<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
ALCO CAPITAL RESOURCE, INC.
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-2493042
-------- ----------
(State or Other (I.R.S. Employer
jurisdiction of Identification No.)
Incorporation
or Organization)
1738 Bass Road, Macon, Georgia 31210
---------------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
912-471-2300
------------
(Registrant's Telephone Number, including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act:
None
Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
The registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing with the reduced
disclosure format contemplated thereby.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
<S> <C> <C>
ITEM 1. BUSINESS...................................................... 3
ITEM 2 FINANCIAL INFORMATION......................................... 10
ITEM 3 PROPERTIES.................................................... 14
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................... 15
ITEM 5 DIRECTORS AND EXECUTIVE OFFICERS.............................. 15
ITEM 6 EXECUTIVE COMPENSATION........................................ 15
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................................................. 15
ITEM 8 LEGAL PROCEEDINGS............................................. 15
ITEM 9 MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................................... 16
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES....................... 16
ITEM 11 DESCRIPTION OF THE REGISTRANT'S SECURITIES TO
BE REGISTERED................................................. 16
ITEM 12 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 16
ITEM 13 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 17
ITEM 14 DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...................................... 17
ITEM 15 FINANCIAL STATEMENTS AND EXHIBITS............................. 18
SIGNATURE PAGE ........................................................... 30
</TABLE>
-2-
<PAGE>
Item 1. Business
General
Alco Capital Resource, Inc. (the "Company") was formed in 1987 to provide
lease financing to customers of the office products segment of Alco Standard
Corporation ("Alco"). The Company's offices are located at 1738 Bass Road,
Macon, Georgia, 31210 (telephone number 912-471-2300). The Company is a wholly-
owned indirect subsidiary of Alco.
Alco is a public company headquartered in Valley Forge, Pennsylvania which
markets and distributes office equipment (copiers and fax machines) and paper
through two business segments, Alco Office Products ("AOP") and Unisource
Worldwide, Inc. ("Unisource"). AOP is the largest independent office equipment
distribution network in North America, with locations in 45 states and 6
Canadian provinces. AOP also has several locations in the United Kingdom and
Germany. Unisource is the largest distributor of printing paper in North America
with facilities in every major metropolitan market in the United States and
Canada. Alco's fiscal 1993 revenues were $6.4 billion, of which $1.6 billion was
generated by AOP.
The Company is engaged in the business of arranging lease financing
exclusively for office equipment marketed by AOP's wholly-owned operating units
("AOP dealers"), which sell and service copier equipment and facsimile machines.
The ability to offer lease financing on this equipment through Alco Capital is
considered a competitive marketing advantage which more closely ties AOP to its
customer base. During the 1993 fiscal year, 46% of new equipment sold by AOP
dealers was financed through the Company. The Company and AOP will seek to
increase this percentage in the future, as leasing enhances the overall profit
margin on equipment and is considered an important customer retention strategy.
The equipment financed by the Company consists of copiers, facsimile
machines, and related accessories and peripheral equipment, the majority of
which are produced by major office equipment manufacturers including Canon,
Ricoh, and Sharp. Currently 79% of the equipment financed by the Company
represents copiers, 16% fax machines, and 5% other equipment. Although equipment
models vary, AOP is increasingly focusing its marketing efforts on the sale of
higher segment equipment, such as copiers which produce 50 or more impressions
per minute.
The Company provides AOP dealers with standard lease rates. However, AOP
dealers may charge the customer more or less than Alco Capital's standard rates,
and the AOP dealer would absorb any difference resulting from any such variances
from Alco Capital's standard rates.
The Company's customer base is widely dispersed, with the ten largest
customers representing less than 2% of the Company's total lease portfolio. The
typical new lease financed by the Company averages $11,000 in amount and 42
months in duration. Although 97% of the leases are scheduled for regular monthly
payments, customers are also offered quarterly, semi-annual, and other
customized payment terms. The Company performs billing services, collection
services, tax filings, and accounting services, and also provides quotes on
equipment upgrades and lease-end notification.
3
<PAGE>
Alco and the Company intend to enter into a support agreement on or prior
to June 1, 1994 (the "1994 Support Agreement") pursuant to which Alco will agree
to make payments to the Company, if necessary, to enable the Company to maintain
(i) a ratio of income before interest expense and taxes to interest expense of
1.25 times and (ii) a minimum consolidated tangible net worth of $1.00 at all
times. In addition, the Company and Alco are currently parties to a maintenance
agreement dated August 15, 1991, (the "1991 Maintenance Agreement") and an
operating agreement dated August 15, 1991, (the "1991 Operating Agreement")
(collectively, the "1991 Maintenance and Operating Agreements") which require
Alco to make payments to the Company, if necessary, to meet a specified minimum
fixed charge coverage ratio and a maximum debt-to-equity ratio. In addition, the
1991 Operating Agreement requires the AOP dealers to repurchase all defaulted
lease contracts. The AOP dealers will not be subject to such repurchase
obligation under the terms of the 1994 Support Agreement. (See "Relationship
with Alco Standard Corporation" on page 5 hereof).
Types of Leases
The lease portfolio of the Company includes direct financing leases and
funded leases. Direct financing leases are contractual obligations between the
Company and the AOP customer and represent the majority of the Company's lease
portfolio. Funded leases are contractual obligations between the AOP dealer
and the AOP customer which have been financed by the Company.
Funded leases represented approximately 15% of the Company's leases as of
December 31, 1993. The AOP dealers have assigned to the Company, with full
recourse, their rights under the funded leases including the right to receive
lease and rental payments as well as a security interest in the related
equipment.
Direct financing leases and funded leases are either tax oriented or
non-tax oriented in nature, as described below.
Tax Oriented Leases
-------------------
Tax oriented leases represented 93% of the Company's total lease
portfolio as of December 31, 1993. The Company (for direct financing leases)
or the AOP dealer (for funded leases) is considered to be the owner of the
equipment for tax purposes during the life of these leases. Tax oriented
leases are structured with a fair market value purchase option. Generally, the
customer may return the equipment, continue to rent the equipment or purchase
the equipment for its fair market value at the end of the lease.
Each tax oriented lease has a stated equipment residual value generally
ranging from 0% to 10%. As of December 31, 1993, the average equipment residual
value for all leases in the Company's portfolio was 3.6% and by AOP policy
cannot exceed 8%. Upon early termination of the lease or at normal end of lease
term, the Company charges the AOP dealer for the stated residual position, if
any, and the equipment is returned to the AOP dealer. Any gain or loss on the
equipment's residual value is realized by the AOP dealer.
Non-Tax Oriented Leases
-----------------------
Non-tax oriented leases and conditional sales contracts account for the
remaining 7% of the total leases in the Company's portfolio. Under these
arrangements, the customer is considered to be the owner of the equipment for
tax purposes. Non-tax leases are customarily structured with a bargain
purchase option for the equipment at lease-end (usually $1.00). The customer
generally exercises the purchase option at the end of the lease term.
4
<PAGE>
Relationship With Alco Standard Corporation
The Company, as the captive finance subsidiary of Alco, derives its
customer base from the business sourced by its affiliates within Alco (the AOP
dealers). There are several agreements and programs between the Company and
Alco, which are described below.
Support Agreements
------------------
The Company and Alco are parties to a Maintenance Agreement dated August
15, 1991 and an Operating Agreement dated August 15, 1991 (the "1991 Maintenance
and Operating Agreements"), which are further described below. The Company has
agreed with its existing lenders pursuant to loan agreements entered into before
June 1994 ("Existing Lenders") that it will not amend the 1991 Maintenance and
Operating Agreements without each Existing Lender's consent until all
outstanding debt under such loan agreements shall have been paid.
On or prior to June 1, 1994, the Company and Alco intend to enter into a
new agreement (the "1994 Support Agreement"). The Company intends to covenant
with noteholders and other lenders after June 1, 1994 ("New Lenders") that it
will not amend the 1994 Support Agreement except under certain circumstances.
(See "1994 Support Agreement on page 6 hereof).
1. The 1991 Maintenance and Operating Agreements
---------------------------------------------
The terms of the 1991 Maintenance Agreement provide that Alco will make a
cash payment to the Company (or an investment in the form of equity or
subordinated notes) as needed in amounts sufficient to meet a specified minimum
fixed charge coverage ratio and a maximum debt-to-equity ratio. The fixed charge
coverage ratio requirement is defined as earnings before fixed charges
(primarily interest) and must be at least 1.3 times fixed charges. The Company
has satisfied this requirement independently (without requiring payment or an
investment from Alco) for the last three fiscal years. The Company's debt-to-
equity ratio is limited to 6 to 1 according to the terms of the Maintenance
Agreement. The Company must also maintain minimum tangible net worth of not less
than $1.00.
5
<PAGE>
Pursuant to the terms of the 1991 Maintenance Agreement, the Company
received capital contributions from Alco in the amount of $2,615,000 in 1993,
none in 1992, and $13,250,000 in 1991. In the first quarter of fiscal 1994, the
Company received a capital contribution of $2,500,000 from Alco.
In accordance with the 1991 Operating Agreement, the AOP dealers are
required to repurchase all defaulted lease contracts. A default is defined in
the Operating Agreement as any receivable which is past due for 120 days or is
otherwise reasonably declared uncollectible by the Company. The repurchase
amount is identified as the net book value of a lease on the default date.
The 1991 Maintenance and Operating Agreements provide for modification or
amendment with both parties' consent and provide for cancellation by either
party upon 90 days written notice.
2. The 1994 Support Agreement
--------------------------
The 1994 Support Agreement between the Company and Alco, which the parties
intend to sign on or prior to June 1, 1994, will provide that Alco will make a
cash payment to the Company (or an investment in the form of equity or
subordinated notes) as needed to comply with two requirements: i) that the
Company will maintain a pre-tax interest coverage ratio (income before interest
expense and taxes divided by interest expense) so that the Company's pre-tax
income plus interest expense will not be less than 1.25 times interest expense,
and ii) that the Company will maintain a minimum tangible net worth of $1.00.
The Company will provide in the indenture or other documentation governing
future debt that the 1994 Support Agreement cannot be amended or terminated
without the consent of noteholders or other lenders unless either i) all the
outstanding debt of the Company is repaid, or ii) two nationally recognized
securities rating organizations confirm in writing prior to the effectiveness of
any such amendment or termination that the Company's debt rating would not be
downgraded as a result of such amendment or termination.
Cash Management Program
-----------------------
The Company participates in Alco's domestic Cash Management program. Under
this program, the Company has an account with Alco through which cash in excess
of current operating requirements is temporarily placed on deposit. Similarly,
amounts are periodically borrowed from Alco. Interest is paid (or charged) by
Alco on these amounts. The Company was a net borrower in 1993, 1992, and 1991
incurring net interest costs of $579,000, $1,090,000, and $510,000, respectively
under this program.
Management Fee
--------------
The Company is charged a management fee by Alco to cover certain corporate
overhead expenses. These charges are included as general and administrative
expenses in the Company's financial statements and amounted to $360,000 in 1993,
$192,000 in 1992, and $180,000 in 1991.
6
<PAGE>
Federal Income Tax Allocation Agreement
---------------------------------------
Alco and the Company participate in a Federal Income Tax Allocation
Agreement dated June 30, 1989, in which the Company consents to the filing of
consolidated federal income tax returns with Alco. Alco agrees to collect from
or pay to the Company its allocated share of any consolidated federal income tax
liability or refund applicable to any period for which the Company is included
in Alco's consolidated federal income tax return.
Interest on Income Tax Deferrals
--------------------------------
The Company provides substantial tax benefits to Alco through the use of
the installment sales method on equipment financed through the Company. Taxes
deferred by Alco due to this tax treatment totalled a cumulative amount of
approximately $67,000,000 at the end of fiscal 1993. Alco pays the Company
interest on these tax deferrals. In fiscal 1993, interest was earned by the
Company at a rate of 6% and totalled $2,926,000. In fiscal 1992 and 1991, the
interest earned amounted to $3,050,000 and $1,800,000, respectively, and was
computed at a 9% rate.
Lease Bonus Program
-------------------
In January 1992, a lease bonus subsidy program was initiated which provides
incentives to AOP dealers when AOP customers lease equipment from the Company.
