any
Replacement Collector and any of the Subsidiaries or Parent Companies
of any Replacement Collector, in connection with any judgment against
it in any amount that materially affects its property if such writ of
execution, attachment or similar process shall not have been stayed or
dismissed after 30 days;
(8) the entry by any one of the Lessor, IKON Capital, the Performance
Guarantor, any Replacement Collector and any Parent Companies of any
Replacement Collector into any transaction of reorganization,
amalgamation or arrangement, or the sale, lease or
<PAGE>
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other disposition by it of its assets as an entirety or substantially
as an entirety except as otherwise permitted by this Agreement;
(9) the failure by any one of the Lessor, IKON Capital, the Performance
Guarantor, any Replacement Collector and any of the Subsidiaries or
Parent Companies of any Replacement Collector to generally pay its
debts as they become due, or the admission in writing by it of its
inability to pay its debts generally or the making by it of an
assignment for the benefit of its creditors;
(10) the filing, under any applicable Insolvency Statute, by any one of the
Lessor, IKON Capital, the Performance Guarantor, any Replacement
Collector and any of the Subsidiaries or Parent Companies of any
Replacement Collector of a notice of intention to make a proposal to
some or all of its creditors;
(11) the commencement or filing of a petition, notice or application by or
against any one of the Lessor, IKON Capital, the Performance
Guarantor, any Replacement Collector and any of the Subsidiaries or
Parent Companies of any Replacement Collector of any proceedings 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 of any jurisdiction,
whether now or after the date of this Agreement in effect, relating to
the dissolution, liquidation, winding-up, bankruptcy, insolvency,
reorganization of insolvent debtors, arrangement of insolvent debtors,
readjustment of debt, moratorium of debts or relief of debtors, or
seeking the entry of an order for relief by the appointment of a
receiver, receiver manager, administrator, inspector, liquidator or
trustee or other similar official for it or for any substantial part
of its property and, if any such proceeding has been instituted
against any one of the Lessor, IKON Capital, the Performance
Guarantor, any Replacement Collector and any of the Subsidiaries or
Parent Companies of any Replacement Collector, either such proceeding
has not been stayed or dismissed within 45 days or any of the actions
sought in such proceeding (including the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar
official) are granted in whole or in part, or the performance by any
one of the Lessor, IKON Capital, the Performance Guarantor, any
Replacement Collector and any of the Subsidiaries or Parent Companies
of any Replacement Collector of any act, or the omission to perform
any act, that authorizes or indicates its consent to, approval of or
acquiescence in, any such proceeding; or
(12) the occurrence of any material adverse change in the financial
condition or operations of any one of the Lessor, IKON Capital, the
Performance Guarantor, any Replacement Collector and any of the
Subsidiaries or Parent Companies of any Replacement Collector that
continues to materially and adversely affect the Collector's ability
to service the Designated Eligible Leases or to perform any of its
other obligations under this Agreement three Business Days after
notice thereof from the Concurrent Lessee, or the Securitization Agent
on its behalf, to the affected party.
<PAGE>
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6.13 Notice of Collector Termination Events
--------------------------------------
The giving by the Lessor of notice to the Concurrent Lessee as
required hereunder of any event, fact or circumstance that, with the giving of
notice, with or without the passage of time, may become a Collector Termination
Event, shall be deemed to constitute the giving of notice by the Concurrent
Lessee to the Collector of the same on the same date as the Lessor gives such
notice.
6.14 Effecting a Collector Transfer
------------------------------
At any time when it is entitled to do so pursuant to the terms of
this Agreement, the Concurrent Lessee may effect a termination of a Collector's
designation as Collector hereunder (a "Collector Transfer") by giving notice to
the Collector of its decision to terminate the Collector's engagement as
Collector, which termination shall take effect at the time specified in such
notice, or, failing the specification of any time, upon the appointment of a
Replacement Collector.
6.15 Appointment of Replacement Collector
------------------------------------
At any time when it is entitled to do so pursuant to the terms of
this Agreement, the Concurrent Lessee may by instrument in writing designate and
appoint as the Replacement Collector any Person acceptable to the Rating Agency
and the Credit Enhancer.
6.16 Collection and Remittance of Taxes
----------------------------------
(1) While the Lessor is the Collector, it shall be entitled to retain any
amounts paid by Lessees in respect of Taxes payable in connection with
Designated Eligible Leases. To the extent that any such amounts are deposited
to the Concurrent Lessee's Account or otherwise held by the Concurrent Lessee,
the Concurrent Lessee shall forthwith remit all such amounts to the Collector.
(2) After the appointment of the first Replacement Collector, the
Collector shall, unless the Collector is remitting such Taxes directly to the
applicable Government Authority, by notice to the Lessor, remit to the Lessor
out of Collections the amount of any Taxes owing in respect of the Equipment
relating to the Designated Eligible Leases, in which event the Lessor shall
comply with the remittance obligations set out in section 6.8(i) as if the same
were amended so that the word "Collector" reads "the Lessor".
6.17 Additional Collector Covenants Following a Collector Transfer
-------------------------------------------------------------
From and after a Collector Transfer until the Final Termination Date,
the Collector and the Lessor covenant and agree that they shall, in addition to
any other obligations, upon the request of the Concurrent Lessee:
<PAGE>
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(1) instruct the Lessee of each Designated Eligible Lease (and any other
Persons, if applicable, in the case of the Related Rights) to remit
all payments due under the Designated Eligible Leases and Related
Rights to the Replacement Collector;
(2) remit to the Replacement Collector all payments received by the
Collector from Lessees and from other Persons, if applicable, under
the Related Rights;
(3) segregate all cash, cheques and other instruments constituting
Collections in a manner acceptable to the Concurrent Lessee and the
Rating Agency and, immediately upon receipt, deposit all such cash,
cheques and instruments, duly endorsed or with duly executed
instruments of transfer, to the Concurrent Lessee's Account;
(4) endorse and make such notations on the Records as and in the manner
that the Concurrent Lessee may reasonably direct, including to
evidence the Concurrent Lessee's concurrent lease of the Equipment
and its interest in the Designated Eligible Leases, the Lease
Entitlements and the Related Rights;
(5) deliver up copies or originals of all Records (including computer
diskettes or tapes containing all information necessary or reasonably
desirable to enable the Concurrent Lessee or its agent to collect the
amounts owing under the Designated Eligible Leases, together with a
printed copy or microfiche of all such information) to the Concurrent
Lessee or as it may otherwise direct in writing (or retain the same
in segregated storage if so directed), and provide the Concurrent
Lessee or its agent with all reasonable assistance necessary to
decipher the information contained on the computer diskettes or
tapes; and
(6) perform any and all acts and execute and deliver any and all
documents as may reasonably be requested by the Concurrent Lessee in
order to effect the purposes of this Agreement or to enable the
Replacement Collector to collect and enforce the Designated Eligible
Leases and any Related Right related thereto.
6.18 Concurrent Lessee's Rights Following a Collector Transfer
---------------------------------------------------------
Upon a Collector Transfer, the Concurrent Lessee may, but is not
required to, at any time (unless prior to such time the Lessor shall have
refunded to the Concurrent Lessee the relevant portion of the Prepaid Rent in
respect of all Designated Eligible Leases, and satisfied all of its obligations
with respect thereto), directly or through the Replacement Collector, without
limitation:
(1) subject to the terms of the Credit Enhancement Agreement, perform the
services, duties and functions specified in sections 6.8, 6.9, 6.16
and 6.17 of this Agreement with respect to the Equipment, the
Designated Eligible Leases and Related Rights in any manner that the
Concurrent Lessee reasonably deems fit;
<PAGE>
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(2) notify any Lessee of the concurrent lease by the Concurrent Lessee of
the Equipment and the sale, transfer and assignment by the Lessor of
the Lease Entitlements under this Agreement;
(3) contact any Lessee for any reasonable purpose, including for the
performance of audits and verification analyses, and the determination
of account balances and other data maintained by the predecessor
Collector;
(4) direct any Lessee to make all payments on account of any Designated
Eligible Leases directly to the Concurrent Lessee at an address
designated by the Concurrent Lessee or to such third party (including
the Replacement Collector) or bank or depositary as may be designated
by the Concurrent Lessee;
(5) request any Lessee to change the instructions for any direct debit or
electronic funds transfer otherwise payable to the Lessor or the
Collector; and
(6) proceed directly against any Lessee and take any and all other
actions, in the Lessor's name or otherwise, necessary or reasonably
desirable to collect the Designated Eligible Leases, enforce the
Related Rights or effect any related result.
6.19 Delegation in Favour of Securitization Agent
--------------------------------------------
The Concurrent Lessee may delegate to the Securitization Agent all or
any of its powers, rights and discretion hereunder, and the Securitization Agent
may from time to time take such actions and exercise such powers for and on
behalf of the Concurrent Lessee as are delegated to it or contemplated hereby
and all such actions and powers as are reasonably incidental thereto. Each of
the Lessor, the Performance Guarantor and the Collector shall be entitled to and
shall be fully protected in relying on any instruction made or given by the
Securitization Agent in accordance with this section 6.19 without being required
to obtain evidence or confirmation of such delegation, and shall have no
liability to the Concurrent Lessee in respect of such reliance.
6.20 Payments to Securitization Agent
--------------------------------
(1) The Lessor shall pay to the Securitization Agent or the Replacement
Servicer, as the case may be, from and after the date hereof:
(i) on each Reporting Date a monthly fee (the "Program Fee") at a
rate set out in the mandate letter dated February 4, 1999 between
the Concurrent Lessee, the Lessor and the Performance Guarantor;
and
(ii) all Collection Costs, if any, of the Replacement Collector and
the Concurrent Lessee, as specified in reasonable detail in
writing by the Replacement Collector and/or the Concurrent
Lessee/Securitization Agent, from time to time.
<PAGE>
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(2) The Lessor shall also pay to the Securitization Agent such reasonable
fees and expenses as the Concurrent Lessee, the Lessor and the Performance
Guarantor agree the Securitization Agent may charge or incur in respect of each
amendment to this Agreement and each waiver of any provision of this Agreement
requested by the Lessor or the Performance Guarantor or required or initiated as
a result of the Lessor's, IKON Capital's or the Performance Guarantor's actions
that requires the Securitization Agent, in its sole discretion, in order to
approve such amendments or waiver, to perform a credit review of the transaction
or event associated with or giving rise to such amendment or waiver.
ARTICLE 7
TRIGGER EVENTS AND TERMINATION EVENTS
7.1 Meaning of Trigger Event
------------------------
The term "Trigger Event" means any of the following events or
circumstances:
(1) a Collector Termination Event has occurred;
(2) the Lessor or IKON Capital fails to make any payment or deposit to be
made by it hereunder when due or to remit to the Collector when due
any amounts referred to in Article 2;
(3) the Lessor, IKON Capital or the Performance Guarantor fails to perform
or observe any material term, condition or covenant to be performed or
observed by it hereunder (other than that specified in section
7.1(b)), and such failure remains unremedied for 10 days after notice
thereof has been given by the Concurrent Lessee to the Lessor, IKON
Capital or the Performance Guarantor, as the case may be;
(4) 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 Concurrent Lease Request, any
Portfolio Report or any other material agreement related hereto or
thereto proves to have been false or incorrect in any material respect
when made and, if capable of being corrected, such falseness or
incorrectness remains unremedied for 10 Business Days after notice
thereof has been given by the Concurrent Lessee to the Lessor, IKON
Capital or the Performance Guarantor, as the case may be;
(5) at any date, on or after October 15, 1999, the Tangible Net Worth of
the Lessor is less than $1 million;
(6) at any time, the Performance Guarantor fails to maintain a rating of
at least Baa3 or better from Moody's Investor Services, Inc. and BBB-
or better from Standard & Poor's Rating Group;
<PAGE>
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(7) (i) the Lessor, IKON Capital or the Performance Guarantor fails to
pay any Indebtedness or the redemption price of any redeemable
preferred shares included in its Indebtedness when due (whether
by scheduled maturity, required prepayment, acceleration, demand
or otherwise) and such failure continues after the applicable
grace period, if any, specified in any agreement or instrument
relating to such Indebtedness; or
(ii) any other default under any agreement or instrument relating to
any Indebtedness, or any other event, shall occur if the effect
of such default or event is to accelerate the maturity of any
Indebtedness,
provided, however, that a Trigger Event shall not occur by virtue of
this section 7.1(g) unless the aggregate amount of such Indebtedness
is equal to or exceeds $1 million (or, in the case of the Performance
Guarantor, U.S. $10 million) or its equivalent in any other currency
or currencies, and any such failure remains unremedied for three
Business Days after notice thereof to the Lessor, IKON Capital or the
Performance Guarantor, as the case may be;
(8) except as permitted hereby, any Concurrent Lease ceases to create or
result in a legal and binding obligation in favour of the Concurrent
Lessee and any such failure remains unremedied for three Business Days
after notice thereof to the Lessor;
(9) any of the Lessor, IKON Capital or the Performance Guarantor shall
generally not pay its debts 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 any of the Lessor, IKON Capital or
the Performance Guarantor seeking to adjudicate it bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or
its debts under any law of any jurisdiction, whether now or after the
date of this Agreement in effect, relating to the dissolution,
liquidation or winding-up, bankruptcy, insolvency, reorganization of
insolvent debtors, arrangement of insolvent debtors, readjustment of
debt, moratorium of debts or relief of debtors, or seeking the entry
of an order for relief by the appointment of a receiver, receiver
manager, administrator, inspector, liquidator or trustee or other
similar official for it or for any substantial part of its property
and, if any such proceeding has been instituted against any of the
Lessor, IKON Capital or the Performance Guarantor, either such
proceeding has not been stayed or dismissed within 45 days or any of
the actions sought in such proceeding (including the entry of an order
for relief or the appointment of a receiver, trustee, custodian or
other similar official) are granted in whole or in part, or the
Lessor, IKON Capital or the Performance Guarantor, as the case may be,
takes any corporate action to authorize, or indicate its consent to,
approval of or acquiescence in, any of the actions described in this
section 7.1(i);
<PAGE>
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(10) in the reasonable opinion of the Securitization Agent after
consultation with the Rating Agency, there shall have been any
material adverse change in the financial condition or operations of
any one of the Lessor, IKON Capital or the Performance Guarantor
since the date of its most recent quarterly or year end financial
statements which materially adversely affects the Lessor's, IKON
Capital's or the Performance Guarantor's ability to perform its
obligations hereunder or the collectibility or enforceability of the
Designated Eligible Leases, the Lease Entitlements or the Related
Rights and such material adverse effect continues for three Business
Days after notice thereof from the Concurrent Lessee, or the
Securitization Agent on its behalf, to the Lessor, IKON Capital or
the Performance Guarantor, as the case may be;
(11) there shall have occurred any change in the controlling interest of
either IKON Capital or the Lessor that has not been approved by the
Concurrent Lessee, the Credit Enhancer and the Rating Agency in
writing;
(12) the Collections received during any two Reporting Periods are less
than the amount required to make the payments required by sections
2.5 (a) through (i), inclusive, in respect of those Reporting
Periods;
(13) there shall come into existence any prohibition at law against the
Lessor, as a lessor, or the Concurrent Lessee, as a lessee,
concurrently leasing the Equipment or acquiring the Lease
Entitlements pursuant to this Agreement;
(14) for the most recent three months, the average Delinquency Ratio
exceeds 6.50%;
(15) for the most recent three months, the average 90 Day Past Due Ratio
exceeds 4.50%; and
(16) for the most recent three months, the average Default Ratio exceeds
4.50%.
7.2 Action Upon a Trigger Event
---------------------------
Upon the occurrence of any Trigger Event described in sections
7.1(c), (d), (e), (f), (j), (k) and (m) the Concurrent Lessee or its authorized
agent may, by notice to the Lessor, declare the Lease Termination Date to have
occurred on the date specified in such notice, which date shall be not less than
two Business Days subsequent to the date such notice is given to the Lessor. If
a Portfolio Report discloses that any Trigger Event described in sections 7.1(n)
through (p), inclusive, has occurred or if the Lessor gives notice to the
Concurrent Lessee that any such Trigger Event has occurred, or if the Concurrent
Lessee gives notice to the Lessor that the Concurrent Lessee has determined that
any such Trigger Event has occurred, the Lease Termination Date shall occur
automatically upon the delivery of such Portfolio Report or the giving of such
notice by the Lessor to the Concurrent Lessee or by the Concurrent Lessee to the
Lessor, as the case may be, without the
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necessity of any further notice. Upon the occurrence of any other Trigger Event
described in section 7.1, the Lease Termination Date will occur automatically,
without the necessity of any notice. Upon any such declaration or automatic
occurrence, the Concurrent Lessee will have, in addition to its rights and
remedies hereunder and under any documents related hereto, all other rights and
remedies under applicable laws and otherwise, which rights and remedies will be
cumulative; provided that, notwithstanding the foregoing, the Concurrent Lessee
shall not have the right to sell, transfer, lease, encumber or otherwise dispose
of all or any of its rights under the Concurrent Leases other than to the Credit
Enhancer in accordance with the Credit Enhancement Agreement, it being the
intention of the Lessor and the Concurrent Lessee that the Designated Eligible
Leases will continue to be administered and serviced in accordance with the
provisions of Article 6 hereof and that the Concurrent Leases will be liquidated
in accordance with section 2.5. Notwithstanding the above, the Concurrent
Lessee, with the consent of the Rating Agency and the Credit Enhancer, may waive
any Trigger Event in its sole discretion.
7.3 Optional Termination of Concurrent Leases
-----------------------------------------
If, at any time:
(1) a Trigger Event or Termination Event has occurred and is continuing;
(2) the Concurrent Lessee has drawn upon the liquidity support provided
pursuant to the Liquidity Agreement;
(3) a Designated Eligible Lease is a 90 Day Past Due Lease;
(4) the Concurrent Lessee makes a demand for payment to the Lessor in
respect of a change of circumstance pursuant to section 11.2; or
(5) following the Termination Date, the Aggregate Financed Balance is less
than 10% of the Program Limit as at the Termination Date,
the Lessor may, subject to the Concurrent Lessee's rights under section 7.6,
elect by notice (an "Optional Termination Notice") to the Concurrent Lessee, to
terminate, in the case of (c) above, the Concurrent Lease relating to the
affected Designated Eligible Lease or, in any other case, all of the Concurrent
Leases, by making a payment, as a refund of the outstanding portion of the
Prepaid Rent paid by the Concurrent Lessee in respect of such Concurrent Lease
or Concurrent Leases of the affected Equipment and all Related Rights thereto.
The termination of the Concurrent Lease or Concurrent Leases shall be effective
upon the payment, by deposit to the Collection Account, by the Lessor to the
Concurrent Lessee of an amount equal to the sum of (i) the aggregate Unamortized
Prepaid Rent relating to the affected Designated Eligible Lease or Designated
Eligible Leases, calculated as at such date, (ii) the portion of the Hedging
Costs that relates to the Financed Balances under those leases on that date, and
(iii) any other fees, costs and expenses accrued and reasonably incurred by the
Concurrent Lessee, or any other amounts otherwise owing to the Concurrent
Lessee, in connection with or under this Agreement or with respect to such
Designated Eligible Lease or
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Designated Eligible Leases to the date of such payment, including any Swap
Unwinding Costs. Upon the payment to the Concurrent Lessee of such amount, (A)
the Concurrent Lease relating to the relevant Equipment shall be and shall be
deemed to have been terminated, (B) the Lessor shall cease to be entitled to any
further payments of Deferred Rent in respect of such Equipment, (C) the
Concurrent Lessee shall be deemed to have released, re-assigned and reconveyed
to the Lessor all of the Concurrent Lessee's right, title and interest in and to
such Equipment and the relevant Lease Entitlements (insofar as they relate to
the Designated Eligible Leases relating to such Equipment), without recourse,
and subject only to the representations and warranties of the Concurrent Lessee
that such right, title and interest is held beneficially by it and is released,
transferred, assigned and conveyed to the Lessor or as it may direct free and
clear of any Adverse Claims created, suffered or permitted to exist by the
Concurrent Lessee, and (D) the Collector shall pay or transfer to the Lessor all
other proceeds of such Designated Eligible Leases, if any, subsequently received
by the Collector from the Lessees under such Designated Eligible Leases.
7.4 Meaning of Termination Event
----------------------------
The term "Termination Event" means any of the following events or
circumstances:
(1) the liquidity support provided pursuant to the Liquidity Agreement has
terminated or is otherwise unavailable and no alternative or
replacement liquidity support is available to the Concurrent Lessee;
(2) an "Event of Default" occurs under the Credit Enhancement Agreement,
the Level Two Credit Enhancement provided pursuant to the Credit
Enhancement Agreement has terminated or is otherwise unavailable, or
the L/C Funding Account has not been established and funded pursuant
to section 2.6 and, in any such case, no alternative or replacement
Level Two Credit Enhancement is available to the Concurrent Lessee;
(3) the interest rate hedge provided under a Swap Agreement has terminated
or is otherwise unavailable (including a rating decline of any swap
counterparty to a level such that it no longer qualifies as an
Eligible Institution hereunder) and no alternative equivalent swap
arrangements are available to the Concurrent Lessee; and
(4) the Notes issued or to be issued by the Concurrent Lessee are rated
lower than R-1 (high) by the Rating Agency or notice has been received
from the Rating Agency that, unless the program being conducted under
this Agreement is terminated, the Notes will be downgraded to below R-
1 (high) by the Rating Agency or the rating will be withdrawn by the
Rating Agency.
7.5 Action Upon a Termination Event
-------------------------------
Upon the occurrence of any Termination Event, the Concurrent Lessee or
its authorized agent may, by notice to the Lessor, declare the Lease Termination
Date to have occurred on the date specified in such notice, which date shall be
not less than two Business Days subsequent
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to the date such notice is given to the Lessor. Upon any such declaration, the
Concurrent Lessee will have, in addition to its rights and remedies hereunder
and under any documents related hereto, all other rights and remedies under
applicable laws and otherwise, which rights and remedies will be cumulative.
Notwithstanding the above, the Concurrent Lessee, with the consent of the Rating
Agency and the Credit Enhancer, may waive any Termination Event in its sole
discretion.
7.6 Right of First Refusal
----------------------
(1) Upon and only upon the occurrence of a Termination Event, the
Concurrent Lessee may, subject to the right of first refusal of the Lessor as
set out in section 7.6(b) and the provisions of section 11.8, sell, assign and
transfer all of the Concurrent Lessee's right, title and interest in, to or
under any and all Concurrent Leases, including Lease Entitlements and Related
Rights relating to the underlying Designated Eligible Leases, then held by the
Concurrent Lessee. Upon any such sale, assignment or transfer, the purchaser
thereunder shall be fully subrogated to all rights, benefits and privileges of
the Concurrent Lessee hereunder in respect of the Concurrent Leases other than
in respect of the Level Two Credit Enhancement, the Letter of Credit and the
Credit Enhancer.
(2) If the Concurrent Lessee elects to make such sale pursuant to section
7.6(a), the Concurrent Lessee will give notice thereof to the Lessor and the
Credit Enhancer and, subject to section 7.7, the Lessor (or an Affiliate of the
Lessor designated by the Lessor) will have the option, exercisable for two
Business Days from the date that the Concurrent Lessee's notice is sent to the
Lessor, to purchase such Concurrent Leases and the Related Rights by paying to
the Concurrent Lessee, by deposit to the Collection Account, an amount equal to
the Unamortized Prepaid Rent in respect of each Designated Eligible Lease,
calculated as at the date on which such payment is made, plus the Hedging Costs
that relates to the Financed Balance under such Designated Eligible Lease on
such date, plus any other fees, costs and expenses accrued and reasonably
incurred by the Concurrent Lessee, or any other amounts otherwise owing to the
Concurrent Lessee, in connection with or under this Agreement or with respect to
such Designated Eligible Lease to the date of such payment, including any Swap
Unwinding Costs. Such payment shall be made at or before 4:00 p.m. (Toronto
time) on the second Business Day after the Concurrent Lessee's notice is sent to
the Lessor under this section 7.6(b). Upon such payment being made, (i) the
Concurrent Leases shall be deemed to have been terminated by the Lessor with
respect to the Equipment forming the subject matter of the relevant Designated
Eligible Leases, (ii) the Lessor shall cease to be entitled to any further
payments of Deferred Rent in respect of such Equipment and (iii) the Concurrent
Lessee shall be deemed to have released, re-assigned and reconveyed to the
Lessor all of its right, title and interest in and to such Equipment and Lease
Entitlements (insofar as they relate to the Designated Eligible Leases relating
to such Equipment), without recourse, and subject only to the representations
and warranties of the Concurrent Lessee that such right, title and interest is
held beneficially by it and is released, transferred, assigned and conveyed to
the Lessor free and clear of any Adverse Claims created, suffered or permitted
to exist by the Concurrent Lessee, and (iv) the Collector shall pay or transfer
to the Lessor all other proceeds of such Designated Eligible Leases, if any,
subsequently received by the Collector from the Lessees under such Designated
Eligible Leases.
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7.7 Lack of Liquidity Support
-------------------------
(1) The Concurrent Lessee agrees to give the Lessor and the Credit
Enhancer not less than 120 days' prior notice of any proposed non-renewal of the
Liquidity Agreement and shall notify the Lessor and the Credit Enhancer of the
termination of the liquidity support under the Liquidity Agreement as a result
of such non-renewal, in each case forthwith upon the Concurrent Lessee becoming
aware thereof. If such notice of non-renewal of the Liquidity Agreement is
provided to the Lessor, the Lessor shall have 90 days from the date of such
notice to notify the Concurrent Lessee that it will exercise its right of first
refusal under section 7.6(b) in the event of any proposed sale, assignment or
transfer by the Concurrent Lessee pursuant to section 7.6(a), failing which the
Lessor shall not be entitled to exercise its right of first refusal under
section 7.6(b). If the Lessor so notifies the Concurrent Lessee, the Lessor
shall exercise its right of first refusal on the date of the occurrence of the
Termination Event resulting from the termination of the liquidity support under
the Liquidity Agreement.
(2) The Concurrent Lessee agrees to give the Lessor and the Credit
Enhancer notice of a termination of the liquidity support under the Liquidity
Agreement resulting from the downgrading of the long-term credit rating of the
Liquidity Agent to a rating of A or A (high) by the Rating Agency, forthwith
upon the Concurrent Lessee becoming aware thereof. If such notice is provided to
the Lessor, the Lessor shall have 45 days (plus the number of days of any
extension pursuant to in the parenthetical at the end of this section 7.7(b))
from the date of such notice to notify the Concurrent Lessee that it will
exercise its right of first refusal under section 7.6(b) in the event of any
proposed sale, assignment or transfer by the Concurrent Lessee pursuant to
section 7.6(a), failing which the Lessor shall not be entitled to exercise its
right of first refusal under section 7.6(b). If the Lessor so notifies the
Concurrent Lessee, the Lessor shall exercise its right of first refusal on or
prior to the date that is 60 days from the date that the Concurrent Lessee gave
notice to the Lessor pursuant to this section 7.7(b) (plus the number of days of
any extension to such 60-day period agreed upon between the Lessor, the
Securitization Agent and the Rating Agency).
(3) In circumstances other than those referred to in sections 7.7(a) and
(b) where the liquidity support provided pursuant to the Liquidity Agreement
will terminate or will otherwise become unavailable, the Concurrent Lessee
agrees to give the Lessor and the Credit Enhancer as many days prior notice
thereof as is practicable and shall notify the Lessor and the Credit Enhancer of
the termination of the liquidity support under the Liquidity Agreement, in each
case forthwith upon the Concurrent Lessee becoming aware thereof.
<PAGE>
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ARTICLE 8
GENERAL COVENANTS AND POWER OF ATTORNEY
8.1 Affirmative Covenants of the Lessor
-----------------------------------
From the date hereof until the Final Termination Date, the Lessor
covenants and agrees that it will, unless the Concurrent Lessee, with the
approval of the Rating Agency and the Credit Enhancer, shall otherwise consent
in writing:
(1) comply with all laws, rules, regulations and orders applicable to the
Lessor and its business and properties and the Designated Eligible
Leases, except where the failure to do so would not materially
adversely affect the Concurrent Lessee's interests hereunder, the
collectibility or enforceability of the Designated Eligible Leases,
the Lease Entitlements or the Related Rights or the ability of the
Lessor or the Collector to perform its obligations hereunder or
thereunder;
(2) preserve and maintain its corporate existence, rights, franchises and
privileges in its jurisdiction of incorporation, and qualify and
remain qualified as an extra-provincial corporation or other out-of-
jurisdiction corporation in each jurisdiction in which the failure to
do so would materially adversely affect the interests of the
Concurrent Lessee hereunder, the collectibility or enforceability of
the Designated Eligible Leases, the Lease Entitlements or the Related
Rights or the ability of the Lessor or the Collector to perform its
obligations thereunder or hereunder;
(3) hold as trust property for and on behalf of the Concurrent Lessee, at
any one or more of the offices designated under the heading
"Locations" in Schedule B, with respect to each Designated Eligible
Lease, until the obligations in respect of such Designated Eligible
Lease have been satisfied, the following documents or instruments,
which are hereby constructively delivered to the Concurrent Lessee:
(1) the original Designated Eligible Leases;
(2) the original credit application, the credit analysis and the credit
agency report (unless no such report could be obtained in respect of
the Lessee) and the "quality indicator score" records, if any,
relating to the Lessee, all in accordance with the Credit and
Collection Policies;
(3) all other documents that the Lessor shall keep on file, in accordance
with its customary procedures, evidencing the Related Rights; and
(4) any and all other documents that the Lessor shall keep on file, in
accordance with its customary procedures, relating to a Designated
Eligible Lease, a Lessee or any Equipment;
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(4) except to the extent of actions to the contrary resulting from the
exercise by the Concurrent Lessee of its rights hereunder, cause
employees working in the offices designated under the heading
"Locations" in Schedule B to perform their responsibilities in
collecting and administering the Designated Eligible Leases, the
Equipment and the Lease Entitlements in the same manner as if the
Lease Entitlements were owned by the Lessor;
(5) permit the Concurrent Lessee and the Credit Enhancer, acting through
the Collector, at any reasonable time and from time to time to
inspect, audit, check and make abstracts from the Lessor's books,
accounts, Records or other papers pertaining to the Designated
Eligible Leases, the Equipment and the Lease Entitlements. From time
to time upon the reasonable written request of the Concurrent Lessee,
the Lessor shall permit the Concurrent Lessee and the Credit Enhancer
to meet with and make inquiries of the managers of the Lessor at the
offices listed under the heading "Locations" in Schedule B. From time
to time upon the reasonable written request of the Concurrent Lessee,
the Lessor, at its own expense, will deliver to the Concurrent Lessee
and the Credit Enhancer or any agent selected by the Concurrent
Lessee, as the case may be: (i) information indicating, as to each
Designated Eligible Lease, the Lessee thereunder, the Financed Balance
thereof and the location of any documents and instruments relating to
such Designated Eligible Lease; and (ii) any Designated Eligible Lease
and such Records and invoices pertaining thereto and evidence thereof
as the Concurrent Lessee may deem necessary to enable it to enforce
its rights thereunder. Upon and following the occurrence of a
Termination Event, at the request of the Concurrent Lessee, if the
Concurrent Lessee, in its reasonable discretion, deems it necessary or
appropriate to protect its interest therein, the Lessor shall (x)
assemble all of the documents, instruments and other Records relating
to the Designated Eligible Leases, the Equipment and the Lease
Entitlements, or which are otherwise necessary or desirable to collect
the Lease Entitlements or enforce the Related Rights, and shall make
the same available to the Concurrent Lessee and the Credit Enhancer at
one or more of the offices listed under the heading "Locations" in
Schedule B, and (y) segregate all cash, cheques and other instruments
received by the Lessor from time to time constituting Collections in a
manner acceptable to the Concurrent Lessee and shall, immediately upon
receipt, remit all such cash, cheques and instruments, duly endorsed
or with duly executed instruments of transfer, to the Concurrent
Lessee or its designee;
(6) in the event that a Person other than the Lessor is appointed
Replacement Collector or the Lessor fails to comply with any of the
provisions hereof, then, at the request of the Concurrent Lessee, the
Lessor shall make such notations on such books, records, documents and
instruments relating to the Designated Eligible Leases, the Equipment
and the Lease Entitlements in the possession of the Lessor, including
all Designated Eligible Leases and Related Rights, as may be requested
by the Concurrent Lessee to evidence the interest of the Concurrent
Lessee therein and, if so requested, the Lessor shall store the same
in a separate storage area, segregated
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from information or records relating to all Equipment and their
related leases not leased to the Concurrent Lessee pursuant to this
Agreement, so marked, or deliver the same to the Concurrent Lessee;
(7) at the request of the Concurrent Lessee, provide to the Concurrent
Lessee a report setting forth such information as the Concurrent
Lessee may reasonably request with respect to the Designated Eligible
Leases, the Equipment, the Lease Entitlements, the Related Rights,
this Agreement and the transactions contemplated hereby;
(8) maintain and implement prudent and reasonable administrative and
operating procedures (including an ability to recreate records
evidencing the Designated Eligible Leases and the Lease Entitlements
and Related 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 and enforcement of all Designated Eligible Leases,
Lease Entitlements and Related Rights;
(9) permit the Concurrent Lessee through the Lessor in its capacity as
Collector and the Credit Enhancer at any reasonable time and from time
to time to inspect the data processing systems used by the Lessor to
service, administer and collect the Designated Eligible Leases and, in
the event that the Lessor is not the Collector, to permit the
Collector to use, through the Lessor only (and not directly), any
computer or computer related equipment, together with all necessary
software, that had been used by the Lessor to service, administer and
collect the Designated Eligible Leases immediately prior to the Lessor
ceasing to be the Collector; provided, however, that such right shall
be exercised in a manner that does not interfere with the Lessor's
operations and at a mutually convenient time or times;
(10) keep its chief place of business and chief executive office, and the
offices where it keeps the Records and other documents concerning the
Designated Eligible Leases and the Equipment (and all original
documents relating thereto), at the addresses listed in Schedule B.
The Lessor shall give the Concurrent Lessee and the Credit Enhancer 30
days' prior written notice of any change in the address of its chief
place of business and chief executive office, and written notice
promptly after any change in the address of any other office listed
under the heading "Locations" in Schedule B, and each such notice
shall be deemed to amend Schedule B accordingly;
(11) comply in all material respects with the Credit and Collection
Policies in regard to each Designated Eligible Lease and fully
perform, in a timely fashion, and comply with all terms, covenants and
other provisions required to be performed and observed by the Lessor
under each Designated Eligible Lease;
(12) notify the Concurrent Lessee at least ten Business Days prior to
changing its corporate name;
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(13) if at any time the Lessor proposes to sell, assign, grant an Adverse
Claim in, or otherwise transfer any interest in any Equipment forming
the subject matter of a Designated Eligible Lease or any Lease
Entitlements to any prospective purchaser, lessee, licensee, lender
or other transferee, give to such prospective purchaser, lender or
other transferee computer tapes, records or print-outs that, if they
refer in any manner whatsoever to any Designated Eligible Lease,
indicate that the Equipment forming the subject matter of such
Designated Eligible Lease have been leased to the Concurrent Lessee
and the Collections relating to such Designated Eligible Lease have
been assigned to the Concurrent Lessee, unless such Designated
Eligible Lease shall have been paid in full or unless the Concurrent
Lease shall have been terminated in respect of the Equipment forming
the subject matter of such Designated Eligible Lease;
(14) unless otherwise agreed by the Concurrent Lessee, if, as a result of
the entering into of a Concurrent Lease hereunder, the aggregate
Financed Balances of Designated Eligible Leases that relate to
Lessees located in any jurisdiction in Canada (other than those
provinces or such other jurisdictions, if any, for which an opinion
has been provided previously) would exceed the product obtained when
the Program Limit is multiplied by 2%, the Lessor shall deliver to
the Concurrent Lessee, the Rating Agency and the Credit Enhancer,
contemporaneously with the delivery of the relevant Concurrent Lease
Request hereunder, appropriate local counsel opinions in respect of
such jurisdiction;
(15) perform its obligations hereunder as Collector for so long as it
remains designated as Collector hereunder; and
(16) make or cause to be made all filings, recordings, registrations and
take all other actions in each jurisdiction necessary or appropriate
to validate, preserve, perfect or protect the interests of the
Concurrent Lessee in the Equipment under the Concurrent Leases and
the ownership interests of the Concurrent Lessee in and the rights of
the Concurrent Lessee to collect any and all of the Lease
Entitlements, including the right to enforce the Related Rights with
respect to the Equipment.
8.2 Reporting Requirements of the Lessor
------------------------------------
From the date hereof until the Final Termination Date, the Lessor
covenants and agrees that it will, unless the Concurrent Lessee shall otherwise
consent in writing, deliver to the Concurrent Lessee, the Securitization Agent,
the Rating Agency and the Credit Enhancer:
(1) within five Business Days after the Lessor becomes aware of a
material adverse change in the business, operations, properties,
business prospects or condition (financial or otherwise) (other than
matters of a general economic nature) of the Lessor or its
Subsidiaries, or of an occurrence of a breach of its obligations
under this
<PAGE>
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Agreement, notice of such change or occurrence together with a
statement by a responsible officer of the Lessor specifying the facts,
the nature and period of existence of any such breach, condition or
event and the action that the Lessor has taken, is taking and/or
proposes to take with respect thereto;
(2) promptly after the Lessor becomes aware thereof, notice of any
litigation or other court or arbitration proceeding brought against
the Lessor and/or any of its Subsidiaries and/or any Parent Company in
which (i) the amount in excess of insurance coverage that is at issue
is $1,000,000 or more or (ii) injunctive or similar relief is sought
in respect of which there is a reasonable possibility of a
determination that would materially adversely affect the Lessor's
ability to perform its obligations hereunder;
(3) 30 days' notice prior to the Lessor taking any action that will
adversely affect the perfection, validity or protection of the
interests of the Concurrent Lessee under the Concurrent Lease in the
Equipment and the ownership interests of the Concurrent Lessee in, to
and under the Lease Entitlements and the right of the Concurrent
Lessee to collect on the Designated Eligible Leases and the proceeds
thereof, including the right to enforce the Related Rights;
(4) reasonably promptly after the implementation of any material change in
the Credit and Collection Policies other than a change that is not
restricted pursuant to section 6.10(a), a written description of such
change;
(5) with reasonable promptness, such other information, reports or
documents concerning the Designated Eligible Leases, the Equipment,
the Lessees, the Lease Entitlements and the Credit and Collection
Policies as the Concurrent Lessee may from time to time reasonably
request; and
(i) 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 unaudited consolidated balance sheet
of the Lessor as of the end of such quarter and the
unaudited consolidated 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 a
senior financial officer of the Lessor as to the accuracy of
the information contained therein;
(ii) 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
unaudited consolidated financial statements for such year
for the Lessor, such financial statements to contain at
least a balance sheet, an earnings statements, a statement
of changes in financial position and a statement of
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retained earnings and certified by a senior financial
officer of the Lessor as to the accuracy of the
information contained therein;
(3) 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;
(4) 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 Trigger Event or Termination Event or each
event which, with the giving of notice or lapse of time
or both, would constitute a Trigger Event or
Termination Event, a statement of the Lessor's V-P
Finance setting forth details as to such Trigger Event
or Termination Event or event and the action which the
Lessor has taken and/or is proposing to take with
respect thereto; and
(5) promptly, from time to time, such other documents,
records, information or reports with respect to the
Designated Eligible Leases or the conditions or
operations, financial or otherwise, of the Lessor as
the Concurrent Lessee may from time to time reasonably
request.
8.3 Negative Covenants of the Lessor
--------------------------------
From the date hereof until the Final Termination Date, the Lessor
covenants and agrees that it will not, unless the Concurrent Lessee, with the
approval of each of the Credit Enhancer and the Rating Agency, shall otherwise
consent in writing:
(1) except as otherwise provided herein, and whether by operation of law
or otherwise, sell, assign or otherwise dispose of, or create or
suffer to exist any Adverse Claim upon or with respect to any of the
Designated Eligible Leases, the Equipment and the Lease Entitlements
or assign any right to receive payment under, or to enforce the
Lessor's interest in, any of the Designated Eligible Leases, the
Equipment and the Lease Entitlements, in each case, other than the
leasehold interests and Adverse Claims created in favour of the
Concurrent Lessee pursuant to this Agreement;
(2) make any material change in the character of its businesses or in its
Credit and Collection Policies which change would, in either case,
have a material adverse effect on the Concurrent Lessee's interest in,
or impair the collectability or enforceability of or any payment
under, any Designated Eligible Lease or the Equipment or Lease
Entitlements related thereto, or the enforcement of any Related
Rights, provided that any such changes that do not have such effect
shall be permissible;
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(3) subject to subsection 6.17(a), make any change in the instructions to
Lessees regarding payments to be made under the Designated Eligible
Leases, which change would result in a material increase in the cost
or difficulty of collecting and identifying payments from Lessees;
(4) except to the extent of actions to the contrary resulting from the
exercise by the Concurrent Lessee of its rights hereunder, keep,
deliver or maintain any records or other evidence at the offices
designated under the heading "Locations" in Schedule B which would
enable employees to identify which Equipment have been leased or
licensed to the Concurrent Lessee hereunder and which Designated
Eligible Leases relate thereto;
(5) take or omit to take any action if the taking or omitting to take such
action by the Lessor would constitute a breach by the Lessor of any
representation, warranty or covenant of the Lessor in this Agreement
or in any other document delivered pursuant to this Agreement or
contemplated hereby; or
(6) enter into any transaction of reorganization, amalgamation or
arrangement, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) or, other than with respect to sales,
assignments, leases, licences or transfers of computer hardware and
software, or of leases and licences relating thereto or any rights or
benefits thereunder, in the ordinary course of business, sell, lease
or otherwise dispose of its assets as an entirety or substantially as
an entirety; except that the Lessor may, provided that it delivers
prior written notice to the Concurrent Lessee, enter into a
transaction of reorganization, amalgamation, or arrangement, so long
as (i) such transaction will not materially adversely affect the
validity, enforceability and collectability of the Designated Eligible
Leases, the Lease Entitlements or the Related Rights, and (ii) as a
condition to the completion of such transaction, the continued or
reorganized corporation shall have executed an agreement of assumption
to perform every obligation of the Lessor hereunder and under the
other agreements, instruments and documents executed and delivered by
the Lessor hereunder or otherwise contemplated hereby.
8.4 Power of Attorney; Further Assurances
-------------------------------------
(1) The Lessor hereby grants to the Concurrent Lessee an irrevocable
power of attorney, with full power of substitution, coupled with an interest, to
take in the name of the Lessor or in the name of the Concurrent Lessee all steps
necessary or advisable to endorse or negotiate an instrument, bill of exchange
or other writing or to otherwise enforce or realize on any Designated Eligible
Lease or other right of any kind held or owned by the Lessor or transmitted to
or received by the Lessor or the Concurrent Lessee as payment on account or
otherwise in respect of the Designated Eligible Lease, and to execute and
deliver, in the Lessor's name and on the Lessor's behalf, such instruments and
documents necessary or desirable to evidence or protect the interests of the
Concurrent Lessee in the Equipment and the Lease Entitlements and to execute and
file, in the Lessor's name and on
<PAGE>
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Capital or the Performance Guarantor pursuant hereto or thereto, which
shall have been false, incorrect or inaccurate when made or deemed
made;
(2) the failure by the Lessor, IKON Capital or the Performance Guarantor
to comply with any applicable law, rule or regulation with respect to
any Designated Eligible Lease, Related Rights or Equipment or the non-
conformity of any Designated Eligible Lease, Related Rights or
Equipment with any such applicable law, rule or regulation;
(3) the failure to vest and maintain vested in the Concurrent Lessee a
perfected Adverse Claim in respect of the interests of the Concurrent
Lessee as concurrent lessee of the Equipment and a perfected ownership
interest in the Lease Entitlements, including all Related Rights, in
each case free and clear of any Adverse Claim whether existing at the
time of the consummation of the transactions contemplated hereby or at
any time thereafter, other than the leasehold interests and Adverse
Claims created in favour of the Concurrent Lessee pursuant to this
Agreement;
(4) any dispute, claim, set-off or defence (other than a discharge in
bankruptcy of the Lessee or a statutory seize or sue defence pursuant
to applicable law where the Collector has enforced an Adverse Claim in
the relevant Equipment) of a Lessee to the payment of any amount owing
under a Designated Eligible Lease (including 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 and further including any warranty or product liability
claim or personal injury or property damage suit or other similar or
related claims);
(5) any claim for personal injury, death, property damage or product
liability which may arise by reason of, result from or be caused by,
or relate to the use, operation, maintenance or ownership of, the
Equipment; and
(6) any material failure of the Lessor to perform its duties or
obligations, as Collector or otherwise, in accordance with the
provisions of this Agreement.
9.2 Notification of Potential Liability
-----------------------------------
The Lessor will, upon learning of potential situations involving
possible liability under this Article 9, promptly notify the Concurrent Lessee
thereof.
9.3 Litigation
----------
At the request of the Concurrent Lessee, the Lessor shall, at its
expense, co-operate with the Concurrent Lessee in any action, suit or proceeding
brought by or against the Concurrent Lessee relating to any of the transactions
contemplated by this Agreement, any Equipment subject to a Concurrent Lease or
any of the Lease Entitlements (other than an action, suit or proceeding by
<PAGE>
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the Lessor against the Concurrent Lessee). In addition, the Lessor agrees to
notify the Concurrent Lessee and the Concurrent Lessee agrees to notify the
Lessor, at the Lessor's expense, promptly upon learning of any pending or
threatened action, suit or proceeding, if the judgment or expenses of defending
such action, suit or proceeding would be covered by section 9.1 and (except for
an action, suit or proceeding by the Lessor against the Concurrent Lessee) the
Concurrent Lessee and the Lessor shall consult with each other concerning the
defence and prior to settlement; provided, however, that if (i) the Lessor shall
have acknowledged that section 9.1 would cover any judgment or expenses in any
action, suit or proceeding, and (ii) in the sole determination of the Concurrent
Lessee, the Lessor has the financial ability to satisfy such judgment or
expenses, then 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
with counsel selected by the Lessor, and shall have sole discretion as to
whether to litigate, appeal or enter into an exclusively monetary settlement.
9.4 The Lessor to Remain Obligated
------------------------------
Save as expressly provided herein: (i) the Lessor shall remain
responsible and liable under the Designated Eligible Leases (and any Related
Rights relating thereto) to the extent set forth in such leases and Related
Rights or otherwise to perform all of its duties and obligations thereunder and
to service the Designated Eligible Leases to the same extent as if the
Concurrent Lease had not been granted hereunder and the Lease Entitlements and
had not been transferred to the Concurrent Lessee hereunder; and (ii) the
exercise by the Concurrent Lessee of any of its rights hereunder shall not
release the Lessor from any of its duties or obligations under such Designated
Eligible Leases unless by operation of law the exercise of such rights has the
effect of releasing the Lessor from its duties and obligations or would render
performance by the Lessor thereof of no practical benefit to the Concurrent
Lessee.
9.5 Tax Indemnity
-------------
The Lessor agrees to defend and to save the Indemnified Parties
harmless from and against any and all liabilities arising out of the
transactions contemplated by this Agreement with respect to or resulting from
any delay in paying or any omission to pay any Taxes otherwise required under
this Agreement to be paid or withheld and remitted by or on behalf of the Lessor
on its own behalf, on behalf of the Concurrent Lessee or on behalf of any Lessee
(including any Taxes contemplated in section 5.4(g)). If the Lessor shall be
required by law to deduct or withhold any Taxes from or in respect of any sum
payable by or on behalf of the Lessor on its own behalf or on behalf of any
Lessee to the Concurrent Lessee hereunder or in connection with the execution,
delivery, filing and recording hereof and of the other documents to be delivered
hereunder and the consummation of the transactions contemplated hereby, or if
the Concurrent Lessee shall be required to pay any Taxes in respect of any sum
received by the Concurrent Lessee from the Lessor hereunder:
(1) the sum payable to the Concurrent Lessee shall be increased as may be
necessary (or an amount shall be owed to the Concurrent Lessee) so
that, after all required deductions, withholdings or payments in
respect of such Taxes have been made, the
<PAGE>
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Concurrent Lessee receives or retains an amount equal to the sum that
the Concurrent Lessee would have received or retained had no such
deductions, withholdings or payments been made;
(2) Lessor shall make such deductions or withholdings; and
(3) the Lessor shall pay forthwith the full amount deducted or withheld to
the relevant taxation authority or other authority in accordance with
applicable law and will provide to the Concurrent Lessee copies of
such forms as are required to be provided to such authority evidencing
the payment by the Lessor.
For greater certainty, it is hereby acknowledged by the parties hereto
that the Lessor shall not be liable to indemnify the Indemnified Parties under
this section for any Taxes payable by, or required to be withheld by, the Lessor
on account of Taxes payable on the income of the Concurrent Lessee, Taxes
payable by virtue of the non-resident status of the Concurrent Lessee or Taxes
payable on the capital of the Concurrent Lessee.