The payments under this program can be reduced or eliminated by the Company at
any time. In fiscal 1992, the program was nine months in duration, and
$3,300,000 in bonus payments were made to the AOP dealers for leases of certain
higher industry segment equipment. Fiscal 1993 bonus payments were calculated on
the basis of the AOP dealer's increase in the percentage of equipment sales
leased through the Company, and totalled $5,900,000 . Fiscal year 1994 lease
bonus payments are calculated on the same basis as the 1993 payments; the lease
bonus payments were $1,724,000 for the first quarter of fiscal 1994.
Credit Policies and Loss Experience
Each AOP dealer is responsible for developing and maintaining a formal
credit policy that governs credit practices and procedures. In addition, the
credit practices of the individual AOP dealers must be consistent with Alco's
overall policies for leasing and credit approval.
Under the terms of the 1991 Operating Agreement, the Company has full
recourse to the AOP dealer for any lease which becomes past due by 120 days or
more. Excluding the effect of recoveries, the gross value of leases charged back
to AOP dealers under this arrangement was $13,300,000 in fiscal 1993 and
$9,700,000 in fiscal 1992. For both fiscal 1993 and 1992, the gross chargebacks
represented 3.2 % of the average portfolio balances during the year.
Chargeback recoveries are pursued by each AOP dealer, not by the Company.
During fiscal 1993, recoveries by AOP dealers on chargebacks which occurred
during the fiscal year totalled approximately $5,000,000. Recoveries on
chargebacks which occurred during fiscal 1992 totalled approximately $4,100,000.
As a percentage of gross chargebacks during 1993
7
<PAGE>
and 1992, the recoveries represented 38% and 42%, respectively. The credit loss
ratios as a percentage of the average portfolio balance at September 30, 1993
and 1992 were 2.0% and 1.9%, respectively, after adjusting for recoveries.
Reserves for credit losses are maintained by the AOP dealers and AOP. On a
monthly basis, the Company reports the respective net investment value of the
lease portfolio to each AOP dealer so the AOP dealer can properly accrue the
credit reserve balance. In accordance with AOP policy, each AOP dealer must
maintain aggregate reserves of at least 3% of the AOP dealer's total portfolio.
Reserves maintained for fiscal 1994 (first quarter), 1993, 1992 and 1991 were as
follows:
<TABLE>
<CAPTION>
(dollars in millions)
Ending Total
Fiscal Portfolio Default % of
Period Balance Reserve Portfolio
------ --------- ------- ---------
<S> <C> <C> <C>
1994 (first quarter) $503.9 $25.9 5.1%
1993 $472.0 $25.2 5.3%
1992 $363.5 $17.2 4.7%
1991 $265.7 $10.3 3.9%
</TABLE>
Delinquencies remained at a consistent level for fiscal 1993 and 1992.
During this two-year period, accounts classified as current (less than 30 days
past due) ranged from 88% to 91% of the total portfolio balance on a monthly
basis. The aging of the Company's lease portfolio receivables at December 31,
1993 was as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C> <C>
Current $529,336 89.9%
Over 30 days 39,504 6.7%
Over 60 days 13,188 2.3%
Over 90 days 6,712 1.1%
------ ----
$588,740 100.0%
======
Less:
Unearned interest (84,877)
--------
$503,863
========
</TABLE>
Funding
The majority of the Company's debt funding has been through privately
placed term notes with banks and an insurance company. The Company has followed
a policy of matching the maturities of borrowed funds to the average life of the
leases being financed in order to minimize the impact of interest rate changes
on its operations. All notes carry terms of one to three years and are either at
fixed interest rates or have had the interest rate risk eliminated
8
<PAGE>
through interest rate swap contracts. (See Note 5 to the Company's Financial
Statements, beginning on page 18 hereof). Covenants in the note agreements with
Existing Lenders include a minimum fixed charge coverage requirement of 1.3
times fixed charges and a maximum debt-to-equity ratio of 6 to 1. Also, there is
a covenant in each note agreement which requires each Existing Lender's consent
to any amendment to the 1991 Maintenance and Operating Agreements (see page 5
hereof for a description of the 1991 Maintenance and Operating Agreements). As
of September 30, 1993, the amounts outstanding under the Company's note
agreements totalled $395,000,000.
Historically, the only other funding source for the Company has been
capital contributions received from Alco. As of September 30, 1993, the
Company's total shareholders' equity was $65,957,000, of which $45,115,000
consisted of contributed capital.
The Company is presently considering an additional source of outside
funding through the sale of $125,000,000 of lease contracts. This would be in
the form of an asset securitization program which is in the process of being
evaluated by the Company.
Employees
At December 31, 1993, the Company had approximately 100 employees. Employee
relations are considered to be excellent.
Competition and Government Regulation
The finance business in which the Company is engaged is highly competitive.
Competitors include leasing companies, commercial finance companies, commercial
banks and other financial institutions.
The Company competes primarily on the basis of financing rates, customer
convenience and quality customer service. AOP dealers offer financing by the
Company at the time equipment is leased or sold to the customer, reducing the
likelihood that the customer will contact outside funding sources. There is a
communications network between the Company and the AOP dealers to allow prompt
transmittal of customer and product information. Contract documentation is
straightforward and clearly written, so that financings are completed quickly
and to the customer's satisfaction. Finally, both the Company and the AOP
dealers are firmly committed to providing excellent customer service over the
duration of the contract.
Certain states have enacted retail installment sales or installment loan
statutes relating to consumer credit, the terms of which vary from state to
state. The Company does not generally extend consumer credit as defined in those
statutes.
The financing activities of the Company are dependent upon sales or leases
of office equipment by the AOP dealers, who are subject to substantial
competition by both independent office equipment dealers and the direct sales
forces of office equipment manufacturers. AOP is the largest network of
independent copier and office equipment dealers in North America and in the
United Kingdom, and represents the only independent distribution network with
national scope. AOP dealers compete on the basis of price, quality of service
and product performance.
9
<PAGE>
Item 2. Financial Information
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations
----------
Pursuant to General Instruction J(2)(a) of Form 10-K, the following
analysis of the results of operations is presented in lieu of Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Quarter Ended December 31, 1993 Compared with the
Quarter Ended December 31, 1992
-------------------------------------------------
Comparative summarized quarterly results of operation for the quarters
ending December 31, 1993 and December 31, 1992 are set forth in the table below.
This table also shows the increase in the dollar amounts of major revenue and
expense items between quarters, as well as the percentage increase/decrease.
<TABLE>
<CAPTION>
(dollars in thousands) Quarters
Ended December 31 Increase
----------------- --------
1993 1992 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues
Lease finance income $13,668 $10,596 $3,072 29.0%
Interest on Alco income tax
deferral 801 600 201 33.5
Other income 642 488 154 31.6
------ ------ -----
15,111 11,684 3,427 29.3
Expenses
Interest (5,994) (5,735) 259 4.5
General & administrative (4,344) (3,064) 1,280 41.8
------ ------ -----
Income before income taxes
and cumulative effect of change
in accounting principle 4,773 2,885 1,888 65.4
Income taxes (1,861) (1,153) 708 61.4
------ ------ -----
Income before cumulative effect
of change in accounting
principle 2,912 1,732 1,180 68.1
Cumulative effect of change
in accounting principle for
income taxes 140 140
------ ------ -----
Net income $ 3,052 $ 1,732 $1,320 76.2%
======= ======= ======
</TABLE>
10
<PAGE>
Revenues
- --------
First quarter revenues increased $3,400,000 or 29.3% from the quarter ended
December 31, 1992 to the quarter ended December 31, 1993. This increase was
primarily due to the improvement in lease finance income, reflecting the
continued growth of the lease portfolio, which increased 30.3% from December 31,
1992 to December 31, 1993.
Expenses
- --------
Despite portfolio growth, interest expense grew by only $259,000 or 4.5%,
due to an increase in average borrowings to finance the lease portfolio. Average
borrowings were $407,900,000 during the first quarter of fiscal 1994, as
compared to $308,000,000 during the first quarter of fiscal 1993. The increase
in average borrowings was largely offset by reductions in the Company's
incremental borrowing rate. The weighted average borrowing rate of notes payable
at December 31, 1993 was 5.91% as compared to 7.15% at December 31, 1992.
General and administrative expenses include the lease bonus program which
is paid to AOP dealers based on new lease volume. The dealer lease bonus
payments were, $1,724,000 for the first quarter of fiscal 1994, and $1,352,000
for the first quarter of fiscal 1993, reflecting increased lease volume in
fiscal 1994.
Excluding the effect of the lease bonus program, remaining general and
administrative expenses rose $908,000 or 53% to $2,620,000 for the first quarter
of fiscal 1994. This expense growth rate continues to be indicative of the
growth rate of the portfolio and the Company, and reflects recent expansions of
its facilities, computer systems and products.
Pre-tax Income
- --------------
Pre-tax income increased $1,888,000 or 65.4%, when comparing the first
quarter of fiscal 1994 to the first quarter of fiscal 1993. This increase is
essentially due to the net effect of higher lease income and lower incremental
borrowing rates.
Income Taxes/Accounting Changes
- -------------------------------
The increase of $708,000 in income taxes is attributable to the increase in
pre-tax income and an increase in the statutory federal rate to 35% for the
first quarter of fiscal 1994 from 34% for the first quarter of fiscal 1993.
In the first quarter of fiscal 1994, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes", which resulted in an increase in net income of $140,000 for the quarter.
This amount represented the cumulative effect of this accounting change.
11
<PAGE>
Fiscal Year 1993 Compared with Fiscal Year 1992
-----------------------------------------------
Comparative summarized results of operation for the fiscal years ended
September 30, 1993 and September 30, 1992 are set forth in the table below. This
table also shows the increase or decrease in the dollar amounts of major revenue
and expense items between years, as well as the percentage increase/decrease.
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Year
Ended Sept. 30 Increase(Decrease)
------------------ ------------------
1993 1992 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Revenues
Lease finance income $ 46,880 $ 35,693 $11,187 31.3%
Interest on Alco income
tax deferral 2,926 3,050 (124) (4.1)
Other income 2,377 1,158 1,219 105.3
------ ------ ------
52,183 39,901 12,282 30.8
Expenses
Interest (22,701) (20,068) 2,633 13.1
General & administrative (13,928) (9,253) 4,675 50.5
------ ------ ------
Income before income taxes 15,554 10,580 4,974 47.0
Income taxes (6,218) (4,033) 2,185 54.2
------ ------ ------
Net income $ 9,336 $ 6,547 $ 2,789 42.6%
====== ====== ======
</TABLE>
Revenues
- --------
Overall revenues increased $12,300,000 during fiscal 1993 or 30.8%, which
was primarily a result of the growth in the lease portfolio. The net lease
portfolio increased 29.8% during fiscal 1993 from $363,500,000 to $472,000,000.
There were no significant changes in the lease rates charged by the Company
during fiscal 1993; accordingly, lease finance income grew 31.3% in fiscal 1993
as compared to fiscal 1992 as a direct result of the growth in the lease
portfolio.
The Company charges Alco interest on the benefit Alco receives for income
tax deferrals associated with the Company's leasing transactions. The interest
rate is set each year by agreement between Alco and the Company. The $124,000 or
4.1% decline in the interest income during fiscal 1993 is due to a reduction in
the interest rate from 9% in fiscal 1992 to 6% in fiscal 1993.
Other income, which consists primarily of late charges and billing fees,
grew $1,200,000 or 105.3% in fiscal 1993, reflecting the growth in the lease
portfolio base upon which these fees are applied.
12
<PAGE>
Expenses
- --------
Interest expense grew $2,600,000 or 13.1% during fiscal 1993, reflecting an
increase in average borrowings to finance the lease portfolio of $346,600,000 in
fiscal 1993 from $253,500,000 in fiscal 1992. This increase was offset by a
reduction in borrowing rates during 1993. The weighted average rate of loans
outstanding at September 30, 1993 was 6.01% as compared to 7.40% at September
30, 1992.
The increase in general and administrative expenses includes an increase of
79% in the lease bonus program payments made to AOP dealers to $5,900,000 in
fiscal 1993 from $3,300,000 in fiscal 1992. Fiscal 1993 represented the first
full year of the lease bonus program, which was in effect for only the last nine
months of fiscal 1992.
Excluding the effect of the lease bonus program, remaining general and
administrative expenses rose $2,100,000 or 34.9% during fiscal 1993, which
corresponds to the growth of the lease portfolio during this same period. In
addition, the Company was engaged in bringing several new leasing programs and
services on-line that will increase effectiveness and fee income in the future.