9.6 Tax Credit
----------
If a payment (a "Grossed-Up Payment") made by the Lessor includes an
amount (a "Gross-Up") referred to in section 9.5, and the Concurrent Lessee is
able to apply for or otherwise take advantage of any tax credit, deduction in
computing income or similar benefit by reason of any withholding or deduction
made by the Lessor in respect of the Grossed-Up Payment (such credit, deduction
or benefit hereinafter being referred to as a "Tax Credit"), then the Concurrent
Lessee will, at the expense of the Lessor, use reasonable endeavours to obtain
the Tax Credit and, if it realizes the Tax Credit (whether by way of reducing
taxes payable, receiving a tax refund, or otherwise), the Concurrent Lessee
shall, subject to the provisos to this section 9.6, pay to the Lessor such
amount, if any (not exceeding the Gross-Up) as is determined in the discretion
of the Concurrent Lessee to be equal to the net after-tax value to the
Concurrent Lessee of such part of the Tax Credit as is reasonably attributable
to such withholding or deduction having regard to all dealings giving rise to
similar credits, deductions or benefits in relation to the same tax period and
to the cost of obtaining the same. Any such reimbursement shall be conclusive
evidence of the amount due to the Lessor and shall be accepted by it in full and
final settlement of its rights of reimbursement hereunder; provided that
notwithstanding the foregoing, (i) nothing herein contained shall interfere with
the right of the Concurrent Lessee to arrange its tax affairs in whatever manner
it deems fit and, in particular, the Concurrent Lessee shall not be under any
obligation to claim relief from its corporate profits or similar tax liability
in respect of any such deduction or withholding in priority to any other relief,
claims, credits or deductions available to it; and (ii) the Concurrent Lessee
shall not be obligated to disclose to the Lessor any information regarding its
tax affairs or tax computations; provided, further, that if, as a result of (x)
an audit of the Concurrent Lessee by its auditors or by a taxing authority, or
(y) any change to the affairs of the Concurrent Lessee or to the available
information concerning such affairs, which change is relevant to the
determination that reimbursement with respect to a Tax Credit is payable to the
Lessor hereunder, the Concurrent Lessee determines, in its discretion, that any
such payment made by the Concurrent Lessee to the
<PAGE>
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Lessor hereunder would not have been made had the Concurrent Lessee known the
results of such audit or anticipated such change, or would have been made in a
smaller amount, then the Lessor shall pay to the Concurrent Lessee the amount of
such payment which the Concurrent Lessee so determines to have been an
overpayment.
9.7 Survival
--------
Without limiting the generality of section 5.5, but for greater
certainty, it is expressly acknowledged and agreed by the parties hereto that
the obligations of the Lessor under this Article 9 shall survive the
consummation of the transactions contemplated by this Agreement and,
notwithstanding the occurrence of such events, shall continue in full force and
effect indefinitely.
ARTICLE 10
GUARANTEE
10.1 Guarantee
---------
The Performance Guarantor hereby unconditionally and irrevocably
guarantees to the Concurrent Lessee the due and punctual performance, observance
and payment by the Lessor of all of the terms, covenants, conditions,
agreements, undertakings, indemnities (including, for certainty, the indemnities
by the Lessor under Article 9) and obligations on the part of the Lessor to be
performed, observed or paid under this Agreement or any document related thereto
in accordance with the terms hereof and thereof, including any agreement of the
Lessor to pay any sum under this Agreement and any other instrument, agreement
and document to be delivered by it hereunder (all such terms, covenants,
conditions, agreements, undertakings, indemnities and obligations on the part of
the Lessor to be performed, observed and paid, being collectively called the
"Guaranteed Obligations"). In the event that the Lessor shall fail in any
manner whatsoever to perform, observe or pay any of the Guaranteed Obligations
when the same shall be required to be performed, observed or paid, then the
Performance Guarantor will itself duly and punctually perform, observe and pay,
or cause to be duly and punctually performed, observed or paid, the Guaranteed
Obligations, and it shall not be a condition to the accrual of the obligation of
the Performance Guarantor hereunder to perform, observe or pay any of the
Guaranteed Obligations (or to cause the same to be performed, observed or paid)
that the Concurrent Lessee shall have first made any request of or demand upon
or give any notice to the Performance Guarantor or to the Lessor or have
initiated any action or proceeding against the Performance Guarantor or the
Lessor in respect thereof. The Concurrent Lessee may proceed to enforce the
obligations of the Performance Guarantor under this section 10.1 without first
pursuing or exhausting any right or remedy which the Concurrent Lessee may have
against the Lessor, any other Person, the Designated Eligible Leases or any
other property.
10.2 Validity of the Performance Guarantor's Obligations as Guarantor
----------------------------------------------------------------
The validity and enforceability of this Guarantee shall not be
impaired or affected by:
<PAGE>
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(1) any extension, modification or renewal of, or indulgence with respect
to, or substitutions for, the Guaranteed Obligations or any part
thereof or any agreement relating thereto at any time;
(2) any failure or omission to enforce any right, power or remedy with
respect to the Guaranteed Obligations or any part thereof or any
agreement relating thereto, or any collateral securing the Guaranteed
Obligations or any part thereof;
(3) any waiver of any right, power or remedy or of any default with
respect to the Guaranteed Obligations or any part thereof or any
agreement relating thereto or with respect to any collateral securing
the Guaranteed Obligations or any part thereof;
(4) any release, surrender, compromise, settlement, waiver, subordination
or modification, with or without consideration, of any collateral
securing the Guaranteed Obligations or any part thereof, any other
guarantees with respect to the Guaranteed Obligations or any part
thereof, or any other obligation of any person or entity with respect
to the Guaranteed Obligations or any part thereof;
(5) the enforceability or validity of the Guaranteed Obligations or any
part thereof or the genuineness, enforceability or validity of any
agreement relating thereto or with respect to any collateral securing
the Guaranteed Obligations or any part thereof; or
(6) the application of payments received from any source to the payment of
indebtedness other than the Guaranteed Obligations, any part thereof
or amounts which are not covered by this Guarantee even though the
Concurrent Lessee might lawfully have elected to apply such payments
to any part or all of the Guaranteed Obligations or to amounts which
are not covered by this Guarantee,
all whether or not the Performance Guarantor shall have had notice or knowledge
of any act or omission referred to in the foregoing clauses (a) through (f) of
this section 10.2. The Performance Guarantor's liability hereunder shall be
several and independent of any other guarantees or other obligations at any time
in effect with respect to the Guaranteed Obligations or any part thereof and the
Performance Guarantor's liability hereunder may be enforced regardless of the
existence, validity, enforcement or non-enforcement of any such other guarantees
or other obligations.
10.3 Subrogation
-----------
Until the Guaranteed Obligations are paid in full, the Performance
Guarantor shall not exercise any right of subrogation with respect to any
payments made by it pursuant to this Guarantee. The Performance Guarantor
waives any benefit of the collateral, if any, which may from time to time secure
the Guaranteed Obligations or any part thereof and authorizes the Concurrent
Lessee to take any action or exercise any remedy with respect thereto, which the
Concurrent Lessee in its sole discretion shall determine, without notice to the
Performance Guarantor.
<PAGE>
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10.4 Authorization by the Performance Guarantor as Guarantor
-------------------------------------------------------
The Concurrent Lessee may continue to enter into Concurrent Leases
from time to time without notice to or authorization from the Performance
Guarantor regardless of the Lessor's financial or other condition at the time of
any such purchase. The Performance Guarantor acknowledges to the Concurrent
Lessee that it has adequate means to obtain from the Lessor on a continuing
basis all information concerning the financial condition of the Lessor and the
collectibility of the Concurrent Leases, and agrees with the Concurrent Lessee
that the Concurrent Lessee shall not have any obligation to disclose or discuss
with the Performance Guarantor any information which it has respecting the
financial condition of the Lessor or the collectibility of any Concurrent
Leases.
10.5 Changes in the Lessor
---------------------
This Guarantee shall not be discharged or otherwise affected by any
change in the name of the Lessor or in the objects, capital structure or
constitution of the Lessor, or by the Lessor being amalgamated or merged with
another corporation, but shall, notwithstanding any such event, continue to
apply to all Guaranteed Obligations whether theretofore or thereafter incurred,
and in the case of the Lessor being merged, consolidated or amalgamated with
another corporation, this Guarantee shall apply to the liabilities of the
resulting corporation, and the term "the Lessor" shall include each such
resulting corporation.
10.6 Covenants of the Performance Guarantor as Guarantor
---------------------------------------------------
The Performance Guarantor covenants with the Concurrent Lessee that,
during the currency of this Guarantee:
(1) without limiting the guarantee in section 10.1, it will ensure that
the Lessor at all time complies with the Credit and Collection
Policies;
(2) it will deliver to the Concurrent Lessee (i) within 60 days after the
end of each of its first three fiscal quarters, copies of its
unaudited quarterly financial statements on a consolidated basis; and
(ii) within 120 days after the end of each of its fiscal years, copies
of its audited financial statements on a consolidated basis, such
financial statements in each case to include a balance sheet and
statement of retained earnings, income statement and statement of
charges in financial position prepared in accordance with U.S.
generally accepted accounting principles; and
(3) it will continue to be, either directly or indirectly, the registered
and beneficial owner of all of the issued and outstanding shares in
the capital of the Lessor.
<PAGE>
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10.7 Taxes
-----
All payments to be made by the Performance Guarantor hereunder shall
be made free and clear of any deduction, withholding or other Taxes. If the
Performance Guarantor is required by law to make any deduction or withholding on
account of Tax or otherwise from any such payment, the sum due from it in
respect of such payment shall be increased to the extent necessary to ensure
that after the making of such deduction or withholding, the Concurrent Lessee
receives a net sum equal to the sum which it would have received had no
deduction or withholding been made.
10.8 Judgment Currency
-----------------
If any sum due from the Performance Guarantor under this Guarantee or
any order or judgment given or made in relation hereto must be converted from
the currency (the "First Currency") in which the same is payable hereunder or
under such order or judgment into another currency (the "Second Currency") for
the purpose of:
(1) making or filing a claim or proof against the Performance Guarantor;
(2) obtaining an order or judgment in any court or other tribunal; or
(3) enforcing any order or judgment given or made in relation hereto,
the Performance Guarantor shall indemnify and hold harmless the Concurrent
Lessee from and against any loss suffered as a result of any discrepancy
between:
(a) the rate of exchange used for such purpose to convert the sum in
question from the First Currency into the Second Currency; and
(b) the rate or rates of exchange at which the Concurrent Lessee may, in
the ordinary course of business, purchase the First Currency with the
Second Currency upon receipt of a sum paid to it in satisfaction, in
whole or in part, of any such order, judgment, claim or proof.
The foregoing indemnity shall constitute a separate obligation of the
Performance Guarantor distinct from its other obligations hereunder and shall
survive the giving or making or any judgment or order in relation to all or any
of such other obligations.
<PAGE>
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ARTICLE 11
MISCELLANEOUS
11.1 Liability of the Concurrent Lessee, the Credit Enhancer and the
---------------------------------------------------------------
Securitization Agent
- --------------------
Neither the Concurrent Lessee, the Securitization Agent nor any of
their respective directors, officers, agents or employees will be liable
pursuant to this Agreement for any action taken or omitted to be taken by it or
them hereunder or in connection herewith, except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, and notwithstanding any term or provision hereof to the contrary,
each of the Lessor, IKON Capital and the Performance Guarantor hereby
acknowledges and agrees that the Securitization Agent acts as agent for the
Concurrent Lessee and, unless the Securitization Agent becomes the Replacement
Collector, has no duties or obligations to, will incur no liability to, and does
not act as an agent in any capacity for, the Lessor, IKON Capital or the
Performance Guarantor. Neither the Credit Enhancer, nor any of its directors,
officers, agents or employees shall be liable pursuant to this Agreement for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith, other than for its or their own gross negligence or willful misconduct
or breach of contract, and for the purposes of this section 11.1 only, the
Lessor shall be deemed to have entered into this Agreement as agent for the
Credit Enhancer and its directors, officers, agents and employees, all of whom,
for the purposes of this section 11.1 only, shall be deemed to be parties
hereto.
11.2 Change in Circumstances
-----------------------
If either:
(1) the introduction of, or any change (including any change by way of
imposition or increase of any reserve requirements) in or in the
interpretation of, any law by any court or governmental authority, in
each case made after the date hereof; or
(2) the compliance by the Concurrent Lessee or the Credit Enhancer with
any changed or introduced guideline or request made after the date
hereof from any Governmental Authority (whether or not having the
force of law),
has the effect of:
(3) increasing the cost to the Concurrent Lessee of making, funding or
maintaining any Concurrent Lease hereunder or agreeing to make
Concurrent Leases hereunder, or reducing the rate of return to the
Concurrent Lessee in connection therewith or as a result of reserves
(including reserves against capital) to be made therefor or requiring
the payment of Taxes in respect of the capital of the Concurrent
Lessee;
(4) reducing the amount payable with regard to any Designated Eligible
Lease; or
<PAGE>
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(5) requiring the Concurrent Lessee to make a payment it would not
otherwise have been required to make, calculated by reference in whole
or in part to the Designated Eligible Leases or the Equipment,
the Lessor shall, from time to time, upon demand by the Concurrent Lessee, pay
to the Concurrent Lessee that portion of such increased costs incurred, amounts
not received or receivable, compensation for such reduction in rate of return or
required payment made, which is directly attributable to making, funding or
maintaining any Concurrent Lease hereunder. The Concurrent Lessee shall deliver
to the Lessor a certificate setting forth its computation of such increased
costs, amounts not received or receivable, reduction in rate of return or
required payment made or to be made, which computation may utilize such
averaging and attribution methods that the Concurrent Lessee, acting reasonably,
believes to be applicable. The Concurrent Lessee shall promptly notify the
Lessor of any event or circumstance which could result in any payment being
required to be made to the Concurrent Lessee pursuant to this section 11.2.
11.3 Amendments, Waivers, Etc.
-------------------------
No amendment or waiver of any provision of this Agreement nor consent
to any departure by the Lessor, IKON Capital, the Performance Guarantor or the
Concurrent Lessee therefrom shall be effective in whole or in part unless the
amendment or waiver shall be in writing and signed by (a) the Lessor, IKON
Capital, the Performance Guarantor and the Concurrent Lessee (with respect to an
amendment), (b)(i) the Concurrent Lessee or any agent on its behalf (with
respect to a waiver or consent by it), (ii) the Lessor (with respect to a waiver
or consent by it), (iii) IKON Capital (with respect to a waiver or consent by
it), or (iv) the Performance Guarantor (with respect to a waiver or consent by
it), (c) the Securitization Agent to the extent it effects the rights, duties or
obligations of the Securitization Agent, and (d) the Credit Enhancer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given. Each proposed amendment of this
Agreement that is considered by the Concurrent Lessee to be a material amendment
shall be subject to the approval of the Rating Agency, and the Rating Agency
shall be provided with prior notice of all other proposed amendments of this
Agreement. Other than for the mandate letter described in section 6.20(a), this
Agreement contains 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 agreements or
undertakings.
11.4 Notices, Etc.
-------------
All notices, documents and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing and shall be valid and
effective if delivered or sent by facsimile transmission (with receipt
confirmed) to each party hereto, as follows:
<PAGE>
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(1) in the case of the Lessor:
IKON Office Solutions, Inc.
#810, 715-5th Avenue S.W.
Calgary, Alberta
T2P 2X6
Attention: Controller
Facsimile No.: (403) 264-9963;
(2) in the case of IKON Capital:
IKON Capital, Inc.
16007-116 Avenue
Edmonton, Alberta
T5M 3Y1
Attention: Controller
Telecopier No.: (780) 489-4411;
(3) in the case of the Performance Guarantor:
IKON Office Solutions, Inc.
70 Valley Stream Parkway
Malvern, Pennsylvania 19355
U.S.A.
Attention: Treasurer
Facsimile No.: (610) 408-7022;
(4) in the case of the Concurrent Lessee:
CARE Trust
c/o Nesbitt Burns Inc.
3rd Floor Podium
1 First Canadian Place
Toronto, Ontario
M5X 1H3
Attention: Managing Director, Securitization and Structured
Finance
Facsimile No.: (416) 359-1910;
<PAGE>
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(5) in the case of the Credit Enhancer:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Officer in Charge, Letter of Credit Department
Facsimile No.: (617) 451-2127; and
(6) in the case of the Rating Agency:
Dominion Bond Rating Service Limited
200 King Street West, Suite 1304
Sun Life Centre, West Tower
Toronto, Ontario
M5H 3T4
Attention: Structured Finance
Facsimile No.: (416) 593-5904;
or to such other address or facsimile number as shall be designated by such
party by written notice to the other parties hereto delivered in accordance with
this section 11.4. All such notices and communications shall be deemed to have
been received and shall be effective, in the case of delivery, on the day of
delivery, and, in the case of notice by facsimile transmission, on the day of
transmittal thereof if sent during normal business hours of the recipient and on
the next succeeding Business Day if not sent during normal business hours of the
recipient.
11.5 No Waiver; Remedies
-------------------
No failure on the part of 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 right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
11.6 Binding Effect; Assignability
-----------------------------
This Agreement shall be binding upon and enure to the benefit of the
Lessor, IKON Capital, the Performance Guarantor and the Concurrent Lessee, and
their respective successors and permitted assigns; provided, however, that none
of the Lessor, IKON Capital or the Performance Guarantor may assign its rights
hereunder or any interest herein without the prior written consent of the
Concurrent Lessee, the Concurrent Lessee may not assign its rights hereunder or
any interest herein without the prior written consent of the Lessor and the
Performance Guarantor and the Concurrent Lessee may not lease, sublease, license
or sublicense to any other Person any of the
<PAGE>
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Equipment, in each case except as specifically provided for in this Agreement.
This Agreement shall create and constitute the continuing obligations of the
parties hereto in accordance with its terms.
11.7 Costs and Expenses
------------------
In addition to the rights of indemnification granted to the Concurrent
Lessee under Article 9 hereof, the Lessor agrees to pay the Concurrent Lessee on
demand for all costs and expenses in connection with the preparation, execution,
delivery and administration of this Agreement and documents relating hereto,
including the taking of any actions hereunder or thereunder (including agents'
fees), and the other documents and transactions contemplated hereby or thereby,
the reasonable fees and expenses of the Securitization Agent, any fees payable
to the Rating Agency, the reasonable fees and expenses of any agents of the
Concurrent Lessee (or their counsel), printing costs, GST on the costs and
expenses referred to in this section, the reasonable fees and out-of-pocket
expenses of legal counsel for the Concurrent Lessee, including local counsel
with respect to the transactions contemplated hereby, the reasonable fees and
out-of-pocket expenses of legal counsel for the Concurrent Lessee with respect
to advising the Concurrent Lessee as to its rights and remedies under this
Agreement and the documents relating hereto after the Closing Date, and all
costs and expenses, if any (including reasonable legal fees and expenses), in
connection with the enforcement of such agreements and documents and the other
documents to be delivered hereunder or thereunder or contemplated hereby or
thereby. In the event the Lessor pays any GST, the Concurrent Lessee covenants
and agrees to use its reasonable best efforts to assist the Lessor to obtain a
rebate or refund thereof if available in the circumstances, including by
providing the Lessor with invoices showing the Lessor as the party being billed.
11.8 Confidentiality
---------------
Each of the Concurrent Lessee, the Lessor, IKON Capital and the
Performance Guarantor shall make all reasonable efforts to hold all non-public
information, obtained pursuant to this Agreement and the transactions
contemplated hereby or effected in connection herewith in accordance with its
customary procedures for handling its confidential information of this nature
and shall not use any such information for purposes not related to this
Agreement, provided that, notwithstanding the foregoing, the parties may make
disclosure of such non-public information (i) as requested or required by any
governmental agency or representative thereof or pursuant to legal process or
when required under applicable law, (ii) to the Rating Agency, (iii) to the
Credit Enhancer, (iv) to the Liquidity Agent, (v) to implement the terms of this
Agreement or to enforce any rights which the Concurrent Lessee, the Lessor, IKON
Capital or the Performance Guarantor, as the case may be, may have to collect
any Designated Eligible Lease or to enforce their respective rights with respect
to any Equipment, Lease Entitlements or Related Rights, or (vi) to a Replacement
Collector, provided that the Replacement Collector has agreed to be bound by the
provisions of this section 11.8. Unless specifically prohibited by applicable
law or court order, each party hereto shall notify the other party hereto of any
request by any governmental agency or representative thereof or other Person for
disclosure of any such non-public information prior to disclosure of such
information to permit the party affected to contest such disclosure, if
possible.
<PAGE>
-93-
11.9 Capital Cost Allowance
----------------------
The Concurrent Lessee acknowledges that the Lessor is the owner of the
Equipment for purposes of claiming capital cost allowance under the Income Tax
Act (Canada) and therefore the Concurrent Lessee agrees not to make a claim for
capital cost allowance in respect of the Equipment.
11.10 Effect of Agreement
-------------------
Each of the Lessor, IKON Capital, the Performance Guarantor and the
Concurrent Lessee hereby expressly acknowledges that this Agreement is intended
to create a relationship of lessor on the one hand, and lessee on the other,
with respect to the Equipment, and of transferee and transferor with respect to
the Lease Entitlements. Each of the Lessor and the Concurrent Lessee hereby
expressly disclaims any intention to establish a trust relationship or to
constitute either the Lessor or the Concurrent Lessee as the agent of the other.
The Lessor, on the one hand, and the Concurrent Lessee, on the other, covenant
with each other that they will not, at any time, allege or claim that a
relationship of trust or agency is created hereby, except as otherwise expressly
provided for herein.
11.11 Termination
-----------
This Agreement shall remain in full force and effect until the Final
Termination Date; provided, however, that the Concurrent Lessee's rights and
remedies with respect to any incorrect representation or warranty made or deemed
to be made by the Lessor, IKON Capital or the Performance Guarantor herein, the
indemnification and payment provisions hereof and the provisions of Article 10
shall be continuing and will survive any termination hereof for a period of two
years commencing on the Final Termination Date.
<PAGE>
-94-
11.12 Execution in Counterparts
-------------------------
This Agreement 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 when taken together
shall constitute one and the same agreement.
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.
IKON OFFICE SOLUTIONS, INC.
by: /s/ Karin M. Kinney
-----------------------------------
Name: Karin M. Kinney
Title: Secretary
IKON CAPITAL, INC.
by: /s/ Karin M. Kinney
-----------------------------------
Name: Karin M. Kinney
Title: Secretary
IKON OFFICE SOLUTIONS, INC.
by: /s/ Karin M. Kinney
-----------------------------------
Name: Karin M. Kinney
Title: Secretary
<PAGE>
-95-
THE TRUST COMPANY OF BANK OF
MONTREAL,
in its capacity as trustee of CARE TRUST by its
Securitization Agent, NESBITT BURNS INC.
by: /s/ Paul Smeeton
-------------------------------------
Name: Paul Smeeton
Title: Vice-President and Director,
Securitization and Structured
Finance
by: /s/ Jerry Marriot
--------------------------------------
Name: Jerry Marriot
Title: Vice-President, Securitization and
Structured Finance
<PAGE>
SCHEDULE A
FORM OF CONCURRENT LEASE REQUEST
--------------------------------
TO: CARE TRUST
c/o NESBITT BURNS INC.
3rd Floor Podium
1 First Canadian Place
Toronto, Ontario
M5X 1H3
Telecopier No.: (416) 359-1910
This Concurrent Lease Request is delivered to you pursuant to section
2.1 of a concurrent lease agreement made as of September 14, 1999 (the
"Concurrent Lease Agreement") between IKON Office Solutions, Inc. (the
"Lessor"), IKON Capital, Inc., IKON Office Solutions, Inc. and CARE Trust (the
"Concurrent Lessee").
The Lessor hereby gives notice to the Concurrent Lessee that it grants
to the Concurrent Lessee, a lease to possess and use the Equipment (as listed in
the attached Report), all in accordance with the terms of the Concurrent Lease
Agreement.
Lease Date: ________________________
Financed Balance subject
to Concurrent Lease: ________________________
Prepaid Rent: ________________________
Amount deposited into
Deferred Rental Account: ________________________
Amount paid to the Lessor: ________________________
DATED the ____ day of ___________________, ______.
IKON OFFICE SOLUTIONS, INC.
By: _________________________________
(Authorized Officer)
<PAGE>
SCHEDULE B
LOCATION OF RECORDS AND BANK ACCOUNTS THAT
RECEIVE DIRECT PAYMENTS
----------------------------------------------------
Location of Records:
IKON Capital
16007 - 116 Avenue
Edmonton, Alberta
T5M 3Y1
Location of Bank Accounts:
Canadian Imperial Bank of Commerce
10058 - 170 Street Westgate
Edmonton, Alberta
T5S 2G3
(Transit #04959, Account #105317)
<PAGE>
SCHEDULE C
STANDARD FORM LEASES
--------------------
<PAGE>
[LETTERHEAD OF IKON OFFICE SOLUTIONS APPEARS HERE]
<TABLE>
<S> <C>
[LOGO] Lease Agreement
------------------------------------------
Office Solutions CUSTOMER NO.
------------------------------------------
LEASE NO.
- ------------------------------------------------------------------------------------------------------------------------------------
LESSEE NAME
- ------------------------------------------------------------------------------------------------------------------------------------
ADDRESS PRESENTLY LEASING
THROUGH IOS
- ------------------------------------------------------------------------------------------------------------
P.O. BOX [_] YES [_] NO
- ------------------------------------------------------------------------------------------------------------
CITY, PROVINCE & POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
PERSON TO CONTACT TEL NO. (Inc. Area Code) YEARS IN BUSINESS
AND TITLE
- ------------------------------------------------------------------------------------------------------------------------------------
PRE-AUTHORIZED PAYMENT PLAN: LEASE START DATE:
- ------------------------------------------------------------------------------------------------------------------------------------
Lessor/Seller is authorized to draw Rental payments or amounts due from
the bank account shown to the right and as per the attached sample cheque. Bank:________________________________________________
Authorized Signature: ___________________________________________________ Address:_____________________________________________
Title: __________________________________________________________________ Acct.# ______________________________________________
Please attach unsigned sample cheque. Contact: ____________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
LOCATION OF EQUIPMENT: NAME AND ADDRESS
(If different from above) OF LANDLORD:
- ------------------------------------------------------------------------------------------------------------------------------------
SALES REPRESENTATIVE BRANCH LOCATION
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITY EQUIPMENT DESCRIPTION (Including Model and Serial No.(s):
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TERM PAYMENT WILL BE MADE NO OF RENTAL AMOUNT P.S.T. G.S.T TOTAL RENTAL PAYMENT
PAYMENTS
- ------------ [_] Monthly
NO. OF MONTHS [_] Quarterly -----------------------------------------------------------------------------
[_] Annually Indicate Prov. Sales Tax Permit Number, If Applicable
- ------------------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS OF LEASE - ADDITIONAL TERMS AND CONDITIONS ON THE REVERSE SIDE HEREOF AND ANY SCHEDULES FORM A PART OF THIS
LEASE
- ------------------------------------------------------------------------------------------------------------------------------------
THE UNDERSIGNED ACKNOWLEDGES TO HAVE READ THE ENTIRE AGREEMENT AND ACCEPTS THE TERMS AND CONDITIONS THEREOF
1. RENTAL. Lessee shall pay to the Lessor as rental for the Equipment, the periodic rent payments set forth above. Such rent
payments shall be payable at Lessor's Head Office as follows: first rent payment upon the execution hereof by Lessee and
subsequent rent payments in every calendar month or other calendar period, after the month of shipment on the 1st of such month
of period. Rent hereunder is payable without abatement: provided that a charge may be assessed on any partial receipt of
Equipment by Lessee from time to time prior to the actual commencement date of the Agreement computed from the respective dates
of such receipts and said payment shall become due and payable on said actual commencement date.
2. SECURITY INTEREST. Undersigned acknowledges that statements under the various provincial Personal Property Security Acts,
including publication forms under the Civil Code of Quebec, may be registered with respect to the above referred to transaction
and hereby waive receipt of, and the right to receive, a copy of any such registered statement, certified statement or
verification statement with respect thereto. Lessee agrees to complete and sign any documents or take such other actions which
the Lessor deems reasonably necessary to protect and continue Lessor's title and security interest under this Agreement.
Lessee shall indemnify the Lessor against any assertions or claims by third parties that would jeopardize the Lessor's
security interest.
- -------------------------------------------- -----------------------------------------------------------------------------------
LESSEE
EXECUTED AS LESSOR (Legal Name) ____________________________________________________________________
IKON Office Solutions, Inc. _________________________________________________________________________________
The undersigned affirms that he/she is duly authorized to execute this Agreement
By: ______________________________________________ Title ______________________
Authorized Signature
By: ___________________________________ By: ______________________________________________ Title ______________________
Authorized Signature Authorized Signature
- -------------------------------------------- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LOGO OF IKON CAPITAL APPEARS HERE]
No locataire
-------------------------------------
CONTRAT DE LOCATION
_____________________________________________ -------------------------------------
(ci-apres appele le "locateur) No contrat de location
-
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOM
DU CLIENT
- ------------------------------------------------------------------------------------------------------------------------------------
ADRESSE
- ------------------------------------------------------------------------------------------------------------------------------------
CASIER POSTAL
- ------------------------------------------------------------------------------------------------------------------------------------
VILLE ET ????????????????????
PROVINCE
- ------------------------------------------------------------------------------------------------------------------------------------
PERSONNE A RE????? ??????????????????
- ------------------------------------------------------------------------------------------------------------------------------------
Le locateur est autorise a prelever du compte de banque indique a droite et tel que sur le TYPE D'ENTREPRISE
specimen de cheque ci-joint, le montant du loyer ou autres sommes dues.
BANQUE
Signature autorisee: ______________________________________________ _____________________________________
ADRESSE
Titre: ______________________________________________ _____________________________________
N DE PERSONNE A
PRIERE DE JOINDRE UN SPECIMEN DE CHEQUE NON SIGNE COMPTE CONTRACTER
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLACEMENT DE L'EQUIPEMENT
(SI DIFFERENT DE CLOESSUS)
- ------------------------------------------------------------------------------------------------------------------------------------
PROPRIETARIE NOM ET ADRESSE DU PROP ????????????????
DES DEUX [_]
- ------------------------------------------------------------------------------------------------------------------------------------
QUANTITE DESCRIPTION DE ????????????????????????????????????????
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
DUREX LES VERSEMENTS NOMBRE DE DEBUT MONTANT DU LOYER AXE DE VENTRE TAX DE VENTE ??? DU LOYER
NOMBRE DE MOIS DE LOYER VERSEMENTS DU ??????? VOIR VOIR
SERONT EFFECTIFS DE LOYER BARL
M / J / A
[_] MENSUELLEMENT
---------------------------------------------------------------------
[_] TRIMESTRIELLEMENT NOMBRE DE COPIES INCLUSES ENGAGEMENT MINIMUM COOT PAR COPIE
DANS LE MONTANT DU LOUER DE COPIES
[_] ANNUELLEMENT
- ---------------------------------------------------------------
DE CONTRAT DEMEURERA EN VIGUEUR POUR DES TERMES SUBSEQUENTS
CONSECUTIES DE 24 MOIS, A MOINS QUE LUNE OU L'AUTRE DESPARTIES
---------------------------------------------------------------------
Y METTE FIN PAR AVIS ECRIT DONNE
AJOUTER LES TAXES APPLICABLES A MOINS DINOIQUER VOTRE N D'EXEMPTION
- ------------------------------------------------------------------------------------------------------------------------------------
MODALITES ET CONDITIONS DU CONTRAT DE LOCATION - LES MODALITES ET CONDITIONS AU VERSO FONT PARTIE INTEGRANTE DE CE CONTRAT
- ------------------------------------------------------------------ ---------------------------------------------------------------
Le iocateur ne ser a pas lie par le present contrat de location LE SOUSSIGNE RECONNAIT AVOIR LU ET COMPRIS LE CONTRAT AU
(le'contrat') a moins que preuve de son acceptance par le locateur COMPLET ET EN ACCEPTE LES CONDITIONS
ne sont fate par la signature d'un dungeant dument autonse du ---------------------------------------------------------------
locateur dans l'espace prevu a cas fins ci-dessous. Nom legal complet du locataire
__________________________________________________________________ _______________________________________________________________
DATE D'ACCEPTATION PAR LE LOCATEUR Date
__________________________________________________________________ _______________________________________________________________
pour Les soussignes reconnaissent etre autorises a signer le contrat
__________________________________________________________________ _______________________________________________________________
Par Par Titre
Signataire autorise Signataire autorise
__________________________________________________________________ _______________________________________________________________
Titre Par Titre
Signataire autorise
__________________________________________________________________ _______________________________________________________________
Toutes modifications apportees au present contrat devront etra paraphees uniquement par les signataires de ce dernier.
Les sections ombrees devront etre remplies avant la signature du client.
CONDITIONS GENERALES
En contrepartie des engagements enonces au recto et au verso des 5. INSTALLATION, ENTRETIEN ET REPARATION: Le client est
presentes et pour autra contrepartie bonne et valable (dont il est responsable, a ses frais, de la invaison, de l'installation,
accuse reception et suffisance), le locateur et le client de l'enlevement, de retour, de l'entretien, du maintien en
conviennent de ce qui suit. etat et de la reparation (y compris les pieces de rechange) de
l'equipement. Aucun ajout et/ou madrication n'est effectue
1. CONTRAT: Par les presentes, le locateur loue au client et la sans l'autorisation ecrite de locateur. Toute manipulation de
client loua du locateur l'equipement decrit dans les details du equipement doit etre effectuee par une partie autorisee par le
contrat. locateur.
2. CHOIX DE L'EQUIPEMENT: Le client a lui-meme choisi l'equipement 6. EMPLACEMENT, UTILISATION ET INSPECTION: L'equipement doit
et reconnait qu'il est le saul responsable de son caractere etre situe et utilise a l'endroit prevu au contrat. Le client
approprie, de son installation et de sa livraison. Si l'equipement utilise l'equipement avec soins et seulement a des fins
ne se conforme pas aux exigences du client, cela ne diminuera en commerciates, industrielles ou professionnelles. Le locateur
nen ses obligations. peut en tout temps inspecter l'equipement et consuiter tous
les registres de client relabfs a l'equipement.
3. LOYER: Pendant la duree du contrat, le client fait au locateur,
sans autre avis ni demande le nombre total de versements de loyer 7. PERTES ET DOMMAGES. Le client assume pendant l'entiere
suivant les montants indiques dans les details du contrat. Ces duree du present contrat incluant le retour de l'equipement
versements de loyer seront exigibles a l'avance par le locateur tout risque de perte d'endommagement de destruction de voi,
a l'adesse indiquee ci-dessus (ou toute autre adresse specifiee par de saisie ou de prise de possession de tout ou partie de
le locateur) comme suit, le premier versement est effectue par le l'equipement. Acune parte ne liberera le client de ses
client au moment ou il signe les presentes et, des apres la penode obligations aux termes des cresentes.
civile couverte par ce premier versement, les versements subsequents
seront effectues pendant la duree entiere dans le cas des versements 8. PROPROETE ET IDENTIFICATION: L'equipement est la
mensueis, le premier de chaque mois ou dans le cas de versements propriete personnelle et mobiliere absolue du locateur et le
echelonnes sur toute autre penode civie, le premier jour de cette demeurera en tout temps pour la duree du present contrat ne
penade. LE PREMIER VERSEMENT DE LOYER NE SERA EN AUCUN CAS REMBOURSE doit pas etra rattache ou attacne ni autrement devenir un
AU CLIENT. accessoire fixe ou un accessoire a des biens immeubies ou a
des biens meubles et le client n'aura aucun droit, titre ou
4. INTERETS SUR LES PAIEMENTS EN SOUFFRANCE. Le client paiera sans interet dans ledit equipement sauf comme il est expressement
avis des interets au faux de 24% l'an calcules et composes enonce dans les oresentes.
mensuellement et non a l'avance sur tout paiement de loyer en
souffrance ainsi oue sur toute autre somme due en vertu au present
contrat, incluant tout jugement
</TABLE>
<PAGE>
SCHEDULE D
FORM OF PORTFOLIO REPORT
------------------------
<PAGE>
IKON Office Solutions, Inc. SCHEDULE D
Monthly Portfolio Report For the Reporting Period Ending: 30-Sep-99
- --------------------------------------------------------------------------------
For the Reporting Period Ending: 30-Sep-99
Reporting Date: 22-Oct-99
Remittance Date: 29-Oct-99
1 Monthly Activity
- -------------------------------------------------------------------------------
Aggregate Financed Balance, Beginning of Month 89,000,000.00
Leases Sold During the Month -
Principal Collections-Scheduled (3,150,000.00)
Principal Collections-Unscheduled (425,000.00)
Deemed Collections (125,000.00)
Defaulted Leases (1,750,000.00)
-------------------------------------------------------------------------
Aggregate Financed Balance, End of Month 83,550,000.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest Collected 741,666.67
-------------------------------------------------------------------------
Number of Leases, Beginning of Month 3,750
Leases Sold During the Month -
Leases Fully Paid (250)
Deemed Collections (30)
Defaulted Leases (80)
-------------------------------------------------------------------------
Number of Leases, End of Month 3,390
-------------------------------------------------------------------------
2 Trigger Events
- -------------------------------------------------------------------------------
Number of Delinquent Leases 25
$ Amount of Delinquent Leases 2,235,000.00
-------------------------------------------------------------------------
Delinquency Ratio - Current Month 2.68%
Delinquency Ratio - Previous Month 4.97%
Delinquency Ratio - 2nd Previous Month 6.75%
-------------------------------------------------------------------------
3 Month Average Delinquency Rate 4.97%
-------------------------------------------------------------------------
3 Month Trigger Ratio 6.50%
-------------------------------------------------------------------------
Number of 90 Day Past Due Leases 20
$ Amount of 90 Day Past Due Leases 1,800,000.00
-------------------------------------------------------------------------
90 Day Past Due Ratio - Current Month 2.15%
90 Day Past Due Ratio - Previous Month 2.75%
90 Day Past Due Ratio - 2nd Previous Month 4.00%
-------------------------------------------------------------------------
3 Month Average 90 Day Past Due Rate 2.97%
-------------------------------------------------------------------------
3 Month Trigger Ratio 4.50%
-------------------------------------------------------------------------
Monthly Defaulted Leases - Gross 1,750,000.00
Recoveries -
-------------------------------------------------------------------------
Net Defaults 1,750,000.00
-------------------------------------------------------------------------
Default Ratio - Current Month 2.09%
Default Ratio - Previous Month 3.40%
Default Ratio - 2nd Previous Month 4.35%
-------------------------------------------------------------------------
3 Month Average Default Rate 3.28%
-------------------------------------------------------------------------
3 Month Trigger Ratio 4.50%
-------------------------------------------------------------------------
3 Payments
- -------------------------------------------------------------------------------
Total Collections 4,441,666.67
(i) Hedging Costs
Swap Amortizing Amount 89,000,000.00
Tranche Period (days) 30
---------------------------------------------------------------------
Funding Differential
Swap Rate 5.75%
BA Rate 4.65% 1.10%
---------------------------------------------------------------------
Hedging Costs 80,465.75
---------------------------------------------------------------------
(ii) Replacement Servicer Fee -
(iii) Funding Discount
Tranche Amount 89,000,000.00
Tranche Period (days) 30
Tranche Rate 3.65%
---------------------------------------------------------------------
Funding Discount 267,000.00
---------------------------------------------------------------------
(iv) Program Amount
Aggregate Financed Balance, end of previous Period 89,000,000.00
Concurrent Lease Requests issued during the Period -
Aggregate Financed Balance, end of Current Period 83,550,000.00
---------------------------------------------------------------------
Difference 5,450,000.00
---------------------------------------------------------------------
Program Amount Subordination rate 8.00% 5,014,000.00
---------------------------------------------------------------------
(v) Program Fee 18,287.67
(vi) Credit Enhancement Fee 18,082.19
(vii) Swap Unwinding Costs -
Deferred Rental Account
Balance, previous Settlement Date 4,500,000.00
Cash Available (956,168.95)
-------------------------------------------------------------------------
Subtotal 3,543,831.05
Deferred Rental Required Amount 4,539,000.00
-------------------------------------------------------------------------
Excess (Shortfall) (995,168.95)
-------------------------------------------------------------------------
Deferred Rent 0.00
-------------------------------------------------------------------------
IKON Office Solutions, Inc. hereby certifies to CARE Trust that all information
contained in this Portfolio Report is true and accurate and has been prepared in
accordance with the Concurrent Lease Agreement between IKON Office Solutions,
Inc. as Lessor, IKON Office Solutions, Inc. as Performance Guarantor, IKON
Capital, Inc. as Sub-Collector and CARE Trust dated September 14, 1999, and that
no event has occurred and is continuing which constitutes, or but for the
requirement that notice be given or time elapse would constitute, a Trigger
Event or a Termination Event (as defined in the said Concurrent Lease
Agreement).
IKON Office Solutions, Inc.
By: _____________________________
Title: _____________________________
Date: _____________________________
<PAGE>
SCHEDULE E
FORM OF PROMISSORY NOTE (GST)
-----------------------------
PROMISSORY NOTE
---------------
THIS PROMISSORY NOTE is made by the undersigned, The Trust Company of
Bank of Montreal, a trust company incorporated under the laws of Canada and
registered under the laws of the Province of Ontario, in its capacity as trustee
of CARE Trust, being a trust established under the laws of the Province of
Ontario (the "Concurrent Lessee"), in favour of IKON Office Solutions, Inc. (the
"Lessor"), a corporation continued and existing under the laws of the Province
of Ontario.
WHEREAS pursuant to the Concurrent Lease Agreement (the "Agreement")
made as of September 14, 1999 between the Concurrent Lessee, the Lessor, IKON
Capital, Inc. and the IKON Office Solutions, Inc., the Lessor has granted to the
Concurrent Lessee a lease and licence to possess and use the Equipment (such
lease and licence being referred to herein as the "Concurrent Lease"), subject
to the terms and conditions contained in the Agreement;
AND WHEREAS pursuant to section 2.3 and subject to section 2.4 of the
Agreement, in consideration of the grant by the Lessor to the Concurrent Lessee
of the Concurrent Lease, the Concurrent Lessee has agreed to pay to the Lessor,
on the first day of each calendar month during the term of the Agreement, as
monthly rent an amount to equal to 99.99% of the sum of all payments of Rent
forming part of the Scheduled Payments to be made in respect of the Designated
Eligible Leases during the most recently completed Reporting Period;
AND WHEREAS pursuant to section 2.4 of the Agreement, the Concurrent
Lessee has satisfied and discharged its obligations to make all monthly rent
payments by paying to the Lessor, by certified cheque on the date hereof as a
prepayment of rent, the sum of $. (the "Prepaid Rent") and by agreeing to pay
deferred rent as provided for therein;
AND WHEREAS the consideration mentioned as aforesaid shall be
exclusive of the tax payable under the Excise Tax Act (Canada) (the "ETA") and
the tax payable under An Act Respecting the Quebec Sales Tax (the "QSTA") (the
taxes payable under the ETA and the QSTA are hereinafter, collectively, referred
to as the "GST") which will be added to any amount so paid;
AND WHEREAS pursuant to section 2.10 of the Agreement, the Concurrent
Lessee may satisfy its obligation to pay the Lessor the GST in respect of the
Prepaid Rent by way of a promissory note which will be subject to section 2.10
of the Agreement;
NOW THEREFORE THIS PROMISSORY NOTE WITNESSES that, for value received,
the undersigned promises to pay to the order of the Lessor at Toronto, Ontario,
Canada, the amount in lawful money of Canada that is equal to the sum of the GST
in respect of the Prepaid Rent as aforesaid and an amount equal to any interest
paid to the Concurrent Lessee in respect of any input tax credit entitlement of
the Concurrent Lessee. The aforesaid amount shall be payable within
<PAGE>
three Business Days of the receipt by the Concurrent Lessee of any set refund of
GST in accordance with the following provisions:
(a) the Concurrent Lessee shall have a reporting period for the purposes
of the ETA and the QSTA that is a calendar month;
(b) the Concurrent Lessee shall file a return under section 238 of the ETA
and section 468 of the QSTA on or before the fifth Business Day
following the end of the reporting period in which (or in respect of
which) the Concurrent Lessee paid the GST (as represented by this
promissory note) and shall claim in such return an input and the QSTA
tax credit and input tax refund for the reporting period pursuant to
the applicable provisions of the ETA; and
(c) the Concurrent Lessee hereby assigns to the Lessor, as security for
the obligations of the Concurrent Lessee under this promissory note,
all of the right, title and interest of the Concurrent Lessee in and
to any net tax refund receivable by the Concurrent Lessee in respect
of the GST, together with any interest receivable thereon. The rights
and recourse of the Lessor with respect to any amounts owing by the
Trust to the Lessor under this promissory note shall be limited to the
enforcement of such assignment and otherwise at law against the
security hereby granted. the Lessor shall not be entitled to enforce
any right or recourse against any other property or assets of the
Concurrent Lessee with respect to any liability of the Concurrent
Lessee to the Lessor under this promissory note.
This promissory note shall be subject to the following conditions and
restrictions:
(a) this promissory note evidences the obligations of the undersigned to
pay to the Lessor the amount of the GST in respect of the Prepaid
Rent, and the obligations of the undersigned hereunder shall terminate
upon the termination of such obligation to pay the Lessor the GST in
respect of the Prepaid Rent whether as a result of the payment of such
amount or the extinguishment of such liability by way of set-off,
crediting or otherwise, or for any other reason; and
(b) the undersigned shall have the right, but not the obligations to repay
the whole or any part of the outstanding amount of this promissory
note without notice, penalty or bonus.
All capitalized terms used in this promissory note shall, unless the
context requires otherwise, have the meanings ascribed thereto under the
Agreement.
This promissory note shall be binding upon the undersigned in its
capacity as trustee of the Concurrent Lessee (and not in its personal capacity)
and upon the Concurrent Lessee and its successors and assigns, and this
promissory note shall enure to the benefit of and be enforceable by the Lessor
and any of its successors and assigns.
<PAGE>
-3-
This promissory note and the rights, obligations and relations of the
Concurrent Lessee and the Lessor shall be governed by and construed in
accordance with the laws of the Province of Ontario.
DATED the . day of ., 199..
THE TRUST COMPANY OF
BANK OF MONTREAL in its capacity as Trustee of
CARE TRUST by NESBITT BURNS INC., as agent for
CARE TRUST
by _______________________________________
_______________________________________
c/o Nesbitt Burns Inc.
3rd Floor Podium
1 First Canadian Place
Toronto, Ontario
M5X 1H3
Attention: Managing Director, Securitization
and Structured Finance
Telecopier No.: (416) 359-1910
<PAGE>
SCHEDULE F
LIST OF PREDECESSORS
--------------------
<PAGE>
SCHEDULE F
List of Predecessors
Province Name of Corporation to be Searched
- -------- ----------------------------------
Ontario Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada, Inc./Alco Canada, Inc.
- Systems De Bureau
1142836 Ontario Inc.
1142837 Ontario Inc.
1140935 Ontario Inc.
1048174 Ontario Ltd.
Fulline Office Products, Inc.
MGL Copy Systems Inc.
Bradcor Systems Inc.
228094 Ontario Inc.
1148608 Ontario Inc.
1137559 Ontario Inc.
1148189 Ontario Inc.
CDP - Copy Duplicating Products Canada, Ltd.
1064954 Ontario Inc.
1070148 Ontario Inc.
North American Financial Inc.
Woodbine Business Equipment Depot, Inc.
1069241 Ontario Inc.
OPS Business Systems Inc.
1199109 Ontario Inc.
Office Products Centre (Hamilton) Inc.
Star Business Machines Limited
London Photocopy (1994) Inc.
564658 Ontario Limited
Kempenfelt Kopy Systems Inc.
National Typewriter & Office Equipment Co., Ltd.
MGL Office Systems Inc.
<PAGE>
-2-
Office Products Management Inc.
Office Photocopier Suppliers Ltd.
Digital Reprographics Imaging & Systems, Inc.
Image Systems Solutions, Inc.
Knarf Holdings Ltd.
NTI Inc.
MAC Distributors Limited
Leaside Properties Ltd.
Canadian Legal Copies Inc.
Montreal Legal Copies Inc./Copies Legales Montreal Inc.
Toronto Logal Copies Inc.
1254407 Ontario Ltd.
4006558 Ontario Limited
NTI Business Equipment Limited
NTI Business Equipment Systems Ltd.
NTI National Limited
Technocopie Inc.
Quebec Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada, Inc./Alco Canada Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Copie Innovation
CCI Bureatique
9008-0441 Quebec Inc.
2253-2193 Quebec Inc.
Superior Business Machines
Technocopie Inc.
Knafr Holdings, Inc.
NTI Inc.
Canadian Legal Copies Inc.
Montreal Legal Copies
Alberta Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada, Inc./Alco Canada, Inc. -
Systems De Bureau
<PAGE>
-3-
IKON Office Solutions, Inc./Ikon Solutionsde Bureau
Inc.
Calgary Copier Ltd.
228094 Ontario Inc.
Alco Office Systems, Edmonton Inc.
Wesfax Communication Services Ltd.
Scot Office Supplies Ltd.
Paul's Business Machines Services Ltd.
Superior Venture Group Ltd.
Superior Reproductions Ltd.
Superior Personnel Ltd.
British Columbia Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada Inc./Alco Canada, Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Benndorf-Verster Limited
Select Business Machines Inc.
Prudential Lease Corp.
1199109 Ontario Inc.
RK Wilkinson Ltd.
UKE Holdings Inc.
A1 Advanced Business Machines Inc.
Scot Office Supplies Ltd.
Reid Office Supplies Ltd.
Adcash Business Machines (1977) Ltd.
Centron Business Equipment Ltd.
1254406 Ontario Ltd.
Prime Copy Office Systems Ltd.