Pre-tax Income
- --------------
Fiscal 1993 pre-tax income increased $5,000,000 or 47% as compared to
fiscal 1992. As previously discussed, this increase is primarily due to the
lease income on a larger lease portfolio.
Income Taxes
- ------------
The increase of $2,185,000 in income taxes was attributable to the increase
in pre-tax income and an increase in the statutory federal rate to 35% during
fiscal 1993 from 34% in fiscal 1992.
13
<PAGE>
Quarterly Data
--------------
The following table shows comparative summarized quarterly results for
fiscal 1994 (first quarter only), 1993 and 1992.
<TABLE>
<CAPTION>
(in thousands)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
- ----
Lease finance income $13,668 $ $ $ $13,668
Interest expense 5,994 5,994
Income before income taxes 4,773 4,773
Net income 3,052 3,052
1993
- ----
Lease finance income $10,596 $11,313 $12,097 $12,874 $46,880
Interest expense 5,735 5,382 5,745 5,839 22,701
Income before income taxes 2,885 3,875 4,171 4,623 15,554
Net income 1,732 2,326 2,503 2,775 9,336
1992
- ----
Lease finance income $ 7,963 $ 8,567 $ 9,226 $ 9,937 $35,693
Interest expense 4,673 4,870 5,056 5,469 20,068
Income before taxes 2,702 2,310 2,457 3,111 10,580
Net income 1,675 1,432 1,524 1,916 6,547
</TABLE>
Any additional information required by this item has been omitted pursuant
to General Instruction J(2)(a) of Form 10-K.
Item 3. Properties
The Company's operations are located in a leased facility located in Macon,
Georgia occupying approximately 19,000 square feet. In August 1994, the Company
will expand its operations to occupy an additional 18,000 square feet of space
in a newly constructed adjoining facility. Certain specialized services are also
performed for the Company at Alco's corporate headquarters located in Valley
Forge, Pennsylvania. The Company's facilities are deemed adequate by management
to conduct the Company's business. See Note 6 of Notes to Financial Statements
under Item 15 for additional information as to lease commitments.
Any additional information called for by this item has been omitted
pursuant to General Instruction J(2)(d).
14
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item has been omitted pursuant to
General Instruction J(2)(c).
Item 5. Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Richard P. Maier has been President of the Company since 1989. He joined
----------------
the Company's parent, Alco Standard Corporation, in 1981 as Controller of the
Alco Automotive Group and was promoted to Division Controller of Alco Office
Products in 1983. He served as Vice President of Acme Business Products (an AOP
dealer) from 1984 to 1988 and became Vice President of Alco Capital in 1988.
Robert M. Kearns II is Vice President of the Company. He is also Vice
-------------------
President - Finance of the Alco Office Products Group of Alco Standard
Corporation (which includes all of the AOP dealers). Before assuming his current
responsibilities, Mr. Kearns was Vice President - Finance of Copyrite, an AOP
dealer located in Indianapolis, Indiana.
James E. Head is the sole director of the Company. He is also President of
-------------
the Alco Office Products Group of Alco Standard Corporation (which includes all
of the AOP dealers). Before assuming his current responsibilities, Mr. Head was
President of Copyrite, an AOP dealer located in Indianapolis, Indiana.
Item 6. Executive Compensation
The information called for by this item has been omitted pursuant to
General Instruction J(2)(c).
Item 7. Certain Relationships and Related Transactions
See Item 1 hereof for information concerning the relationship between the
Company, Alco and the AOP dealers.
Any additional information required by this item has been omitted pursuant
to General Instruction J(2)(c).
Item 8. Legal Proceedings
The Company does not believe that the outcome of lawsuits or other legal
proceedings to which it is a party (or to which any of its property is subject)
will materially affect the Company or its operations. To the Company's
knowledge, no material legal proceedings are contemplated by governmental
authorities against the Company or its properties.
15
<PAGE>
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
All outstanding shares of the Company's common stock are currently owned by
AOP, Inc., a subsidiary of MDR Corporation, which is a subsidiary of Alco.
Therefore, there is no market for the Company's common stock. In the first
quarter of 1992, the Company paid a dividend of $182,000 to its parent and there
have been no subsequent dividends paid by the Company. The Company and Alco
will, from time to time, determine the appropriate capitalization for the
Company, which will, in part, affect any future payment of dividends to or
capital contributions to the Company.
Item 10. Recent Sales of Unregistered Securities
None
Item 11. Description of Registrant's Securities to be Registered
The class of securities to be registered is the Common Stock, par value of
$.01 per share, of the Company. There are 1,000 shares of authorized Common
Stock, of which 1000 shares are issued, outstanding, fully paid and
nonassessable. Each holder of Common Stock of the Company is entitled (a) to
receive dividends if, as, and when declared payable by the Board of Directors
out of funds legally available for such payment, and (b) to one vote for each
share held on all matters submitted for a stockholder vote. There are no
cumulative voting rights. The Board of Directors is not classified. The Common
Stock has no preemptive rights or conversion rights and is not subject to any
redemption or sinking fund provisions. Upon liquidation, the holders of the
Common Stock are entitled to share pro rata in any liquidating distributions to
stockholders. There are no provisions discriminating against any existing or
prospective holder of Common Stock as a result of any holder of Common Stock
owning a substantial amount of Common Stock.
Item 12. Indemnification of Directors and Officers
As permitted by Delaware law, under which the Company is incorporated, the
Company's Articles of Incorporation and By-Laws provide that officers and
directors of the Company shall be indemnified for expenses (including attorneys'
fees) reasonably incurred in the successful defense of a suit or proceeding
brought by reason of such persons being officers or directors of the Company.
If unsuccessful in defense of a third-party civil suit or a criminal suit,
or if such a suit is settled, such a person shall be indemnified under the By-
Laws against both (1) expenses (including attorneys' fees) and (2) judgments,
fines and amounts paid in settlement if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, if he had no reasonable cause
to believe his conduct was unlawful.
16
<PAGE>
If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person may be indemnified under
state law only against expenses (including attorneys' fees) incurred in the
defense or settlement of such suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company except that if such a person is adjudged to be liable in such a suit for
negligence or misconduct in the performance of his duty to the Company, he
cannot be indemnified unless specific court approval is obtained.
The Company has purchased liability insurance policies covering its
directors and officers to provide protection where the Company cannot legally
indemnify a director or officer and where a claim arises under the Employee
Retirement Income Security Act of 1974 against a director or officer based upon
an alleged breach of fiduciary duty or other wrongful act.
Item 13. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are
listed in Item 15.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
17
<PAGE>
Item 15. Financial Statements and Exhibits
(a) 1. Financial Statements Page
-------------------- ----
Report of Ernst & Young,
Independent Auditors 19
Balance Sheets at December 31, 1993
(unaudited) and September 30, 1993 and 1992 20
Statements of Income for the three months ended
December 31, 1993 and 1992 (unaudited) and
fiscal years ended September 30, 1993, 1992
and 1991 21
Statements of Changes in Shareholder's Equity
for the three months ended December 31, 1993,
(unaudited) and the fiscal years ended
September 30, 1993, 1992 and 1991 22
Statements of Cash Flows for the three months
ended December 31, 1993 and 1992 (unaudited)
and fiscal years ended September 30, 1993,
1992 and 1991 23
Notes to Financial Statements 24
Financial Statements and Schedules other than those listed above are
omitted because the required information is included in the financial statements
or the notes thereto or because they are inapplicable.
(b) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed in the
accompanying exhibit index.
18
<PAGE>
Report of Independent Auditors
Board of Directors
Alco Standard Corporation
We have audited the accompanying balance sheets of Alco Capital Resource, Inc.
(a wholly-owned subsidiary of Alco Standard Corporation) as of September 30,
1993 and 1992, and the related statements of income, changes in shareholder's
equity, and cash flows for each of the three years in the period ended
September 30, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alco Capital Resource, Inc.
at September 30, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years ended September 30, 1993, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young
Ernst & Young
October 22, 1993
Philadelphia, Pennsylvania
19
<PAGE>
Alco Capital Resource, Inc.
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30
December 31 ---------------
1993 1993 1992
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Investments in leases (notes 3 and 4):
Direct financing leases $503,727 $467,199 $325,446
Less: Unearned income (76,709) (71,703) (51,050)
-------- -------- --------
427,018 395,496 274,396
Funded leases, net 76,845 76,499 89,070
-------- -------- --------
503,863 471,995 363,466
Accounts receivable 12,606 9,863 8,418
Due from Alco Standard Corporation (note 3) 6,294 552
Prepaid expenses 67 282 74
Property and equipment at cost, less accumulated
depreciation of: 12/93 - $1,643; 9/93 - $1,572;
9/92 - $1,189 (note 2) 704 677 958
-------- -------- --------
Total assets $523,534 $483,369 $372,916
======== ======== ========
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued expenses $ 3,955 $ 2,866 $ 2,739
Accrued interest 4,373 5,337 4,653
Due to Alco Standard Corporation (note 3) 9,549
Income taxes payable 1,628 1,867
Notes payable (note 5) 428,000 395,000 290,000
Deferred income taxes (note 7) 14,069 14,209 10,102
-------- -------- --------
Total liabilities 452,025 417,412 318,910
Shareholder's equity:
Common Stock - $.01 par value, 1,000 shares
authorized, issued, and outstanding
Contributed capital 47,615 45,115 42,500
Retained earnings 23,894 20,842 11,506
-------- -------- --------
Total shareholder's equity 71,509 65,957 54,006
-------- -------- --------
Total liabilities and shareholder's equity $523,534 $483,369 $372,916
======== ======== ========
</TABLE>
See accompanying notes.
20
<PAGE>
Alco Capital Resource, Inc.
Statements of Income
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
December 31 September 30
---------------------- ----------------------------------
1993 1992 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Lease finance income (note 2) $ 13,668 $ 10,596 $ 46,880 $ 35,693 $ 22,899
Rental contracts 1,489
Interest on Alco income tax deferrals (note 3) 801 600 2,926 3,050 1,800
Other income 642 488 2,377 1,158 536
-------- --------- --------- ---------- --------
15,111 11,684 52,183 39,901 26,724
Expenses:
Interest (note 3) 5,994 5,735 22,701 20,068 14,126
General and administrative (note 2) 4,344 3,064 13,928 9,253 4,541
-------- --------- --------- ---------- --------
10,338 8,799 36,629 29,321 18,667
-------- --------- --------- ---------- --------
Income before income taxes and
cumulative effect of change in
accounting principle 4,773 2,885 15,554 10,580 8,057
Provision for income taxes (note 7):
Current 335 202 1,118 1,831 203
Deferred 1,526 951 5,100 2,202 2,952
-------- --------- --------- ---------- --------
1,861 1,153 6,218 4,033 3,155
-------- --------- --------- ---------- --------
Income before cumulative effect of
change in accounting principle 2,912 1,732 9,336 6,547 4,902
Cumulative effect of change in
accounting for income taxes (note 7) 140
-------- --------- --------- ---------- --------
Net income $ 3,052 $ 1,732 $ 9,336 $ 6,547 $ 4,902
======== ========= ========= ========== ========
</TABLE>
See accompanying notes.
21
<PAGE>
Alco Capital Resource, Inc.
Statements of Changes in Shareholder's Equity
(in thousands)
<TABLE>
<CAPTION>
Common Contributed Retained
Stock Capital Earnings Total
------- ----------- -------- -------
<S> <C> <C> <C> <C>
Balance at October 1, 1990 $ * $ 32,352 $ 4,330 $ 36,682
Net income 4,902 4,902
Capital contribution from Alco 13,250 13,250
Dividends paid to Alco, including return
of contributed capital, - $7.19 per share (3,102) (4,091) (7,193)
------- -------- ------- --------
Balance at September 30, 1991 42,500 5,141 47,641
Net income 6,547 6,547
Dividends paid to Alco - $.18 per share (182) (182)
------- -------- ------- --------
Balance at September 30, 1992 42,500 11,506 54,006
Net income 9,336 9,336
Capital contribution from Alco 2,615 2,615
------- -------- ------- --------
Balance at September 30, 1993 45,115 20,842 65,957
Net income 3,052 3,052
Capital contribution from Alco 2,500 2,500
------- -------- ------- --------
Balance at December 31, 1993 $ * $ 47,615 $23,894 $ 71,509
======= ======== ======= ========
</TABLE>
* Amount is less than one thousand dollars.
See accompanying notes.