Steelhead Business Products (Victoria) Ltd.
Sunstar Office Equipment Ltd.
Superior Ventures Group Ltd.
Superior Reproductions Ltd.
Superior Personnel Ltd.
Garvo Ventures Inc.
<PAGE>
-4-
Leaside Properties Ltd.
Charles Oliver Golf Pro Limited
Manitoba Bureau-Tech Ikon, Inc.
Alco Office Systems-Canada, Inc./Alco Canada, Inc.-
Systems
De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
CDP - Copy Duplicating Products Canada Ltd.
BCBMP Holdings Ltd.
National Typewriter & Office Equipment Co., Ltd.
New Brunswick Bureau-Tech Ikon, Inc.
Alco Office Solutions, Inc./Alco Canada, Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Halifax Office Products Limited
1148608 Ontario Inc.
River Valley Office Products Limited
Newfoundland Bureau-Tech Ikon, Inc.
Alco Office Systems-Canada, Inc./Alco Canada, Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Halifax Office Products Limited
Nova Scotia Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada Inc./Alco Canada Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Halifax Office Products Limited
1148608 Ontario Inc.
River Valley Office Products Limited
Prince Edward Island Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada Inc./Alco Canada Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Halifax Office Products Limited
Saskatchewan Bureau-Tech Ikon, Inc.
Alco Office Systems - Canada Inc./Alco Canada Inc. -
Systems De Bureau
IKON Office Solutions, Inc./Ikon Solutions de Bureau
Inc.
Alco Office Systems, Edmonton Inc.
<PAGE>
-5-
United Office Machines Ltd.
Paul's Business Machines Services Ltd.
<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
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ 33,836 $ (83,050) $ 122,362 $ 164,893 $ 115,011
Add:
Provision for Income taxes 45,555 8,863 90,751 107,984 75,501
Fixed charges 230,375 228,365 192,021 127,970 82,672
--------- --------- --------- --------- ---------
Earnings, as adjusted (A) $ 309,766 $ 154,178 $ 405,134 $ 400,847 $ 273,184
========= ========= ========= ========= =========
Fixed charges
Other Interest expense, Including
Interest on capital leases $ 197,901 $ 199,816 $ 146,117 $ 105,222 $ 61,888
Estimated Interest component of
rental expense 32,474 28,549 27,203 22,748 20,784
Prepayment penalties on early
extinguishment of debt 18,701
--------- --------- --------- --------- ---------
Total fixed charges (B) $ 230,375 $ 228,365 $ 192,021 $ 127,970 $ 82,672
========= ========= ========= ========= =========
Ratio of earnings to fixed charges
(A) divided by (B) 1.3(1) 0.7 (2) 2.1 (3) 3.1 (4) 3.3
--- --- --- --- ---
</TABLE>
(1) Excluding the effect of the asset securitization gain and the shareholder
litigation settlement charge, the ratio of earnings to fixed charges for the
fiscal year ended September 30, 1999 is 1.7.
(2) 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.
(3) Excluding the effect of transformation costs, the ratio of earnings to fixed
charges for the fiscal year ended September 30, 1997 is 2.8.
(4) 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
----------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ (51,437) $ (140,552) $ 85,897 $ 140,656 $ 100,539
Add:
Provision for income taxes (7,378) (33,291) 65,931 85,512 63,938
Fixed charges 103,085 98,544 92,738 59,514 42,138
--------- ---------- ---------- --------- ----------
Earnings, as adjusted (A) $ 44,270 $ (75,299) $ 244,566 $ 285,682 $ 206,615
========= ========== ========== ========= ==========
Fixed charges
Other interest expense, including
Interest on capital leases $ 71,225 $ 70,668 $ 47,453 $ 37,179 $ 21,672
Estimated interest component of
rental expense 31,860 27,876 26,584 22,335 20,466
Prepayment penalties on early
extinguishment of debt 18,701
--------- ---------- ---------- --------- ----------
Total fixed charges (B) $ 103,085 $ 98,544 $ 92,738 $ 59,514 $ 42,138
========= ========== ========== ========= ==========
Ratio of earnings to fixed charges
(A) divided by (B) 0.4(1) (0.8)(2) 2.6(3) 4.8(4) 4.9
========= ========== ========== ========= ==========
</TABLE>
(1) Excluding the effect of the shareholder litigation settlement charge, the
ratio of earnings to fixed charges (excluding finance subsidiaries) for
the fiscal year ended September 30, 1999 is 1.4.
(2) 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.
(3) Excluding the effects of transformation costs, the ratio of earnings to
fixed charges (excluding finance subsidiaries) for the fiscal year ended
September 30, 1997 is 4.0.
(4) 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.
<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
------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations $ 33,836 $ (83,050) $ 122,362 $ 164,893 $ 115,011
Add:
Provision for income taxes 45,555 8,863 90,751 107,984 75,501
Fixed charges 230,375 228,365 192,021 127,970 82,672
----------- ---------- --------- ---------- ----------
Earnings, as adjusted (A) $ 309,766 $ 154,178 $ 405,134 $ 400,847 $ 273,184
=========== ========== ========= ========== ==========
Fixed charges
Other interest expense, including
interest on capital leases $ 197,901 $ 199,816 $ 146,117 $ 105,222 $ 61,888
Estimated interest component of
rental expense 32,474 28,549 27,203 22,748 20,784
Prepayment penalties on early
extinguishment of debt 18,701
----------- ---------- --------- ---------- ----------
Total fixed charges 230,375 228,365 192,021 127,970 82,672
Preferred stock dividends, as adjusted 31,798 32,458 36,709 25,180
----------- ---------- --------- ---------- ----------
Total fixed charges and preferred
stock dividends $ 230,375 $ 260,163 $ 224,479 $ 164,679 $ 107,852
=========== ========== ========= ========== ==========
Ratio of earnings to fixed charges
(A) divided by (B) 1.3(1) 0.6 (2) 1.8 (3) 2.4 (4) 2.5
=========== ========== ========= ========== ==========
</TABLE>
(1) Excluding the effect of the asset securitization gain and shareholder
litigation settlement charge, the ratio of earnings to fixed charges for
the fiscal year ended September 30, 1999 is 1.7.
(2) 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 1.0.
(3) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1997 is 2.4.
(4) Excluding the effect of transformation costs, the ratio of earnings to
fixed charges for the fiscal year ended September 30, 1996 is 2.6.
<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
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continued operations $ (51,437) $ (140,552) $ 85,897 $ 140,656 $ 100,539
Add:
Provision for income taxes (7,378) (33,291) 65,931 85,512 63,938
Fixed charges 103,085 98,544 92,738 59,514 42,138
---------- ----------- --------- ---------- ----------
Earnings, as adjusted (A) $ 44,270 $ (75,299) $ 244,566 $ 285,682 $ 206,615
========== =========== ========= ========== ==========
Fixed charges
Other interest expense, including
Interest on capital leases $ 71,225 $ 70,668 $ 47,453 $ 37,179 $ 21,672
Estimated interest component of
rental expense 31,860 27,876 26,584 22,335 20,466
Prepayment penalties on early
extinguishment of debt 18,701
---------- ----------- --------- ---------- ----------
Total fixed charges 103,085 98,544 92,738 59,514 42,138
Preferred stock dividends, as adjusted 31,798 32,351 $ 35,768 24,892
---------- ----------- --------- ---------- ----------
Total fixed charges and preferred
stock dividends $ 103,085 $ 130,342 $ 125,089 $ 95,282 $ 67,030
========== =========== ========= ========== ==========
Ratio of earnings to fixed charges
(A) divided by (B) 0.4 (1) (0.6) (2) 2.0 (3) 3.0 (4) 3.1
=== ===== === === ===
</TABLE>
(1) Excluding the effect of the shareholder litigation settlement charge,
the ratio of earnings to fixed charges (excluding finance subsidiaries)
for the fiscal year ended September 30, 1999 is 1.4.
(2) 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.
(3) Excluding the effect of transformation costs, the ratio of earnings to fixed
charges (excluding finance subsidiaries) for the fiscal year ended September
30, 1997 is 3.0.
(4) Excluding the effect of transformation costs, the ratio of earnings to fixed
charges (excluding finance subsidiaries) for the fiscal year ended September
30, 1996 is 3.2.
<PAGE>
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, 1999 and 1998, 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,
1999. 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, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
[Ernst & Young LLP Signature]
Philadelphia, Pennsylvania
October 25, 1999, except for the first paragraph of note 10 and note 18, as to
which the date is November 24, 1999 and the fourth paragraph of note 6, as to
which the date is December 9, 1999.
28
<PAGE>
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
On June 19, 1996, we announced that we would split our two operating units into
independent companies by spinning off Unisource, our paper products and supply
systems distribution group, as a separate publicly owned company. We
accomplished the transaction through a U.S. tax-free distribution of Unisource
stock to our shareholders on December 31, 1996. As a result of the spin-off of
Unisource, we accounted for Unisource as a discontinued operation in fiscal
1997. Our continuing operations consist of IKON, which provides products and
services to meet business communications needs, including copiers and printers,
color solutions, distributed printing, outsourcing services, imaging and legal
outsourcing solutions, as well as network design and consulting, application
development and technology training.
RESULTS OF OPERATIONS
Revenues and income before taxes from continuing operations for fiscal years
ended September 30, 1999, 1998, and 1997 and the percentage changes for 1999
versus 1998 and 1998 versus 1997 were:
<TABLE>
<CAPTION>
(in millions) 1999 1998 % Change 1998 1997 % Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,522 $5,629 (1.9%) $5,629 $5,128 9.8%
- --------------------------------------------------------------------------------------------------------------------
Income before taxes:
Operating income, excluding
transformation costs and shareholder
litigation settlement expense $ 251.7 $ 74.5 237.9% $ 74.5 $387.5 (80.8%)
Shareholder litigation settlement
expense (101.1)
Transformation costs (78.0) (78.0) (126.9)
- --------------------------------------------------------------------------------------------------------------------
Operating income (loss) 150.6 (3.5) (3.5) 260.6
Interest expense (71.2) (70.7) (70.7) (47.5)
- --------------------------------------------------------------------------------------------------------------------
$79.4 $(74.2) 207.0% $(74.2) 213.1 (134.8%)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Our fiscal 1999 revenues decreased by $107 million, or 1.9%, compared to fiscal
1998. Excluding a $14 million asset securitization gain, overall revenue
decreased by $121 million compared to fiscal 1998. The decrease in revenues was
primarily due to efforts to improve productivity by eliminating unprofitable
revenue streams and a reduction in the sales force. These actions were taken to
build a solid foundation for growth. Net sales, which includes equipment
revenue, decreased by $147 million or 4.9%, as a result of a reduction in the
sales force of close to 1,000 representatives and de-emphasized market segments,
such as wholesale. We are currently rebuilding our sales force in key growth
areas, such as color, high-volume and outsourcing. Finance income increased by
$29 million or 10.9% due to the growth in the lease portfolio and the asset
securitization gain. Excluding the gain, finance income increased by $15
million, or 5.6%.
Gross margins in fiscal 1999, excluding the securitization gain, were 37.4%
of revenues compared to 36.9% in the prior year, excluding special charges.
Gross margins were positively impacted by improved service margins, primarily
generated from our IKON North America operating segment, and negatively by
slightly lower equipment margins due to price pressure on analog equipment
earlier in the fiscal year. Our operating income increased by $154.1 million
compared to the prior year. Excluding transformation costs and special charges
of $230.4 million in fiscal 1998 and the gain from the asset securitization and
shareholder litigation settlement expense in fiscal 1999 of $86.8 million,
operating income increased by $10.5 million to $237.4 million in fiscal 1999
compared to $226.9 million in fiscal 1998. The improvement is due primarily to
improved gross margins and improved sales productivity.
Selling and administrative expenses declined as a percentage of revenue
from 34.6% in fiscal 1998 to 33.0% in fiscal 1999. Excluding special charges in
fiscal 1998 and the asset securitization gain in fiscal 1999, selling and
administrative expenses as
29
<PAGE>
FINANCIAL REVIEW
a percentage of revenue remained relatively the same in fiscal 1999. During
fiscal 1999, IKON, together with PricewaterhouseCoopers LLP, initiated a
competitiveness and productivity project ("CaPP") which was designed to
identify, through a thorough study of operations, additional cost saving
opportunities for the Company. Several CaPP initiatives began in fiscal 1999 and
will continue throughout the next few years. These programs include improvements
in customer service, inventory, purchasing and distribution, centralization of
marketing and human resources, and centralization of certain accounting
functions into shared service centers.
Interest expense was relatively consistent compared to fiscal 1998. Income
before taxes increased by $153.6 million in fiscal 1999 compared to fiscal 1998.
Tax expense for fiscal 1999 includes one-time tax benefits related to
restructuring our European leasing operation and the shareholder litigation
settlement. Excluding these one-time benefits, the effective tax rate would have
been 46.5%. Diluted earnings per common share increased to $.23 per share in
fiscal 1999 from a loss of $.76 per share in fiscal 1998. Excluding the
after-tax gain on the asset securitization and the shareholder litigation
settlement expense in fiscal 1999 and the transformation costs and special
charges in fiscal 1998, diluted earnings per common share increased to $.62 in
fiscal 1999 from $.40 in fiscal 1998.
Diluted weighted average shares outstanding increased by 13.9 million in
fiscal 1999 primarily as a result of the conversion of the Series BB preferred
stock on October 1, 1998 to common stock (9.7 million weighted shares) and the
full period impact of fiscal 1998 common shares issued for acquisitions, plus
earnouts (3.4 million weighted shares).
REVIEW OF BUSINESS SEGMENTS
Our reportable segments are IKON North America and IKON Europe. The IKON North
America segment provides copiers and printer systems, and other office equipment
and services, as well as facilities management, throughout North America. This
segment also includes our captive finance subsidiaries in North America. The
IKON Europe segment provides customers with total office solutions, including
copiers and printer systems, computer networking, print-on-demand services,
facilities management, hardware and software product interfaces and electronic
file conversion throughout Europe. This segment also includes our captive
finance subsidiary in Europe. The other segment includes Document Services and
Technology Services in North America. Document Services focuses on
print-on-demand services and electronic file conversion. Technology Services
provides design, planning, and support services for network platforms and IT
integration projects and education and training.
IKON North America
Revenues from external customers and finance income in the IKON North America
segment were $3.978 billion in fiscal 1999 versus $4.215 billion in fiscal 1998.
This decrease of $237 million, or 5.6%, was due mainly to sales force
reductions, a step we felt was necessary in order to improve productivity and
build a more sophisticated customer-specific sales force that will lead our
growth initiatives in the future. Revenues were also impacted by the accelerated
transition from analog to digital, resulting in analog pricing pressure and
lower service volumes in de-emphasized copier segments, as well as the
de-emphasis of the segment's wholesale operations. Included in this segment are
revenues from our Canadian operations and other international locations except
Europe. Canadian revenues decreased by $37 million or 13.3% and other
international revenues decreased by $4 million or 17.1%. Operating income was
$360.2 million compared to $215.8 million in the prior year. This increase was
due mainly to higher costs in 1998 due to nonrecurring charges and productivity
improvements.
IKON Europe
Revenues, including finance income, from our IKON Europe segment were $530
million in fiscal 1999 versus $429 million in fiscal 1998. This increase of $101
million, or 23.5%, is due primarily to the effects of fiscal 1998 and 1999
acquisitions. In fiscal 1999, we completed 6 acquisitions in Europe. Operating
income was $28.1 million compared to $31.7 million in the prior year. This
decrease was due to reduced equipment margins due to pricing pressures from
direct competitors and the conversion of certain operating rentals to leases at
more competitive prices.
Other
Other revenues were $1.014 billion in 1999 versus $985 million in 1998. This
increase of $29 million, or 2.9%, was mainly due to the impact of prior year
acquisitions. Operating income was $10.2 million compared to a loss of $2.2
million in the prior year. This increase was due to a $20 million loss from an
asset impairment of a technology services company involved in software
development recorded in fiscal 1998 offset by underperformance in certain
technology services and document services units in fiscal 1999.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations in fiscal 1999 compared to fiscal 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Our fiscal 1998 revenues increased by $501 million, or 9.8%, compared to fiscal
1997. Net sales, which includes equipment revenue, increased by $171 million, or
30
<PAGE>
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
6%. Equipment revenues were impacted by increasing price competition, although
we continued to maintain our market share. As a result of the acceleration of
the shift from black-and-white analog product to digital product, prices began
falling for black and white analog products. Service and rental revenue
increased by $262 million, or 12.5%. This increase resulted from increases in
equipment service revenue, outsourcing and systems integration consulting.
Finance income increased by $68 million, or 34.1% due to the growth in the lease
portfolio. In fiscal 1998, we completed 34 acquisitions with trailing year
revenues of $231 million. Of the 34 companies acquired in fiscal 1998, 10 were
outsourcing and imaging companies, 11 were technology services companies and 13
were traditional copier companies.
Our operating income decreased by $264.1 million compared to the prior
year. Excluding transformation costs, operating income decreased by $313 million
to $74.5 million in fiscal 1998 compared to $387.5 million in the prior year. We
completed an in-depth review of our 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 related 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 was 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 related primarily to certain business units which
were 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 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 included $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
36.3% of revenues, compared to 38.8% in the prior year. Gross margins were lower
due to increased 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 were a larger part of the
revenue mix. Selling and administrative expense as a percent of revenue was
34.6% in fiscal 1998 compared to 31.3% 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 $40.4
million of charges referred to above.
Costs associated with our transformation program decreased by $49 million
in fiscal 1998 compared to fiscal 1997. Severance and other employee costs,
including temporary labor, decreased by $7 million. Facility consolidation
costs, including lease buyouts and write-off of leasehold improvements,
increased by $1 million. Technology conversion costs decreased by $32 million,
primarily resulting from the fiscal 1997 write-off of costs associated with the
SAP computer platform that was abandoned ($30 million). Also, there were no
significant costs incurred in fiscal 1998 with the adoption of the IKON name.
Such costs were $11 million in fiscal 1997.
Interest expense increased by $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 loss before taxes of $74.2 million, as a 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, were $.83 per
share in fiscal 1997. There was no significant change in the weighted average
shares, assuming dilution, in fiscal 1998 compared to fiscal 1997.
REVIEW OF BUSINESS SEGMENTS
IKON North America
Revenues from external customers and finance income in the IKON North America
segment were $4.215 billion in fiscal 1998 versus $4.095 billion in fiscal 1997.
This increase of $120 million, or 2.9%, was due mainly to acquisitions. Included
in this segment are revenues from our Canadian operations and other
international locations except Europe. Canadian revenues increased $10 million
and other international revenue increased $11 million. Operating income was
31
<PAGE>
FINANCIAL REVIEW
$215.8 million compared to $425.7 million in the prior year. This decrease was
primarily due to a portion of the special charges to earnings in fiscal 1998 and
the impact of increased price competition in black-and-white and new analog
products.
IKON Europe
Revenues, including finance income, from our IKON Europe segment were $429
million in fiscal 1998 versus $376 million in fiscal 1997. This increase of $53
million, or 14.1% is due primarily to the effects of acquisitions. Operating
income was $31.7 million compared to $29.2 million in the prior year, also due
to the positive effect of acquisitions.
Other
Other revenues were $985 million in 1998 versus $658 million in 1997. This
increase of $327 million, or 49.7% was mainly due to acquisitions. Operating
loss was $2.2 million compared to operating income of $48.3 million in the prior
year. This decrease was due to a $20 million loss from an asset impairment in a
technology services company involved in software development and
underperformance in the technology services companies.
There was no material effect of foreign currency exchange rate fluctuations on
the results of operations in fiscal 1998 compared to fiscal 1997.
DISCONTINUED OPERATIONS
We spun off Unisource, a paper products and supply systems distributor, at the
end of the first quarter of fiscal 1997. Unisource's first quarter fiscal 1997
revenues, income before taxes and net income were $1.7 billion, $34.7 million
and $20.2 million, respectively.
IMPACT OF YEAR 2000
State of Readiness. The Year 2000 issue arises from computer programs being
written using two digits rather than four to define the applicable year. Any of
our 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.
We have a Year 2000 Corporate Compliance Team, which has prepared an
international compliance program for us 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. Our 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.
Our Year 2000 compliance program has five phases: (1) inventory of internal
IT and non-IT systems; (2) risk assessment of the Year 2000 compliance issues
associated with such internal IT and non-IT systems; (3) remediation of
non-compliant systems; (4) testing and validation of remediated systems; and (5)
implementation of remediated systems throughout the Company. The progress to
date of each of these phases is as follows: (1) internal IT and non-IT systems
have been inventoried; (2) appropriate risk assessments have been completed; (3)
remediation of critical systems has been substantially completed; (4) testing
and validation of critical systems has been substantially completed; and (5)
Year 2000 compliant versions have been substantially implemented in field
operations. Our intention is to ensure that all business critical internal
systems not deemed obsolete be remediated to be Year 2000 compliant prior to any
anticipated material impact.
Product warranties and certifications are being sought from vendors and
suppliers. We have obtained "Year 2000 Statements" from critical national
equipment vendors including Canon, Ricoh and Oce.
Costs. We have used both internal and external resources to reprogram or
replace, test and implement our IT and non-IT systems for Year 2000
modifications. We do not separately track the internal costs incurred on the
Year 2000 project. Such costs are principally payroll and related costs for our
internal IT personnel. The total cost of the Year 2000 project, excluding these
internal costs, is approximately $7.7 million, which is being funded through
operating cash flows. Of the total estimated project cost, approximately $2.8
million is attributable to the purchase of new software and hardware and will be
capitalized. Through October 31, 1999, we have incurred approximately $6.7
million ($4.6 million expensed and $2.1 million capitalized), related to our
Year 2000 project. Remaining amounts are to be incurred early in the first
quarter of fiscal 2000.
32
<PAGE>
IKON OFFICE SOLUTIONS, INC. AND SUBSIDIARIES
Risks. We believe, based on the information currently available to us, that
the most reasonably likely, worst case scenario that could be caused by
technology failures relating to the Year 2000 could pose a significant threat
not only to us, our customers and suppliers, but to all businesses. Risks
include, but are not limited to:
o Legal risks, including customer, supplier, employee or shareholder
lawsuits over failure to deliver contracted services, product failure,
or health and safety issues.
o Loss of sales due to failure to meet customer quality expectations or
inability to ship products.
o Increased operational costs due to manual processing, data corruption
or disaster recovery.
o Inability to bill or invoice.
We have taken steps to limit the scope of product and service warranties to
customers 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
us prior to the inclusion of such limited warranties, differing interpretations
of the warranties included with such products will likely result in litigation
against us. We are not able to assess the impact of such potential litigation at
this time.
We are engaged in the provision of certain Year 2000 services to customers,
whereby we evaluate the Year 2000 compliance of customers' software and
hardware, and work with customers to find solutions to Year 2000 problems. We
have taken steps to limit our warranties with respect to our provision of such
services.
The cost of the project and the date on which we believe we will complete
the Year 2000 modifications are based on our 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 other uncertainties.
Contingency Plans. Our 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. Contingency plans are
currently being developed and completed.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities for fiscal 1999 was $452 million.
During the same period, we used $299 million of cash for investing activities,
which included net finance subsidiary use of $154 million, acquisition activity
at a cash cost of $30 million, capital expenditures for property and equipment
of $103 million and net expenditures for equipment on operating leases of $31
million. Cash used in financing activities includes substantially no change in
corporate debt, and resulted in a net $97 million decrease in finance
subsidiaries' debt.
Debt, excluding finance subsidiaries, was $859 million at September 30,
1999, an increase of $3 million from the debt balance at September 30, 1998 of
$856 million. The debt to capital ratio, excluding finance subsidiaries, was
37.0% compared to 37.5% at September 30, 1998. Excluding the impact of loans to
our finance subsidiaries, our debt was reduced by $165 million at September 30,
1999 compared to September 30, 1998. At the end of fiscal 1999, our commitments
for capital expenditures were approximately $6.6 million, most of which are
expected to be expended during fiscal 2000 and relate to IT initiatives.
As of September 30, 1999, we had $35 million of short-term borrowings and a
$25 million letter of credit supported by our $600 million credit agreement. We
also have a shelf registration statement in place for $700 million of either
stock or debt offerings.
Finance subsidiaries' debt decreased by $97 million from September 30,
1998. During fiscal 1999, the U.S. finance subsidiary repaid $606.9 million of
its medium term notes and $100 million of bank debt and no new medium term notes
were issued. At September 30, 1999, $1.2 billion of medium term notes were
outstanding with a weighted average interest rate of 6.5%, while $1.1 billion
can be issued under the shelf registration statement for this program. In
December 1998, the U.S. finance subsidiary entered into a new asset
securitization agreement under which it received cash of $250 million. Under its
previously existing $275 million asset securitization programs and the
securitization closed in December 1998, the U.S. finance subsidiary sold an
additional $152.1 million in direct financing leases during fiscal 1999,
replacing those leases liquidated. CN$98.1 million ($65.3 million) of additional
leases were sold under Canadian asset securitization agreements during fiscal
1999, replacing leases liquidated. The balance of Canadian securitized
receivables at September 30, 1999 is CN$181 million ($123 million).