22
<PAGE>
Alco Capital Resource, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
December 31 September 30
--------------------- -----------------------------------
1993 1992 1993 1992 1991
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income $ 3,052 $ 1,732 $ 9,336 $ 6,547 $ 4,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 71 100 383 428 358
Cumulative effect of change in accounting
principle (140)
Provision for deferred taxes 1,526 951 5,100 2,202 2,952
Changes in operating assets and liabilities:
Accounts receivable (2,743) (395) (1,445) (3,290) (2,030)
Income taxes 1,628 (663) (2,860) (2,962) 2,518
Prepaid expenses 215 6 (208) (14) 110
Accounts payable and accrued expenses 1,089 (334) 127 867 451
Accrued interest (964) 343 684 561 1,785
---------- --------- ---------- ---------- ---------
Net cash provided by operating activities 3,734 1,740 11,117 4,339 11,046
Investing activities
Purchases of property and equipment, net (98) (6) (102) (515) (239)
Lease additions, net of cancellations (78,502) (60,460) (272,721) (221,006) (185,528)
Lease collections 45,108 37,358 164,192 123,277 71,652
Rental contract additions, net of cancellations (4,032)
Rental contract collections 16,160
---------- --------- ---------- ---------- ---------
Net cash used by investing activities (33,492) (23,108) (108,631) (98,244) (101,987)
Financing activities
Proceeds from bank borrowings 33,000 40,000 180,000 122,000 105,000
Payments on bank borrowings (22,000) (75,000) (48,000) (13,000)
Contributed capital 2,500 2,615 13,250
Dividends paid, including return
of contributed capital (182) (7,193)
---------- --------- ---------- ---------- ---------
Net cash provided by financing activities 35,500 18,000 107,615 73,818 98,057
---------- --------- ---------- ---------- ---------
Decrease (increase) in amounts due to Alco 5,742 (3,368) 10,101 (20,087) 7,116
Due (to) from Alco at beginning of period 552 (9,549) (9,549) 10,538 3,422
---------- --------- ---------- ---------- ---------
Due from (to) Alco at end of period $ 6,294 $ (12,917) $ 552 $ (9,549) $ 10,538
========== ========= ========== ========== =========
</TABLE>
See accompanying notes.
23
<PAGE>
Alco Capital Resource, Inc.
Notes to Financial Statements
(All references to December 31, 1993
and 1992 are unaudited)
1. Business
Alco Capital Resource, Inc. ("ACR" or the "Company"), an indirect wholly-owned
subsidiary of Alco Standard Corporation ("Alco"), purchases office equipment
exclusively from dealers in Alco's Office Products Group ("AOP dealers") and
leases the equipment to third-party customers under direct financing leases.
The Company also funds direct financing leases and noncancellable rental
contracts entered into by AOP dealers.
2. Accounting Policies
Revenue Recognition
Unearned lease finance income is amortized into revenue using the effective
interest method over the term of the lease agreements or rental contracts.
Property and Equipment
Property and equipment is carried on the basis of cost. Depreciation is
computed using a combination of straight-line and accelerated methods over the
estimated useful lives of the assets.
Income Taxes
The Company's deferred tax expense and the related liability are primarily the
result of the difference between the financial statement and income tax
treatment of direct financing leases.
Fair Value Disclosures
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
Company has computed and disclosed the fair value of its notes payable and
interest rate swaps (Note 5).
24
<PAGE>
3. Agreements between ACR and Alco
Cash Management Program
The Company participates in Alco's working capital cash management program.
Under this program, the Company has accounts with Alco wherein cash temporarily
in excess of current operating requirements earns interest at rates established
by Alco. Similarly, amounts are periodically borrowed from Alco, with interest
charged at market rates on borrowed funds. The Company was a net borrower during
fiscal years 1993, 1992 and 1991 and incurred net interest costs of $579,000,
$1,090,000 and $510,000, respectively, under this program. The Company considers
its account with Alco to represent its cash balance. Accordingly, the
accompanying Statements of Cash Flows present the changes in the caption "Due
from (to) Alco".
Included in general and administrative expenses are corporate overhead expenses
charged by Alco of $360,000, $192,000 and $180,000 in fiscal years 1993, 1992
and 1991, respectively. These corporate charges represent management's estimate
of costs incurred by Alco on behalf of ACR.
Interest on Alco Income Tax Deferrals
The Company charges Alco interest on Alco's income tax deferrals associated with
the Company's leasing transactions. Such charges were calculated at 6% in 1993
and 9% in 1992 and 1991.
Operating Agreement
In the event of default of any lease on equipment purchased by the Company from
AOP dealers, the Operating Agreement requires Alco to repurchase the equipment
at the net investment value of the lease on the default date. Default is defined
by the Operating Agreement as any receivable becoming 120 days past due or
otherwise being reasonably declared uncollectible by the Company. At December
31, 1993 and September 30, 1993 and 1992, all of the Company's accounts
receivable and direct financing leases, including residual values, were subject
to such repurchase terms. In view of the foregoing terms of the Operating
Agreement, the Company has made no provision in the accompanying financial
statements for uncollectible receivables.
Maintenance Agreement
The Maintenance Agreement between the Company and Alco provides that Alco will
pay fees and make capital contributions to the Company in amounts sufficient to
meet the restrictive financial covenants included in the Company's loan
agreements (Note 5).
4. Investment in Leases
The Company's funded leases include certain internal lease portfolios and non-
cancellable rental contracts for AOP dealers, which have been financed by the
Company. Under the terms
25
<PAGE>
4. Investment in Leases (continued)
of these financing arrangements, the AOP dealer maintains the contractual
relationship with the third party customer.
The AOP dealers have assigned to the Company, with full recourse, their rights
under the funded leases, including the right to receive lease and rental
payments and a security interest in the related equipment.
At September 30, 1993, aggregate future minimum payments to be received,
including guaranteed residual values, for each of the succeeding fiscal years
under direct financing and funded leases are as follows (in thousands):
<TABLE>
<CAPTION>
Direct
Financing Funded
Leases Leases
-------- --------
<S> <C> <C>
1994 $183,549 $ 34,147
1995 144,828 26,940
1996 89,845 16,696
1997 38,913 7,223
1998 10,064 1,892
-------- --------
467,199 86,898
Less unearned interest (71,703) (10,399)
-------- --------
$395,496 $ 76,499
======== ========
</TABLE>
5. Notes Payable
Notes payable to various banks at September 30, 1993 bear interest at rates
ranging from 4.01% to 8.62% (5.32% to 9.45% at September 30, 1992) and mature on
various dates through September 30, 1996. The weighted average interest rate for
the notes outstanding at September 30, 1993 was 6.01% (7.40% at September 30,
1992).
Future maturities of all notes payable outstanding at September 30, 1993 are as
follows (in thousands):
Fiscal 1994 $113,000
1995 167,000
1996 115,000
--------
$395,000
========
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its variable rate notes payable. At September
30, 1993, the Company had outstanding four interest rate swap agreements with
commercial banks, having a total notional principal amount of $92 million. Those
agreements effectively change the Company's interest rate exposure on $92
million of variable rate notes due in 1994 through 1996 to rates ranging from
4.69% to 8.43%. The interest rate swap agreements mature at the time the related
notes
26
<PAGE>
5. Notes Payable (continued)
mature. The Company is exposed to credit loss in the event of nonperformance by
the counterparties to the interest rate swap agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company must comply with certain restrictive covenants under the terms of
its loan agreements. Among other things, the Company agrees to maintain earnings
before fixed charges (primarily interest) of not less than 1.3 times fixed
charges, a ratio of debt to tangible net worth not exceeding 6 to 1 and tangible
net worth not less than $1.
Interest paid amounted to $6,970,000 and $5,156,000 for the three months ended
December 31, 1993 and 1992, respectively, and $22,122,000, $19,507,000 and
$12,340,000 for the fiscal years ended September 30, 1993, 1992 and 1991,
respectively.
At September 30, 1993, the fair value of the Company's notes payable is
estimated to be $398,860,000 using a discounted cash flow analysis. Fair values
for the Company's interest rate swaps (off-balance sheet instruments) are
estimated to be $1,241,000 based on the estimated costs to terminate the
agreements.
6. Lease Commitments
The Company leases office space under a 10-year agreement which began October 1,
1990 from a joint venture in which a wholly-owned subsidiary of Alco has a 50%
ownership, for an amount which management believes is not above the current
market rate. Total rent expense aggregated $319,000 in 1993, $234,000 in 1992
and $180,000 in 1991 under all operating leases. Future minimum rent commitments
under operating lease agreements as of September 30, 1993 are as follows (in
thousands):
1994 $ 198
1995 176
1996 190
1997 167
1998 167
Thereafter 334
---
Total $1,232
=====
7. Income Taxes
Taxable income of the Company is included in the consolidated federal income tax
return of Alco and all estimated tax payments and refunds, if any, are made
through Alco. The provision for income taxes was determined as if the Company
were a separate taxpayer.
27
<PAGE>
7. Income Taxes (continued)
Provision for income taxes:
Fiscal Year Ended September 30 (in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
Current Deferred Current Deferred Current Deferred
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Federal $ 702 $4,527 $1,913 $1,780 $ 20 $2,431
State 416 573 (82) 422 183 521
------ ------ ------ ------ ---- ------
Taxes on income $1,118 $5,100 $1,831 $2,202 $203 $2,952
====== ====== ====== ====== ==== ======
</TABLE>
Deferred taxes resulting from temporary differences between financial and tax
accounting:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30 (in thousands)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Lease income recognition $5,190 $2,400 $3,290
Other (90) (198) (338)
------ ------ ------
Deferred taxes $5,100 $2,202 $2,952
====== ====== ======
</TABLE>
The deferred tax expense and the related liability result primarily from
differences in the method of recognizing income from investments in leases for
financial reporting and income tax purposes.
A reconciliation of income taxes provided with those calculated at the statutory
federal rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Taxes at Federal statutory rate 34.8% 34.0% 34.0%
State taxes, net of federal benefit 3.9 3.2 4.7
Increase in deferred tax liability
due to increase in statutory rate 2.0 - -
Other (0.7) 0.9 0.4
----- ----- -----
Effective income tax rate 40.0% 38.1% 39.1%
===== ===== =====
</TABLE>
The Company made net tax payments to Alco amounting to $146,000 and $2,015,000
for the three months ended December 31, 1993 and 1992, respectively, and
$4,214,000 and $4,706,000 in fiscal years 1993 and 1992, respectively. In
fiscal 1991, the Company received net tax refunds from Alco of $2,859,000.
Effective October 1, 1993, the Company adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes". The cumulative effect of adopting SFAS No. 109
was to increase net income by $140,000 in the first quarter of fiscal 1994.
28
<PAGE>
8. Pension and Stock Purchase Plan
The Company participates in Alco's defined benefit pension plan covering the
majority of its employees. The Company's policy is to fund pension costs as
accrued. Pension expense recorded in 1993, 1992 and 1991 was $12,000, $8,400
and $4,700, respectively.
The majority of the Company's employees are also eligible to participate in
Alco's Stock Participation Plan. They may invest 2% to 6% of regular
compensation before taxes. The Company contributes an amount equal to two-
thirds of the employees' investments and all amounts are invested in Alco's
common shares. Employees fully vest in the Company's contributions upon the
completion of five years of service. The cost of this plan amounted to $63,200,
$46,500 and $33,900 in 1993, 1992 and 1991, respectively.
9. Supplementary Income Statement Information
The following supplementary information is provided pursuant to Regulation S-X
Section 210.5-04 (in thousands):
<TABLE>
<CAPTION>
Charged To
Cost And Expenses
Fiscal Years ended September 30
-------------------------------
Item 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and repairs $ * $ * $ *
Depreciation and amortization of
intangible assets, pre-operating
costs and similar deferrals * * 359
Taxes, other than payroll and
income taxes: Property tax expense * 510 301
Royalties * * *
Advertising costs * * *
- --------------------------------------------------------------------------
</TABLE>
* Less than 1% of total revenues
29
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALCO CAPITAL RESOURCE, INC.
Date: May 3, 1994 By:__________________________
Richard P. Maier
President
30
<PAGE>
ALCO CAPITAL RESOURCE, INC.
INDEX TO EXHIBITS
Exhibit No. Title Page
- ----------- ----- ----
3.1 Articles of Incorporation of the Company 32
3.2 Bylaws of the Company 35
4.1 Pursuant to Regulation S-K item 601 (b)(4)(iii),
the Company agrees to furnish to the Commission,
upon request, a copy of instruments defining the
rights of holders of long-term debt of the Company.
10.1 Federal Income Tax Allocation Agreement. 44
10.2 Maintenance Agreement, dated as of August 15, 1991, 55
between the Company and Alco Standard Corporation.
10.3 Operating Agreement, dated as of August 15, 1991, 62
between the Company and Alco Standard Corporation.
31
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ALCO CAPITAL RESOURCE, INC.
Pursuant to Section 102 of the Delaware General Corporation Law, we hereby
submit the following:
FIRST: The name of the corporation is Alco Capital Resources, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, DE 19801. (County of New Castle)
The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware, as amended.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is 1,000 shares of Common Stock having a par value of
$.01 per share.
FIFTH: The name and mailing address of the incorporator is:
Name Address
- ---- -------
Barbara H. Moyer P.O. Box 834
Valley Forge, PA 19482
SIXTH: The name and mailing address of the person who is to serve as
director until the first annual meeting of the stockholders is as follows:
Name Address
- ---- -------
Richard C. Gozon P.O. Box 834
Valley Forge, PA 19482
SEVENTH: Meetings of the stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the corporation
may be kept (subject to any provision contained in the statutes of the State of
Delaware) outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws of the
corporation.
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EIGHT: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or
repeal the By-Laws of the corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH: No Director shall be personally liable to the corporation or any
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or successor provision thereto or
shall be liable by reason that, in addition to any and all other requirements
for such liability, he (i) shall have breached his duty of loyalty to the
corporation or its stockholders, (ii) shall not have acted in good faith or,
in failing to act, shall not have acted in good faith, (iii) shall have acted
in a manner involving intentional misconduct or a knowing violation of law or,
in failing to act, shall have acted in a manner involving intentional
misconduct or a knowing violation of law or (iv) shall have derived an
improper personal benefit. Neither the amendment nor repeal of this Article
X., nor the adoption of any provision of the certificate of incorporation
inconsistent with this Article X., shall eliminate or reduce the effect of
this Article X. in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Article X. would accrue or arise prior to
such amendment, repeal or adoption of an inconsistent provision.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State
of Delaware, as amended, does make this Certificate, hereby declaring and
certifying that this is her act and deed and the facts herein stated are true,
and accordingly has hereunto set her hand this 11th day of December, 1987.
/s/ Barbara H. Moyer
--------------------
Barbara H. Moyer
33
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CERTIFICATE OF CORRECTION
OF THE
CERTIFICATE OF INCORPORATION
OF
ALCO CAPITAL RESOURCES, INC.
Pursuant to Section 103(f) of the Delaware General Corporation Law, we
hereby submit the following:
(1) The inaccuracy or defect to be corrected in the Certificate of
Incorporation of Alco Capital Resources, Inc., which was filed on December 15,
1987 is:
FIRST: The name of the corporation is Alco Capital Resources, Inc.
(2) The corrected instrument shall read as follows:
FIRST: The name of the corporation is Alco Capital Resource, Inc.
Dated: December 21, 1987
ALCO CAPITAL RESOURCE, INC.
By: /s/ Barbara H. Moyer
---------------------
Barbara H. Moyer
Incorporator
34
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EXHIBIT 3.2
ALCO CAPITAL RESOURCE, INC.
BY-LAWS
ADOPTED: December 15, 1987
ARTICLE 1 - OFFICES
- -------------------
1.1 - Registered Office. The post office address in this state where the
-----------------
initial registered office of the corporation shall be located is set forth in
the Certificate of Incorporation.
1.2 - Other Offices. The corporation may also have offices at such other
-------------
places both within and without the State as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE 2 - MEETINGS OF STOCKHOLDERS
- ------------------------------------
2.1 - Annual Meetings. The annual meeting of stockholders shall be held
---------------
at such date after October 1 and prior to March 31 and at such time and place
either within or without the State as designated in the notice of meeting.
2.2 - Special Meetings. Special meetings of stockholders may be called
----------------
at any time by any officer, the board of directors or one or more stockholders
holding not less than 1/10 of the voting power of the corporation.
2.3 - Notice. Notice of any meeting shall be in writing given by any
------
officer at the direction of the president, secretary or person calling the
meeting not less than 10 nor more than 60 days before the meeting. Notice of
any meeting of stockholders shall specify the place, the day and the hour of
the meeting, and, in case of special meetings, the purpose or purposes for
which the meeting is called. Whenever any notice is required to be given to
any stockholder, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated therein,
shall be equivalent to the giving of such notice.
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2.4 - Quorum. The presence in person or by proxy of the stockholders
------
entitled to vote a majority of the voting shares at any meeting constitutes a
quorum for the purpose of considering such matter.
2.5 - Voting. Every stockholder of record shall have the right at every
------
stockholders' meeting to one vote for every share standing in such person's
name on the books of the corporation. Unless otherwise required by law, all
matters shall be decided by the vote of stockholders at the meeting who are
entitled to cast at least a majority of votes which all stockholders at the
meeting are entitled to cast.
2.6 - Proxies. Every person entitled to vote or execute consents or
-------
dissents to corporate action in writing without a meeting may do so either in
person or by one or more agents authorized by a written proxy executed by him.
Every proxy shall be filed with the secretary of the corporation.
2.7 - Written Consents. Any action which may be taken at a meeting of the
----------------
stockholders may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, shall be signed by all of the
stockholders who would be entitled to vote at a meeting on such purpose and
shall be filed with the
ARTICLE 3 - DIRECTORS
- ----------------------
3.1 - Number and Term. The board of directors shall consist of one or
---------------
more members. Whenever the stockholders shall elect as the board of directors, a
number of members, other than the number authorized in the certificate of
incorporation, such election shall be deemed to be an amendment to the
certificate of incorporation to provide for a board of directors consisting of
the number of members so elected. The directors, other than the first board of
directors, shall be elected at the annual meeting of the stockholders, and
each director elected shall serve until the next succeeding annual meeting and
until his successor shall have been elected and qualified. The first board of
directors shall hold office until the first annual meeting of stockholders.
36
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3.2 - Removal. Any director may be removed from office without cause at
-------
any time by a vote of the stockholders at a meeting expressly called for that
purpose, holding a majority of the outstanding shares entitled to vote at an
election of directors. If any or all directors are so removed, new directors
may be elected at the same meeting. Whenever a class or series of shares is
entitled to elect one or more directors under authority granted by the
articles, the provisions of this paragraph apply to the vote of that class or
series and not to the vote of the outstanding shares as a whole.
3.3 - Vacancies. Vacancies may be filled by a majority of the remaining
---------
directors or by a sole remaining director though less than a quorum.
ARTICLE 4 - MEETINGS OF THE BOARD OF DIRECTORS.
- -----------------------------------------------
4.1 - Place. Meetings of the board of directors may be held either
-----
within or without the State.
4.2 - Annual Meetings. The annual meeting of the directors shall be held,
---------------
without notice, immediately following the stockholders meeting at the place
fixed for the stockholders meeting or, on notice, at such time and place as
specified in the notice.
4.3 - Regular Meetings. Regular meetings of the board of directors may
----------------
be held upon such notice, or without notice, and at such time and at such place
as shall from time to time be determined by the board.
4.4 - Special Meetings. Special meetings of the board of directors may
----------------
be called by any officer or director.
4.5 - Notice. Notice of meetings of the board, if required, shall be
------
given by the secretary, treasurer, or any assistant secretary or any assistant
treasurer on or before the day before the meeting stating the time and place
of the meeting. Notice to each director shall be delivered personally, or sent
by mail or by other form of written communication or communicated orally.
Whenever any written notice is required to be given, a waiver thereof in
writing signed by the person entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a person, either in
37
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person or by proxy, at any meeting shall constitute a waiver of notice of such
meeting, except where a person attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
4.6 - Quorum. A quorum for the transaction of business shall consist of a
------
majority of the directors in office.
4.7 - Written Consent. Any action required or permitted to be taken by
---------------
the board of directors may be taken without meeting if all members of the board
shall severally or collectively consent in writing to such action.
4.8 - Meetings by Communications Equipment. One or more directors may
------------------------------------
participate in a meeting of the board by use of conference telephone or similar
telecommunication equipment whereby all persons participating in the meeting can
simultaneously communicate.
38
<PAGE>
ARTICLE 5 - OFFICERS
- --------------------
5.1 - Officers. The corporation shall have a president, a secretary and a
--------
treasurer, who shall be elected by the board of directors. The corporation may
have such other officers as may be deemed expedient who shall be elected by
the board. Any two or more offices, except those of president and secretary,
may be held by the same person.
5.2 - Term. The officers of the corporation shall hold office until their
----
successors are elected and qualify. Any officer may be removed at any time
without cause by the board of directors.
ARTICLE 6 - CERTIFICATES FOR SHARES; RECORD DATE
- -------------------------------------------------
6.1 - Certificates. The shares of the corporation shall be represented by
------------
certificates. Each certificate shall state that the corporation is organized
under the laws of this State, the name of the record holder of the shares
represented thereby, the number, designation, if any, and class or series of
shares represented thereby, or a statement that the shares are without par
value. The certificates shall be signed by the president or a vice-president
and the secretary or an assistant secretary of the corporation, and may be
sealed with the seal of the corporation of a facsimile thereof.
6.2 - Transfer of Shares. Upon surrender to the secretary or transfer
------------------
agent of the corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, a new certificate shall be issued to the person entitled thereto,
and the old certificate cancelled and the transaction recorded upon the books
of the corporation.
6.3 - Record Date.(a) In order that the corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in
advance, a record date,
39
<PAGE>
which shall not be more than sixty or less than ten days before the date of such
meeting, nor more than sixty days prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(2) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(3) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
40
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ARTICLE 7 - GENERAL PROVISIONS
- ------------------------------
7.1 - Dividends. Dividends may be paid in cash, in property or in shares
---------
of the capital stock, to the extent permitted by applicable law, except as
limited by the Certificate of Incorporation.
7.2 - Fiscal Year. The fiscal year of the corporation shall begin on
-----------
October 1st, and end on September 30th, of the following year.
ARTICLE 8 - AMENDMENTS
- ----------------------
8.1 - Amendments. These by-laws may be altered, amended or repealed or
----------
new by-laws may be adopted subject to repeal or change by action of the
stockholders unless the Certificate of Incorporation confers such power upon the
board of directors.
ARTICLE 9 - INDEMNIFICATION OF OFFICERS AND DIRECTORS
- -----------------------------------------------------
9.1 - Third Party Actions. The corporation shall indemnify any person
-------------------
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer
or employee of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer or employee of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
41
<PAGE>
9.2 - Rights after Successful Defense. To the extent that a
-------------------------------
director, trustee, officer or employee has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in 9.1
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
9.3 - Other Determinations of Rights. Except in a situation
-------------------------------
governed by 9.2 above, any indemnification under 9.1 (unless ordered by a
court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, trustee,
officer or employee is proper in the circumstances because he has met the
applicable standard of conduct set forth in 9.1. Such determination shall be
made (a) by a majority vote of directors who were not parties to such action,
suit, or proceeding is present, or (b) if such a quorum is not obtainable ( or
even if obtainable, a quorum of disinterested directors so directs), by
indepndent legal counsel in a written opinion, or (c) by the stockholders.
9.4 - Advances of Expenses. Expenses of each person indemnified
--------------------
hereunder incurred in defending a civil, criminal, administrative, or
investigative action, suit or proceeding, or threat thereof, may be paid by
the corporation in advance of the final disposition of such action, suit, or
proceeding as authorized in the manner provided in 9.3 above, upon receipt of
an undertaking by or on behalf of the director, trustee, officer, or employee,
to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation.
9.5 - Non-Exclusivity Heirs. The indemnification provided by this
---------------------
Article 9 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled as a matter of law or under these
by-laws, any agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office and shall continue as to a person
who has ceased to be a director, trustee, officer, or employee and shall inure
to the benefit of the heirs, executors, and administrators of such a person.
42
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9.6 - Purchase of Insurance. The corporation may purchase and
---------------------
maintain insurance on behalf of any person who is or was a director, officer,
or employee of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer or employee of another
corporation, partnership, joint venture, trust, or other enterprise against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions of
this Article 9.