On May 19, 1999, IKON Receivables, LLC (an affiliate of the U.S. finance
subsidiary) publicly issued approximately $752 million of lease-backed notes
(the "Notes") under a $1.825 billion shelf registration statement. Class A-1
Notes totaling $305 million have a stated interest rate of 5.11%, Class A-2
Notes totaling $62 million have a stated interest rate of 5.60%, Class A-3 Notes
33
<PAGE>
FINANCIAL REVIEW
FINANCIAL CONDITION AND LIQUIDITY
(CONTINUED)
totaling $304 million have a stated interest rate of 5.99% and Class A-4 Notes
totaling $81 million have a stated interest rate of 6.23%. The Notes are secured
by a pool of leases and related assets and the payments made on the Notes are
funded from customer payments on the leases.
Our finance subsidiary received approximately $749 million in net proceeds
from the sale of the Notes and used $250 million of that amount to repurchase
leases previously sold in connection with the asset securitization transaction
completed in December 1998. As a result of the repurchase, the $250 million
securitization commitment remains available. On October 7, 1999, IKON
Receivables LLC issued an additional $700 million of lease-backed notes under
the shelf registration statement. Class A-1 Notes totaling $236 million have a
stated interest rate of 6.14%, Class A-2 Notes totaling $51 million have a
stated interest rate of 6.31%, Class A-3a Notes totaling $100 million have a
stated interest rate of 6.59%, Class A-3b Notes totaling $241 million have a
variable rate of libor plus 0.36% (which we have fixed at 6.58% through an
interest rate swap) and Class A-4 Notes totaling $72 million have a stated
interest rate of 6.88%. Our U.S. finance subsidiary received approximately $697
million in net proceeds from the sale of the Notes and used $275 million of that
amount to repurchase previously sold leases.
The Company filed a shelf registration for 10 million shares of common
stock in April 1997. Shares to be issued under the registration statement are
for use in acquisition transactions. Approximately 3.5 million shares have been
issued under this shelf registration through September 30, 1999, leaving 6.5
million shares available for issuance.
On April 17, 1997, we announced that we may repurchase from time to time as
much as five percent of the outstanding IKON common stock in open market
transactions. Through fiscal 1998, we repurchased 4.6 million common shares for
$113 million under this program. There were no purchases under this program in
1999.
On November 24, 1999, subject to formal approval by the court, we reached a
settlement with the plaintiffs in the series of purported class action
complaints which were filed in the United States District Court for the Eastern
District of Pennsylvania on behalf of our shareholders, and with the plaintiff
in a companion derivative lawsuit. The plaintiffs alleged that during the period
from January 24, 1996 to August 13, 1998, IKON and certain current and former
principal officers and employee directors publicly disseminated false and
misleading statements concerning our revenue, profitability and financial
condition in violation of the federal securities law. Under the settlement, we
will pay $111 million. The court has preliminarily approved the settlement. We
anticipate that a final settlement agreement will be submitted to the court and
that the court will hold a hearing on the approval of the settlement agreement
in February or March, 2000. We believe that the settlement also resolves a
purported class action claim pending in federal court in Utah. The Utah action
contains one claim purporting to be a class claim brought under the Employee
Retirement Income Security Act of 1974 ("ERISA"). The plaintiffs seek to
represent a class of persons who participated in our Retirement Savings Plan
after January 1, 1994. The class allegations in the Utah action largely mirror
the allegations made in the complaints filed in the Eastern District of
Pennsylvania.
We have recorded a charge of $101.1 million in fiscal 1999 related to the
settlement, which consists of the $111 million settlement plus $10.1 million of
legal fees offset by $20 million of insurance proceeds. This does not include
a $20 million insurance claim which we are pursuing against another insurance
carrier. Reflecting payment of a portion of the legal fees, the balance sheet at
September 30, 1999, includes $117.7 million in accrued shareholder litigation
settlement and $16.6 million of insurance proceeds receivable which is included
in prepaid expenses and other current assets.
In the fourth quarter of fiscal 1999 service and rental revenue was
negatively impacted by the underperformance of certain Document Services and
Technology Services units. In the first quarter of fiscal 2000, the Company
approved a restructuring charge of approximately $102 million. This charge is
comprised of $14 million severance, $52 million in asset write downs (net of
sale proceeds), and $36 million facility and other core contract cancellation
expenses. The cash impact of the charge is expected to be a net outflow of $41
million. These actions will cause a reduction of our headcount of approximately
1,500 positions over the next 12 months. This charge is to consolidate or
dispose of certain underperforming and non-core Technology Services, Business
Document Services and Business Information Services locations and implement
productivity enhancements through consolidation/centralization of activities in
inventory management, purchasing, financial/accounting and other administrative
functions and consolidate or eliminate unproductive real estate facilities.
These efforts are aimed at improving our performance and efficiency.
We believe that our 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, productivity initiatives and stock repurchases.
34
<PAGE>
MARKET RISK
Interest Rate Risk. Our exposure to market risk for changes in interest rates
relates primarily to our long-term debt. We have no cash flow exposure due to
interest rate changes for long-term debt obligations. We primarily enter 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, 1999 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 as of September
30, 1999:
<TABLE>
<CAPTION>
(in thousands) 2000 2001 2002 2003 2004 Thereafter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt
Fixed rate $ 95,262 $ 58,511 $ 9,141 $ 4,375 $126,029 $475,460
Average interest rate 6.2% 9.0% 9.7% 10.2% 6.8% 6.9%
Variable rate $ 45,298
Average interest rate 5.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt, finance subsidiaries
Fixed rate $749,033 $717,691 $238,243 $73,242
Average interest rate 6.2% 6.5% 6.3% 6.7%
Variable rate 225,000
Average interest rate 5.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate derivative financial
instruments related to debt
Interest rate swaps:
Pay fixed/receive variable $225,000 $ 45,298
Average pay rate 5.8% 7.7%
Average receive rate 5.7% 5.1%
- ----------------------------------------------------------------------------------------------------------------------------------
</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 1999, 1998 or 1997.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the euro. The participating countries agreed to adopt the euro as their
common legal currency on that date. Our operating subsidiaries affected by the
euro conversion have established plans to address the systems and business
issues raised by the euro currency conversion. We anticipate the euro conversion
will not have a material adverse impact on our financial condition or results of
operations.
35
<PAGE>
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- ------------------------------------------------------------------------------------------
(in thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $2,864,798 $3,012,006 $2,841,561
Service and rentals 2,360,274 2,348,863 2,087,198
Finance income 297,072 267,794 199,674
- ------------------------------------------------------------------------------------------
5,522,144 5,628,663 5,128,433
- ------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold 1,947,566 2,038,682 1,828,883
Service and rental costs 1,373,097 1,418,463 1,210,107
Finance interest expense 126,676 129,148 98,664
Selling and administrative 1,823,083 1,947,856 1,603,305
Shareholder litigation settlement 101,106
Loss from asset impairment 20,000
Transformation costs 78,033 126,908
- ------------------------------------------------------------------------------------------
5,371,528 5,632,182 4,867,867
- ------------------------------------------------------------------------------------------
Operating Income (Loss) 150,616 (3,519) 260,566
Interest Expense 71,225 70,668 47,453
- ------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations Before
Taxes and Extraordinary Loss 79,391 (74,187) 213,113
Income Taxes 45,555 8,863 90,751
- ------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations
Before Extraordinary Loss 33,836 (83,050) 122,362
Discontinued Operations 20,151
- ------------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary Loss 33,836 (83,050) 142,513
Extraordinary Loss from Early Extinguishment
of Debt, net of tax benefit (12,156)
- ------------------------------------------------------------------------------------------
Net Income (Loss) 33,836 (83,050) 130,357
Less Preferred Dividends 19,540 19,540
- ------------------------------------------------------------------------------------------
Net Income (Loss) Available to Common Shareholders $ 33,836 $ (102,590) $ 110,817
- ------------------------------------------------------------------------------------------
Earnings (Loss) Per Share
Continuing operations $ .23 $ (.76) $ .77
Discontinued operations .15
Extraordinary loss (.09)
- ------------------------------------------------------------------------------------------
$ .23 $ (.76) $ .83
- ------------------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share
Continuing operations $ .23 $ (.76) $ .77
Discontinued operations .15
Extraordinary loss (.09)
- ------------------------------------------------------------------------------------------
$ .23 $ (.76) $ .83
- ------------------------------------------------------------------------------------------
Cash Dividends Per Share of Common Stock $ .16 $ .16 $ .26
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
- ------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 3,386 $ 963
Restricted cash 29,625
Accounts receivable, less allowances of: 1999-$43,543; 1998-$63,591 725,308 793,934
Finance receivables, net 887,396 827,363
Inventories 338,947 431,837
Prepaid expenses and other current assets 111,386 97,534
Deferred taxes 137,853 112,609
- ------------------------------------------------------------------------------------------------------------
Total current assets 2,233,901 2,264,240
- ------------------------------------------------------------------------------------------------------------
Investments and Long-Term Receivables 24,313 25,109
Long-Term Finance Receivables, net 1,677,230 1,565,674
Equipment on Operating Leases, net of accumulated
amortization of: 1999-$157,750; 1998-$158,315 87,496 110,891
Property and Equipment, net 259,815 260,106
Goodwill, net 1,385,295 1,387,390
Other Assets 133,263 149,400
- ------------------------------------------------------------------------------------------------------------
$5,801,313 $5,762,810
- ------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 95,262 $ 56,358
Current portion of long-term debt, finance subsidiaries 974,033 726,159
Notes payable 44,968 87,180
Trade accounts payable 169,763 245,520
Accrued salaries, wages and commissions 128,501 115,101
Deferred revenues 205,654 211,824
Other accrued expenses 311,758 326,725
Accrued shareholder litigation settlement 117,652
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 2,047,591 1,768,867
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt 718,814 712,384
Long-Term Debt, Finance Subsidiaries 1,029,176 1,374,478
Deferred Taxes 375,007 325,488
Other Long-Term Liabilities 170,185 154,305
Shareholders' Equity
Series BB conversion preferred stock, no par value:
1998-3,877,200 depositary shares issued and outstanding 290,170
Common stock, no par value: authorized 300,000,000 shares;
issued 1999-149,271,000 shares; 1998-137,139,000 shares 1,008,392 689,195
Unearned compensation (5,513)
Retained earnings 464,150 455,089
Accumulated other comprehensive income (4,922) (3,511)
Cost of common shares in treasury: 1999-53,000 shares;
1998-124,000 shares (1,567) (3,655)
- ------------------------------------------------------------------------------------------------------------
1,460,540 1,427,288
- ------------------------------------------------------------------------------------------------------------
$5,801,313 $5,762,810
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data) Shares Amounts Shares Amounts Shares Amounts
- -----------------------------------------------------------------------------------------------------------------------------------
Series BB Conversion Preferred Stock
Balance, beginning of year 3,877 $ 290,170 3,877 $290,170 3,877 $ 290,170
Preferred Stock Conversion (3,877) (290,170)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 3,877 $290,170 3,877 $ 290,170
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance, beginning of year 137,139 $ 689,195 135,705 $677,681 131,930 $1,305,413
Series BB Preferred Stock Conversion 9,682 290,170
Mergers, acquisitions and other 1,970 21,526 1,434 9,648 3,775 145,265
Stock awards 480 7,603
Unisource spin-off (779,770)
Tax (charge) benefit relating to stock plans (102) 1,866 6,773
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 149,271 $1,008,392 137,139 $689,195 135,705 $ 677,681
- -----------------------------------------------------------------------------------------------------------------------------------
Unearned Compensation
Balance, beginning of year $ --
Stock awards (7,603)
Amortization 1,503
Awards cancelled 587
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (5,513)
- -----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year $ 455,089 $575,874 $ 703,584
Net income (loss) 33,836 (83,050) 130,357
Cash dividends declared: Series BB preferred stock, per share:
1998 and 1997-$5.04 (19,540) (19,540)
Common stock, per share: 1999-$.16;
1998-$.16; 1997-$.26 (23,689) (21,600) (34,640)
Unisource spin-off (210,071)
Issuance of treasury shares and other (1,086) 3,405 6,184
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 464,150 $455,089 $ 575,874
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive
Income (Loss)
Balance, beginning of year $ (3,511) $ (1,956) $ (27,000)
Unisource spin-off 29,118
Translation adjustment (1,280) (1,264) (4,659)
Minimum pension liability adjustment, net of tax (131) (291) 585
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (1,411) (1,555) (4,074)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (4,922) $ (3,511) $ (1,956)
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of Common Shares in Treasury
Balance, beginning of year 124 $ (3,655) 2,401 $(60,121) 374 $ (16,663)
Purchases 8 (168) 178 (4,013) 4,486 (112,192)
Reissued for:
Exercise of options (41) 1,301 (377) 9,346 (50) 1,471
Sales to employee stock plans (18) 491 (485) 11,802 (501) 16,438
Mergers, acquisitions and other (20) 464 (1,593) 39,331 (1,908) 50,825
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 53 $ (1,567) 124 $ (3,655) 2,401 $ (60,121)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss)
Net income (loss) $ 33,836 $(83,050) $ 130,357
Other comprehensive income (loss) per above (1,411) (1,555) (4,074)
- -----------------------------------------------------------------------------------------------------------------------------------
$ 32,425 $(84,605) $ 126,283
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
- -----------------------------------------------------------------------------------------------------------------------
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Income (loss) from continuing operations $ 33,836 $ (83,050) $ 122,362
Additions (deductions) to reconcile income (loss)
from continuing operations to net cash provided
by operating activities of continuing operations:
Depreciation 134,638 140,101 108,037
Amortization 62,226 62,424 48,555
Provisions for losses on accounts receivable 31,765 47,052 25,724
Provision for deferred income taxes 24,971 9,500 92,063
Gain on asset securitization (26,856) (5,064) (2,602)
Write-off of abandoned software and other assets 5,987 25,342
Loss from asset impairment 20,000
Shareholder litigation settlement 101,106
Changes in operating assets and liabilities, net
of effects from acquisitions
and divestitures:
Decrease (increase) in accounts receivable 43,235 (43,741) (202,790)
Decrease (increase) in inventories 94,230 20,926 (70,189)
Decrease (increase) in prepaid expenses 26,414 2,333 (19,097)
(Decrease) increase in accounts payable, deferred
revenues and accrued expenses (77,073) 85,531 37,125
Miscellaneous 3,099 7,304 8,986
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities of
continuing operations 451,591 269,303 173,516
Net cash provided by operating activities of
discontinued operations 24,176
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 451,591 269,303 197,692
Investing Activities
Cost of companies acquired, net of cash acquired (30,065) (82,642) (155,907)
Expenditures for property and equipment (103,462) (119,680) (118,015)
Expenditures for equipment on operating rental, net (30,809) (72,878) (66,016)
Proceeds from sale of property and equipment 19,347 18,907 26,773
Purchase of miscellaneous assets (1,000) (10,678)
Finance receivables-additions (1,327,366) (1,509,900) (1,459,102)
Finance receivables-collections 955,970 871,555 651,025
Proceeds from sale of finance subsidiaries' lease
receivables 467,394 229,359 103,401
Repurchase of finance subsidiary's lease receivables (250,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of
continuing operations (298,991) (666,279) (1,028,519)
Net cash used in investing activities of
discontinued operations (38,058)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (298,991) (666,279) (1,066,577)
Financing Activities
Proceeds from:
Issuance of long-term debt 67,105 265,345 35,605
Option exercises and sale of treasury shares 5,117 19,911 43,807
Issuance (repayment) of short-term borrowings, net (42,212) (175,895) 75,388
Long-term debt repayments (24,321) (42,704) (328,702)
Finance subsidiaries' debt-issuance 753,146 888,185 932,728
Finance subsidiaries' debt-repayments (852,885) (533,091) (314,000)
Dividends paid (23,689) (41,140) (54,180)
Deposit to restricted cash (29,625)
Purchase of treasury shares (2,813) (4,013) (112,192)
Proceeds from discontinued operations 551,834
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities of
continuing operations (150,177) 376,598 830,288
Net cash provided by financing activities
of discontinued operations 13,882
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (150,177) 376,598 844,170
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 2,423 (20,378) (24,715)
Cash at beginning of year 963 21,341 46,056
- -----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 3,386 $ 963 $ 21,341
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IKON Office Solutions, Inc. (IKON or the Company) is a leading office technology
company, providing customers with products and services to meet business
communication needs, including copiers and printers, color solutions,
distributed printing, outsourcing services, imaging and legal outsourcing
solutions, as well as network design and consulting, application development and
technology training. References herein to "we", "us" or "our" refer to IKON and
its subsidiaries unless the context specifically requires otherwise. We have
locations throughout the United States, Canada, Mexico and in Europe. Our 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), our paper products and supply systems
distribution business, was completed on December 31, 1996, as discussed in Note
5. 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, we 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, 1999 and
1998 was $186,000,000 and $143,000,000, 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
On October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
established rules for the reporting and presentation of comprehensive income and
its components. SFAS 130 requires foreign currency translation adjustments,
equity adjustments related to pension liabilities and mark to market adjustments
on retained interests in securitized lease receivables to be included in other
comprehensive income. Equity accounts as of September 30, 1998 and 1997 have
been reclassified to conform to the requirements of SFAS 130. The adoption of
SFAS 130 did not impact our net income or total shareholders' equity. The
accumulated translation adjustment and minimum pension liability adjustment
included in accumulated other comprehensive income were $(3,272,000) and
$(1,650,000), respectively, at September 30, 1999 and $(1,992,000) and
$(1,519,000), respectively, at September 30, 1998.
40
<PAGE>
During fiscal 1999, we adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for reporting
operating segments and disclosures about products and services, geographic areas
and major customers. See Note 16, "Segment Reporting," for further information.
During fiscal 1999, we also adopted SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which established new disclosures
for defined benefit pension plans. See Note 15 for the required disclosures.
Pending Accounting Changes
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 will
require us to recognize all derivatives as either assets or liabilities and
measure the instruments at fair value. The statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We intend to adopt the
standard on October 1, 2000. We do not believe the effect of adoption will be
material.
Interest Rate and Currency Swap Agreements
We use interest rate and currency swap agreements for purposes other than
trading and they are treated as off-balance-sheet items. We use interest rate
swap agreements 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 a foreign currency. Currency swap
agreements are designated as hedges of firm commitments to pay interest and
principal on debt, which would otherwise expose us 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.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the
current-year presentation. The impact of these changes is not material and did
not affect net income.
2. LOSS ON ASSET IMPAIRMENT
In October 1996, we purchased a software development company that we believed to
be a strategic fit with our system integration companies. In fiscal 1998, this
company experienced operating losses and negative cash flows from operations.
During the third quarter of fiscal 1998, we evaluated projections that indicated
this trend was expected to continue. We concluded that the carrying amounts of
the goodwill and other long-lived assets were not recoverable and, in accordance
with our accounting policy, recorded an impairment loss of $20,000,000. This
company was shut down in fiscal 1999.
3. TRANSFORMATION COSTS
In September 1995, we announced a transformation program to change our
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. We substantially
completed the transformation program as of September 30, 1998. The
transformation involved a variety of activities, including 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 for fiscal 1998 and 1997 of
$78,033,000 and $126,908,000, respectively, relate principally to severance and
other employee-related costs, including temporary labor ($47,159,000 and
$53,866,000, respectively), facility consolidation costs, including lease
buyouts and write-offs of leasehold improvements ($25,233,000 and $24,738,000,
respectively), technology conversion costs, including the write-off of costs
41
<PAGE>
Notes To Consolidated Financial Statements
related to the abandoned SAP computer pilot program in fiscal 1997 ($5,641,000
and $37,297,000, respectively) and costs incurred to adopt the IKON name
($11,007,000 in fiscal 1997). Cash of $11,768,000 was expended during fiscal
1999 reducing the severance and lease buyout accruals to $3,325,000 and
$4,993,000, respectively, at September 30, 1999.
4. ACQUISITIONS
We made 6 acquisitions in fiscal 1999 for an aggregate purchase price of
$19,332,000 in cash. Total assets related to fiscal 1999 acquisitions were
$32,425,000, including goodwill of $23,017,000. In addition, $22,454,000 was
paid and capitalized in fiscal 1999 relating to prior years' acquisitions.
In fiscal 1998, we made 34 acquisitions for an aggregate purchase price of
$99,408,000 in cash and stock. Total assets related to these acquisitions were
$157,595,000, including goodwill of $94,769,000. An additional $29,829,000 was
paid and capitalized in fiscal 1998 relating to prior years' acquisitions.
In fiscal 1997, we 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.
All acquisitions, unless otherwise noted, are included in results of
operations from their dates of acquisition.
Had the 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) 1999 1998 1997
- ---------------------------------------------------------------------------
Revenues $5,526,176 $5,774,203 $5,561,592
Income (loss) from
continuing operations 33,917 (82,542) 131,545
Earnings (loss) per share
from continuing operations:
Basic .23 (.75) .81
Diluted .23 (.75) .80
5. DISCONTINUED OPERATIONS
On June 19, 1996, we announced that we would separate Unisource, our paper
products and supply systems distribution business from IKON, the office
solutions business, with each business operating as a stand-alone, publicly
traded company. In order to effect the separation of these businesses, we
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 the businesses, Unisource and IKON
entered into various agreements that address the allocation of assets and
liabilities between them and define their relationship after the separation,
including a Distribution Agreement (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 IKON and Unisource of
certain assets and liabilities and cooperation by IKON and Unisource in the
provision of information and certain facilities necessary to perform the
administrative functions incident to our respective businesses. The Distribution
Agreement includes cross-indemnification provisions pursuant to which Unisource
and IKON indemnify each other for damages that may arise out of a breach of our
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
42
<PAGE>
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 us 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.
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 were transferred to
new Unisource pension and 401(k) plans, respectively. Under the Tax Sharing
Agreement, Unisource will bear its respective share of (i) our federal
consolidated income tax liability (or benefit), (ii) any unitary state income
tax liability, and (iii) our 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 our 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 we or Unisource take any action inconsistent with, or fail to take
any action required by, or in accordance with the qualification of the
Distribution as tax-free, then we 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.
We accounted for Unisource as a discontinued operation in fiscal 1997.
Unisource was charged corporate interest expense of $7,203,000 in the first
quarter of fiscal 1997, based on the relationship of its net assets to total
Company net assets, excluding corporate debt.
The results of discontinued operations for the three months ended December
31, 1996 were:
(in thousands)
- -----------------------------------------------------------------
Revenues $1,728,533
- -----------------------------------------------------------------
Income before taxes 34,743
Tax expense 14,592
- -----------------------------------------------------------------
Net income $ 20,151
- -----------------------------------------------------------------
In December 1996, Unisource repaid $553,500,000 of intercompany debt
outstanding with us and the Unisource common stock was distributed to Alco
shareholders. Our equity was reduced by $960,723,000, which was the equity of
Unisource at December 31, 1996, adjusted for post-closing tax and pension
adjustments.
6. FINANCE RECEIVABLES
Our wholly owned finance subsidiaries are engaged in purchasing office equipment
from our marketplaces and leasing the equipment to customers under direct
financing leases.
Components of finance receivables, net, are as follows:
September 30 (in thousands) 1999 1998
- -----------------------------------------------------------
Gross receivables $2,788,336 $2,688,736
Unearned income (496,096) (496,735)
Unguaranteed residuals 347,170 284,543
Allowance for doubtful accounts (74,784) (83,507)
- -----------------------------------------------------------
Lease receivables 2,564,626 2,393,037
Less: Current portion 887,396 827,363
- -----------------------------------------------------------
Long-term lease receivables $1,677,230 $1,565,674
===========================================================
Provision for uncollectible lease receivables was $62,790,000, $94,768,000, and
$56,231,000 in fiscal 1999, 1998 and 1997 respectively.
At September 30, 1999, contractual maturities of direct financing leases were:
2000-$1,001,200,000; 2001- $821,453,000; 2002-$566,631,000; 2003-$298,759,000;
2004-$99,442,000; thereafter-$851,000; while future minimum lease payments to be
received under operating leases were: 2000-$40,274,000; 2001-$29,436,000;
2002-$18,321,000; 2003-$8,422,000; 2004-$2,546,000; thereafter-none.
In December 1998, our U.S. finance subsidiary entered into an asset
securitization transaction whereby it sold $366,600,000 in direct financing
lease receivables for $250,000,000 in cash and a retained interest in the
remainder. The agreement was for an initial three-year term with certain renewal
provisions and was structured as a revolving asset securitization so that as
collections reduced previously sold interests in the pool of leases, additional
leases could be sold up to $250,000,000. The terms of the agreement provided
that we would continue to service the lease portfolio for the securitization
provider. On May 25, 1999, the Company's U.S. finance subsidiary repurchased the
leases sold in this transaction with the proceeds from the lease-backed notes
described in Note 8.