43
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EXHIBIT 10.1
FEDERAL INCOME TAX ALLOCATION AGREEMENT
---------------------------------------
AGREEMENT made this first day of April, 1985, by and among ALCO STANDARD
CORPORATION, an Ohio corporation ("Alco"), and the undersigned corporations;
WHEREAS, Alco is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1954, as
amended (the "Code"), and the undersigned corporations are members of said
affiliated group; and
WHEREAS, Alco and the undersigned corporations wish to provide for the
allocation among them of consolidated federal income tax liability and certain
related matters;
NOW THEREFORE, in consideration of the foregoing premises and of the
mutual covenants herein contained, the parties hereto agree as follows:
1. DEFINITIONS.
------------
(a) Terms used in this Agreement shall have the meanings ascribed
to them in the Code, and the regulations and rulings issued thereunder, as from
time to time in effect. Concepts referred to in this Agreement shall be
interpreted in view of the applicable provisions of the Code and the
regulations and rulings thereunder then in effect.
44
<PAGE>
(b) For purposes of this Agreement, the terms set forth below shall
be defined as follows:
(i) ALCO Group -- Alco, all of the undersigned corporations, and
all corporations (whether now existing or hereafter formed or acquired) that
join with ALCO (or any successor common parent corporation) in filing a
consolidated federal income tax return.
(ii) Parent -- Alco, or any successor common parent corporation of
the ALCO Group.
(iii) Member -- Any corporation (whether now existing, other than
Parent and Relco Financial Corporation ("Relco"), or hereafter formed or
acquired) that is included in the ALCO Group, whether for all or only a part of
the taxable year in question.
(iv) ALCO Group Actual Tax Liability -- The consolidated federal
income tax liability reported on the consolidated federal income tax return
filed by the ALCO Group for the taxable year, together with any and all
interest, additions to tax, fines and penalties with respect thereto.
(v) Member's Tentative Tax Liability -- The hypothetical federal
income tax liability, determined at the end of the taxable year, of each
Member computed as if such Member were not part of the ALCO Group, but subject
to the modifications specified in Treas. Reg. (S)(S) 1.1552-1(a)(2)(ii);
provided, however, that such tax liability shall be computed using the highest
marginal corporate tax rate. In determining each Member's Tentative Tax
Liability, the same elections and methods
45
<PAGE>
of accounting and computation shall be used as are used in the determination of
the ALCO Group Actual Tax Liability for the taxable year.
(vi) Member's interim Tax Liability -- The Member's Tentative Tax
Liability, determined through the end of each period for which estimated
federal income tax payments on a consolidated basis are due.
2. FILING OF CONSOLIDATED RETURNS
AND PAYMENT OF TAX.
------------------------------
Parent shall, on a timely basis, file or cause to be filed,
consolidated federal income tax returns and estimated tax returns for each
taxable year during the term of this Agreement and shall pay in full any tax
shown on such returns.
3. ALLOCATION OF CONSOLIDATED
FEDERAL INCOME TAX LIABILITY.
-----------------------------
If a consolidated federal income tax return is filed by Parent on
behalf of the ALCO Group
(a) There shall be allocated to each Member that portion of the
Alco Group Actual Tax Liability which the Member's Tentative Tax Liability
bears to the sum of Member's Tentative Tax Liabilities and the separate return
tax liabilities of the Parent and Relco, computed in accordance with Section
1552(a)(2) of the Code and Treas. Reg. (S)(S) 1.1552-1(a)(2); provided, however,
that in making such computation (x) each Member's Tentative Tax Liability and
Relco's separate return tax liability shall be computed using the highest
marginal corporate tax rate and (y) the Parent's separate return tax liability
shall be computed using the full (unapportioned) marginal corporate tax rates.
46
<PAGE>
(b) Except as otherwise provided in paragraph 3(d), each Member
shall pay to the Parent its share of the ALCO Group Actual Tax Liability, ad
determined pursuant to the method described in paragraph 3(a), not later than
the day the ALCO Group's consolidated federal income tax return is required to
be filed (taking account of any extensions thereof, to the extent requested
and obtained by the Parent), or, with respect to any interest, additions to
tax, fine and/or penalty not paid with the return, not late than the day the
Parent is required to make payments thereof.
(c) If the ALCO Group is required to pay any minimum tax for tax
preferences under Section 56 of the Code, the Parent shall pay such tax, and
each Member shall pay to the Parent, within the time period specified in
paragraph 3(b), the amount of such tax, as set forth in the consolidated
federal income tax return for the taxable year, that is incurred on items of
tax preference allocable to the Member.
(d) If the ALCO Group is required to make estimated federal income
tax payments on a consolidated basis, each Member shall pay to (or at the
direction of) the Parent, not later than the date each estimated payment is to
be made by the Parent, the Member's Interim Tax Liability reduced by all prior
payments required to be made by such Member under this paragraph with respect
to the same taxable year. Any estimated tax payments made by a Member to (or
at the direction of) the Parent under this subparagraph for any taxable year
shall be applied to reduce the amount, if any, owing by the Member under
paragraph 3(b) and/or 3(c) for such year. Any excess of such estimated
payments over the amount
47
<PAGE>
determined under paragraph 3(b) and/or 3(c) for such taxable year shall be
repaid by the Parent to the Member: (x) to the extent that such excess (or
part thereof) represents all or part of a tax refund to be received by the
Alco Group, not later than five days after the receipt of such refund; (y) to
the extent such excess (or part thereof) represents all or part of a credit
against the ALCO Group's estimated tax for a succeeding taxable year, not
later than five days after such estimated tax payments against which such
excess is credited is to be paid by the Parent; or (z) to the extent (x) and
(y) do not apply to such excess (or part thereof), not later than the date on
which the ALCO Group's consolidated federal income tax return is filed.
(e) Each Member shall pay to the Parent, within the time period
specified in paragraph 3(b) (in addition to payments required under the
foregoing paragraphs), 100% of the amount, if any, by which the Member's
Tentative Tax Liability for the taxable year exceeds the total payments
required to be made by the Member pursuant to the foregoing paragraphs
(excluding payments due to interest, additions to tax, fines or penalties and
without regard to any reduction of such payments under paragraph 3(d).
(f) (i) Each Member having no Tentative Tax Liability for the
taxable year shall be paid by the Parent the amount of any benefit received by
the ALCO Group through the utilization of any loss, credit or carryover
thereof, of such Member and its Subsidiaries, if any, to reduce the ALCO Group
Actual Tax Liability for the taxable year, and/or the amount of any tax refund
obtained for a prior taxable year, by reason of the inclusion of such Member
in the ALCO Group for that taxable
48
<PAGE>
year, to the extent that such loss, credit or carryover thereof is not
utilized to reduce such Member's Separate Tax Liability for that taxable year.
(ii) In determining the amount to be paid to a Member
pursuant to paragraph 3(f)(i), the order in which net operating loss, capital
loss, general business, foreign tax and other credits, and carryforwards and
carrybacks thereof, shall be deemed to have been utilized shall be determined in
accordance with the provisions of the Code and the regulations thereunder.
(g) The payments described in paragraph 3(f) shall be made not
later than five days after the time specified in paragraph 3(b); provided,
however, that any portion of such payments attributable to the ALCO Group
obtaining a tax refund shall be made not later than five days after he refund is
received.
4. CHANGES IN TAX LIABILITY.
------------------------
(a) If the ALCO Group Actual Tax Liability or any Member's
Tentative Tax Liability is changed or otherwise adjusted (including, without
limitation, by reason of the filing of an amended return, a final
"determination" as that term is defined in Section 1313(a) of the Code, or any
of the events specified in Section 6213(b) or (d) of the Code), then the
amount of the payments required from each Member to the Parent under
paragraphs 3(b), (c) and (e), or the amount of the payments required from the
Parent to the Members under paragraph 3(f), as the case may be, shall be
recomputed by substituting the amount of the ALCO Group's or the Member's tax
liability after the changes or adjustments described above in place of the
ALCO Group Actual Tax Liability and each Member's Tentative Tax
49
<PAGE>
Liability ("Member's New Liability"). Not later than (i) the due date for any
additional payment of tax by the ALCO Group, or (ii) five days after the
receipt of a refund or (iii) five days after the event giving rise to the
recomputation if such event will not result in the payment of additional tax
or the receipt of a refund, each Member shall pay to the Parent, or the Parent
shall pay to the Member, as the case may be, the difference between the
Member's New Liability and the amount(s) previously paid. The parties
recognize that a Member's New Liability for any taxable year is not
necessarily the Member's final liability for that taxable year, and may be
recomputed in accordance with this paragraph 4(a) more than once.
(b) Payments made pursuant to subparagraph (a) shall not themselves
bear interest.
5. SPECIAL RULE GOVERNING PAYMENTS.
--------------------------------
To the extent that, at any time, an obligation is due and owning from
the Parent to a Member or a subsidiary of such Member, or from a Member or a
Subsidiary of such Member to the Parent, such Member or the Parent, as the case
may be, shall be entitled to reduce the amount of any payment which it would
otherwise be required to make to Parent under this Agreement by the amount of
such obligation.
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6. TERMINATION OF AFFILIATION.
---------------------------
(a) The parties recognize that at some future date a Member may
cease to be included in the ALCO Group but continue to be a corporation
subject to federal income tax ("Former Member"). In such event, the Parent and
the Former Member shall consult and shall furnish each other with information
required to prepare accurately (a) the consolidated federal income tax return
of the ALCO Group for the last taxable year in which the Former Member was
included in the ALCO Group, and (b) the federal income tax returns for all
taxable years thereafter of the Former Member and the Parent, respectively, in
which the tax liability of either may be affected by their former affiliation
(including, for example, the apportionment of any consolidated net operating
or capital loss or general business or foreign tax credit carryover to the
Former Member). Moreover, the Parent and the Former Member shall furnish each
other with information and assistance required, and shall take all steps
necessary, to apply for and obtain the benefit of any carryback of a net
operating or capital loss or any general business, foreign tax or other credit
of the Former Member to a taxable year in which the Former Member was included
in the ALCO Group and a consolidated federal income tax return was filed
(which refund to the extent provided in paragraph 4 would inure to the benefit
of the Former Member).
(b) The Parent and a Former Member also shall consult and furnish
each other with information concerning the status of any tax audit or tax
refund claim relating to a taxable year in which the Former Member was
included in the
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ALCO Group and a consolidated federal income tax return was filed. The Former
Member shall have the right to participate, at its own expense, with the Parent
in any audit of a taxable year during which the Former Member was a Member of
the ALCO Group and as to which the Member's Tentative Tax Liability for such
taxable year may be affected.
(c) Payments which would have been required under paragraphs 3 and/
or 4 to or by a Former Member, were the Former Member still a Member, and with
respect to taxable year(s) as to which the Former Member was a Member, shall
be so made in accordance with principles analogous to those set forth in such
paragraph(s) and at the time(s) set forth therein.
7. DETERMINATIONS.
---------------
In the case of a dispute, all determinations required hereunder for
each taxable year shall be made by the independent public accountants or
independent tax advisors regularly employed by the ALCO Group at the time the
return is filed for such taxable year. Such determination shall be binding and
conclusive upon the parties for the purposes hereof.
8. EFFECTIVE DATE.
---------------
This Agreement shall be effective as of April 1, 1985, and shall
remain in effect for each taxable year thereafter in which a Member is
included in a consolidated federal income tax return filed by the Parent.
52
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9. NEW MEMBERS.
------------
If sufficient stock of any corporation is acquired hereafter by the
Parent and/or any Member so that the corporation becomes a Member of the ALCO
Group ("New Member"), the New Member shall become a party to this Agreement by
delivering to the Parent a written instrument to such effect. The Parent
and/or such other Members which own stock of the New Member shall use their
best efforts to cause the delivery of such written instrument and the
execution of Form 1122, Authorization and Consent of Subsidiary Corporation to
be included in a Consolidated Income Tax Return. The parties hereto hereby
agree to the inclusion of any such New Member as a party to this Agreement.
10. MISCELLANEOUS PROVISIONS.
-------------------------
(a) This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter contained herein. No
alternation, amendment or modification of any of the terms of this Agreement
shall be valid unless made by an instrument signed in writing by an authorized
officer of each party.
(b) This Agreement has been made in and shall be construed and
enforced in accordance with the laws of the State of Pennsylvania from time to
time obtaining.
(c) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its respective successors and assigns.
53
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(d) All notices and other communications hereunder shall be deemed
to have been duly given if delivered by hand or mailed, certified or registered
mail, with postage prepaid addressed to the party to which the notice or other
communication is given at Alco Standard Corporation, 825 Duportail Road,
Chesterbrook-Wayne, PA 19087.
(e) This Agreement may be executed simultaneously 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.
(f) The headings of the paragraphs of this Agreement are inserted
for convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
ALCO STANDARD CORPORATION
By ______________________
PAPER CORPORATION OF AMERICA
By _________________________
54
<PAGE>
EXHIBIT 10.2
MAINTENANCE AGREEMENT
By and Between
ALCO STANDARD CORPORATION
and
ALCO CAPITAL RESOURCE, INC.
MAINTENANCE AGREEMENT, dated as of this 15th day of August, 1991 by and
between ALCO STANDARD CORPORATION, an Ohio corporation ("Alco") and ALCO CAPITAL
RESOURCE, INC., a Delaware corporation ("ACR").
W I T N E S S E T H:
--------------------
WHEREAS, Alco owns and presently intends to continue to own all of the
issued and outstanding capital stock of AOP, Inc., a Delaware corporation,
which owns and presently intends to continue to own all of the issued and
outstanding capital stock of ACR.
WHEREAS, it is in the interest of both Alco and ACR and in furtherance of
ACR's corporate purposes, that ACR be able to borrow money from banks, financial
institutions and others, and to incur such borrowings at the most favorable
prevailing rates and terms; and
WHEREAS, ACR has requested Alco to undertake to maintain certain amounts
of net earnings and net worth of ACR and its subsidiaries and affiliates, as
herein provided; and
WHEREAS, ACR intends to incur, from time to time, indebtedness for borrowed
money, in furtherance of its corporate purposes; and
55
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, for other good and
valuable consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereto, Alco and ACR agree as
follows:
1. Stock Ownership. Alco, during the term of this Agreement, will
----------------
continue to own all of the issued and outstanding capital stock of AOP, Inc.
and ACR.
2. Maintenance of Net Earnings and Net Worth. Alco, during the term of
------------------------------------------
this Agreement, in the manner provided for in Section 3 and subject to the
limitations provided in this Agreement, shall make, or shall cause to be made,
such cash payments to ACR as shall be necessary to enable ACR and its
subsidiaries and affiliates, on a consolidated basis, to have and maintain:
a. net earnings available for fixed charges of not less
than one and three-tenths (1.3) times fixed charges for the
then current fiscal year of ACR;
b. a Tangible Net Worth of at least one dollar($1.00); and
c. a ratio of (i) indebtedness for borrowed money other than
Subordinated Debt to (ii) Tangible Net Worth (which by
definition includes Subordinated Debt) not exceeding 6 to 1.
For the purposes of this Section 2, (a) the terms "net earnings available for
fixed charges" shall mean net income after deducting operating and maintenance
expenses, taxes other than federal, state and other income taxes, depreciation
and depletion, but excluding extraordinary nonrecurring items of income or
expense appearing in the regular financial statements of the issuing, assuming
or guaranteeing institutions. The term "fixed charges" shall include interest
56
<PAGE>
on funded and unfunded debt, amortization of debt discount, and rentals for
leased properties, but in the case of a bank or trust company interest or other
cost of funds paid or accrued in accordance with generally accepted accounting
principles by such institution upon any deposit, any certificate or other
evidence of a deposit, or any federal funds transaction or contract to
repurchase securities shall not be deemed a fixed charge of such institution.
However, in determining "net earnings available for fixed charges", capital
contributions to, or the proceeds of purchases of capital stock of ACR by Alco
or by one or more of its wholly owned subsidiaries, or the proceeds of
Subordinated Debt (as hereinafter defined) incurred by ACR for the purpose of
complying with Section 2a. will be included in the calculation of such net
earnings and for the purposes of computing "fixed charges", charges incident to
such Subordinated Debt shall not be included except to the extent actually paid;
(b) the term "Tangible Net Worth" shall mean an amount equal to the capital
stock and surplus accounts (including retained earnings) of ACR and its
subsidiaries after deducting therefrom the book amount of all assets of ACR and
its subsidiaries which would be treated as intangible assets, all determined on
a consolidated basis in accordance with generally accepted accounting
principles, except that, the proceeds of any Subordinated Debt incurred by ACR
for the purposes of complying with Section 2a shall be considered part of such
capital stock and surplus accounts; and (c) the term "Subordinated Debt" shall
mean any loan or advance made to ACR by Alco or by one or more of its
subsidiaries, which is by its terms subordinated in the right of payment to all
other obligations for borrowed money of ACR, other than any previous obligations
owed to Alco or to any one or more of its subsidiaries.
3. Officer's Certificate; Payments to ACR. ACR will deliver to Alco as
---------------------------------------
soon as practicable, and in any event within one hundred (120) days after the
end of each fiscal year, a
57
<PAGE>
certificate of the President, any Vice President or Treasurer of ACR
("Officer's Certificate") setting forth the amount of net earnings available
for fixed charges, fixed charges and Tangible Net Worth of ACR and its
subsidiaries as of the end of such fiscal year and the amount of the cash
payment ("Deficiency Amount"), if any, required to be made under Section 2 in
order to enable ACR to have at the end of such fiscal year the amount of net
earnings and Tangible Net Worth provided for in Section 2, all in reasonable
detail and determined in accordance with Section 2. If a Deficiency Amount is
shown on any Officer's Certificate delivered to Alco under this Section 3,
Alco shall pay, or shall cause to be paid, subject to adjustment as provided
for in Section 4, to ACR in cash a sum equal to the Deficiency Amount within
one hundred twenty (120) days after the fiscal year in which such Deficiency
Amount exists. Any such payment shall be in the form of a capital
contribution, by purchase of ACR's stock or by subordinated loan or advance,
as Alco shall determine.
4. Adjustment of Deficiency Amount. Notwithstanding the making of any
--------------------------------
cash payment of an asserted Deficiency Amount certified to it under Section 3,
Alco reserves the right within twenty (20) days after receipt of such
certification, to give ACR written notice of its objections thereto and the
reasons therefor ("Objection Notice"). If such Objection Notice is given, Alco
and ACR will attempt in good faith to agree upon the amount of such
deficiency. If Alco and ACR cannot so agree within twenty (20) days after the
Objection Notice is given, then Alco and ACR agree to request the regular
auditors for ACR to deliver to Alco and ACR, within sixty (60) days after the
Objection Notice is given, a letter from such auditors to Alco and ACR (a)
stating the actual deficiency as of the date of determination of the asserted
Deficiency Amount, as computed by that firm from the books and records of ACR,
(b) demonstrating in reasonable detail the manner in which such amounts were
determined, and (c) stating that such
58
<PAGE>
computation was made in accordance with the terms of this Agreement. Such
amounts shall be binding and conclusive upon Alco and ACR. If the amount of
the actual deficiency as finally determined under this Section 4 is different
from the asserted Deficiency Amount, then (1) the amount of the Deficiency
Amount asserted under Section 3 shall be adjusted accordingly and (2) if the
asserted Deficiency Amount shall have already been paid, then, within ten (10)
days after such final determination, such payment shall be adjusted by refunds
from ACR, or additional payments to ACR in the manner provided in Section 3,
as may be required. If Alco shall have given an Objection Notice and the
Deficiency Amount in respect to which the objection is taken is not finally
determined under this Section 4 prior to the expiration of the period within
which payment of the asserted Deficiency Amount is to be made under Section 3,
then, notwithstanding that such Objection Notice shall have been given, such
Deficiency Amount shall be paid as asserted in accordance with Section 3
subject to subsequent adjustment under this Section 4.
Alco shall pay any fees due to and disbursements incurred by such auditor
in rendering any letter in accordance with the terms of this Section 4.
5. Not a Guaranty. This Agreement is not intended to be an is not, and
---------------
nothing herein contained and nothing done by Alco pursuant to this Agreement
shall be deemed to constitute, a guaranty by Alco of the payment of the
interest or principal of any obligations, indebtedness or liability of any of
its subsidiaries or affiliates to any person or persons whomever.
6. Restrictions Imposed by Law. Nothing contained in this Agreement
----------------------------
shall be construed as requiring Alco or any of its subsidiaries to make any
loan, advance, capital contribution or other investment at the time otherwise
required to be made under this
59
<PAGE>
Agreement which shall not then be permitted to be made because of any law or
governmental rule or regulation applicable to Alco or any of its subsidiaries.
7. Termination, Amendment, Modification. This Agreement may be amended or
-------------------------------------
modified only by an agreement in writing executed by both of the parties hereto,
and this Agreement may be terminated by either party hereto by written notice
given to the other party not less than ninety (90) days in advance of the date
specified in such notice for such termination.
8. Communications. All communications provided for herein shall be
---------------
delivered, or mailed (by first class mail, postage prepaid), addressed
(a) if to Alco
Alco Standard Corporation
P.O. Box 834
Valley Forge, Pennsylvania 19482
Attention: Vice President of Finance and Treasurer
(b) if to ACR
Alco Capital Resource, Inc.
P.O. Box 11565
Macon, Georgia 31212
Attention: President
9. Other. This Agreement shall be binding upon Alco, its successors and
------
assigns, and shall inure to the benefit of ACR, its successors and assigns.
This Agreement constitutes the entire agreement of Alco and ACR with respect to
the subject matter hereof. The headings of this Agreement are for reference
only and shall not affect the meaning hereof. This Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Pennsylvania.
60
<PAGE>
IN WITNESS WHEREOF, Alco and ACR have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
ALCO STANDARD CORPORATION
Attest;
_____________________________ By:________________________
Title: ______________________
ALCO CAPITAL RESOURCE, INC.
Attest:
_____________________________ By: _______________________
Title: ______________________
61
<PAGE>
EXHIBIT 10.3
OPERATING AGREEMENT
By and Between
ALCO STANDARD CORPORATION
and
ALCO CAPITAL RESOURCE, INC.
THIS AGREEMENT, made and entered into as of this 15th day of August,
1991, by and between ALCO STANDARD CORPORATION, an Ohio corporation ("Alco"),
and ALCO CAPITAL RESOURCE, INC., a Delaware corporation ("ACR").
W I T N E S S E T H ;
---------------------
WHEREAS, Alco owns and presently intends to continue to own all of the
issued and outstanding capital stock of AOP, Inc., a Delaware corporation,
which owns and presently intends to continue to own all of the issued and
outstanding capital stock of ACR; and
WHEREAS, Alco, through certain of its operating companies, is engaged in
the business of sales, renting, leasing and servicing of office equipment and
other related products; and
WHEREAS, Alco desires to provide for the financing and leasing of
equipment to such operating company's customers; and
WHEREAS, ACR is a corporation providing leasing, financing and related
services to such operating companies of Alco; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and conditions contained herein, and for other good and valuable
consideration, the receipt,
62
<PAGE>
adequacy and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereto, agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the following definitions throughout this
Agreement unless the context clearly indicates otherwise:
1. "Customer": Any commercial entity which leases or rents equipment from
----------
ACR, Alco or its subsidiaries for use in a trade or business.
2. "Equipment": Machinery, equipment, merchandise or other personal
-----------
property leased or rented to Customers by ACR, Alco or its subsidiaries for
use in a trade or business.
3. "ACR": Alco Capital Resource, Inc. and any subsidiary or affiliate
-----
thereto, the majority of the outstanding voting capital stock of which is owned
directly or indirectly by Alco Standard Corporation.
4. "Alco": Alco Standard Corporation, any operating division or
------
subsidiary thereof the majority of the outstanding voting capital stock of
which is owned directly or indirectly by Alco Standard Corporation, but not
including ACR.
5. "Lease": Any agreement between ACR or Alco and Customers whereby ACR
-------
or Alco leases or rents Equipment.
ARTICLE II
PURCHASE AND LEASE OF EQUIPMENT
DOCUMENTATION AND ADMINISTRATIVE PROCEDURES
-------------------------------------------
1. Purchase and Sale of Equipment: Alco may at its option tender
------------------------------
Equipment to ACR which Equipment has been leased to Customers. ACR may at its
option purchase such
63
<PAGE>
Equipment from Alco. All Equipment purchased by ACR from Alco and
all leases applicable thereto shall be evidenced by documents in form acceptable
to ACR.
2. Price: The Purchase price of Equipment shall be as mutually agreed
-----
upon by Alco and ACR from time to time.