On December 9, 1999, our U.S. finance subsidiary transferred an additional
$311,381,604 in financing lease receivables for $247,600,000 in cash in
connection with this revolving asset securitization. Our U.S. finance subsidiary
also had asset securitization agreements for $275,000,000 of eligible direct
financing lease receivables at September 30, 1999. On October 7, 1999 these
leases were repurchased with a portion of proceeds received from the issuance of
lease-backed notes as described in Note 8. Our Canadian finance subsidiary has
an asset securitization agreement for up to CN$175,000,000 of eligible direct
financing lease receivables that expires in April 2000. The obligations
thereunder are secured by a pool of office equipment leases or contracts and
43
<PAGE>
Notes To Consolidated Financial Statements
related assets. In September 1999, our Canadian finance subsidiary entered into
an additional asset securitization agreement for up to CN$200,000,000 of
eligible direct financing lease receivables that expires in June 2006. The
obligations thereunder are secured by a pool of office equipment leases or
contracts and related assets. Under the terms of the agreements, 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 1999, the U.S. finance subsidiary sold an
additional $152,098,000 in leases, replacing leases liquidated during the year
and the Canadian finance subsidiary sold an additional $65,296,000 in leases,
under the agreements. We recognized a pretax gain of $14,333,000 during the
first quarter of fiscal 1999 on the December 1998 agreement and additional gains
on the revolving portion of all agreements and the September 1999 Canadian
agreement of $12,523,000, for total gains of $26,856,000 for the year ended
September 30, 1999.
The changes in the finance subsidiaries' servicing liabilities relating to
the asset securitization agreements for the fiscal years ended September 30,
1999 and 1998, are as follows:
(in thousands) 1999 1998
- ------------------------------------------
Beginning of period $10,365 $ 8,248
Additions 3,841 5,870
Less: Amortization (4,600) (3,753)
- ------------------------------------------
$ 9,606 $10,365
==========================================
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of:
September 30 (in thousands) 1999 1998
- ------------------------------------------------------------------
Land $ 6,395 $ 6,718
Buildings and leasehold
improvements 92,546 94,706
Production equipment 52,289 63,944
Furniture, office equipment and
capitalized software 384,074 334,178
- ------------------------------------------------------------------
535,304 499,546
Less: accumulated depreciation 275,489 239,440
- ------------------------------------------------------------------
$259,815 $260,106
==================================================================
8. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consisted of:
September 30 (in thousands) 1999 1998
- ------------------------------------------------------------------
Notes payable to banks at
average interest rate:
1999-5.6%; 1998-6.1% $ 42,427 $ 82,298
Other notes payable at
average interest rate:
1999-8.3%; 1998-6.5% 2,541 4,882
- ------------------------------------------------------------------
$ 44,968 $ 87,180
===================================================================
Long-term debt, excluding finance subsidiaries' debt, consisted of:
September 30 (in thousands) 1999 1998
- -----------------------------------------------------------------------------
Bond issue at stated interest rate of
6.75%, net of discount (1999-$4,351;
1998-$4,411), due 2025,
effective interest rate of 6.87% $ 295,649 $ 295,589
Bond issue at stated interest rate of
6.75%, net of discount (1999-$234;
1998 - $271), due 2004,
effective interest rate of 6.794% 124,766 124,729
Bond issue at stated interest rate of
7.3%, net of discount (1999-$652;
1998-$659), due 2027,
effective interest rate of 7.344% 124,348 124,341
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 45,298 45,121
Sundry notes, bonds and mortgages
at average interest rate: 1999--5.9%;
1998-7.2% due 2000-2005 104,427 53,611
Present value of capital lease obligations
(gross amount: 1999-$24,925;
1998-$28,401) 20,769 26,532
- -----------------------------------------------------------------------------
814,076 768,742
Less current maturities 95,262 56,358
- -----------------------------------------------------------------------------
$ 718,814 $ 712,384
=============================================================================
After giving effect to interest rate swaps, the average effective interest
rate on our long-term bank debt was 7.7% at both September 30, 1999 and
September 30, 1998, compared to average stated variable rates of 5.1% and 4.8%
at September 30, 1999 and September 30, 1998, respectively.
Long-term debt, finance subsidiaries consisted of:
September 30 (in thousands) 1999 1998
- -----------------------------------------------------------------------------
Medium term notes at
average interest rate
of 6.5% $1,242,850 $1,849,750
Lease-backed notes at
average interest rate
of 5.7% 622,948
Notes payable to banks at
average interest rate:
1999-7.1%; 1998 -6.9% 137,411 250,887
- -----------------------------------------------------------------------------
2,003,209 2,100,637
Less current maturities 974,033 726,159
- -----------------------------------------------------------------------------
$1,029,176 $1,374,478
=============================================================================
44
<PAGE>
After giving effect to interest rate swaps on finance subsidiaries' debt,
the average effective interest rate on $225,000,000 of our medium term notes was
5.8% and 6.2% at September 30, 1999 and 1998, respectively, compared to an
average variable rate of 5.7% and 5.4% at September 30, 1999 and 1998,
respectively.
Long-term debt and long-term debt, finance subsidiaries mature as follows:
Long-Term Debt,
Finance
(in thousands) Long-Term Debt Subsidiaries
- --------------------------------------------------------------------
(fiscal year)
2000 $ 95,262 $974,033
2001 103,809 717,691
2002 9,141 238,243
2003 4,375 73,242
2004 126,029
2005-2027 475,460
- --------------------------------------------------------------------
Maturities of lease-backed notes are based on contractual maturities of the
leases.
On December 2, 1996, Unisource borrowed under its new credit facility to
repay $553,500,000 of intercompany debt with us. We 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, our 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 our
current long-term debt rating (8.5 basis points per annum at September 30,
1999). 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, 1999, we had short-term
borrowings supported by the credit agreement totaling $35,000,000 and a
$25,000,000 letter of credit supported by the agreement, leaving $540,000,000
unused and available.
Our wholly owned U.S. finance subsidiary 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, 1999, $1,123,250,000 is available for issuance
under this program.
On May 19, 1999, IKON Receivables, LLC (an affiliate of the U.S. finance
subsidiary) publicly issued $751,642,000 of lease-backed notes (the "Notes")
under a $1,825,000,000 shelf registration statement. Class A-1 Notes totaling
$304,474,000 have a stated interest rate of 5.11%, Class A-2 Notes totaling
$61,579,000 have a stated interest rate of 5.60%, Class A-3 Notes totaling
$304,127,000 have a stated interest rate of 5.99% and Class A-4 Notes totaling
$81,462,000 have a stated interest rate of 6.23%. The Notes are secured by a
pool of office equipment leases or contracts and related assets (the "Asset
Pool") and the payments on the Notes are made from payments on the leases. Our
U.S. finance subsidiary received approximately $749,000,000 in net proceeds from
the sale of the Notes and used $250,000,000 of that amount to repurchase
previously sold leases. The repurchased leases were contributed as part of the
Asset Pool. Restricted cash on the balance sheet represents cash that has been
collected on the lease receivables in the Asset Pool, which must be used to
repay the Notes.
On October 7, 1999, IKON Receivables, LLC publicly issued $699,595,000 of
lease-backed notes (the "Notes") under the $1,825,000,000 shelf registration
statement. Class A-1 Notes totaling $235,326,000 have a stated interest rate of
6.14%, Class A-2 Notes totaling $51,100,000 have a stated interest rate of
6.31%, Class A-3a Notes totaling $100,000,000 have a stated interest rate of
6.59%, Class A-3b Notes totaling $240,891,000 have a variable rate (of Libor
plus 0.36% (which we have fixed at 6.58% through an interest rate swap)) and
Class A-4 Notes totaling $72,278,000 have a stated interest rate of 6.88%. Our
U.S. finance subsidiary received approximately $697,000,000 in net proceeds from
the sale of the Notes and used $275,000,000 of that amount to repurchase
previously sold leases, which were contributed as part of the Asset Pool. The
Notes are secured by a pool of office equipment leases or contracts and related
assets and the payments on the Notes are made from payments on the leases.
Future maturities of the Notes are $252,700,000, $193,944,770, $143,174,200,
$88,815,390, and $20,960,620 in fiscal 2000, 2001, 2002, 2003, and 2004,
respectively.
We are 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 $18,788,000 at September 30, 1999.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest paid, including finance subsidiaries and corporate interest
allocated to discontinued operations, approximated $208,000,000, $186,000,000
and $151,000,000 for fiscal years 1999, 1998 and 1997, respectively.
9. LEASES
Equipment acquired under capital leases is included in property and equipment in
the amount of $51,307,000 in 1999 and $45,416,000 in 1998 and the related
amounts of accumulated amortization are $32,519,000 in 1999 and $19,966,000 in
1998. Related obligations are in long-term debt and related amortization is
included in depreciation.
At September 30, 1999, future minimum lease payments under noncancelable
operating leases with initial or remaining terms of more than one year were:
2000-$96,948,000; 2001-$85,597,000; 2002-$58,608,000; 2003-$36,157,000;
2004-$24,934,000; thereafter-$44,130,000.
Total rental expense was $97,423,000 in 1999, $85,646,000 in 1998 and
$81,608,000 in 1997.
10. CONTINGENCIES
On November 24, 1999 subject to formal approval by the court, we reached a
settlement with the plaintiffs in the series of purported class action
complaints which were filed in the United States District Court for the Eastern
District of Pennsylvania on behalf of our shareholders, and with the plaintiff
in a companion derivative lawsuit. The plaintiffs alleged that during the period
from January 24, 1996 to August 13, 1998, IKON and certain current and former
principal officers and employee directors publicly disseminated false and
misleading statements concerning our revenue, profitability and financial
condition in violation of the federal securities law. Under the settlement, we
will pay $111,000,000. The court has preliminarily approved the settlement. We
anticipate that a final settlement agreement will be submitted to the court and
that the court will hold a hearing on the approval of the settlement agreement
in February or March, 2000. We believe that the settlement also resolves a
purported class action claim pending in federal court in Utah. The Utah action
contains one claim purporting to be a class claim brought under the Employee
Retirement Income Security Act of 1974 ("ERISA"). The plaintiffs seek to
represent a class of persons who participated in our Retirement Savings Plan
after January 1, 1994. The class allegations in the Utah action largely mirror
the allegations made in the complaints filed in the Eastern District of
Pennsylvania.
There are other 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 other contingencies will materially affect us.
11. SHAREHOLDERS' EQUITY
At September 30, 1998, we had outstanding 3,877,200 depositary shares, each
representing 1/100th of a share of Series BB conversion preferred stock with a
cumulative annual dividend of $5.04 per depositary share. On October 1, 1998,
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. The common stock account increased by $290,170,000 to
reflect the conversion. There was no change to total shareholders' equity.
We have in place a Rights Agreement (Rights Plan) which expires on June 18,
2007, and provides for an 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 our Series 12 Preferred
Stock (the "Preferred Shares").
The Rights Plan further provides that the Rights will be exercisable and
will trade separately from shares of our common stock only if a person or group
(an "Acquiring Person") acquires beneficial ownership of 15% or more of the
shares of our 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 our 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 we survive and shares of our
common stock remain outstanding, the other shareholders will be able to exercise
the Rights and buy shares of our common stock having twice the value of the
exercise price of the Rights. The Rights Plan 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 us of the Rights so exercised and without other
payment of exercise price.
46
<PAGE>
The Board of Directors can redeem the Rights for $.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 our common stock.
12. INCOME TAXES
Provision for income taxes:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $12,175 $ 27,569 $(5,034) $ 781 $(2,983) $78,770
Foreign 4,446 (2,056) 2,857 1,350 2,032 4,940
State 3,963 (542) 1,540 7,369 (361) 8,353
- ---------------------------------------------------------------------------------------------------------------------------------
Income Taxes $20,584 $ 24,971 $ (637) $9,500 $(1,312) $92,063
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of deferred income tax assets and liabilities, including
finance
subsidiaries, were as follows:
<TABLE>
<CAPTION>
September 30 (in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and lease
income recognition $495,997 $492,616
Other, net 25,989 18,617
- ---------------------------------------------------------------------------------------------------
Total deferred tax liabilities 521,986 511,233
Deferred tax assets:
Accrued liabilities 228,212 174,533
Net operating loss carryforwards 62,273 138,475
Tax credit carryforwards 57,972 45,462
- ---------------------------------------------------------------------------------------------------
Total deferred tax assets 348,457 358,470
Valuation allowance 63,625 60,116
- ---------------------------------------------------------------------------------------------------
Net deferred tax assets 284,832 298,354
- ---------------------------------------------------------------------------------------------------
Net deferred tax liabilities $237,154 $212,879
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net operating loss carryforwards consist primarily of state carryforwards
of $510,000,000 principally expiring in years 2000 through 2019 and federal
carryforwards of $47,000,000 expiring in 2019. Valuation allowances have been
established against state carryforwards and other tax credit carry forwards.
Pre-tax income (loss) from domestic and foreign operations was $75,500,000 and
$3,891,000, respectively in fiscal 1999, $(75,383,000) and $1,196,000,
respectively, in fiscal 1998 and $195,803,000 and $17,310,000, respectively in
fiscal 1997.
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) 1999 1998 1997
- -----------------------------------------------------------------------------
Tax at statutory rate $27,787 $(25,965) $74,590
State income taxes, net of
U.S. federal tax benefit 2,035 8,371 8,098
Goodwill 14,555 14,601 10,656
Loss from asset impairment
and acquisition
related charges 10,807
Foreign including credits (1,395) (1,725) (1,279)
Other 2,573 2,774 (1,314)
- -----------------------------------------------------------------------------
$45,555 $ 8,863 $90,751
- -----------------------------------------------------------------------------
Net income tax payments (refunds) for all operations, including
discontinued, amounted to $7,855,000 in 1999, $(4,051,000) in 1998, and
$(22,081,000) in 1997.
Undistributed earnings of the Company's foreign subsidiaries were
approximately $50,000,000 at September 30, 1999. Those earnings are considered
to be indefinitely reinvested and, therefore, no provision has been recorded for
U.S. federal and state income taxes.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations:
<TABLE>
<CAPTION>
September 30 (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income (loss) from
continuing operations $ 33,836 $ (83,050) $122,362
Preferred stock dividends 19,540 19,540
- -------------------------------------------------------------------------------------
Numerator for continuing
operations basic earnings
per share--income (loss)
available to common
shareholders 33,836 (102,590) 102,822
Effect of dilutive securities:
Convertible loan notes 329
- -------------------------------------------------------------------------------------
Numerator for continuing
operations diluted
earnings per share--
income (loss) available
to common shareholders
after assumed conversions $ 33,836 $(102,590) $103,151
- -------------------------------------------------------------------------------------
Denominator:
Denominator for basic
earnings per share-
weighted average shares 148,673 135,145 133,261
Effect of dilutive securities:
Employee stock options 140 1,112
Contingently issuable shares 190
Convertible loan notes 273
- -------------------------------------------------------------------------------------
Dilutive potential common
shares 330 1,385
- -------------------------------------------------------------------------------------
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed
conversions 149,003 135,145 134,646
- -------------------------------------------------------------------------------------
Basic earnings (loss)
per share from
continuing operations $ 0.23 $ (0.76) $ 0.77
- -------------------------------------------------------------------------------------
Diluted earnings (loss)
per share from
continuing operations $ 0.23 $ (0.76) $ 0.77
- -------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
For additional disclosures regarding the preferred stock and employee stock
options, see Notes 11 and 14.
Options to purchase 5,687,226, 5,972,215 and 2,757,105 shares of common
stock were outstanding during fiscal 1999, 1998 and 1997, respectively, but were
not included in the computation of diluted earnings per share because the effect
would be antidilutive.
Our Series BB conversion preferred stock was excluded from the dilutive
calculations in fiscal years 1998 and 1997 because the effect of adding
9,682,143 shares and deleting the preferred dividends to reflect assumed
conversions would be antidilutive.
14. STOCK OPTIONS
Employee stock options are granted at or above the market price at dates of
grant which does not require us 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, we continue to account for stock options in accordance with APB 25. A plan
for our non-employee 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, 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
Granted 3,337,833 14.65
Exercised (79,534) 11.73
Cancelled (2,489,489) 25.93
- ---------------------------------------------------
September 30, 1999 6,700,973 $21.59
- ---------------------------------------------------
Available for Grant 1,095,691
- ---------------------------------------------------
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 we had elected to recognize compensation costs based on the fair
value at the date of grant, consistent with the provisions of SFAS 123, our net
income (loss) and earnings (loss) per share would have been reduced to the
following pro forma amounts :
Fiscal year ended September 30
(in thousands, except
per share data) 1999 1998 1997
- ------------------------------------------------------------------------------
Income (loss) from
continuing operations
before extraordinary loss $30,811 $(90,653) $117,615
Income from discontinued
operations 19,871
Income (loss) before
extraordinary loss 30,811 (90,653) 137,486
Basic and diluted earnings (loss) per share
Continuing operations $ .21 $ (.82) $ .73
Discontinued operations .15
Extraordinary loss (.09)
- ------------------------------------------------------------------------------
Net Income (Loss) $ .21 $ (.82) $ .79
- ------------------------------------------------------------------------------
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 1999, 1998 and 1997 were $9.80,$13.66 and $15.49,
respectively, and were estimated using the Black-Scholes option-pricing model.
The following assumptions were applied for periods before the Unisource spin-off
and subsequent to the Unisource spin-off, fiscal 1998 and 1999, respectively:
(i) expected dividend yields of 1.4%, .6%, .7% and 1.2% (ii) expected volatility
rates of 29.1%, 31.8%, 46.5% and 47.7%, and (iii) expected lives of 5.4 years,
5.7 years (subsequent to spin-off, fiscal 1998 and fiscal 1999). The risk-free
interest rates applied for fiscal 1999, 1998 and 1997 were 4.5%, 5.7% and 6.4%,
respectively.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------
Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 9/30/99 Contractual Life Price at 9/30/99 Price
<S> <C> <C> <C> <C> <C>
$ 7.50-$12.50 1,008,247 9.1 years $10.07 227,245 $11.97
12.56- 17.13 2,854,691 8.3 15.57 500,386 14.16
18.14- 33.47 1,566,027 7.3 26.97 777,043 26.12
34.28- 56.42 1,272,008 6.5 37.60 680,718 37.33
</TABLE>
15. PENSION AND STOCK PURCHASE PLANS
We sponsor defined benefit pension plans for the majority of our employees. The
benefits generally are based on years of service and compensation. We fund at
least the minimum amount required by government regulations. The cost of these
plans, together with contributions to defined contribution pension plans ($0 in
1999, $108,000 in 1998 and $861,000 in 1997) charged to continuing operations
amounted to $26,080,000 for 1999, $18,202,000 for 1998 and $17,623,000 for 1997.
The components of net periodic pension cost for the Company-sponsored
defined benefit pension plans are:
Fiscal Year Ended September 30
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Components of Net
Periodic Benefit Cost
Service cost $ 29,185 $ 21,977 $ 19,208
Interest cost on projected
benefit obligation 21,741 19,710 18,373
Expected return on assets (25,134) (22,312) (19,928)
Amortization of net
obligation (asset) (1,248) (1,248) (1,248)
Amortization of prior
service cost 1,493 1,381 1,217
Recognized net actuarial
(gain) loss (52) (1,414) (860)
- ------------------------------------------------------------------------------
Net periodic pension cost 25,985 18,094 16,762
Cost of shutdown benefits 95
- ------------------------------------------------------------------------------
Total pension cost $ 26,080 $ 18,094 $ 16,762
- ------------------------------------------------------------------------------
Assumptions used in accounting for the Company-sponsored defined benefit pension
plans were:
1999 1998 1997
- ------------------------------------------------------------------------------
Weighted average
discount rates 7.5% 7.0% 7.75%
Rates of increase
in compensation levels 6.0% 5.5% 6.25%
Expected long-term
rate of return on assets 10.0% 10.0% 10.0%
The funded status and amounts recognized in the Consolidated Balance Sheets for
the Company-sponsored defined benefit pension plans were:
September 30 (in thousands) 1999 1998
- ----------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $312,275 $260,369
Service cost 29,185 21,977
Interest cost 21,741 19,710
Amendments 1,044 3,459
Actuarial (gain) loss (5,492) 21,749
Benefits paid (15,561) (15,575)
Change due to curtailment,
settlement or special
termination benefits 95
Translation adjustment (246) 586
- ----------------------------------------------------------------
Benefit obligation at end of year $343,041 $312,275
- ----------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets at
beginning of year $285,859 $258,027
Actual return on plan assets 37,995 31,004
Employer contribution 2,470 13,668
Expenses (2,300) (1,701)
Benefits paid (15,561) (15,575)
Translation adjustment (300) 436
- ----------------------------------------------------------------
Fair value of plan assets
at end of year $308,163 $285,859
- ----------------------------------------------------------------
Funded Status $(34,878) $(26,416)
Unrecognized net actuarial
(gain) loss (47,111) (26,817)
Unrecognized net obligation (4,997) (6,245)
Unrecognized prior service cost 14,620 14,783
Adjustment to recognize
minimum pension liability (1,650) (1,519)
- ----------------------------------------------------------------
Net amount recognized $(74,016) $(46,214)
- ----------------------------------------------------------------
Amounts recognized on
the balance sheets
Accrued benefit obligation $(72,366) $(44,695)
Accumulated other
comprehensive income (1,650) (1,519)
- ----------------------------------------------------------------
Net amount recognized $(74,016) $(46,214)
- ----------------------------------------------------------------
50
<PAGE>
The projected benefit obligation and fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets were
$337,586,000, and $301,012,000 at September 30, 1999 and $293,628,000, and
$262,846,000 at September 30, 1998. The accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $34,053,000 and $18,936,000 at September 30, 1999 and
$11,955,000 and $0 at September 30, 1998.
Under the Benefits Agreement with Unisource, we 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 pension plan assets at September 30, 1999, are
invested in listed stocks, including our common stock having a fair value of
$13,176,000.
The majority of our employees were eligible to participate in our
Retirement Savings Plan (RSP). The RSP allows employees to invest 1% to 16% of
regular compensation before taxes in six different investment funds. We
contribute an amount equal to two-thirds of the employees' investments, up to 6%
of regular compensation, for a maximum company match of 4%. All our
contributions are invested in our common shares. Employees vest in a percentage
of our contribution after two years of service, with full vesting at the
completion of five years of service. There was a similar plan for eligible
management employees, which was terminated in fiscal 1999. The cost of the plans
charged to continuing operations amounted to $31,205,000 in 1999, $35,949,000 in
1998 and $31,026,000 in 1997.
We have a Long-Term Incentive Compensation Plan (LTIP) pursuant to which
key management employees have been granted performance-based cash awards, which
are earned upon achieving predetermined performance objectives during three-year
intervals, and time-based restricted stock awards, which are earned upon the
fulfillment of vesting requirements. The value of these performance-based awards
is charged to expense over the related plan period. In fiscal 1999, 1998 and
1997, cash awards totaling $1,012,500, $7,445,500 and $4,819,500, respectively,
were granted to LTIP participants and in fiscal 1999 stock awards of $7,603,000
were granted, of which $1,503,000 were amortized, $587,000 were cancelled and
$5,513,000 are included in unearned compensation at September 30, 1999. In
connection with these plans, the Company expensed $1,503,000 in fiscal 1999, $0
in fiscal 1998 and $3,111,000 in fiscal 1997.
16. SEGMENT REPORTING
In fiscal 1999, we adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments to be reported in
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
An operating segment is defined as a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses, and
whose results are regularly reviewed by the enterprise's chief operating
decision maker to decide how to allocate resources to the segment and assess its
performance. Under SFAS No. 131, the Company's reportable segments are IKON
North America and IKON Europe.
The IKON North America operating segment provides copiers, printers, and
other office equipment and services, as well as facilities management,
throughout North America. This segment also includes the Company's captive
finance subsidiaries in North America.
The IKON Europe operating segment provides customers with total office
solutions, including copiers and printer systems, computer networking,
print-on-demand services, facilities, hardware and software product interfaces
and electronic file conversion throughout Europe. This segment also includes the
Company's captive finance subsidiary in Europe.
Other includes Document Services and Technology Services in North America.