3. Documentation and Administrative Procedure:
-------------------------------------------
(a) Documentation: Standard documentation for transactions under
--------------
this Article II shall normally consist of (i) the documents of delivery and
acceptance covering Equipment leased to Customers, and where appropriate the
documents of title to said transferred Equipment to ACR, (ii) Alco's invoice
for the price of the Equipment determined in accordance with Section 2 of this
Article II, (iii) an Application for Lease satisfactory to ACR, (iv) executed
UCC-1 financing statements signed by Customer, if applicable and unless waived
by ACR, (v) a certificate of insurance designating ACR as additional named
insured as its interest may appear, said certificate cancelable only upon
thirty (30) days' notice to ACR, and (vi) supplemental documents evidencing
and supporting such transactions including but not limited to board
resolutions and purchase option letters, as may be required by ACR. Any
changes to standard documentation must be approved by ACR.
(b) Administrative Procedures:
--------------------------
i. Tender: The Lease, together with all advance payments
-------
required thereunder from the Customer and financial information about the
Customer shall be sent to ACR by Alco. ACR shall approve the transaction
(subject to recourse) after receipt of the Application for Lease, payment and
financial information as required.
ii. Acceptances: ACR shall promptly notify the Alco operating
------------
company who originated the transaction of the lease setup. Payment of Alco's
invoice for all
64
<PAGE>
Equipment shall be made by ACR promptly upon receipt by ACR of such
documentation, and if required by the terms of payment, receipt of any advance
payments.
iii. Assignment: Assignments as contemplated herein shall be
-----------
effective upon payment of the invoice set forth in 3(b)(ii) of this Article
II. Alco shall deliver to ACR documentation supporting such assignments not
later than the last day of the month following the month in which assignments
were effected.
4. Collections: ACR shall be responsible for collecting under the Leases
------------
at its own expense subject only to the provisions of Article VII hereinbelow.
Alco shall promptly endorse and forward to ACR, in the form received, all
remittances which Alco receives from Customers.
5. Power of Attorney: Alco hereby grants ACR a power of attorney and
------------------
constitutes ACR or any officer of ACR its attorney in fact to (I) endorse,
negotiate, assign and/or sign on Alco's behalf any remittance received and to
correct any defect(s) therein, (ii) to execute U.C.C. documents on Alco's
behalf and (iii) to execute bills of sale covering Equipment purchased by ACR.
This power is irrevocable and is coupled with an interest.
ARTICLE III
ASSIGNMENT OF BASIC MONTHLY USE CHARGES
UNDER FUNDING OF DEALER IN-HOUSE LEASES
DOCUMENTATION AND PROCEDURES
----------------------------
1. ASSIGNMENT: Alco may at its option tender to ACR an assignment of
-----------
the Basic Monthly Use Charges (as defined below) payable to Alco under any
Lease. If such tender is accepted, ACR shall so notify Alco, and an
assignment, in a form acceptable to ACR, shall be prepared and delivered by
Alco to ACR. Title to the Equipment transfers to ACR. As used in this
Agreement, "Basic Monthly Use Charges" shall mean the basic monthly lease or
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<PAGE>
rental payment for Equipment under any Lease, exclusive of charges for
maintenance of Equipment.
2. Purchase Price, Invoicing, Remittance: The purchase price for the
--------------------------------------
assignment of the Basic Monthly Use Charges under this Article III shall be as
mutually agreed upon by Alco and ACR from time to time. Alco shall continue to
invoice Customer in the manner specified in the Lease and shall promptly remit
to ACR all amounts received from Customer for any Basic Monthly Use Charges
assigned hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES AS TO LEASES
-------------------------------------------
As to all Leases covering Equipment purchased from Alco by ACR, Alco
hereby makes each and all of the following representations and warranties.
1. General: The Leases and the assignments of the Basic Monthly Use
--------
Charges are in compliance with all of the terms and provisions of this
Agreement; each Lease is the genuine, valid and binding obligation for the
amount appearing to be due on the face thereof of each Customer named therein
subject only to laws of general applicability (e.g. Bankruptcy Laws); each
----
Basic Monthly Use Charge is the genuine, valid and binding obligation of the
Customer named in the Lease subject only to laws of general applicability
(e.g. Bankruptcy Laws).
----
2. True and Correct Statements: Statements of Alco contained in the
----------------------------
Leases and documents transmitted therewith or with the Equipment will be true
and correct; all statements of Customers or third parties contained in the
Leases or documents transmitted therewith (including credit and financial
information pertaining to the Customer) or with the Equipment will,
66
<PAGE>
to the best of Alco's knowledge and belief, be true, correct and complete;
Alco acknowledges that ACR will rely on such information in purchasing
Equipment hereunder or accepting the assignment of the Basic Monthly Use
Charges, as the case may be.
3. First Lien and Filings: Leases relate to property owned by Alco
-----------------------
free and clear of liens and encumbrances (excepting as to title of Equipment
which has been transferred to ACR); documents required in order to perfect
said lien or ownership interest and to preserve the priority thereof will have
been filed as required by law or furnished to ACR in form and content
sufficient to make such filing.
4. Compliance with Laws: All requirements of or under the laws of
---------------------
any county, state or province applicable to the transaction out of which the
Leases originated have been complied with.
5. No Defenses, Set-off or Counterclaims: There shall exist no
--------------------------------------
defense, set-off or counterclaim with respect to any of the Leases; Alco will,
upon ACR's request, assign to ACR all right of Alco against manufacturers,
vendors or other which may exist with respect to any Leases or the Equipment
covered thereby (except to the extent such rights have been assigned to a
Customer.
6. No Consumer Transactions: Alco will not tender to ACR any Basic
-------------------------
Monthly Use Charges due under, or any Equipment leased in, a "consumer credit
transaction" or "consumer lease transaction" as defined in the Federal
Consumer Credit Protection Act or any similar state law or any Equipment which
is a "consumer product" as defined in the Magnusom-Moss Warranty Act or any
similar state law.
7. Equipment Free and Clear: Each Lease will evidence a lease of
-------------------------
Equipment owned by ACR free and clear of all liens and encumbrances (other
than such Lease), and all
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<PAGE>
Equipment shall be free and clear of all liens and encumbrances whatsoever
other than the interest of ACR hereunder.
ARTICLE V
PREPAYMENTS, REPURCHASES AND
REFINANCING OF LEASES OR FUNDING CONVERSIONS
--------------------------------------------
In the event any Lease is refinanced, prepaid, consolidated or replaced
prior to final maturity, a payoff amount shall be payable to ACR by Alco which
payoff amount shall be computed as follows:
1. Prepayment: In the event of a prepayment in full, the payoff
-----------
amount may be determined by the sum of all monthly payments yet to be made
during the Lease term, less any deposit payments made to ACR under the terms
of the Lease, less any unearned Lease income plus payments toward any purchase
option which have yet to be collected by ACR under the terms of the Lease. The
payoff amount may in some circumstances be billed directly to the Customer.
2. Refinancing, Consolidation or Replacement: In the event of a
------------------------------------------
prepayment, refinancing, consolidation or replacement resulting in a new Lease
between ACR and the Customer, the payoff amount may in some circumstances be
added to the new Lease.
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<PAGE>
ARTICLE VI
EFFECTS OF BREACH OF WARRANTY
-----------------------------
In the event of any misrepresentation or breach of any warranty or
agreement on Alco's part with respect to any Lease, Alco agrees to purchase
such Lease and to repurchase the Equipment covered thereby from ACR within ten
days after request thereof and without any tender of the Equipment being
required, "without recourse" to ACR, at a repurchase price determined as
provided in Article VII. Alco's obligation under Articles VI and VII to
purchase Leases and repurchase Equipment is not conditioned upon Alco's or
ACR's recovery of the Equipment from the Customer.
ARTICLE VII
DEFAULT BY CUSTOMER
-------------------
Upon any Lease payment or Basic Monthly Use Charges payment becoming 120
days past due or otherwise being reasonably declared uncollectible by ACR,
such Lease or Basic Monthly Use Charges payment shall be deemed in default
("Default"). In the event of such Default, Alco shall purchase the Lease and
repurchase the Equipment covered thereby or repurchase the assigned Basic
Monthly Use Charges, as the case may be, from ACR for a repurchase price equal
to the sum of all monthly payments yet to be made during the Lease term, less
any deposit payments previously made less any unearned lease income under the
terms of the Lease (the computation of which to be mutually agreed upon
between the parties hereto). ACR shall reassign to Alco any right, title and
interest it may have to the Equipment and the Lease.
ARTICLE VIII
CLAIMS BY CUSTOMERS
-------------------
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<PAGE>
If any Customer asserts any claim, counterclaim, set-off or defense
("Claim") which, if established, would constitute a breach or default
hereunder, then any such claim would be handled between Alco and ACR similar
to a default by Customer as more fully defined in Article VII above (i.e., ACR
charges back to Alco, whose operating company defends charge).
a. Alco shall promptly undertake litigation opposed to such claim,
counterclaim, set-off or defense at Alco's expense or authorize ACR to do so at
Alco's expense; and
b. Such litigation shall not be finally resolved adversely to Alco
or ACR or if such litigation is finally resolved adversely to Alco or ACR,
such claim, counterclaim, set-off or defense shall be promptly satisfied by
Alco.
In any event, Alco shall defend, indemnify and hold ACR harmless against
any and all set-offs, claims, costs, expenses, losses, damages and liabilities
including court costs and reasonable attorney's fees, incurred by or asserted
against ACR arising out of the foregoing.
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<PAGE>
ARTICLE IX
MARKETING
---------
Alco and ACR shall each provide the other with such marketing assistance
as may from time to time be appropriate or necessary to promote the program
provided for hereunder.
ARTICLE X
MAINTENANCE
-----------
Alco shall provide or cause to be provided in a timely manner proper
maintenance of the Equipment as appropriate and shall enter into separate
maintenance contracts with each Customer that requests a contract in
connection with the lease or purchase of Equipment. Alco shall at all times
provide maintenance for any Equipment with respect to which it may be required
under any and all warranties.
ARTICLE XI
MISCELLANEOUS
-------------
1. Sales, Use and Property Taxes: Sales, use and property taxes on the
------------------------------
Equipment are the responsibility of ACR; however, each Lease generally requires
the Customer to pay sales, use and property taxes on the Equipment covered
thereby. Alco will indemnify any sales, use or property taxes unpaid by
Customer.
2. Not a Guaranty: This Agreement is not intended to be and is not, and
---------------
nothing herein contained and nothing done by Alco pursuant to this Agreement
shall be deemed to constitute, a guaranty by Alco of the payment of the interest
or principal of any obligations, indebtedness or liability of any kind or
character, howsoever evidenced or arising, of ACR to any person or persons
whomsoever.
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3. Alco Shall Not Comprise: Alco shall not compromise, settle, modify,
------------------------
amend or refinance any Lease covering Equipment assigned to ACR without the
prior payoff of the Lease, repurchase of the Equipment or without the prior
written approval of ACR.
4. Amendments and Modifications: This Agreement may be amended or
-----------------------------
modified from time to time by the mutual consent of Alco and ACR; provided,
however, that the Agreement shall not be amended to the extent that Alco and
ACR may mutually agree with any third party not to amend this Agreement.
5. Termination: This Agreement and the program established hereunder
------------
shall continue until terminated by either party provided that thirty (30) days
prior written notice is furnished to the other party. The rights and
obligations of Alco and ACR under this Agreement with respect to Leases,
Equipment and Basic Monthly Use Charges subject to the program at the time of
termination shall survive such termination.
6. Notices: All notices provided for herein shall be delivered, or
--------
mailed (by first class mail, postage prepaid), addressed as follows:
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a. If to Alco:
to the President of the operating company
of Alco participating in the program
with a copy to:
Alco Standard Corporation
P.O. Box 834
Valley Forge, Pennsylvania 19482
Attention: Vice President of Finance and Treasurer
b. If ACR or a subsidiary thereof:
Alco Capital Resource, Inc.
P.O. Box 11565
Macon, Georgia 31212
Attention: President
7. Governing Law: This Agreement shall be construed and governed under
--------------
the laws of the State of Pennsylvania.
8. Headings: All headings contained in this Agreement are provided for
---------
convenience only and are not to be considered a part hereof.
IN WITNESS WHEREOF, Alco Standard Corporation and Alco Capital Resource,
Inc. have caused their respective corporate names to be signed and their
respective corporate seals to be affixed to duplicates hereof by their
respective officers the day and year first above written.
73
<PAGE>
ALCO STANDARD CORPORATION
Attest:
____________________________ By: _____________________________
Title: __________________________
ALCO CAPITAL RESOURCE, INC.
Attest:
____________________________ By: _____________________________
Title: __________________________
74