Document Services focuses on print-on-demand services and electronic file
conversion. Technology Services provides design, planning and support services
for network platforms and IT integration projects and education and training.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents segment information for the years ended September 30,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
IKON IKON
(in millions) North America Europe Other Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended September 30, 1999
Revenues from external customers $3,701.8 $508.9 $1,014.3 $5,225.0
Finance income 276.5 20.6 297.1
Intersegment revenues 16.0 2.4 18.4
Finance interest expense 117.4 9.3 126.7
Depreciation expense 90.3 9.9 25.3 125.5
Segment operating income 360.2 28.1 10.2 398.5
Segment assets 4,287.4 703.9 576.6 5,567.9
Expenditures for fixed assets 111.4 9.7 27.4 148.5
Year Ended September 30, 1998
Revenues from external customers 3,964.8 411.2 984.9 5,360.9
Finance income 250.4 17.4 267.8
Intersegment revenues 18.4 8.4 26.8
Finance interest expense 120.5 8.6 129.1
Depreciation expense 95.2 8.8 30.5 134.5
Segment operating income (loss) 215.8 31.7 (2.2) 245.3
Segment assets 4,223.7 643.3 606.1 5,473.1
Expenditures for fixed assets 153.4 14.6 34.7 202.7
Year Ended September 30, 1997
Revenues from external customers 3,906.1 364.8 657.8 4,928.7
Finance income 188.8 10.9 199.7
Intersegment revenues 0.1 0.1
Finance interest expense 93.7 5.0 98.7
Depreciation expense 79.6 9.7 15.5 104.8
Segment operating income 425.7 29.2 48.3 503.2
Segment assets 3,985.0 495.6 566.7 5,047.3
Expenditures for fixed assets 127.8 11.2 20.9 159.9
</TABLE>
Operating income comprises revenue less related costs and expenses.
Headquarters expense consists primarily of unallocated general corporate
expenses and amortization expense consists of goodwill and other intangible
amortization related to acquisitions. Reconciliation of segment revenue,
operating income and assets to consolidated revenue, income (loss) before income
taxes and assets, respectively, for the years ended September 30, 1999, 1998 and
1997 is as follows (in millions):
<TABLE>
<CAPTION>
For the year ended September 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Total external revenues for
reportable segments $4,210.7 $4,376.0 $4,270.9
Finance income 297.1 267.8 199.7
Other revenues 1,014.3 984.9 657.8
Intersegment revenues for
reportable segments 16.0 18.4 0.1
Other intersegment revenues 2.4 8.4
Elimination of intersegment
revenues (18.4) (26.8) (0.1)
- ------------------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $5,522.1 $5,628.7 $5,128.4
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income
Total operating income for
reportable segments $ 388.3 $ 247.5 $ 454.9
Other operating income (loss) 10.2 (2.2) 48.3
Unallocated amounts:
Headquarters expense (84.6) (108.4) (67.1)
Amortization expense (62.2) (62.4) (48.6)
Litigation settlement expense (101.1)
Transformation expense (78.0) (126.9)
Interest expense (71.2) (70.7) (47.5)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes $ 79.4 $ (74.2) $ 213.1
- ------------------------------------------------------------------------------------------------------------------------------
Assets
Total assets for
reportable segments $4,991.3 $4,867.0 $4,480.6
Other assets 576.6 606.1 566.7
Headquarters assets 233.4 289.7 276.6
- ------------------------------------------------------------------------------------------------------------------------------
Total consolidated assets $5,801.3 $5,762.8 $5,323.9
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
Other Significant Items:
<TABLE>
<CAPTION>
Segment Consolidated
(in millions) Totals Other Headquarters Totals
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
September 30, 1999
Depreciation expense $ 100.2 $ 25.3 $ 9.1 $134.6
Expenditures for
fixed assets 121.1 27.4 7.3 155.8
Year ended
September 30, 1998
Depreciation expense 104.0 30.5 5.6 140.1
Expenditures for
fixed assets 168.0 34.7 9.5 212.2
Year ended
September 30, 1997
Depreciation expense 89.3 15.5 3.2 108.0
Expenditures for
fixed assets 139.0 20.9 33.3 193.2
</TABLE>
The following is revenue and long-lived asset information by geographic area as
of and for the years ended September 30:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $4,728.0 $4,893.8 $4,467.7
United Kingdom 371.3 301.3 273.5
Canada 243.3 280.6 270.7
Other 179.5 153.0 116.5
- ------------------------------------------------------------------------------------------------------------------------------
$5,522.1 $5,628.7 $5,128.4
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
Long-lived assets
United States $1,368.1 $1,452.7 $1,461.6
United Kingdom 274.7 289.5 239.3
Canada 121.3 86.5 85.4
Other 101.8 79.1 62.9
- ------------------------------------------------------------------------------------------------------------------------------
$1,865.9 $1,907.8 $1,849.2
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As a result of the dynamics of our business, we are reviewing our management
model and structure which will result in adjustments to our segment discussion
for fiscal 2000. We anticipate the following changes: IKON Document Services
will be split into Business Document Services ("BDS"), Legal Document Services
("LDS") and Business Imaging Services ("BIS"). BDS will be included in IKON
North America and LDS and BIS will remain in other.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS
We use financial instruments in the normal course of our 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
We are 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, we limit the amount of credit exposure in any one
type of investment instrument.
Interest Rate and Currency Swap Agreements
We have interest rate swap agreements relating to financial instruments of our
U.S. finance subsidiary, having total principal/notional amounts of $225,000,000
and $300,000,000 at September 30, 1999 and 1998, respectively, with fixed rates
from 5.48% to 6.16% at both September 30, 1999 and 1998. We also have Canadian
dollar denominated interest rate swap agreements having a total principal/
notional amount of CN$98,248,000 ($66,966,000 and $64,185,000 at September 30,
1999 and 1998), respectively, with fixed rates from 7.43% to 7.74% at both
September 30, 1999 and 1998. We are required to make payments to the
counterparties at the fixed rate stated in the agreements and in return we
receive payments at variable rates.
We have interest rate swap agreements relating to financial instruments of
our Canadian finance subsidiary. These swaps have a principal/notional amount of
CN$182,294,000 ($124,252,000) and CN$143,421,000 ($93,700,000) at September 30,
1999 and 1998, respectively. We are 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.
We also entered into cross-currency swap agreements to exchange pounds
sterling ((pound)46,500,000) for Canadian dollars (CN$98,248,000) at both
September 30, 1999 and 1998. We are 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%.
We are exposed to credit loss in the event of nonperformance by the
counterparties to the swap agreements. However, we do not anticipate
nonperformance by the counterparties.
The following methods and assumptions were used by us 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 8.
Off-Balance-Sheet Instruments
Fair values for our off-balance-sheet instruments (interest rate and currency
swaps) are based on the termination of the agreements.
The carrying amounts and fair values of our financial instruments are as
follows:
<TABLE>
<CAPTION>
1999 1998
September 30 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt:
Bond issues $ 588,582 $ 473,835 $ 588,478 $ 496,470
Private placement debt 55,000 50,257 55,000 52,789
Bank debt 45,298 45,168 45,121 46,074
Sundry notes, bonds and mortgages 104,427 102,072 53,611 53,029
Finance subsidiaries' debt 2,003,209 1,939,596 2,100,637 2,090,472
Interest rate and currency swaps (12,607) (22,487)
</TABLE>
54
<PAGE>
18. SUBSEQUENT EVENT
As described in Note 10, subject to formal approval by the court, we have
reached a settlement with the plaintiffs in the series of purported class action
complaints which were filed in the United States District Court for the Eastern
District of Pennsylvania on behalf of our shareholders, and with the plaintiff
in a companion derivative lawsuit. Under the settlement, we will pay
$111,000,000. We have recorded a charge of $101,106,000 in fiscal 1999 related
to the settlement, which consists of the $111,000,000 settlement plus
$10,106,000 of legal fees offset by $20,000,000 of insurance proceeds. This does
not include a $20,000,000 insurance claim which we are pursuing against another
insurance carrier. Reflecting payment of a portion of the legal fees, the
balance sheet at September 30, 1999, includes $117,652,000 in accrued
shareholder litigation settlement and $16,546,000 of insurance proceeds
receivable (which is included in prepaid expenses and other current assets).
QUARTERLY FINANCIAL SUMMARY
<TABLE>
<CAPTION>
First Second Third Fourth
(unaudited, in millions except per share data) Quarter (a) Quarter (b) Quarter (c) Quarter (d) Total
- ------------------------------------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C>
Revenues $ 1,396.4 $ 1,372.6 $ 1,385.5 $ 1,367.6 $5,522.1
Gross profit 542.1 508.2 515.8 508.7 2,074.8
Income (loss) before taxes 53.6 35.3 51.0 (60.5) 79.4
Net income (loss) $ 28.7 $ 22.9 $ 27.3 $ (45.1) $ 33.8
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share $ .19 $ .15 $ .18 $ (.30) $ .23
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ .19 $ .15 $ .18 $ (.30) $ .23
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends per share $ .04 $ .04 $ .04 $ .04 $ .16
Common stock price
High/Low 10 11/16-6 3/8 16 3/8-8 5/8 15 13/16-11 11/16 15 15/16-10 3/8 16 3/8-6 3/8
1998
Revenues $ 1,374.3 $ 1,431.6 $ 1,394.7 $ 1,428.1 $5,628.7
Gross profit 535.5 544.7 480.9 481.3 2,042.4
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
</TABLE>
(a) First quarter fiscal 1999 results include a $14,333,000 gain on an asset
securitization.
(b) Second quarter fiscal 1998 results include $16,000,000 of unusual
adjustments.
(c) 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.
(d) Fourth quarter of fiscal 1999 results include pre-tax charges of
$101,106,000 related to a litigation settlement and the 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.
55
<PAGE>
CORPORATE FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Ten-Year
(in millions, except per share data, Compound
shareholders of record, employees) Growth 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Continuing Operations
Revenues 21.5% $5,522.1 $5,628.7 $5,128.4 $4,099.8
Gross profit 20.9 2,074.8 2,042.4 1,990.8 1,551.1
% of revenues 37.6 36.3 38.8 37.8
Selling and administrative 20.3 1,823.1 1,947.9 1,603.3 1,219.6
% of gross profit 87.9 95.4 80.5 78.6
Operating income (loss) 20.2 150.6 (3.5) 260.6 310.1
% of revenues 2.7 (.1) 5.1 7.6
Income (loss) before taxes 24.2 79.4 (74.2) 213.1 272.9
% of revenues 1.4 (1.3) 4.2 6.7
Effective income tax rate (%) 57.4 --(f) 42.6 39.6
Income (loss) 16.6 33.8 (83.1) 122.4 164.9
% of revenues .6 (1.5) 2.4 4.0
Earnings (loss) per share
Basic .23 (.76) .77 1.13
Diluted .23 (.76) .77 1.12
Capital expenditures 16.1 155.8 212.2 193.2 146.6
Depreciation and amortization 20.0 196.9 202.5 156.6 118.6
- ----------------------------------------------------------------------------------------------------------------
Discontinued Operations and Extraordinary Items
Income (loss) $ 8.0 $ 45.8
Earnings (loss) per share
Basic .06 .37
Diluted .06 .35
- ----------------------------------------------------------------------------------------------------------------
Total Operations and Extraordinary Items
Net income (loss) $ 33.8 $ (83.1) $ 130.4 $ 210.7
Earnings (loss) per share
Basic .23 (.76) .83 1.50
Diluted .23 (.76) .83 1.47
- ----------------------------------------------------------------------------------------------------------------
Share Activity
Dividends per share $ 0.16 $ 0.16 $ 0.26 $ 0.56
Per share book value 3.1% 9.79 8.30 8.94 14.94
Return on shareholders' equity % 2.3 (8.8) 7.8 13.8
Weighted average shares (basic) 148.7 135.1 133.3 125.9
Adjusted weighted average shares (diluted) 149.0 135.1 134.6 130.4
Shareholders of record 14,495 14,990 15,089 15,033
- ----------------------------------------------------------------------------------------------------------------
Supplementary Information
Days sales outstanding (d) 40.4 44.0 44.5 34.2
Inventory turns (d) 8.0 6.7 6.3 5.7
Current ratio 1.1 1.3 1.5 1.2
Pretax return on capital employed % 4.5 (.1) 8.5 14.8
Pretax return on capital employed, excluding
finance subsidiaries % 0.5 (5.0) 10.0 19.0
Working capital 1.4% $ 186.3 $ 495.4 $ 752.0 $ 251.2
Total assets 16.2 5,801.3 5,762.8 5,323.9 5,384.6
Total debt 22.0 2,862.3 2,956.6 2,563.8 2,158.4
% of capitalization 66.2 67.4 63.4 48.9
Total debt, excluding finance subsidiaries 11.2 859.0 855.9 818.0 1,031.4
% of capitalization 37.0 37.5 35.6 31.4
Serial preferred stock
Employees (e) 39,400 43,700 40,900 43,100
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes the effect of the sale of IMMOS in fiscal 1994 and Unisource
restructuring costs in fiscal 1993.
(b) Includes unusual pretax charges relating to the Hillman Companies of
$10,323,000.
(c) Excludes gain on sale of Alco Health Services Corporation of pretax -
$96,800,000; net income - $61,900,000.
(d) Continuing operations only.
(e) Includes discontinued operations.
(f) Not meaningful.
Note: Unless otherwise noted ratios and operating results include the effect of:
fiscal 1999 - shareholder litigation charge ($101,106,000) and gain on asset
securitization ($14,333,000), operating income ($86,773,000), net income
($58,130,000), diluted earnings per share ($0.39); fiscal 1998 - transformation
and special charges, operating income ($230,400,000), net income ($156,969,000),
diluted earnings per share ($1.16); fiscal 1997 - transformation charges,
operating income ($126,908,000), net income ($82,490,000), diluted earnings per
share ($0.61); fiscal 1996 - transformation charges, operating income
($21,423,000), net income ($13,925,000), diluted earnings per share ($0.11);
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).
56
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$3,091.6 $2,391.1 $1,723.1 $1,354.2 $1,127.4 $1,018.6 $789.3
1,162.4 926.7 680.3 550.6 441.1 412.4 311.6
37.6 38.8 39.5 40.7 39.1 40.5 39.5
950.2 750.1 561.0 460.8 383.3 378.9 287.7
81.7 80.9 82.5 83.7 86.9 91.9 92.3
212.2 59.4 116.8 96.5 57.8 28.8 23.9
6.9 2.5 6.8 7.1 5.1 2.8 3.0
190.5 43.3 101.4 85.1 40.4 8.3(b) 9.1
6.2 1.8 5.9 6.3 3.6 0.8 1.2
39.6 95.4 39.6 39.4 39.0 40.7 20.0
115.0 2.0 61.3 51.6 24.6 4.9(b) 7.3
3.7 0.1 3.6 3.8 2.2 0.5 0.9
0.87 (0.09) 0.53 0.54 0.27 0.05(b) 0.08
0.86 (0.09) 0.52 0.53 0.26 0.05 0.08
91.1 79.0 64.3 36.9 33.4 40.5 35.1
87.4 67.4 51.3 42.3 43.1 38.0 32.1
- ---------------------------------------------------------------------------------
$88.7 $74.5 ($58.6) $47.5 $94.1 $88.6 $160.2
0.78 0.68 (0.60) 0.49 1.01 0.97 1.73
0.76 0.68 (0.59) 0.49 1.00 0.95 1.69
- ---------------------------------------------------------------------------------
$203.7 $76.5 $2.6 $99.1 $118.7 $93.5(b) $167.5
1.65 0.59 (0.07) 1.03 1.28 1.02 1.81
1.62 0.59 (0.07) 1.02 1.26 1.00 1.77
- ---------------------------------------------------------------------------------
$ 0.52 $0.50 $0.48 $0.46 $0.44 $0.42 $0.38
12.06 10.50 8.55 9.11 8.91 8.20 7.25
15.8 15.1 11.6 11.6 15.0 13.4 16.6(c)
114.3 109.3 97.3 96.3 92.7 91.3 92.5
116.5 109.3 98.7 97.7 94.1 93.3 94.5
15,099 14,348 13,999 13,726 14,096 14,152 13,410
- ---------------------------------------------------------------------------------
33.6 30.2 32.9 32.3 33.8 34.8 37.6
6.3 5.7 5.1 5.2 4.8 4.7 4.3
1.1 1.3 1.1 1.3 1.9 1.7 1.5
17.1 15.9(a) 13.5(a) 15.1 15.3 18.5 19.4(c)
21.1 18.6(a) 15.8(a) 17.5 17.6 20.9 21.1(c)
$144.7 $171.5 $87.2 $140.4 $299.9 $216.9 $161.9
4,110.3 2,897.7 2,734.2 1,944.0 1,703.0 1,544.0 1,295.8
1,499.3 949.2 1,240.0 805.4 548.1 469.2 391.2
44.2 40.7 54.5 48.0 39.8 38.3 37.8
681.7 484.3 825.7 504.9 327.4 309.6 296.7
26.5 25.9 44.4 36.6 28.3 29.0 31.5
0.3 1.6 2.9 4.9 7.4
39,200 33,100 30,200 24,800 19,800 21,700 20,500
- ---------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
EXHIBIT 21
IKON OFFICE SOLUTIONS, INC
LEGAL ENTITIES CHART
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
IKON Office Solutions, Inc. FOREIGN SUBSIDIARIES
<S> <C>
IKON Central District
IKON Florida District IKON Capital, Inc. (Canada)
IKON Great Lakes District IKON Document Solutions Ltd (Ireland)
IKON Northeast District IKON North America, Inc. (Delaware corporation)
IKON Southeast District IKON Baja, S.A. de C.V. (1)
IKON Texas/Louisiana District IKON de Mexico, S.A. de C.V. (2)
IKON Corp. IKON Servicios S.A. de C.V. (3)
IKON Document Services IKON Copiroyal, S.A. de C.V. (4)
IKON Office Solutions Foundation, Inc. IKON Inmuebles, S.A. de C.V. (5)
IKON Office Solutions Technology Services, Inc. IKON Office Solutions Australia Pty. Ltd.
IKON Office Solutions West, Inc. IKON Office Solutions, Inc. (Canada)
IKON Brands IKON Office Solutions Technology Services, Inc. (Canada)
IKON Northwest District IKON Office Solutions A\S (Denmark)
IKON Western District IKON Office Solutions (Holding) France (6)
IKON Realty, Inc. IKON Office Solutions S.A.
Integra Technology International, Inc. IKON Document Service S.A.
IOS Capital, Inc. IKON Total Document Services S.A.
IKON Funding, Inc. IKON Office Solutions Group PLC
IKON Receivables Funding, Inc. IKON Office Solutions Europe PLC
IKON Funding, LLC IKON Office Solutions PLC
IKON Funding-1, LLC IKON Capital PLC
IKON Receivables-1, LLC Kafevend Group PLC
IKON Receivables, LLC Image Systems Solutions LTD
MDR Management Corporation Rockliff Computers LTD
Partners Securities Company IKON Office Solutions Holding GmbH
Upshur Coals Company IKON Office Solutions GmbH Hamburg
Valinor Inc. IKON Office Solutions GmbH Wiesbaden
IKON Office Solutions Gmb Hagen
IKON Office Solutions Gmbh Network Services
IKON Office Solutions Gmbh Munchen
IKON Office Solutions GmbH Frankfurt
IKON Office Solutions GmbH Leipzig (7)
IKON Leasing Gmbh
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAMEHOLDER CORPORATIONS
<C>
A-Copy, Inc.
Acme Business Products, Inc.
Allegheny Business Machines, Inc.
Associated Business Products, Inc.
Automated Office Systems, Inc.
Copy Line Corporation
Copyrite, Inc.
D.C. Hey Company, Inc
Delta Business Systems, Inc.
Hovinga Business Systems, Inc.
IKON Corp.
Infincom, Inc.
Innovative Office Systems, Inc.
Innovative Office Systems, Inc. - Louisiana
Mirex Corporation
Mirex Corporation of Texas
Modern Business Systems, Inc.
Modern Office Machines, Inc.
NightRider, Inc.
O'Brien Business Equipment, Inc.
OMI of California, Inc.
Southern Copy Machines, Inc.
Sun Office Systems, Inc.
Taylor-Made Office Systems, Inc.
Xtec Office Systems, Inc.
Zeno Systems, Inc.
Zeno Systems of Colorado, Inc.
Zeno Systems of Georgia, Inc.
Zeno Systems of Houston, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LEGEND
- ----------------------------------------------------------------------------------------------
<S> <C>
Bold - Corporation
Italic - Division
Bold Italic - Limited Liability Company
Indented - Subsidiary/Division of above corporation
(1) 99.79 % owned by IKON North America, Inc./.21% owned by IKON Office Solutions, Inc.
(2) 99.99% owned by IKON North America, Inc./.01% owned by IKON Office Solutions, Inc.
(3) 99.99% owned by IKON de Mexico, S.A. de C.V./.01% owned by IKON North America, Inc.
(4) 99.99% owned by IKON de Mexico, S.A. de C.V./.01% owned by IKON Servicios S.A. de C.V.
(5) 99.99% owned by IKON de Mexico, S.A. de C.V./.01% owned by IKON Servicios S.A. de C.V.
(6) 90% owned by IKON Office Solutions, Inc./ 10% owned by Pimeau
(7) 70% owned by IKON Office Solutions Holding GmbH/ 30% owned by minority shareholder
</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 October 25, 1999, (except for
the first paragraph of note 10 and note 18, as to which the date is November
24, 1999 and the fourth paragraph of note 6, as to which the date is December 9,
1999), included in the 1999 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 October 25, 1999, (except for the first
paragraph of note 10 and note 18, as to which the date is November 24, 1999
and the fourth paragraph of note 6, as to which the date is December 9,1999),
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, 1999, filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
REGISTRATION NUMBER FILING DATE DESCRIPTION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------
33-54781 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
- -----------------------------------------------------------------------------------------------------------
333-47783 March 11, 1998 IKON Office Solutions, Inc. Stock
Award Plan
- -----------------------------------------------------------------------------------------------------------
333-66975 November 11, 1998 IKON Office Solutions, Inc.
Retirement Savings Plan
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
------------------------------
December 28, 1999
<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 Michael H. Dudek, Karin M. Kinney
and Don H. Liu as his attorney-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 20th day of December 1999,
/s/ Robert M. Furek
-------------------
Robert M. Furek
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, Karin M. Kinney
and Don H. Liu as his attorney-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 20th day of December 1999,
/s/ Arthur E. Johnson
---------------------
Arthur E. Johnson
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that she is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, Karin M. Kinney
and Don H. Liu as her attorney-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 20th day of December 1999,
/s/ Judith M. Bell
------------------
Judith M. Bell
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, Karin M. Kinney
and Michael J. Dillon as his attorney-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 20th day of December 1999,
/s/ James R. Birle
------------------
James R. Birle
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, Karin M. Kinney
and Don H. Liu as his attorney-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 20th day of December 1999,
/s/ Thomas R. Gibson
--------------------
Thomas R. Gibson
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, 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 20th day of December 1999,
/s/ Philip E. Cushing
----------------------
Philip E. Cushing
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, 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 20th day of December 1999,
/s/ James J. Forese
-------------------
James J. Forese
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, 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 20th day of December 1999,
/s/ Thomas P. Gerrity
---------------------
Thomas P. Gerrity
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that she is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, 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 20th day of December 1999,
/s/ Barbara Barnes Hauptfuhrer
------------------------------
Barbara Barnes Hauptfuhrer
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned certifies that he is a Director of IKON Office Solutions,
Inc. ("IKON").
The undersigned hereby appoints each of Michael H. Dudek, 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 20th day of December 1999,
/s/ Richard A. Jalkut
---------------------
Richard A. Jalkut
<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 FOR REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 33,011,000
<SECURITIES> 0
<RECEIVABLES> 768,851,000
<ALLOWANCES> 43,543,000
<INVENTORY> 338,947,000
<CURRENT-ASSETS> 2,233,901,000
<PP&E> 780,550,000<F1>
<DEPRECIATION> 433,239,000<F2>
<TOTAL-ASSETS> 5,801,313,000
<CURRENT-LIABILITIES> 2,014,137,000
<BONDS> 1,781,444,000
0
0
<COMMON> 1,008,392,000
<OTHER-SE> 452,148,000
<TOTAL-LIABILITY-AND-EQUITY> 5,801,313,000
<SALES> 2,864,798,000
<TOTAL-REVENUES> 5,522,144,000
<CGS> 1,947,566,000
<TOTAL-COSTS> 3,447,339,000<F3>
<OTHER-EXPENSES> 1,924,189,000<F4>
<LOSS-PROVISION> 31,765,000
<INTEREST-EXPENSE> 71,225,000
<INCOME-PRETAX> 79,391,000
<INCOME-TAX> 45,555,000
<INCOME-CONTINUING> 33,836,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,836,000
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
<FN>
<F1>INCLUDES EQUIPMENT ON OPERATING LEASES, AT COST, OF $245,246,000
<F2>INCLUDES ACCUMULATED DEPRECIATION FOR EQUIPMENT ON OPERATING LEASES OF
$157,750,000.
<F3>INCLUDES FINANCE SUBSIDIARIES INTEREST OF $126,676,000.
<F4>REPRESENTS SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND SHAREHOLDER
LITIGATION SETTLEMENT EXPENSE.
</FN>
</TABLE>
